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Banks Now Charging A Lot More For Credit Card Rewards

December 15, 2009

NEW YORK — It’s no surprise that banks are pushing rewards cards given their popularity with consumers. The catch is that the cards being offered are now more likely to have annual fees. In the third quarter, 28 percent of rewards card offers came with annual fees, up from 21 percent in the same period last year, according to market research firm Synovate, which tracks credit card mailings to households. And just one month into the fourth quarter, 36 percent of rewards card offers had annual fees. The spike in October is expected to persist, said Anuj Shahani, Synovate’s director of competitive tracking services. In general, rewards cards – typically reserved for those with good to excellent credit – are also accounting for a greater portion of credit card offer mailings. They made up 88 percent of offers in the third quarter, up from 65 percent last year and 58 percent in 2007. The shift isn’t surprising, since banks are focusing on the most creditworthy customers to limit risk in the downturn, Shahani said. Certain types of rewards cards are more likely to have annual fees, such as those cobranded with an airline or hotel, and exclusive cards that offer richer membership rewards. The American Express Preferred Rewards Gold card, for example, costs $125 a year after the first year. Another reason banks are pushing rewards cards is that customers tend to use them more frequently in an effort to rack up points. That brings in greater profits from merchants who are charged a fee whenever customers use credit or debit cards, said Ben Woolsey, director of consumer research for CreditCards.com. Annual fees aren’t typical for basic rewards cards. However, analysts have predicted fees could become more common in light of the new federal regulations limiting banks ability to hike interest rates. Citi, for instance, started testing a $30 annual fee on its Diamond Preferred card earlier this year. The fee is credited back if the customer charges a certain amount for the year. The data from Synovate also suggests issuers are rolling out more tiered offerings, meaning richer rewards are coming at a higher price. For example, American Express introduced the Hilton Surpass card in February. For a $75 annual fee, customers get nine points for every dollar spent at participating Hilton hotels, compared to six points with the no-fee Hilton card. Despite the growth in rewards card offerings, overall credit card mailings have been down sharply. There were 272.5 million mailings in the third quarter, down from 939.9 million mailings the same time last year and 1.29 billion in the third quarter of 2007.

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Stocks Lose Yield Advantage as Share Buybacks Dwindle: Chart of the Day

December 15, 2009

By David Wilson Dec. 15 (Bloomberg) — U.S. stocks are losing appeal for income-oriented investors because of companies’ reluctance to buy back shares. The CHART OF THE DAY compares the Standard & Poor’s 500 Index’s yield from dividends and repurchases, as calculated by S&P, with the average yield on bonds in corporate-debt indexes compiled by Moody’s Investors Service. Last quarter’s dividend-buyback yield for the S&P 500 amounted to 3.71 percent, according to an S&P report yesterday. The figure was 1.9 percentage points lower than Moody’s average yield at the end of the quarter, as the bottom panel shows. Both figures were the lowest since the fourth quarter of 2004. Stocks yielded more than bonds on this basis from the fourth quarter of 2007 through the first quarter of this year. They surrendered their advantage as repurchases plunged as much as 86 percent from the record of $172 billion, reached in the third quarter of 2007. “Cash-conscious corporate strategists maintained a close watch, and grip, on expenditures” and steered companies away from buying back stock, Howard Silverblatt , a senior index analyst at S&P, said in a statement. S&P 500 companies repurchased $34.9 billion of shares in the third quarter, S&P said. The total was 61 percent less than the amount spent in the year-earlier quarter, though it was the highest for 2009. (To save a copy of the chart, click here.) To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

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Net Worth Gains Lift Americans Out of Debt Hole Deeper Than First Thought

December 10, 2009

By Bob Willis Dec. 10 (Bloomberg) — Household wealth in the U.S. increased by $2.67 trillion in the third quarter as stock prices and home values climbed, and revised data showed Americans have a larger hurdle to overcome. Net worth for households and non-profit groups rose to $53.4 trillion from $50.8 trillion the prior quarter, a second consecutive gain, according to the Federal Reserve’s Flow of Funds report today in Washington. Revisions put the loss of wealth between the third quarter of 2007 and the first three months of this year at a record $17.5 trillion, compared with a previous estimate of $13 trillion. “We knew we fell into a real deep hole,” said Mark Vitner , a senior economist at Wells Fargo Securities Inc. in Charlotte, North Carolina. “It’s encouraging to see we’re at least making progress in digging ourselves out of it. American households are having to lower their sights as to how much wealth they hope to accumulate over their lifetimes. This is going to impact consumption habits for years to come.” American consumers reduced debt at a record pace last quarter, the figures showed, in a bid to repair the damage from overextended balance sheets and the loss of wealth. The need to replenish savings combined with a jobless rate that is projected to average 10 percent next year signals spending, the largest part of the economy, will be slow to rebound. The Standard & Poor’s 500 Index was up 0.8 percent to 1,105.02 at 2:31 p.m. in New York after other reports showed the trade deficit unexpectedly narrowed in October and the average number of claims for jobless benefits over the past four weeks dropped to the lowest level in a year. Stocks, Houses The S&P 500 Index was up 32 percent in the six months to September, the biggest two-quarter gain since 1975. Home values increased by $244.7 billion in the third quarter, according to the Fed’s report. The central bank revised real-estate values back to 2000, showing a steeper decline in recent years than previously estimated. Over the course of the recession that began in December 2007, Americans had been constrained by plunging home and stock prices, tight credit and rising unemployment. While stocks have surged and home prices have stabilized this year, borrowing standards have tightened and unemployment remains high. Joblessness , which reached a 26-year high of 10.2 percent in October, dropped to 10 percent last month, according to a report from the Labor Department last week. Home Equity While home equity is recovering after reaching a record low in the first quarter, the revisions showed household finances were in a more precarious state. Owners’ equity as a share of their total real-estate holdings increased to 37.6 percent last quarter from 35.8 percent in the second quarter, today’s Fed report showed. The central bank revised the first-quarter’s all-time low down to 33.5 percent from the 41.9 percent previously reported. Consumer debt dropped at a 2.6 percent annual pace, a fifth consecutive decline and the biggest since quarterly records began in 1952. Mortgage borrowing declined at a 3.6 percent pace from July through September, while other forms of consumer credit fell at a 3.2 percent rate, the Fed’s report showed. Total borrowing by consumers, businesses and government agencies increased at an annual rate of 2.8 percent last quarter, led by a 21 percent surge in federal government debt. Borrowing by businesses decreased at a 2.6 percent rate. Borrowing by the federal government reflected spending linked to President Barack Obama’s stimulus plan. State and local government borrowing climbed at a 5.1 percent pace. The economy grew at a 2.8 percent rate in the third quarter, after falling 3.8 percent in the prior 12 months. Economists surveyed by Bloomberg this month forecast the economy will grow at a 3 percent pace in the fourth quarter, and 2.6 percent for all of 2010. To contact the report on this story: Bob Willis in Washington bwillis@bloomberg.net

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Ireland Tries to Appease Bond Vigilantes as Greece Faces Rating Downgrade

December 9, 2009

By Simon Kennedy Dec. 9 (Bloomberg) — Ireland is poised to show Greece a way to cut ballooning budget deficits. Finance Minister Brian Lenihan will today announce plans to cut spending by 6 percent in the face of the worst recession in Ireland’s modern history. On the other side of Europe, the yield on Greece’s two-year note yesterday rose the most since November 2008 as it struggles to convince investors it will be as bold. Lenihan is trying to shore up confidence in Ireland, once Europe’s most dynamic economy, a day after Fitch Ratings cut Greece by one step to the third-lowest investment grade. A successful strategy may lead investors to reward Ireland and add pressure on Greece to follow. “The bond vigilantes are back and watching,” said Alan McQuaid , chief economist at Bloxham Stockbrokers in Dublin. “Greece is a worst-case scenario, Ireland’s more solid.” Lenihan is scheduled to deliver the budget at 3:45 p.m. to the parliament in Dublin, his fifth attempt since July 2008 to fix the public finances. He’s seeking 4 billion euros ($6 billion) in savings to stop the shortfall climbing above 12 percent of gross domestic product. While Ireland has lost its top credit rating at Moody’s Investors Service and Standard & Poor’s, Greece is being pushed harder to act after Fitch yesterday cut it one step to BBB+, the third-lowest investment grade. The previous day S&P put the country’s A- rating on watch for a possible downgrade, signaling it may be reduced within two months. Skeptical Greek Finance Minister George Papaconstantinou yesterday said he is committed to “fair” fiscal consolidation and will submit an extra budget if needed. Fitch’s downgrade “doesn’t correspond to the government’s initiatives,” he said. “While the situation in Ireland remains severe, the government have shown an impressive resolve,” said Goldman Sachs Group Inc. economist Kevin Daly , who favors Irish assets over those from Greece. “This contrasts with the situation in a number of other European countries where, despite similar budget problems, there appears to be a reluctance to acknowledge the problem.” The difference in yield , or spread, between 10-year Irish bonds and equivalent German bunds was at 172 basis points yesterday. The gap between Greece and Germany reached 225 basis points, the most since April 21. Imploded Ireland’s fiscal problems mounted after a decade-long property boom imploded and the banking system came close to collapse as credit on the international money markets dried up. Greece is suffering after its new government more than doubled the country’s budget deficit forecast to 12.7 percent, exceeding the European Union’s limit more than four times, as revenue fell short of targets and spending increased. Now, Lenihan is planning pay cuts of about 6 percent for government workers, and labor unions are threatening industrial unrest in response. He also has pledged to slash the deficit to 3 percent of output by 2013, meaning Ireland is facing austerity budgets for the next four years. “The overriding concern is to cement the financial viability of the Irish state,” said Rossa White , chief economist at Dublin-based broker Davy. “The budget for 2010 is a watershed.” Greece’s socialist government, elected in October, plans to cut the budget deficit to 9.1 percent of GDP next year from 12.7 percent this year. The plans, including one-off measures and a partial freeze on public-sector pay, “are unlikely by themselves to alter Greece’s medium-term fiscal dynamics” given the prospects of high deficits, debt and sluggish economic growth, S&P said Dec. 7. “The problems in Dubai and Greece have highlighted that smaller countries with banking and severe fiscal problems will be punished,” White said. “Particularly those that fail to deal with them adequately.” To contact the reporters on this story: Colm Heatley in Belfast at cheatley@bloomberg.net ;

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Ireland Tries to Appease Bond Vigilantes as Greece Faces Rating Downgrade

December 9, 2009

By Simon Kennedy Dec. 9 (Bloomberg) — Ireland is poised to show Greece a way to cut ballooning budget deficits. Finance Minister Brian Lenihan will today announce plans to cut spending by 6 percent in the face of the worst recession in Ireland’s modern history. On the other side of Europe, the yield on Greece’s two-year note yesterday rose the most since November 2008 as it struggles to convince investors it will be as bold. Lenihan is trying to shore up confidence in Ireland, once Europe’s most dynamic economy, a day after Fitch Ratings cut Greece by one step to the third-lowest investment grade. A successful strategy may lead investors to reward Ireland and add pressure on Greece to follow. “The bond vigilantes are back and watching,” said Alan McQuaid , chief economist at Bloxham Stockbrokers in Dublin. “Greece is a worst-case scenario, Ireland’s more solid.” Lenihan is scheduled to deliver the budget at 3:45 p.m. to the parliament in Dublin, his fifth attempt since July 2008 to fix the public finances. He’s seeking 4 billion euros ($6 billion) in savings to stop the shortfall climbing above 12 percent of gross domestic product. While Ireland has lost its top credit rating at Moody’s Investors Service and Standard & Poor’s, Greece is being pushed harder to act after Fitch yesterday cut it one step to BBB+, the third-lowest investment grade. The previous day S&P put the country’s A- rating on watch for a possible downgrade, signaling it may be reduced within two months. Skeptical Greek Finance Minister George Papaconstantinou yesterday said he is committed to “fair” fiscal consolidation and will submit an extra budget if needed. Fitch’s downgrade “doesn’t correspond to the government’s initiatives,” he said. “While the situation in Ireland remains severe, the government have shown an impressive resolve,” said Goldman Sachs Group Inc. economist Kevin Daly , who favors Irish assets over those from Greece. “This contrasts with the situation in a number of other European countries where, despite similar budget problems, there appears to be a reluctance to acknowledge the problem.” The difference in yield , or spread, between 10-year Irish bonds and equivalent German bunds was at 172 basis points yesterday. The gap between Greece and Germany reached 225 basis points, the most since April 21. Imploded Ireland’s fiscal problems mounted after a decade-long property boom imploded and the banking system came close to collapse as credit on the international money markets dried up. Greece is suffering after its new government more than doubled the country’s budget deficit forecast to 12.7 percent, exceeding the European Union’s limit more than four times, as revenue fell short of targets and spending increased. Now, Lenihan is planning pay cuts of about 6 percent for government workers, and labor unions are threatening industrial unrest in response. He also has pledged to slash the deficit to 3 percent of output by 2013, meaning Ireland is facing austerity budgets for the next four years. “The overriding concern is to cement the financial viability of the Irish state,” said Rossa White , chief economist at Dublin-based broker Davy. “The budget for 2010 is a watershed.” Greece’s socialist government, elected in October, plans to cut the budget deficit to 9.1 percent of GDP next year from 12.7 percent this year. The plans, including one-off measures and a partial freeze on public-sector pay, “are unlikely by themselves to alter Greece’s medium-term fiscal dynamics” given the prospects of high deficits, debt and sluggish economic growth, S&P said Dec. 7. “The problems in Dubai and Greece have highlighted that smaller countries with banking and severe fiscal problems will be punished,” White said. “Particularly those that fail to deal with them adequately.” To contact the reporters on this story: Colm Heatley in Belfast at cheatley@bloomberg.net ;

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Pershing Square Investor Letter

December 7, 2009

Lots of discussion on GGP’s bankruptcy (a favorite of distressed debt investors) in the letter. Enjoy: Pershing Square Third Quarter Investor Letter.

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Stocks in U.S. Fall, S&P 500 Erases Advance as Banks, Brokerages Retreat

December 7, 2009

By Mary Childs Dec. 7 (Bloomberg) — U.S. stocks declined, wiping out a 0.4 percent advance in the Standard & Poor’s 500 Index, on speculation banks face mounting losses from commercial real estate and the dollar’s rally against the euro, which pushed down producers of commodities. Financial shares in the S&P 500 retreated 1.5 percent, as Wells Fargo & Co. and JPMorgan Chase & Co. lost more than 1 percent after data showed delinquencies on commercial mortgage- backed securities rose to a record in the third quarter. Exxon Mobil Corp. fell 0.7 percent as crude slumped 2.1 percent for a fourth day of declines. The dollar strengthened to the highest level against the European currency in a month. The S&P 500 fell 0.2 percent to 1,103.81 at 3:11 p.m. in New York. Six stocks declined for every five that rose on the New York Stock Exchange. The Dow Jones Industrial Average added 6.27 points, or 0.1 percent, to 10,395.17. “We’re in a precarious position because we’ve had so much strength in so many sectors, some of which has been rational and some of which has been slightly irrational,” said Liam Dalton , who oversees about $1.4 billion as the New York-based chief executive officer of Axiom Capital Management. “But we’re out of the phase where the market dynamic is strong on the upside.” 134% Gains The S&P 500 has surged 63 percent since March 9, the steepest advance since the Great Depression, spurred by record- low interest rates and $12 trillion in spending by governments worldwide. After the 10 industry groups in the index posted gains ranging between 28 percent and 134 percent since March, the measure was valued at 22.2 times the reported operating earnings at its companies from the past year, the most expensive level since 2002, according to data compiled by Bloomberg. Federal Reserve Chairman Ben S. Bernanke said the U.S. economy faces “formidable headwinds,” including a weak labor market and tight credit that are likely to limit the pace of expansion. The S&P 500 Financials Index retreated 1.6 percent, the most among 10 industries. Wells Fargo lost 2.2 percent to $26.36. JPMorgan fell 1.4 percent to $41.17. Bank of America Corp. slumped 2 percent to $15.96. As the U.S. economy pulls out of a recession and the biggest banks return to profitability, mounting defaults on commercial property may keep regional lenders from repaying bailout funds until at least 2011. Delinquencies Unpaid loans on malls, hotels, apartments and home developments stood at a 16-year high of 3.4 percent in the third quarter and may reach 5.3 percent in two years, according to Real Estate Econometrics LLC, a property research firm in New York. That’s a bigger threat to regional banks, which are almost four times more concentrated in commercial property loans than the nation’s biggest lenders, according to data compiled by Bloomberg on bailout recipients. Forecasts for the fastest U.S. earnings growth in 15 years are failing to convince options traders that the Standard & Poor’s 500 Index will extend its biggest rally since the 1930s. S&P 500 options to protect against declines in stocks over the next year cost 22 percent more than one-month contracts, the highest since 1999, data compiled by London-based Barclays Plc and Bloomberg show. The gap shows concern that analyst estimates for record earnings by 2011 may prove exaggerated, endangering an advance that pushed the S&P 500 up 63 percent since March. To contact the reporter on this story: Mary Childs in New York at mchilds4@bloomberg.net .

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Pacific Insurance Said to Seek as Much as $3 Billion in Hong Kong Offering

December 6, 2009

By Bloomberg News Dec. 6 (Bloomberg) — China Pacific Insurance (Group) Co. , the nation’s third-largest insurer, aims to raise as much as HK$23.54 billion ($3 billion) with its state holders in what may be the second-biggest share sale in Hong Kong this year, according to three people familiar with the matter. The insurer and its state stakeholders are offering a combined 861.3 million shares at HK$26.8 to HK$30.1 apiece, according to the people, who declined to be identified before an official announcement. Of the total, 90.9 percent are new shares sold by the company, and the rest are existing shares sold by stakeholders. China Pacific , part owned by the Carlyle Group, is tapping a 55 percent gain in Hong Kong’s benchmark Hang Seng Index this year to replenish capital after expansion brought down solvency margins, which the industry regulator uses to gauge insurers’ ability to settle claims. The company made a 1.7 billion yuan profit in the third quarter, reversing a loss from a year earlier as the domestic stock-market rally boosted returns. “The market demand is fairly good now,” said Olive Xia , a Shanghai-based analyst at Core Pacific Yamaichi. “China Pacific’s H shares should also see some premium to the A shares after listing.” Recent gains have pushed bigger rivals’ Hong Kong-traded shares above their mainland stock prices, indicating that the city’s investors are “more bullish on Chinese insurers,” Xia added. China Life Insurance Co. , the nation’s biggest insurer, rose 2.6 percent to HK$41 in Hong Kong trading Dec. 4, 9 percent higher than its Shanghai-listed shares. Share Rally China Pacific delayed a plan to sell as many as 900 million shares by September 2008 following the global equity rout. Beijing-based China Pacific rose by its 10 percent daily limit in Shanghai on Dec. 4, possibly reflecting investor expectations that demand for the Hong Kong offering will be strong and a trial of new endowment insurance products in Shanghai will boost sales, according to Xia. The stock has rallied 144 percent this year in Shanghai, almost double the 78 percent advance for China Life’s stock trading in the Chinese city, and bettering the 125 percent for the A shares of Ping An Insurance (Group) Co., the nation’s second-biggest insurer. The solvency margin for life insurance dropped by 10 percentage points to 224 percent in the first half of the year, while the ratio for property insurance fell by 11 percentage points to 177 percent. China Pacific made a 5.8 billion yuan profit from investments in the third quarter as the nation’s stock market recovered this year, helping the company reverse a 1.5 billion yuan loss a year earlier. Net premiums earned climbed 4 percent to 21.3 billion yuan. Improving Profitability China Pacific is boosting sales of protection and savings products and curbing investment-type policies this year to improve profitability. New regular-premium business more than doubled in the first half to 6.8 billion yuan, according to the company. The company’s property insurance arm reduced its combined ratio, which measures claims and expenses as a percentage of premiums, by 7 percentage points from a year earlier, to 101.5 percent in the first half, as it cut management costs. The insurer plans to start taking orders from international institutions on Dec. 7 and price the shares around Dec. 16, said two people familiar with the plan. Corporate investor including Allianz SE will take a combined $395 million of the shares. The sale may be expanded to 990 million shares to meet demand. The stock is scheduled to start trading on Dec. 23. China International Capital Corp., Credit Suisse Group AG, Goldman Sachs Group Inc. and UBS AG are managing the sale. China Minsheng Banking Corp., the nation’s first privately owned lender, last month raised HK$30.1 billion in the city’s biggest public share sale since April 2007. — Zhang Dingmin , Bei Hu . Editors: Andreea Papuc , Jim McDonald To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net

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U.S. Employers Cut Fewest Jobs Since Recession Began as Economy Recovered

December 5, 2009

By Timothy R. Homan Dec. 5 (Bloomberg) — Employers in the U.S. cut the fewest jobs in November since the recession began, and the unemployment rate fell, signaling that the recovery is lifting the labor market out of the worst slump in the post-World War II era. Payrolls fell by 11,000, figures from the Labor Department showed yesterday in Washington, compared with the median forecast for a 125,000 decline in a Bloomberg News survey of 82 economists. The jobless rate declined to 10 percent. The dollar strengthened and Treasuries slid as the report indicated companies may start hiring again after the job market shrank by 7.2 million since December 2007. Staffing at temporary employment agencies jumped the most in five years, and a gain in wages gave consumers more to spend for the holidays. “This confirms the idea that the recession is over and has been over for several months,” said Neal Soss , chief economist at Credit Suisse in New York. “It doesn’t tell you that we’ll have a strong recovery, especially not a strong rebound in the labor market.” The Dollar Index, a gauge of the currency against six major trading partners, jumped as much as 1.8 percent yesterday. Yields on benchmark 10-year government notes climbed to 3.48 percent from 3.39 percent late yesterday. The Standard & Poor’s 500 Index was up 0.6 percent to 1,105.98 after earlier rising as much as 1.8 percent. Traders increased bets that the Federal Reserve would tighten monetary policy in the third quarter of next year. Yields on the September federal funds futures contract rose by 11 basis points. A basis point is 0.01 percentage point. Record Low Rates Fed Chairman Ben S. Bernanke has pledged to maintain record-low interest rates until joblessness subsides, even as a recovery takes hold. Google Inc. , owner of the world’s most popular search engine, is hiring again after the company cut back during the recession, Chief Executive Officer Eric Schmidt said last month. The Mountain View, California-based company had about 19,665 workers at the end of the third quarter, down from more than 20,000 last year. “We are absolutely planning to increase our headcount and we’re aggressively trying to find the best talent as we did historically,” Schmidt said in a Nov. 11 interview. Corporate profits climbed 11 percent in the third quarter, the biggest increase in five years, according to Commerce Department data. It was the third straight quarter of profit gains, the first such streak since 2006. Revisions to Data Revisions added 159,000 to payroll figures previously reported for October and September. The October reading was revised to show a 111,000 drop in jobs compared with an initially reported 190,000 decline. The jobless rate was projected to hold at 10.2 percent, according to the Bloomberg survey of economists. Forecasts ranged from 9.9 percent to 10.4 percent. Christina Romer , President Barack Obama’s chief economist, said that while the jobs report is “good news,” the nation still needs to be “ready for bumps in the road.” “We’re on the right path, but I think we do need to be aware that these things do move around,” Romer, head of the White House Council of Economic Advisers, said in a Bloomberg Television interview. The administration won’t seek a second economic stimulus like the $787 billion package passed earlier this year, White House press secretary Robert Gibbs said yesterday. Instead, the administration is considering using money from the $700 billion Troubled Asset Relief Program, which was initially designed to shore up the financial system, to help the economy. Budget Deficit Obama said Dec. 3 at a White House forum on jobs that the budget deficit, which reached a record $1.4 trillion in fiscal 2009, would constrain the government from major initiatives to create jobs. The number of temporary workers increased 52,000 in November, yesterday’s report showed, the biggest jump since October 2004 and the fourth straight rise. Payrolls at temporary-help agencies often turn up before total employment because companies prefer to see a steady increase in demand before taking on permanent staff. The average work week grew to 33.2 hours in November from 33 hours, the biggest advance since March 2003. Average weekly earnings rose to $622.17. Improvements in the job market were broad-based. Builders, Restaurants Payrolls at builders declined 27,000 after falling 56,000 the month before. Service industries, which include banks, insurance companies, restaurants and retailers, added 58,000 workers after adding 2,000. Retail payrolls decreased by 14,500 after a 44,200 drop. Factory payrolls fell 41,000 after decreasing 51,000 in the prior month. The median forecast by economists called for a drop of 45,000. The decline included a drop of 6,300 jobs in auto manufacturing and parts industries. Financial firms reduced payrolls by 10,000 for a second month. The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — fell to 17.2 percent from 17.5 percent. Bernanke on Jobs “Far too many Americans are without jobs, and unemployment could remain high for some time even if, as we anticipate, moderate economic growth continues,” Bernanke said Dec. 3 in testimony to the Senate Banking Committee, which was considering his nomination to a second term as Fed chairman. Companies including Harley-Davidson Inc. are still trimming staff to wring out additional cost savings. The biggest U.S. motorcycle maker this week approved a restructuring plan at its largest plant, in York, Pennsylvania, which will result in the loss of about 950 union jobs. By contrast, Infosys Technologies Ltd., India’s second- largest software exporter by revenue, plans to add 1,000 employees in the U.S. in the next four to five quarters, according to Chief Financial Officer V. Balakrishnan. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Nokia Sees Stagnant Market Share in 2010 as IPhone Spearheads Apple’s Gain

December 2, 2009

By Diana ben-Aaron Dec. 2 (Bloomberg) — Nokia Oyj , the world’s biggest maker of mobile phones, expects its share of the global handset market to remain flat next year, amid mounting competition from Apple Inc. ’s iPhone and lower-end Chinese devices. Volumes in the mobile-phone industry will rise by about 10 percent in 2010, the company forecast at its investor day today in Espoo, Finland, where it is based. Nokia’s share of the smart-phone market, the industry’s fastest-growing piece, slid to 39.3 percent in the third quarter from 42.3 percent a year earlier, while Apple and BlackBerry-maker Research In Motion Ltd., gained, according to researcher Gartner Inc. “The goal of flat market share was surprisingly modest, tepid, I would say,” said Tero Kuittinen , an analyst with MKM Partners LP in Greenwich, Connecticut. “They are quite likely losing market share a bit in India and China. If they can offset that by an increase in North America and Western Europe it would be welcome.” The company is releasing new touch-screen phones and improved applications to compete with Apple’s iPhone, which has made the U.S. company the world’s most profitable handset vendor, according to market researcher Strategy Analytics. Nokia lags behind Apple in applications, the new battleground for handset makers. The company’s main business of mid- and low-end handsets, which accounts for 55 percent of devices revenue, is also being eroded by Chinese and emerging market rivals. Nokia fell as much as 15 cents, or 1.7 percent, to 8.76 euros and was down 0.6 percent as of 2.47 p.m. in Helsinki. The stock has dropped 20 percent this year, valuing the mobile-phone maker at 33.2 billion euros ($50 billion). Financial Outlook Nokia said in a statement that it will focus next year on expanding its services business, improving margins and pushing smart phones globally. “I see great opportunity for Nokia to capture new growth in our industry,” Chief Executive Officer Olli-Pekka Kallasvuo said in the statement. “We have measures in place to push smart phones down to new price points globally, while growing margins.” The Finnish company is targeting an operating margin at its devices and services business of between 12 percent and 14 percent in 2010. That compares with 11.4 percent in the third quarter, down from 18.6 percent in the year-earlier period. Nokia also expects operating expenses in the unit to be 5.7 billion euros in 2010. “The targets are reasonably optimistic,” said Pierre Ferragu , an analyst with Sanford C. Berstein Ltd. in London. “The 12 to 14 percent adjusted operating margin in devices is fairly conservative and I expect they will deliver close to the high end of the range.” ‘Product Milestone’ Nokia has lowered its margin guidance for the devices and services unit twice in the past year as it lost buyers to the iPhone. In the third quarter, the company said its average selling price declined to 62 euros in the quarter from 72 euros a year earlier. Today, Nokia said it sees lower average selling prices for devices in 2010. The company said it predicts net sales in services of 2 billion euros or more in 2011 and that it expects to deliver a “major product milestone” that year. Nokia began shipments this quarter of its N900 top-of-the- line handset, based on a new Linux-based software platform; and its X6 music phone, which comes with unlimited track downloads and has a more responsive touch-screen than previous models. Nokia has announced more than 45 new phone models and variants this year, including phones designed for the U.S. and China. Nokia posted a third-quarter loss of 559 million euros as it took a writedown of 908 million euros on its Nokia Siemens Networks joint venture with Siemens AG . To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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Construction Spending in U.S. Is Unchanged After Five Months of Decline

December 1, 2009

By Courtney Schlisserman Dec. 1 (Bloomberg) — Construction spending in the U.S. was unchanged in October after declining five straight months as rising office and retail vacancies deterred the building of commercial projects. Spending in September, previously reported as an increase, fell 1.6 percent, according to Commerce Department data released today in Washington. Construction spending declined on office buildings and commercial projects, while homebuilding increased. Construction will be hard-pressed to contribute to the economic recovery with commercial property vacancy rates rising and builders limiting starts of new homes to help deplete inventories. “Businesses are pulling back because they’re fearful of where the economy is going and don’t want to commit to new construction at this time,” Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado, said before the report. “We’re in a situation where we have an excessive stock of residential real estate and until we can firm up the price,” there’s no incentive for builders to build.” Economists forecast spending would fall 0.5 percent after a previously estimated 0.8 percent increase in September, according to the median of 50 projections in a Bloomberg News survey. Estimates ranged from a drop of 2.8 percent to an increase of 0.5 percent. Private residential construction spending rose 4.4 percent after a 2 percent decrease in September. Compared with a year earlier, it was down 24 percent. Non-residential construction, including public projects, declined 1.5 percent. It was down 11 percent from 12 months before. Public construction decreased 0.4 percent in October, led by declines in housing, transportation and utility projects. Homebuyer Tax Credit Residential construction may stabilize after the government extended a tax credit of as much as $8,000 for first-time homebuyers until April 30 and expanded it to include some current owners. The original incentive covered only first-time buyers and called for properties to be closed on by Nov. 30. The looming expiration of the credit had weighed on sentiment going into this month. The National Association of Home Builders/Wells Fargo’s confidence index held at 17 in November, according to data released Nov. 17. The weather may also have played a part in restraining construction activity. It was the wettest October in more than a century of record keeping, according to the National Oceanic and Atmospheric Administration. Rising Foreclosures One concern for new home construction is the prospect of rising foreclosures, which puts more homes on the market and pushes down prices. Foreclosures on prime mortgages and home loans insured by the Federal Housing Administration rose to three-decade highs in the third quarter, the Mortgage Bankers Association said Nov. 19. One in four U.S. homeowners also are underwater, meaning they owe more on their mortgage than their house is worth. The number of homeowners with so-called negative equity, reached 10.7 million, or 23 percent, at the end of the third quarter, according to a report Nov. 24 by First American CoreLogic, a Santa Ana, California-based real estate research firm. “Housing faces important problems, including continuing high foreclosure rates, but residential investment should become a small positive for growth next year rather than a significant drag, as has been the case for the past several years,” Federal Reserve Chairman Ben S. Bernanke said in a speech last month. A Fed program to lower fixed mortgage rates by purchasing $1.25 trillion of bonds backed by home loans also helped support home demand this year. While Fed policy makers said they will end the program by March, St. Louis Fed President James Bullard suggested the central bank should consider prolonging it. Fed Program “I would just like to keep them active at a very low level instead of saying we’re shutting down, shutting down permanently,” Bullard told reporters after a speech in New York on Nov. 22. “It would give the Fed the option to react to future news as it comes in.” Rising unemployment threatens to curb housing demand and lead to more foreclosures. The unemployment rate jumped to 10.2 percent in October, the highest since 1983, according to the Bureau of Labor Statistics. D.R. Horton Inc., the second-largest U.S. homebuilder, on Nov. 20 reported a fourth-quarter loss that exceeded analysts’ forecasts and said the housing outlook remains difficult. “The thing that drives our business the most is job creation,” Chief Executive Officer Donald Tomnitz said on an earnings call for analysts. “If we look at the macroeconomic environment, it’s not good for us.” Non-Residential Construction Non-residential construction may continue to struggle. Office vacancies in the U.S. could approach 20 percent next year as employers hold off hiring, commercial property brokers Jones Lang LaSalle Inc. and Grubb & Ellis Co. forecast on Nov. 18. Offices will be the last type of commercial property to recover, said Robert Bach, chief economist for Santa Ana, California-based Grubb & Ellis. Available retail space in the U.S. will reach a record 12.9 percent next year and won’t improve until consumers boost their spending, CB Richard Ellis Econometric Advisors said in a news release on Nov. 11. The retail availability rate in the third quarter increased to 12.2 percent. The vacancy rate in the U.S. office market will peak in 2010 at 18.6 percent before recovering in 2011, according to CB Richard Ellis, as the unemployment rate holds above 10 percent. The office vacancy rate was 16.1 percent at the end of the third quarter. To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Credit-Card Issuers Add Inactivity Fees to Slow Revenue Loss From Defaults

December 1, 2009

By Jeff Plungis Dec. 1 (Bloomberg) — Amy Schiffman has had a Fifth Third Bancorp credit card for eight years to guard against unexpected overdrafts on her checking account. Now the bank wants to charge her $19 for not using it. “If you’re not thinking about the card, you might forget to pay the fee, and then you’ll be facing another late fee on top of it,” said Schiffman, 26, a Web designer in Lansing, Michigan. Credit card issuers, facing the highest level of delinquencies since April, according to Moody’s Investors Service, are reviving inactivity charges and reworking other fees in an effort to stem declining revenue. Fifth Third, based in Cincinnati, added the fee for the majority of its cards in June, in part to offset increasing servicing costs, said spokeswoman Stephanie Honan . “We want to encourage active use and management of the accounts,” Honan said. Inactivity fees have been used before, said Linda Sherry , director of national priorities with Consumer Action in Washington, who conducts the group’s annual survey of credit- card fees. Often they’ve been waived if the consumer used the card periodically, Sherry said. “If you’re keeping the card in a drawer because of the safety it provides, use it a few times in a year,” Sherry said. Managing Debt Many U.S. consumers are trying to manage debt , which was $842.6 billion as of Nov. 18, down 1.7 percent from a year ago, by paying off credit cards and then not using them. They refrain from canceling them because that may negatively impact their credit scores, because their ratio of debt to available credit would go up, said Nick Bourke , manager of the safe credit-card project at the Pew Charitable Trusts in Washington. The so- called utilization rate helps determine a credit score. “If you’re trying to get out of debt, it’s a real problem,” Bourke said. If consumers use the cards, they add to their balances. If they don’t use the cards, they face a fee, he said. Fifth Third, Ohio’s largest lender, is the 16th-largest issuer of U.S. credit and debit cards, according to the Nilson Report , an industry newsletter based in Carpinteria, California. Larger card lenders are also testing fees for customers who don’t use the cards enough. Citigroup Inc. varies the interest rate it charges customers based on how often they use their cards, according to letters the company sent out in November to cardholders. Customers get back 10 percent of their total interest each month if they exceed a set amount of purchases. Rebate Varies The amount of spending needed to qualify for the rebate depends on their payment history with the bank, the letters said. A customer with a $35 monthly finance charge may see a $3.50 credit in the same month’s bill. Customers can opt out, paying off existing balances under current interest rates until the card expires. They also may get lower rates if they agree to transfer other card balances to Citigroup, according to the letters. “These actions are necessary given the doubling of credit- card losses across the industry,” said Samuel Wang , vice president of public affairs at New York-based Citigroup. “Nearly all of our customers now have the opportunity to earn back a portion of the increase each month. We want to reward our customers for doing more business with Citi.” Fee Test Bank of America Corp. is looking at annual fees ranging from $29 to $99. The charges were part of a change in terms for fewer than one-half of one percent of all Bank of America’s cards, said Anne Pace , a spokeswoman for the Charlotte, North Carolina-based bank. It’s a test, and the company hasn’t made any decisions about the wider use of annual fees, she said. “We’re trying to get a better understanding on the value customers place on their cards,” Pace said. “The fee is based on the type of card and the benefit it provides to the customers.” JPMorgan Chase & Co. , the biggest U.S. credit-card lender, Capital One Financial Corp., the third-largest issuer of Visa Inc. cards, and Discover Financial Services don’t have inactivity fees. Federal Reserve rules announced in July to implement credit-card consumer protections would stop inactivity fees on accounts that customers cancel and pay off when they reject a rate increase, Bourke said. Inactivity fees would probably be allowed for customers who simply stop using a card and pay down the balance without actually closing the account, Bourke said. Delinquencies Rise Delinquencies on loans at least 30 days overdue, considered a sign of future defaults, rose to 6.12 percent in October from 5.97 percent in September, Moody’s Investors Service said in a Nov. 20 report, the highest level since April. New fees are often matched by other banks after judging public reaction, said Bill Hardekopf , publisher of LowCards.com, a Web site that allows consumers to compare terms on more than 1,000 U.S. cards. Fees have proliferated since President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure Act May 22, Hardekopf said, which sets limits on rates and other terms for credit cards. “These are for-profit companies,” Hardekopf said. “They want to make as much money as possible. This new law has tied their hands, in their view.” Schiffman, the Web designer, avoided the charge by using her card. “It didn’t seem fair,” she said. “I was being a good customer by not overdrawing the account.” Inactivity fees haven’t been widespread because of consumer resistance, said Gerri Detweiler , a personal-finance expert with Credit.com , a consumer-education Web site. “This is a different environment,” Detweiler said. “Companies don’t seem to care if they lose customers. It could stick this time.” To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net .

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Investors.com – World Boosts Distressed-Property Sales

November 25, 2009

Inside Real Estate . World Boosts Distressed -Property Sales. By REUTERSPosted 11/25/2009 05:37 PM ET. LONDON — Distressed commercial property sales rose in more countries in the third quarter, as a greater number of buildings were …

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Cincinnati’s Kelly Is Favored to Replace Weis as Head Coach of Notre Dame

November 25, 2009

By Erik Matuszewski Nov. 25 (Bloomberg) — University of Cincinnati coach Brian Kelly is the favorite on online gambling sites to take over as football coach at the University of Notre Dame if Charlie Weis is fired. Weis, who has a 35-26 record at the South Bend, Indiana, school over five seasons, has guided the Fighting Irish to a 6-5 record this year heading into the final regular-season game against Stanford University this weekend. Weis said on Nov. 22 it would be hard to argue with a decision to fire him. In addition to Kelly, who is listed as an even-money favorite at Bodog.com , Florida’s Urban Meyer and Stanford’s Jim Harbaugh were asked by media whether they would be interested in following coaches such as Knute Rockne , Frank Leahy , Ara Parseghian and Lou Holtz . “This is the silly season, you know?” Kelly said. “The truth is, this happens every year.” Openings at a program such as Notre Dame’s don’t come along every year, though. The Irish rank third in college football history with 837 wins, have 11 consensus national championships and have produced seven Heisman Trophy winners. Kelly, who has led Cincinnati to a 10-0 record in his third season, is listed at BetUS.com, as the 5-6 favorite. Season Finale Harbaugh, whose Stanford team hosts Notre Dame in this week’s regular-season finale, is given 7-2 odds, according to Antigua-based Bodog . Meyer has 4-1 odds of replacing Weis even though he’s won two of the past three national titles at Florida and said earlier this week that he plans to remain with the Gators as long as they’ll have him. Other coaches listed by Bodog are the University of Oregon’s Chip Kelly at 9-2, Oklahoma’s Bob Stoops at 10-1 and Iowa’s Kirk Ferentz at 14-1. Cincinnati’s Kelly, 48, said he’s being mentioned as a possible candidate at Notre Dame because many people don’t think his current post is a “destination job.” While the Bearcats lead the Big East Conference, they’re fifth in the Bowl Championship Series rankings, the second-lowest among the six undefeated teams at college football’s top level. Harbaugh, 45, has led Stanford to a 7-4 record in his third season and plans to return to the Cardinal next year. I’m “only interested in the one I have,” Harbaugh said during a news conference. “And (I’m) not going to talk about any other job but my own.” Ex-NFL Coaches Costa Rica-based BetUS.com lists Meyer as the second choice at 3-1, followed by Harbaugh at 4-1, and Oregon’s Kelly and Boise State’s Chris Peterson at 5-1. Stoops has odds of 8-1, Ferentz is 12-1, and former NFL coach Mike Shanahan of the Denver Broncos is 20-1. Jon Gruden , the former coach of the NFL’s Tampa Bay Buccaneers and Oakland Raiders, has 30-1 odds at BetUS.com. Gruden attended high school in South Bend and his father was an assistant under former Notre Dame coach Dan Devine. Notre Dame last won a national championship in 1988. Since then, the program has been in a decline. The Irish have won only one of their past 10 bowl games and are 16-20 the past three seasons under Weis. “If they decide to make a change, I’d have a tough time arguing that,” Weis said after last week’s overtime loss to Connecticut that dropped Notre Dame to 6-5. Athletic Director Jack Swarbrick has said a decision on Weis’s job will come after the season. A loss to Stanford this week would give the Irish their third straight regular season without a winning record. To contact the reporter on this story: Erik Matuszewski in New York at matuszewski@bloomberg.net

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European Companies Turn to Bonds as Bank Loans Dry Up: Chart of the Day

November 25, 2009

By Jana Randow and Simone Meier Nov. 25 (Bloomberg) — European companies are turning to credit markets after losses stemming from the financial crisis left banks reluctant to lend, cutting off corporations from their primary source of financing, according to UBS AG. The CHART OF THE DAY shows the level of corporate bonds in the credit market, in blue, has risen 12 percent over the past year, and bank loans, in yellow, have fallen to the lowest in 13 months. While the euro-region economy returned to growth in the third quarter, banks may remain reluctant to lend for some time, boosting bond issuance further, said Stephane Deo , UBS chief European economist in London. “One of the key reasons why banks remain cautious about lending are future economic prospects,” Deo said. “New debt now comes disproportionately from markets. This is a very unusual pattern.” In the euro area, bank lending accounts for about 70 percent of corporate financing compared with 20 percent in the U.S., according to the European Central Bank. Banks started tightening credit standards in the third quarter of 2007 as a result of the financial crisis, according to ECB statistics. “Companies that have access to the credit market are better off compared to those that have no access,” Deo said. Celesio AG, Europe’s largest publicly traded drug wholesaler, sold 350 million euros ($523 million) in convertible bonds last month, the Stuttgart-based company’s first such transaction. Safran SA, a Paris-based maker of commercial aircraft engines with General Electric Co., said on Nov. 20 it raised 750 million euros in an inaugural five-year bond auction. To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net ; Simone Meier in Dublin at smeier@bloombert.net

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Video: Schutz Says Bank of America Should Find CEO From Within: Video

November 25, 2009

Nov. 25 (Bloomberg) — Anton Schutz, president of Mendon Capital Advisors Corp., talks with Bloomberg’s Matt Miller about Bank of America Corp.’s search for a chief executive officer to replace Kenneth D. Lewis and the outlook for the bank’s stock. Bank of America’s next CEO will inherit a bank ranked No. 1 in the U.S. by assets, deposits and mortgages as of the third quarter. The Charlotte, North Carolina-based bank has raised almost $40 billion and posted a cumulative profit of about $6.5 billion during the first three quarters of this year. (Source: Bloomberg)

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Media Downplays News About ‘Troubled’ Banks, According To Columbia Journalism Review

November 25, 2009

The major business press underplays news from the FDIC that its troubled-banks list soared to more than 550 in the third quarter. The FDIC now considers seven percent of all banks in the U.S. “troubled.”

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First American Flips Real Estate Stocks to Outperform Buy-and-Hold Rivals

November 25, 2009

By Charles Stein Nov. 25 (Bloomberg) — John Wenker and Jay Rosenberg , managers of First American Real Estate Fund , buy and sell stocks more often than their peers, a strategy that helped them outperform 98 percent of rivals in the past decade. The $1.1 billion fund’s turnover ratio, a measure of how often its holdings are traded, is 150 percent, according to data from Morningstar Inc . That compares with an average of 104 percent for all real estate funds. The managers returned an average of 11 percent annually in the 10 years ended Oct. 31, compared with an 8.6 percent gain for 98 U.S. real estate funds, according to Chicago-based Morningstar. They favor stocks they believe are cheap relative to potential earnings, including Vornado Realty Trust . “When we see something that is mispriced, we don’t hesitate to act,” Rosenberg, who has been Wenker’s co-manager since 2005, said in a telephone interview from Minneapolis. Future gains may be harder to come by if the commercial real estate market continues to weaken. Investors such as billionaire Wilbur Ross are forecasting further deterioration in rents and property prices because rising unemployment is lifting vacancy rates. “You have to wonder if the good news is already priced into the stocks, given the surge since March,” said Victor Calanog , director of research at New York-based Reis Inc. A national real estate recovery is still 18 to 24 months away, he said in a telephone interview. Fund Performance Real estate stocks, as measured by the MSCI US REIT Index , are down 54 percent from their February 2007 peak, even after doubling since March. The First American fund, while beating the 20-stock index every year since 2002, lost 15 percent in 2007 and 35 percent in 2008 as the industry slumped, Morningstar data show. The fund charges investors expenses of 98 cents for every $100, compared with an average of $1.46 for all U.S. real estate funds, according to Morningstar. Andrew Gogerty , a Morningstar analyst, said the fund’s gear-shifting distinguishes it from large competitors such as the $2 billion T. Rowe Price Real Estate Fund and the $1.4 billion Third Avenue Estate Value Fund, which have turnover ratios of 15 percent and 34 percent, respectively. The fund carries Morningstar’s top rating of five stars. “When you talk to these managers you get the sense they are looking around the curve to anticipate what comes next,” Gogerty said. Buy, Sell, Buy First American added to its position in Kimco Realty Corp . in the third quarter of 2008, sold shares in the fourth quarter and then bought more in the first quarter, Bloomberg data show. The New Hyde Park, New York-based company, up 58 percent since the first quarter, owns shopping centers. The moves were based on calculations of relative value , Wenker said. Wenker, 58, has a bachelor’s degree from Metropolitan State University in St. Paul, Minnesota and a master’s of business administration from the University of St. Thomas, also in St. Paul. He has worked on the fund since 1999, after a stint at Piper Jaffray, a Minneapolis-based investment bank. Rosenberg, 37, has a bachelor’s degree from the University of Wisconsin in Madison and master’s in urban planning from the University of Illinois-Chicago. He joined the fund after working at Advantus Capital Management in St. Paul, Minnesota. The duo doubled their position in Vornado Realty Trust from the third quarter of 2008 to this year’s second quarter, Bloomberg data show. Vornado is among the biggest owners of office buildings in New York. Midtown Manhattan rents dropped 25 percent from their 2008 peak, according to an Oct. 6 report by commercial broker Cushman & Wakefield Inc. Overreaction? “New York took a hit during the financial crisis but it was not as great as the stock market thought,” Rosenberg said. The New York office market will rebound as Wall Street revives, he said. The fund increased its stake in Mid-America Apartment Communities Inc. in the second quarter, Bloomberg data show. The Memphis, Tennessee-based company owns apartments in the Southeast and south-central U.S., according to its Web site. Those markets are less sensitive to the weak economy than the more volatile markets on the coasts, Wenker said. The managers aren’t predicting a quick turnaround for commercial real estate. Previous declines lasted as long as four years, Wenker said. He envisions a slow recovery of the real estate market “as we move beyond 2010 into 2011 and 2012.” Clashing Outlooks Ross told Bloomberg radio last month that the U.S. is at the start of a “huge crash in commercial real estate.” Investor Sam Zell , in a speech Nov. 19, said commercial restate may recover “pretty quickly” if interest rates stay low. The slump in the property market will play to the strength of publicly traded firms because they have access to capital at a time when private companies don’t, Rosenberg said. Public companies can use their clout to attract tenants and buy distressed assets from struggling competitors, he said. Simon Property Group Inc ., the fund’s largest holding and the biggest U.S. shopping mall owner, confirmed last week that it hired financial and legal advisers as it considers buying assets of bankrupt competitor General Growth Properties Inc. Simon, based in Indianapolis, raised money through debt and equity sales this year and has access to $3 billion in credit, according to regulatory filings. Because public companies tend to own the most desirable buildings in many markets, they have an edge luring tenants who have choices at a time of high vacancies, Wenker said. Boston Properties Inc., which owns office buildings, said in a conference call last month that it re-leased 370,000 square feet at 399 Park Ave. in Manhattan that had been occupied by Lehman Brothers Holdings Inc. before its bankruptcy. Boston Properties is the fund’s fourth-largest holding, Bloomberg data show. To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net .

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U.K. Economy Contracted 0.3%, Less Than Prior Estimate, in Third Quarter

November 25, 2009

By Svenja O’Donnell Nov. 25 (Bloomberg) — The U.K. economy shrank less than previously estimated in the third quarter as consumer spending stopped falling and the service industries slump eased, bringing the longest recession on record closer to an end. Gross domestic product fell 0.3 percent from the previous three months, compared with a prior measurement of a 0.4 percent drop, the Office for National Statistics said today in London. The result matched the median prediction of 28 economists in a Bloomberg News survey. Prime Minister Gordon Brown this week called for stimulus to stay in place to avoid “choking off recovery” as an election looms within six months. The Bank of England has expanded its bond-purchase plan three times since March to ensure Britain’s escape from recession and Governor Mervyn King said yesterday the pickup isn’t “particularly strong.” “Over the coming quarters the economy will accelerate pretty sharply,” said Nick Kounis , chief European economist at Fortis Bank Nederland NV in Amsterdam and a former U.K. Treasury official. “In third quarter the U.K. was one of the sick men of Europe but it’s going to step up a few gears and will be one of the stronger performers in Europe next year.” The pound erased gains against the dollar and was trading at $1.6702 as of 10:05 a.m. in London. U.K. government bonds extended gains, pushing yields lower. The yield on the 2-year gilt fell 5 basis points to 1.17 percent. Lagging Behind The U.K.’s recovery has lagged behind that of the U.S. and the euro area, which have both returned to growth. Data yesterday showed Germany’s economic growth accelerated in the third quarter, while the U.S. economy expanded at a 2.8 percent annual rate, less than the government reported last month. Brown is trying to revive the U.K. economy in time to defeat Conservative Leader David Cameron at the election, due by June. An Ipsos Mori poll in the Observer on Nov. 22 showed the Conservatives with a six-point lead, the least since December. Consumer spending was unchanged in the third quarter, the first time it hasn’t dropped in a 1 1/2 years. Government spending rose 0.2 percent, while fixed investment fell 0.3 percent, the statistics office said. Inventories fell by 4.1 billion pounds ($6.8 billion), the fourth consecutive decline. The slump in inventories is now the biggest on record, the statistics office said. Services, Manufacturing Officials revised up the GDP data because the decline in services output was smaller than previously estimated, at 0.1 percent instead of 0.2 percent. Manufacturing dropped 0.1 percent, up from the prior measurement of 0.2 percent. Britvic Plc, the maker of Tango soda and Robinson’s fruit drinks, today said that full-year profit rose 47.2 percent after sales advanced. Compass Group Plc, the world’s largest catering company, reported full-year profit that beat analyst estimates as cost cuts offset a decline in U.K. sales. The stock rose the most since May. The Bank of England forecasts Britain will exit the recession in the fourth quarter. The economy will expand 2.2 percent in 2010 and 4.1 percent in 2011, according to policy makers’ projections published on Nov. 11. Policy makers have cut the benchmark interest rate to a record low of 0.5 percent and pledged to buy 200 billion pounds in bonds to aid the economy. While policy maker Adam Posen told lawmakers that “one hopes that we are coming to the end” of the purchase program, King said he “can’t rule out” buying more assets. Data ‘Surprise’ Policy maker Andrew Sentance said in a speech on Nov. 16 that the “surprise” gross domestic product estimate may be revised later, and told Bloomberg Television that “the broad balance of evidence is that the U.K. economy has started to grow in the second half of this year.” Unemployment rose at the slowest pace in 18 months in October, retail sales climbed for a second month and the inflation rate increased more than expected, to 1.5 percent. The bank aims to keep inflation at 2 percent. Banks are still working to shore up their finances after government-led bailouts of Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc during the 2008 financial crisis. Lloyds said yesterday it plans to raise a record 13.4 billion pounds in the country’s biggest rights offering. To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

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U.K. Economy Probably Shrank 0.3% in Third Quarter After Revised Estimate

November 25, 2009

By Brian Swint Nov. 25 (Bloomberg) — The U.K. economy shrank less than previously estimated in the third quarter as the longest recession on record eased, a survey of economists shows. Gross domestic product probably fell 0.3 percent from the second quarter, less than the 0.4 percent drop reported on Oct. 23, according to the median of 28 economists’ forecasts in a Bloomberg News survey. The Office for National Statistics will release its second estimate at 9:30 a.m. today in London. “The shrinkage looks a bit overdone,” said Alan Clarke , an economist at BNP Paribas SA in London. “Other surveys are showing output isn’t nearly as downbeat. I wouldn’t be surprised to see it eventually put close to zero.” The Bank of England this month expanded its bond purchase plan by 25 billion pounds ($41 billion) after the economy’s third-quarter contraction took policy makers and economists by surprise. Governor Mervyn King said yesterday the bank has been encouraged by signs of a recovery even if it isn’t “particularly strong.” A revision higher may help Prime Minister Gordon Brown as he tries to erode Conservative Leader David Cameron’s lead in opinion polls in time for the election, due by June. An Ipsos Mori poll in the Observer on Nov. 22 showed the Conservatives with a six-point lead, the least since December. Recovery Lags The U.K.’s recovery has lagged behind that of the U.S. and the euro area, which have both returned to growth. Data yesterday showed Germany’s economic growth accelerated in the third quarter, while the U.S. economy expanded at a 2.8 percent annual rate, less than the government reported last month. The Bank of England forecasts Britain will exit recession in the fourth quarter. The economy will expand 2.2 percent in 2010 and 4.1 percent in 2011, according to policy makers’ projections published on Nov. 11. Unemployment rose at the slowest pace in 18 months in October, retail sales rose for a second month and the inflation rate increased more than expected, to 1.5 percent. The bank aims to keep inflation at 2 percent. Policy makers may pause asset purchases after the 200 billion pounds they have pledged to spend by February, Monetary Policy Committee member Adam Posen indicated yesterday. “One hopes that we are coming to the end of the large-scale quantitative easing exercise,” he told lawmakers. GDP ‘Surprise’ Policy maker Andrew Sentance said in a speech on Nov. 16 that the “surprise” gross domestic product estimate may be revised later, and that such data can be “particularly unreliable” at an economic turning point. “It will take some time before there is a widespread perception that we’re out of recession,” Sentance said in an interview with Bloomberg Television. “But the broad balance of evidence is that the U.K. economy has started to grow in the second half of this year.” By contrast, David Blanchflower , who left the rate-setting panel in June, said on Oct. 26 that “there’s every prospect” that the third quarter GDP figure could be revised down. Banks are still working to shore up their finances after government-led bailouts of Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc during the 2008 financial crisis. Lloyds said yesterday it plans to raise a record 13.4 billion pounds in the country’s biggest rights offering. None of the economists surveyed predicted a downward revision in today’s data. Six of them forecast the estimate will remain unchanged, 19 said it will change to a 0.3 percent drop and three said that it will be 0.2 percent. The report today will show any revisions to output indicators on services, manufacturing and construction, and a breakdown of spending during the third quarter. The statistics office will release a further GDP estimate on Dec. 22. To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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ECB Said to Weigh Switching to Adjustable Interest Rate on 12-Month Loans

November 25, 2009

By Jana Randow and Gabi Thesing Nov. 25 (Bloomberg) — European Central Bank officials are debating whether to put an adjustable interest rate on December’s 12-month loans, with some saying it risks being interpreted as a signal they will tighten monetary policy in 2010, according to people familiar with the discussions. As the ECB moves closer to withdrawing emergency support for the economy, officials are examining whether to make the rate on next month’s loans track any increase in the bank’s key rate. While a final decision hasn’t been made, the 22-member Governing Council is leaning toward sticking with a fixed rate of 1 percent, said the people, who declined to be identified because the discussions are private. The ECB is offering banks unlimited funds for 12 months as part of its strategy to get them lending again. Some officials fear putting a floating rate on the loans would prematurely fuel expectations that the ECB will lift its benchmark rate from 1 percent next year, which could in turn raise the cost of money on markets and propel the euro higher. The risk of lending at a fixed rate is that it may undermine the effect of any increase in the benchmark should the ECB deem it necessary. Altering the rate “is always going to be interpreted as a signal for future monetary policy,” said Laurent Bilke , an economist at Nomura International in London who used to work at the ECB. “The only way to avoid that problem is to continue as they have been doing.” An ECB spokeswoman declined to comment. No Signal Policy makers have already agreed that the December 12- month tender will be the last, even though some wanted to retain the option of using the tool again. The bank may also reduce the frequency of its three-month and six-month tenders next year to one of each per quarter, one of the people familiar with the deliberations said. While scaling back lending operations is the first step in the ECB’s exit strategy, officials don’t want to signal rate increases are in any way imminent, the people said. At the same time, there are diverging views on the Governing Council over how long to leave the ECB’s expansionary policies in place. Executive Board member Juergen Stark said on Nov. 17 that the response to the crisis “should not sow the seeds for new imbalances,” and the ECB is “moving closer to phasing out our liquidity measures.” Others on the council, such as Athanasios Orphanides of Cyprus, are concerned that the economy is too weak to drive inflation back toward 2 percent, the ECB’s medium-term goal. Key Plank The central bank’s survey of professional forecasters shows inflation is expected to average 1.6 percent in 2011. The 12-month loans are one of the key planks in the ECB’s response to the financial crisis. They allow banks to borrow as much money as they want for a year at the benchmark rate. The ECB retained the option of adding a spread to the rate on the December loans, the third offering, which would help to limit demand. A spread is considered unlikely, the people said. Another option being examined is to tie the rate on the loans to market rates. Council members will probably reject that because it’s too complicated, the people said. Banks drew 75 billion euros ($112 billion) in September’s 12-month tender, down from 442 billion euros in the first tender in June, which was the highest amount ever allotted in an ECB refinancing operation. ‘I Exclude Nothing’ The 16-nation euro region emerged from its worst recession since World War II in the third quarter. Economists expect the ECB to raise its key policy rate in the third quarter of 2010, according a Bloomberg News survey. Under that scenario, if the ECB elected to lend the 12- month funds in December at a fixed 1 percent, banks would have cash for at least three months at a cheaper rate than the ECB’s key rate. ECB President Jean-Claude Trichet said this week he’ll give details on the next tranche of 12-month loans after the bank’s Dec. 3 policy meeting in Frankfurt. “We will decide on whether or not we will have indexed rates or fixed rates like we did before,” he said in Madrid. “I exclude nothing.” To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net ; Gabi Thesing in Frankfurt at gthesing@bloomberg.net

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Stocks, Oil, Dollar Fall While Bonds Gain on Fed Outlook for Investor Risk

November 24, 2009

By Nick Baker and Eric Martin Nov. 24 (Bloomberg) — U.S. stocks and oil fell, the dollar weakened against the yen and Treasuries rallied as a Federal Reserve warning that low interest rates may cause “excessive risk-taking” drove investors to the relative safety of government debt. The Standard & Poor’s 500 Index lost 0.1 percent to 1,105.65 at 4 p.m. in New York, erasing a gain spurred by the central bank’s lower forecast for unemployment . Crude futures fell 2 percent to $76.02 a barrel. The dollar slipped 0.5 percent to 88.54 yen. Treasuries rose, pushing the yield on five-year notes down to 2.09 percent, after an auction drew the most demand since 2007. Gold rose for the 16th time in 17 days. Interest rates near zero may cause too much speculation in asset markets and spur inflation, Fed officials said in minutes from their Nov. 3-4 meeting released today. Financial officials in Japan and China, Asia’s two largest economies, said last week that the Fed’s interest-rate policy risks spurring speculative capital that may inflate asset prices and derail the global economic recovery. “There was a tech bubble and there was a real estate/financial bubble, and those were aided and abetted by Federal Reserve policy,” said Dean Gulis , part of a group that manages $2.5 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. “It’s not unreasonable to suggest that some of the same characteristics are evolving.” Europe, Asia Fall Equities in Europe and Asia slumped after a report showed Americans spent less than economists forecast in the third quarter and investors speculated banks need to raise more money. The Shanghai Composite Index plunged 3.5 percent, the most since August, as people familiar with the matter said China’s biggest banks proposed capital-raising plans to regulators. The MSCI World index of 23 developed markets lost 0.5 percent. U.S. consumer spending , which accounts for about 70 percent of the world’s largest economy, rose at a 2.9 percent pace last quarter, compared with the 3.2 percent rate estimated by economists, government data showed. International Monetary Fund Managing Director Dominique Strauss-Kahn said yesterday that banks have revealed only about half of their losses from the financial crisis. The S&P 500 pared its loss in the final two hours of trading after the Fed predicted unemployment will range from 9.3 percent to 9.7 percent in next year’s fourth quarter, down from a June projection of 9.5 percent to 9.8 percent. Oil Supplies Oil for January delivery slumped a day before a U.S. Energy Department report that will show crude supplies grew by 1.5 million barrels in the week ended Nov. 20, according to the average estimate in a Bloomberg News survey. Treasuries rose after policy makers said in minutes of their November meeting released today that “very low short-term interest rates for an extended period” could lead to “an unanchoring of inflation expectations.” “They seem to be taking the punch bowl away before the party gets really good,” said E. William Stone , who oversees $104 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “The Fed is trying to set expectations around the exit strategy. It’s basically saying, ‘Hey we’re aware that bubbles could form based on us having low interest-rates for too long.’” The bid-to-cover ratio at today’s record $42 billion sale of five-year notes, which gauges demand by comparing total bids with the amount of securities offered, was a two-year high of 2.81. The yield on the current five-year note fell 0.07 percentage point. More Bond Holdings Bill Gross , who runs the world’s biggest bond fund at Pacific Investment Management Co., increased his holdings of government-related debt to 63 percent, the highest proportion since July 2004. He boosted his $192.6 billion Total Return Fund’s investment in Treasuries, so-called agency debt and other U.S. government-linked bonds from 48 percent of assets in September while reducing his position in mortgages to the smallest since May 2004, according to data on Pimco’s Web site. Banks, brokerages and insurers fell the most among 10 industries in the S&P 500, losing 0.8 percent. The Federal Deposit Insurance Corp. said that U.S. “problem” lenders climbed to 552 banks at the end of the third quarter — the most in 16 years. The agency also said that the fund protecting customers against bank failures slid into a deficit. Bailout Funds Bank of America Corp. and Fifth Third Bancorp lost more than 1.5 percent a person familiar with the situation said the Fed asked nine banks to submit plans for repaying bailout funds. Europe’s Dow Jones Stoxx 600 Index fell 0.7 percent, retreating after posting its biggest one-day gain in a month yesterday. The regional gauge declined even as a report showed German business confidence increased more than economists forecast to a 15-month high in November, suggesting the economic recovery may gather pace next year. Lloyds Banking Group Plc , the U.K.’s biggest mortgage lender, plans to raise a record 13.5 billion pounds ($22.3 billion) in the country’s biggest rights offering by selling shares at a 59.5 percent discount. Lloyds climbed 2.6 percent in London after earlier sliding 2.1 percent. The MSCI Asia Pacific Index declined 0.8 percent as the Nikkei 225 Stock Average sank 1 percent, its fifth straight retreat. Sumitomo Mitsui Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. slumped more than 3 percent after Standard & Poor’s said they were among banks with the weakest capital. S&P said yesterday it expects banks to “continue strengthening capital ratios” as regulators demand higher standards. Banks have written down about $1.7 trillion and raised about $1.5 trillion since the credit crunch began, according to figures compiled by Bloomberg. Governments have spent about $12 trillion to haul economies out of the recession, according to IMF estimates. The MSCI Emerging Markets Index fell 0.5 percent, led by China’s retreat, while Russia’s Micex Index retreated 1.8 percent on oil’s decline. To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net ; Eric Martin in New York at emartin21@bloomberg.net .

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Japanese Exports Fall By Least in a Year as Global Stimulus Boosts Demand

November 24, 2009

By Keiko Ujikane and Kyoko Shimodoi Nov. 25 (Bloomberg) — Japan’s exports fell at the slowest pace in a year in October as stimulus spending by governments worldwide boosted demand, sustaining the nation’s recovery from its deepest postwar recession. Shipments abroad dropped 23.2 percent from a year earlier, compared with a 30.6 percent decline in September, the Finance Ministry said today in Tokyo. The median estimate of 18 economists surveyed by Bloomberg was for a 26.8 percent drop. Renewed demand from emerging nations including China is spurring sales for Japanese manufacturers from Honda Motor Co. to Hitachi Construction Machinery Co. Exports helped Japan’s economy expanded at the fastest pace in more than two years in the third quarter, even as prices of goods declined and the yen gained 7.4 percent against the dollar. “China’s demand is considerably strong, actually stronger than we thought,” said Junko Nishioka , chief economist at RBS Securities Japan Ltd. in Tokyo. “That means the export-led recovery story will go on in the fourth quarter, despite the yen appreciation.” The yen traded at 88.59 per dollar at 8:54 a.m. in Tokyo from 88.61 before the report was published. Imports slid 35.6 percent, resulting in a trade surplus of 807.1 billion yen ($9.1 billion), the ministry said. From a month earlier, exports rose 2.5 percent. Japanese exporters are benefiting from a global trade rebound that’s being driven by interest-rate cuts and more than $2 trillion in government spending worldwide. Stimulus Boost Honda Motor, Japan’s second-largest carmaker, almost tripled its full-year profit forecast as government stimulus measures boosted demand for fuel-efficient vehicles in China and Japan. The automaker expects net income of 155 billion yen ($1.7 billion) in the year ending March, compared with an earlier forecast of 55 billion yen, it said on Oct. 27. Hitachi Construction Machinery, Asia’s second-largest excavator maker, returned to profit last quarter as cost cuts countered a sales slide triggered by the global recession. “Looking ahead, Japan’s economy may sustain a gradual recovery driven by an increase in exports, although personal consumption and public works spending are expected to decline,” said Yoshiki Shinke , a senior economist at Dai-Ichi Life Research Institute in Tokyo. China’s economy will probably expand 10.5 percent in the fourth quarter from a year earlier, after growing 8.9 percent in the previous quarter, according to the median forecast of 38 economists surveyed by Bloomberg News. The country’s 4 trillion yuan ($586 billion) stimulus plan and record lending growth has helped the nation’s economic growth accelerate. Falling Prices Even as exports rebound, falling prices in Japan threaten to squeeze profits and wages, smothering demand in an economy that analysts say may slow in coming months once global stimulus effects wane. The yen’s advance against the dollar in the past three months is also eroding exporters’ profits. The government last week declared the economy is in deflation for the first time in three years, pressing the Bank of Japan to be more aggressive about tackling price declines. The domestic demand deflator , a measure of price levels that excludes the cost of imports, fell 2.6 percent in the third quarter from a year earlier, the most since 1958, Cabinet Office figures showed last week. Gross domestic product jumped 4.8 percent, the most since early 2007. “Japan’s economy is in chronic deflation,” said Yasunari Ueno , chief market economist at Mizuho Securities Co. in Tokyo. “Deflation is strengthening little by little” because weak demand and a higher yen are exerting downward pressure on prices, he said. To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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ECB Said to Debate Putting Adjustable Interest Rate on 12-Month Loans

November 24, 2009

By Jana Randow and Gabi Thesing Nov. 24 (Bloomberg) — European Central Bank officials are debating whether to put an adjustable interest rate on December’s 12-month loans, with some saying it risks being taken as a signal they will tighten monetary policy in 2010, according to people familiar with the discussions. As the ECB moves closer to withdrawing emergency support for the economy, officials are examining whether to make the rate on next month’s loans track any increase in the bank’s key rate. While a final decision hasn’t been made, the 22-member Governing Council is leaning toward sticking with a fixed rate of 1 percent, said the people, who declined to be identified because the discussions are private. The ECB is offering banks unlimited funds for 12 months as part of its strategy to get them lending again. Some officials fear putting a floating rate on the loans would prematurely fuel expectations that the ECB will lift its benchmark rate from 1 percent next year, which could in turn raise the cost of money on markets and propel the euro higher. The risk of lending at a fixed rate is that it may undermine the effect of any increase in the benchmark should the ECB deem it necessary. “The ECB is in a trap,” said Julian Callow , chief European economist at Barclays Capital in London. “The 12-month tenders are something the ECB put in place in the dark time of the second quarter. If they started with a clean sheet of paper today, they probably wouldn’t have this operation.” An ECB spokeswoman declined to comment. No Signal The euro rose to $1.4961 from $1.4944. Policy makers have already agreed that the December 12-month tender will be the last, even though some wanted to retain the option of using the tool again. The bank may also reduce the frequency of its three-month and six-month tenders next year to one of each per quarter, one of the people familiar with the deliberations said. While scaling back lending operations is the first step in the ECB’s exit strategy, officials don’t want to signal rate increases are in any way imminent, the people said. At the same time, there are diverging views on the Governing Council over how long to leave the ECB’s expansionary policies in place. Executive Board member Juergen Stark said on Nov. 17 that the response to the crisis “should not sow the seeds for new imbalances,” and the ECB is “moving closer to phasing out our liquidity measures.” Key Plank Others on the council, such as Athanasios Orphanides of Cyprus, are concerned that the economy is too weak to drive inflation back toward 2 percent, the ECB’s medium-term goal. The central bank’s survey of professional forecasters shows inflation is expected to average 1.6 percent in 2011. The 12-month loans are one of the key planks in the ECB’s response to the financial crisis. They allow banks to borrow as much money as they want for a year at the benchmark rate. The ECB retained the option of adding a spread to the rate on the December loans, the third offering, which would help to limit demand. A spread is considered unlikely, the people said. Another option being examined is to tie the rate on the loans to market rates. Council members will probably reject that because it’s too complicated, the people said. Banks drew 75 billion euros ($112 billion) in September’s 12-month tender, down from 442 billion euros in the first tender in June, which was the highest amount ever allotted in an ECB refinancing operation. ‘I Exclude Nothing’ The 16-nation euro region emerged from its worst recession since World War II in the third quarter. Economists expect the ECB to raise its key policy rate in the third quarter of 2010, according a Bloomberg News survey. Under that scenario, if the ECB elected to lend the 12- month funds in December at a fixed 1 percent, banks would have cash for at least three months at a cheaper rate than the ECB’s key rate. ECB President Jean-Claude Trichet said this week he’ll give details on the next tranche of 12-month loans after the bank’s Dec. 3 policy meeting in Frankfurt. “We will decide on whether or not we will have indexed rates or fixed rates like we did before,” he said in Madrid. “I exclude nothing.” To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net ; Gabi Thesing in Frankfurt at gthesing@bloomberg.net

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Company Profits in U.S. Stage Lopsided Gain as Financial Firms Pull Ahead

November 24, 2009

By Timothy R. Homan Nov. 24 (Bloomberg) — Profits at U.S. companies climbed in the third quarter by the most in five years, reflecting a rebound in bank earnings. Corporate profits were up 11 percent from the prior three months to $1.36 trillion, the biggest gain since the first quarter of 2004, the Commerce Department reported today in Washington. Domestically, earnings at financial institutions surged by $97 billion, or 36 percent, while those at other companies climbed by $12.9 billion, or 2 percent. Firms from Goldman Sachs Group Inc. to Morgan Stanley boosted results last quarter through trading as financial markets continued to improve following the collapse of Lehman Brothers Holdings Inc. last year. Other companies prospered by cutting costs as sales began to improve, indicating they will not be quick to boost payrolls in coming months. “The weakness in the non-financials tells you how limited this recovery is at this point,” said Joel Naroff , chief economist at Naroff Economic Advisors Inc. in Holland, Pennsylvania. “Businesses are going to be very cautious in increasing the cost side and the biggest part of the cost side is labor. They aren’t going to rush out and hire.” The profit figures, included in the Commerce Department’s report on gross domestic product, were the first look at total earnings. The data showed the world’s largest economy grew at a 2.8 percent annual pace from July through September, less than the government estimated last month, as consumer spending trailed forecasts. Record Surge In the first three quarters of 2009, profits at financial institutions soared 198 percent, the biggest nine-month gain since records began in 1948. Earnings were down 65 percent in the nine months ended in December 2008, the biggest such decrease on record. “The financials were a basket case,” said Naroff. “The companies are coming off such a low basis that it’s easy to get a big increase.” The Standard & Poor’s Financial Supercomposite Index has climbed 123 percent since March 9, compared with a 63 percent gain in the S&P 500 Index. The S&P 500 fell to a 12-year low on March 9. The jump in profits is probably not evenly distributed among banks, said Naroff, making it less likely that the money will find its way back into the economy in the form of loans . “Unfortunately, not every company is a Goldman,” Naroff said. “Not everyone is going to make tons of money.” The banking system’s ability to boost lending and spur business investment “will look more like a slow stream than a river.” Purchases of equipment and software increased at a 2.3 percent pace last quarter, today’s GDP report showed. Goldman, JPMorgan Goldman, the most profitable securities firm in Wall Street history, posted earnings of $3.19 billion last quarter, following a record $3.44 billion the previous three months. Third-quarter earnings at JPMorgan Chase & Co., the second- largest U.S. bank, were the highest since the subprime mortgage market collapsed in 2007. Morgan Stanley’s earnings were $757 million in the third quarter after an increase in risk-taking boosted trading revenue and contributed to the bank’s first profit in a year. Nariman Behravesh is among economists who said last quarter’s reading on profits was good news for the economy. “The profits numbers are the single-biggest piece of good news in this report,” said Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. The gain “was lopsided, and that is a concern. But even that is good news. Obviously the banking system is healing and its balance sheet is increasing, and that is a necessary condition for a more broad-based recovery in the economy.” President Barack Obama has asked Treasury Secretary Timothy Geithner and Small Business Administration administrator Karen Mills to convene a conference of regulators, congressional leaders, lenders and entrepreneurs to come up with additional steps to improve the flow of credit to small businesses looking to expand. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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FDIC Insurance Fund Goes Into The Red; Number Problem Banks Rise To Highest Level In 16 Years

November 24, 2009

WASHINGTON — The apparent end of the recession and stabilizing financial markets have not cured the banking industry, the Federal Deposit Insurance Corp. said Tuesday. Banks earned $2.8 billion in the third quarter, but loan balances plummeted and the fund that insures their deposits was $8.2 billion in the red. Souring loans continued to hurt bank balance sheets, but they were buoyed by higher operating revenues and a revived market for securities, the FDIC said. The number of banks on the FDIC’s “problem list” rose to 552 from 416 on June 30, the highest level in 16 years. Fifty banks failed during the quarter – the largest number since the second quarter of 1990. The FDIC’s fund that insures bank deposits fell by $18.6 billion, mostly because $21.7 billion was set aside for expected losses on future bank failures. The FDIC voted this month to require banks to prepay three years of deposit insurance premiums at the end of the year to help replenish the dwindling fund, which is at its lowest point on record. The last similar deficit was in Dec. 1991, when a predecessor fund was more than $7 billion in the red. Bank failures this year through 2013 are expected to cost the fund $100 billion – mostly in 2009 and 2010. But depositors’ money – insured up to $250,000 per account – is not at risk, with the FDIC backed by the government. Bank profits returned in the third quarter after a $4.3 billion loss in the previous quarter and $879 million in earnings last year. “While bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance,” FDIC Chairman Sheila Bair said. A 2.8 percent drop-off in loans outstanding – the largest percentage decline on record – showed that credit for consumers and businesses remained tight, she said. “There is no question that credit availability is an important issue for the economic recovery,” Bair said. “We need to see banks making more loans to their business customers,” especially small businesses.

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Distressed properties increase (Mortgage Introducer)

November 24, 2009

During the third quarter of 2009, RICS surveyed members and other real estate executives in 25 countries across the globe to ascertain the volume of distressed sales in the commercial property market.

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Recovery reins in distressed property rise (Financial Times)

November 23, 2009

More than four-fifths of the world’s established commercial property markets saw an increase in distressed real estate in the third quarter, although the recovery in markets such as the UK has seen the increase in problems for property owners diminish.

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Distressed Sales Of Global Commercial Property Up In 3Q – RICS (The Forex Market)

November 23, 2009

LONDON (Dow Jones)–Distressed sales of commercial property continued to rise around the world in the third quarter of the year, and are expected to increase again in the fourth quarter, as business lending remains subdued, with the U.S. reporting the second largest quarterly increase for the second straight quarter, a survey showed Tuesday.

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U.S. Stocks Join Global Retreat as Dell, Horton Shares Fall; Dollar Climbs

November 20, 2009

By Elizabeth Stanton Nov. 20 (Bloomberg) — U.S. stocks fell, joining a global retreat, as earnings at Dell Inc. and D.R. Horton Inc. trailed analysts’ estimates and concern grew that European Central Bank policy makers will phase out economic stimulus measures. The dollar rose and two-year Treasury note yields fell to the lowest level of the year as investors sought safer assets. The Standard & Poor’s 500 Index slipped 0.3 percent to 1,091.38 at 4:03 p.m. in New York as Dell tumbled the most this year to lead declines in technology shares. Europe’s Dow Jones Stoxx 600 Index and the MSCI Asia-Pacific Index dropped for the fourth straight day, the longest streaks in four months. Crude oil declined as the Dollar Index gained as much as 0.8 percent. “We live in a world where on a day-to-day basis all risk assets move in the same direction, and it’s the opposite direction from the dollar,” said John Kattar , who oversees $1.6 billion as chief investment officer at Eastern Investment Advisors in Boston. “There is a lot of good news built into stock prices, and stocks are more or less fairly valued given the fundamentals.” U.S. equities fell for a third straight day, with the S&P 500 dropping 0.2 percent over the past five days to cap its first weekly decline since October. The Dow Jones Industrial Average lost 14.28 points, or 0.1 percent, to 10,318.16 and rose 0.5 percent in the week. Declines were limited today as Pfizer Inc. and Merck & Co. led gains in drugmakers while J.M. Smucker Co. paced an advance in consumer staples companies. Less than 7 billion shares changed hands on U.S. exchanges, the fourth-slowest trading session of the year. Rebound Stalls The S&P 500 rose as much as 64 percent from a 12-year low in March, closing at a 13-month high on Nov. 17. The deepest U.S. economic contraction in seven decades ended in the third quarter, when government incentives spurred spending on homes and cars. Corporate profits, which have shrunk for a record nine straight quarters, are projected to rise in the current period, according to analyst estimates compiled by Bloomberg. Dell , the third-largest maker of personal computers, slid 10 percent to $14.29 after reporting profit decreased by more than half. Technology shares in the S&P 500, the largest among 10 industries, lost 0.6 percent as a group and contributed the most to the retreat. “In an economy that’s growing slowly, we’re finding some companies that are continuing to execute well and some that are faltering,” said Alan Gayle , senior investment strategist at Ridgeworth Capital Management in Richmond, Virginia. “The market wants to see companies that can deliver on their business model, and it’s pretty clear Dell’s business model isn’t as effective as it has been in years past.” Ridgeworth manages $60 billion. Builders Slump D.R. Horton Inc. tumbled 15 percent to $10.37 for the steepest loss in the S&P 500. The second-largest U.S. homebuilder by revenue reported a fourth-quarter loss of 73 cents per share, three times wider than the average estimate of analysts surveyed by Bloomberg. All but one of 12 companies in an index of homebuilders retreated, with Pulte Homes Inc., Lennar Corp. and KB Home each slumping at least 3.4 percent. J. M. Smucker added 5.4 percent to $56.35. Second-quarter earnings excluding some items were $1.22 a share, 18 percent higher than the average analyst estimate, as sales of Folgers coffee helped boost revenue by 52 percent. Earnings Season Per-share earnings topped the average analyst estimate at 80 percent of S&P 500 companies that have released third-quarter results, the biggest share for a full quarter in Bloomberg data going back to 1993. Still, combined profits are down 14 percent from the year-earlier period. Dillard’s Inc. added 9.7 percent after the department-store chain was raised to “buy” from “hold” and its share price estimate increased to $28 from $13.50 at Deutsche Bank AG, which said the company is positioned better than almost all investors estimate to increase earnings based on merchandising and cost control initiatives. MetroPCS Communications Inc. climbed 6.5 percent to $6.52 for the biggest gain in the S&P 500 on speculation it may be acquired. Robert Dezego , an analyst at SunTrust Robinson Humphrey Inc. in Atlanta, said MetroPCS is the focus of renewed speculation about mergers in the global telecommunications industry. Trichet’s Liquidity Concern European stocks slipped as Trichet said the ECB will remove liquidity in order to ensure the bank doesn’t fuel inflation. “Not all our liquidity measures will be needed to the same extent as in the past,” Trichet said at a conference in Frankfurt today. “Any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally.” Trichet has already signaled the ECB is unlikely to renew its offer of 12-month loans to banks after the third installment in December. Council member Guy Quaden indicated this week that the bank may offer fewer three-month and six-month loans next year. At the same time, policy makers have stressed the exit from emergency lending measures doesn’t necessarily imply they will raise interest rates soon. “Stocks all over the world and all risk asset classes are being driven by this liquidity factor,” which also is reflected in U.S. dollar weakness, Eastern Investment Advisors’ Kattar said. The Dollar Index, which gauges the dollar against a basket of six major currencies, rose 0.4 percent to 75.607 and climbed as high as 75.879. It rose three out of the last four days after touching a 15-month low on Nov. 16. The U.S. currency gained against all 16 major currencies except the yen. The yen rose against all 16. Europe, Asia Europe’s Dow Jones Stoxx 600 Index lost 0.8 percent, led by real-estate and financial shares. Asian shares declined after Sony Corp. said it will take longer to reach its profitability targets. Sony slid 2.4 percent in Tokyo. Additional strength in the dollar “is the primary near- term risk to equities,” Myles Zyblock , a strategist at RBC Capital Markets in Toronto, wrote in a report today. Energy companies in the S&P 500 fell 0.9 percent as a group, the biggest decline among the benchmark’s 10 industry groups, as the dollar’s rebound spurred drop in the price of crude oil. Merck and Pfizer led health-care companies to a 0.6 percent gain, the biggest in the S&P 500. “Some of the good value, high-quality companies that got left behind over the last year are increasingly getting interest” from investors, said Michael Shinnick , a South Bend, Indiana-based money manager at Wasatch Advisors Inc. Merck is among the holdings of the Wasatch-1st Source Income Equity Fund he helps manage. The two-year Treasury note yield touched 0.67 percent, the lowest since December, and fell nine basis points this week. Treasury three-month bill rates turned negative yesterday for the first time since December as investors were willing to pay for the safety of the shortest-dated U.S. government assets. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net .

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U.S. Stocks Join Global Retreat as Dell, Horton Shares Fall; Dollar Climbs

November 20, 2009

By Elizabeth Stanton Nov. 20 (Bloomberg) — U.S. stocks fell, joining a global retreat, as earnings at Dell Inc. and D.R. Horton Inc. trailed analysts’ estimates and concern grew that European Central Bank policy makers will phase out economic stimulus measures. The dollar rose and two-year Treasury note yields fell to the lowest level of the year as investors sought safer assets. The Standard & Poor’s 500 Index slipped 0.3 percent to 1,091.38 at 4:03 p.m. in New York as Dell tumbled the most this year to lead declines in technology shares. Europe’s Dow Jones Stoxx 600 Index and the MSCI Asia-Pacific Index dropped for the fourth straight day, the longest streaks in four months. Crude oil declined as the Dollar Index gained as much as 0.8 percent. “We live in a world where on a day-to-day basis all risk assets move in the same direction, and it’s the opposite direction from the dollar,” said John Kattar , who oversees $1.6 billion as chief investment officer at Eastern Investment Advisors in Boston. “There is a lot of good news built into stock prices, and stocks are more or less fairly valued given the fundamentals.” U.S. equities fell for a third straight day, with the S&P 500 dropping 0.2 percent over the past five days to cap its first weekly decline since October. The Dow Jones Industrial Average lost 14.28 points, or 0.1 percent, to 10,318.16 and rose 0.5 percent in the week. Declines were limited today as Pfizer Inc. and Merck & Co. led gains in drugmakers while J.M. Smucker Co. paced an advance in consumer staples companies. Less than 7 billion shares changed hands on U.S. exchanges, the fourth-slowest trading session of the year. Rebound Stalls The S&P 500 rose as much as 64 percent from a 12-year low in March, closing at a 13-month high on Nov. 17. The deepest U.S. economic contraction in seven decades ended in the third quarter, when government incentives spurred spending on homes and cars. Corporate profits, which have shrunk for a record nine straight quarters, are projected to rise in the current period, according to analyst estimates compiled by Bloomberg. Dell , the third-largest maker of personal computers, slid 10 percent to $14.29 after reporting profit decreased by more than half. Technology shares in the S&P 500, the largest among 10 industries, lost 0.6 percent as a group and contributed the most to the retreat. “In an economy that’s growing slowly, we’re finding some companies that are continuing to execute well and some that are faltering,” said Alan Gayle , senior investment strategist at Ridgeworth Capital Management in Richmond, Virginia. “The market wants to see companies that can deliver on their business model, and it’s pretty clear Dell’s business model isn’t as effective as it has been in years past.” Ridgeworth manages $60 billion. Builders Slump D.R. Horton Inc. tumbled 15 percent to $10.37 for the steepest loss in the S&P 500. The second-largest U.S. homebuilder by revenue reported a fourth-quarter loss of 73 cents per share, three times wider than the average estimate of analysts surveyed by Bloomberg. All but one of 12 companies in an index of homebuilders retreated, with Pulte Homes Inc., Lennar Corp. and KB Home each slumping at least 3.4 percent. J. M. Smucker added 5.4 percent to $56.35. Second-quarter earnings excluding some items were $1.22 a share, 18 percent higher than the average analyst estimate, as sales of Folgers coffee helped boost revenue by 52 percent. Earnings Season Per-share earnings topped the average analyst estimate at 80 percent of S&P 500 companies that have released third-quarter results, the biggest share for a full quarter in Bloomberg data going back to 1993. Still, combined profits are down 14 percent from the year-earlier period. Dillard’s Inc. added 9.7 percent after the department-store chain was raised to “buy” from “hold” and its share price estimate increased to $28 from $13.50 at Deutsche Bank AG, which said the company is positioned better than almost all investors estimate to increase earnings based on merchandising and cost control initiatives. MetroPCS Communications Inc. climbed 6.5 percent to $6.52 for the biggest gain in the S&P 500 on speculation it may be acquired. Robert Dezego , an analyst at SunTrust Robinson Humphrey Inc. in Atlanta, said MetroPCS is the focus of renewed speculation about mergers in the global telecommunications industry. Trichet’s Liquidity Concern European stocks slipped as Trichet said the ECB will remove liquidity in order to ensure the bank doesn’t fuel inflation. “Not all our liquidity measures will be needed to the same extent as in the past,” Trichet said at a conference in Frankfurt today. “Any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally.” Trichet has already signaled the ECB is unlikely to renew its offer of 12-month loans to banks after the third installment in December. Council member Guy Quaden indicated this week that the bank may offer fewer three-month and six-month loans next year. At the same time, policy makers have stressed the exit from emergency lending measures doesn’t necessarily imply they will raise interest rates soon. “Stocks all over the world and all risk asset classes are being driven by this liquidity factor,” which also is reflected in U.S. dollar weakness, Eastern Investment Advisors’ Kattar said. The Dollar Index, which gauges the dollar against a basket of six major currencies, rose 0.4 percent to 75.607 and climbed as high as 75.879. It rose three out of the last four days after touching a 15-month low on Nov. 16. The U.S. currency gained against all 16 major currencies except the yen. The yen rose against all 16. Europe, Asia Europe’s Dow Jones Stoxx 600 Index lost 0.8 percent, led by real-estate and financial shares. Asian shares declined after Sony Corp. said it will take longer to reach its profitability targets. Sony slid 2.4 percent in Tokyo. Additional strength in the dollar “is the primary near- term risk to equities,” Myles Zyblock , a strategist at RBC Capital Markets in Toronto, wrote in a report today. Energy companies in the S&P 500 fell 0.9 percent as a group, the biggest decline among the benchmark’s 10 industry groups, as the dollar’s rebound spurred drop in the price of crude oil. Merck and Pfizer led health-care companies to a 0.6 percent gain, the biggest in the S&P 500. “Some of the good value, high-quality companies that got left behind over the last year are increasingly getting interest” from investors, said Michael Shinnick , a South Bend, Indiana-based money manager at Wasatch Advisors Inc. Merck is among the holdings of the Wasatch-1st Source Income Equity Fund he helps manage. The two-year Treasury note yield touched 0.67 percent, the lowest since December, and fell nine basis points this week. Treasury three-month bill rates turned negative yesterday for the first time since December as investors were willing to pay for the safety of the shortest-dated U.S. government assets. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net .

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Stocks, Commodities Fall on Trichet Remarks, Dell Earnings; Dollar Climbs

November 20, 2009

By Elizabeth Stanton Nov. 20 (Bloomberg) — Stocks and commodities fell after European Central Bank President Jean-Claude Trichet said policy makers will withdraw emergency cash gradually and Dell Inc.’s earnings trailed analysts’ estimates. The yen and dollar rose. The Standard & Poor’s 500 Index slipped 0.5 percent to 1,089.37 at 11:58 a.m. in New York as Dell tumbled the most this year to lead declines in technology shares. Europe’s Dow Jones Stoxx 600 Index and the MSCI Asia-Pacific Index dropped for the fourth straight day, the longest streaks in four months. Crude oil declined as the Dollar Index gained as much as 0.8 percent. “We live in a world where on a day-to-day basis all risk assets move in the same direction, and it’s the opposite direction from the dollar,” said John Kattar , who oversees $1.6 billion as chief investment officer at Eastern Investment Advisors in Boston. “There is a lot of good news built into stock prices, and stocks are more or less fairly valued given the fundamentals.” U.S. equities fell for a third straight day, with the S&P 500 poised for its first weekly decline since October. The Dow Jones Industrial Average lost 44.06 points, or 0.4 percent, to 10,288.28. Declines were limited today as J.M. Smucker Co. led gains in consumer staples companies after the maker of jams and Jif peanut butter reported better-than-estimated earnings. Rebound Stalls The S&P 500 rose as much as 64 percent from a 12-year low in March, closing at a 13-month high of 1,110.32 on Nov. 17. The deepest U.S. economic contraction in seven decades ended in the third quarter, when government incentives spurred consumers to spend more on homes and cars. Corporate profits, which have shrunk from year-earlier levels for a record nine straight quarters, are projected to rise in the current period, according to analyst estimates compiled by Bloomberg. Dell , the third-largest maker of personal computers, slid as much as 9.7 percent after reporting a 54 percent drop in profit. “In an economy that’s growing slowly, we’re finding some companies that are continuing to execute well and some that are faltering,” said Alan Gayle , senior investment strategist at Ridgeworth Capital Management in Richmond, Virginia. “The market wants to see companies that can deliver on their business model, and it’s pretty clear Dell’s business model isn’t as effective as it has been in years past.” Ridgeworth manages $60 billion. D.R. Horton Inc. tumbled 12 percent for the steepest loss in the S&P 500. The second-largest U.S. homebuilder by revenue reported a fourth-quarter loss of 73 cents per share, three times wider than the average estimate of analysts surveyed by Bloomberg. All 12 shares in an index of homebuilders retreated, with Pulte Homes Inc., Lennar Corp. and KB Home each slumping at least 4 percent. Smucker Rallies J. M. Smucker added 4.9 percent. Second-quarter earnings excluding some items were $1.22 a share, 18 percent higher than the average analyst estimate, as sales of Folgers coffee helped boost revenue by 52 percent. Per-share earnings topped the average analyst estimate at 80 percent of S&P 500 companies that have released third-quarter results, the biggest share for a full quarter in Bloomberg data going back to 1993. Still, combined profits are down 14 percent from the year-earlier period. Dillard’s Inc. added 9.1 percent to $15.58 after the department-store chain was raised to “buy” from “hold” and its share price estimate increased to $28 from $13.50 at Deutsche Bank AG, which said the company is positioned better than almost all investors estimate to increase earnings based on merchandising and cost control initiatives. Trichet’s Liquidity Concern European stocks slipped as Trichet said the ECB will remove liquidity in order to ensure the bank doesn’t fuel inflation. “Not all our liquidity measures will be needed to the same extent as in the past,” Trichet said at a conference in Frankfurt today. “Any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally.” Trichet has already signaled the ECB is unlikely to renew its offer of 12-month loans to banks after the third installment in December. Council member Guy Quaden indicated this week that the bank may offer fewer three-month and six-month loans next year. At the same time, policy makers have stressed the exit from emergency lending measures doesn’t necessarily imply they will raise interest rates soon. “Stocks all over the world and all risk asset classes are being driven by this liquidity factor,” which also is reflected in U.S. dollar weakness, Eastern Investment Advisors’ Kattar said. Dollar Gains The Dollar Index, which gauges the dollar against a basket of six major currencies, rose 0.3 percent. It has climbed three out of the last four days after touching a 15-month low on Nov. 16. The U.S. currency gained against 15 of the world’s 16 major currencies. It was unchanged against the yen, which also rose against its 15 most-traded currencies. Europe’s Dow Jones Stoxx 600 Index lost 0.8 percent, led by real-estate and financial shares. Asian shares declined after Sony Corp. said it will take longer to reach its profitability targets. Sony slid 2.4 percent in Tokyo. Additional strength in the dollar “is the primary near- term risk to equities,” Myles Zyblock , a strategist at RBC Capital Markets in Toronto, wrote in a report today. Energy companies in the S&P 500 fell 1.2 percent as a group, the biggest decline among the benchmark’s 10 industry groups, as the dollar’s rebound spurred drop in the price of crude oil. Materials companies fell 1 percent as other dollar- denominated commodities including gold, silver, aluminum and nickel also retreated. Freeport-McMoRan Copper & Gold Inc. and Newmont Mining Corp. lost at least 1.4 percent. Treasury three-month bill rates turned negative yesterday for the first time since December as investors were willing to pay for the safety of the shortest-dated U.S. government assets. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net .

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Housing Recovery in U.S. Set Back to 2010 With Market on `Life Support’

November 20, 2009

By Kathleen M. Howley and John Gittelsohn Nov. 20 (Bloomberg) — A recovery in U.S. housing will have to wait at least until next year. The outlook for the home market dimmed this week as residential construction and mortgage applications fell and loan delinquencies reached a record. “I don’t think the housing crisis is over,” Mark Zandi , chief economist with Moody’s Economy.com, said in a telephone interview. “I think we’re going to see another leg down.” New home sales may begin to pick up by the start of the so-called spring selling season, said Toll Brothers Inc., the largest U.S. luxury homebuilder. Existing house sales may take longer. Residential construction and property sales led the way out of the previous seven recessions going back to 1960, said David Berson , chief economist of PMI Group, the mortgage insurer in Walnut Creek, California. Mortgage applications for home purchases fell to a 12-year low last week and foreclosures rose to record highs in the third quarter, according to reports from the Mortgage Bankers Association. An index measuring November homebuilder confidence came in lower than the median forecast of 45 economists this week. The Commerce Department on Nov. 18 said residential building dropped 11 percent in October to the lowest level since April’s all-time bottom. ‘Challenging’ Conditions “Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of available homes, increasing unemployment, tight credit for homebuyers and weak consumer confidence,” said Donald R. Horton , chairman of D.R. Horton Inc., the nation’s second-largest homebuilder. The company today reported a fourth-quarter loss of $231.9 million on $1 billion in sales, missing analysts’ estimates. The $8,000 federal tax credit for first-time buyers, extended by President Barack Obama on Nov. 6, drove existing home sales to a two-year high in September. At the same time, a 26-year high in unemployment is keeping many buyers out of the market and pushing existing owners into foreclosure. U.S. companies have shed 7.3 million jobs since December 2007, the biggest contraction since the Great Depression, and the unemployment rate jumped to 10.2 percent in October, the highest since 1983, according to the Bureau of Labor Statistics. The jobless rate probably will peak at 10.4 percent in 2010’s first quarter, even as the U.S. economy continues an expansion that began in the third quarter, said Douglas Duncan , chief economist of Fannie Mae, the largest mortgage financier. Loan Delinquencies “You don’t pay a mortgage with economic output — you pay a mortgage with a paycheck,” Jay Brinkmann , MBA’s chief economist, said yesterday. The share of all types of home loans with one or more payments overdue climbed to a record seasonally adjusted 9.64 percent in the third quarter, the Washington-based trade group said in a report yesterday. The Standard & Poor’s Supercomposite Homebuilding Index of 12 companies tumbled almost 5 percent in the six days through yesterday as negative housing data crushed hopes of a recovery. There are signs that parts of the U.S. are rebounding. California, among the states where the housing bust started, is one of the few areas that’s beginning to recover. October home prices in Orange County, San Diego and the San Francisco Bay Area increased from a year earlier, MDA DataQuick, a San Diego property information service, said this week. The number of sales also increased in the Bay Area and Southern California. Tenuous Stabilization “We have to be aware that the stabilization that we’ve seen so far is tenuous at best,” Lennar Corp. Chief Executive Stuart A. Miller said Nov. 17 at a conference in New York sponsored by UBS AG. Homebuilders and investors will get a better gauge of whether housing demand is stabilizing in 2010’s first quarter, said Robert Toll , chairman and chief executive officer of Toll Brothers, the largest builder of luxury houses. The spring selling season for homebuilders typically begins in February, earlier than the resale market because families with children want to be able to move into a home before September’s start of school. It can take up to six months to build a home, and up to 9 months to build the larger houses sold by Toll Brothers. Spring Recovery “My prediction is we’ll probably recover on a seasonal basis,” Toll said yesterday at a conference in New York sponsored by Citigroup Inc. “It’s generally accepted that the homebuilding industry is off the mat and on the road to recovery.” The U.S. median existing home price tumbled 28 percent over three years to $164,800 in January, the lowest in more than seven years, according to the National Association of Realtors. A month later, Congress passed the American Recovery and Reinvestment Act of 2009 giving a tax credit to first-time buyers. Existing home prices probably will fall 12 percent this year to a median of $173,800, while the new-home median likely will tumble 8.7 percent to $212,000, according to a forecast on Fannie Mae’s Web site. Combined sales of new and existing properties probably will drop 0.7 percent to 5.36 million, even with the federal tax credit, after plunging 16 percent last year. “The first-time homebuyer tax credit juiced up sales,” said Moody’s Zandi. “The stimulus was helpful. It augurs, at the very least, that policy makers can’t pull life support from housing.” Bouncing at Bottom Josh Levin , a housing analyst at Citigroup Global Markets Inc. in New York, said he expects sales to continue to be slow until January or early February, followed by a surge as buyers try to beat the April 30 expiration of the tax credit. “The bouncing along the bottom is distorted by government policies,” he said in an interview yesterday. Foreclosures will also have limited impact on driving down real estate prices as long as banks are slow to put properties on the market and the government encourages loan modification programs, he said. “It’s clear the government and banks don’t want to flood the market with foreclosed homes and it’s clear it’s going to be dragged out,” he said. To contact the reporters on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net ; John Gittelsohn in New York at johngitt@bloomberg.net .

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KKR Reports $656.6 Million Profit as Buyout Investments Triple in Rebound

November 19, 2009

By Jason Kelly Nov. 20 (Bloomberg) — KKR & Co. , the private-equity firm run by Henry Kravis and George Roberts , said it had a third- quarter profit of $656.6 million in its first report after becoming a publicly listed company as buyouts rebounded. Profit adjusted for the impact of an Oct. 1 merger with its publicly traded European fund would have been about $300 million less, the New York-based firm said yesterday. KKR, whose shares are listed in Amsterdam, lost $465.6 million in the year-earlier period. Deal-making is picking up along with debt and equity markets after a two-year drought caused by the global credit crisis. KKR, founded in 1976, has announced two buyouts in the past six months and its private-equity commitments rose to $1.1 billion from $326.6 million in last year’s third quarter, according to the statement. “We are seeing interesting situations to invest capital all over the world, across various industries and throughout the capital structure,” Kravis and Roberts said in the statement, noting improvement in equity and debt markets. The Standard & Poor’s 500 Index has rallied 62 percent from its 12-year low on March 9. Loan prices as measured by S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks the most-actively traded loans, has gained a record 37 percent this year after declining in 2008. Assets under management were $54.8 billion, as of Sept. 30, compared with $50.8 billion in June and $58 billion a year earlier. KKR said it had uncalled private-equity commitments of $14.2 billion at the end of the third quarter. IPO Market The firm completed public listings in the quarter for companies it owns including chipmaker Avago Technologies Ltd. and discount retailer Dollar General Corp. KKR has said it may seek to move the Amsterdam listing to the New York Stock Exchange next year. Blackstone Group LP, the world’s largest private-equity company, went public in New York in June 2007. Blackstone trades at about half its $31-a-share IPO price. Shares of KKR have surged more than 50 percent since June, when the firm announced plans to complete the merger with the European fund, known as KKR Private Equity Investors LP. The stock slid 20 cents, or 2.2 percent, to $8.80 yesterday in Amsterdam . The firm also reported separate results for KKR Guernsey, the portion of the new firm formerly known as KKR Private Equity Investors. Its net asset value rose to $3.5 billion from $3 billion in June. $300 Million Adjustment KKR said the third-quarter profit of $656.6 million should include “certain adjustments” totaling about $300 million related to the merger, including gains associated with some KKR funds held by KKR principals. KKR and private-equity firm General Atlantic LLC agreed earlier this month to buy a government-consulting unit of Northrop Grumman Corp. for $1.65 billion. KKR purchased Oriental Brewery Co. earlier this year from Anheuser-Busch InBev NV. The firm has moved into non-buyout areas including capital markets in an effort to increase profits. The capital markets division helped underwrite the Dollar General IPO. KKR is carrying its interest in discount retailer Dollar General at about 1.7 times cost, according to the statement. It values its investment in Energy Future Holdings Corp., the power producer formerly known as TXU Corp., at about 50 cents on the dollar. To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net

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U.K. Royal Mint Quadruples Gold-Coin Output as Investors Chase Diversity

November 19, 2009

By Thomas Biesheuvel and Nicholas Larkin Nov. 19 (Bloomberg) — The U.K.’s Royal Mint , established in the 13th century, more than quadrupled production of gold coins in the third quarter after demand for the metal increased as investors sought to hedge against a weakening dollar. Output rose to 32,735.8 ounces from 7,500.2 ounces a year before, according to data obtained by Bloomberg News under a Freedom of Information Act request. Production in the first nine months more than tripled to 100,391.3 ounces, the data show. Gold is set for a ninth annual gain as countries have cut interest rates to near zero percent and spent $2 trillion to pull the global economy out of the worst recession since World War II. The metal reached a record in London yesterday and has gained about 30 percent this year, while the dollar has dropped 7.8 percent against a basket of six currencies. “There’s still a total lack of confidence in the financial system,” David Russell , a director at Dublin-based brokerage and bullion dealer GoldCore Ltd., said in an interview. “Investors are seeing the benefits of diversifying into gold. Smaller investors are clued into the fact that inflation possibilities are a worry for the future.” Sales of American Eagle gold coins by the U.S. Mint more than doubled in the first nine months to 954,000 ounces, its Web site showed. Harrods Ltd., the London department store, began selling gold bars and coins for the first time in October. Tangible Asset Muenze Oesterreich AG , the Austrian mint that’s the world’s largest marketer of pure gold coins, sold 1.9 million ounces of gold so far in 2009, its President Kurt Meyer said last month. That was 23 percent more last year’s total sales, he said. “It’s a tangible asset, and its value can be quickly and easily realized,” Russell said. “We’re seeing very good demand in the coin market. Many investors are aware that they’ve been poorly diversified over the past few years.” Bullion holdings in some exchange-traded funds have risen to records in recent months. India last month bought 200 metric tons, followed by a smaller purchase by Mauritius. Analysts at Bank of America Merrill Lynch, Societe Generale SA and Barclays Capital have forecast further purchases by central banks. Gold fell for the first time in five days in London. Bullion for immediate delivery declined $10.38, or 0.9 percent, to $1,135.13 an ounce by 9:26 a.m. local time. The U.K. mint moved to Llantrisant in Wales from London’s Tower Hill in 1968, three years before Britain switched to a decimal currency system. It makes coins including the 22-carat 2010 Gold Proof Sovereign, weighing 7.99 grams (0.26 ounce) and costing 299 pounds ($500), the state agency’s Web site shows. The mint’s use of silver rose 56 percent from a year earlier to 94,343.3 ounces in the third quarter, the figures show. Production in the first nine months increased 31 percent to 270,382.6 ounces. To contact the reporters on this story: Thomas Biesheuvel in London tbiesheuvel@bloomberg.net ; Nicholas Larkin in London at nlarkin1@bloomberg.net

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FHA, Prime Mortgage Defaults Rise to Record Highs as U.S. Job Losses Mount

November 19, 2009

By Kathleen M. Howley Nov. 19 (Bloomberg) — Foreclosures on prime mortgages and home loans insured by the Federal Housing Administration rose to three-decade highs in the third quarter, driven by the biggest job losses since the Great Depression. One out of every six FHA mortgages was late by at least one payment and 3.32 percent were in foreclosure, the highest for both since at least 1979, the Mortgage Bankers Association said today. The delinquency rate for prime fixed-rate mortgages, considered home loans with the least risk, rose to 5.8 percent and the foreclosure inventory rose to 1.95 percent, the highest since at least 1972. Homeowners are falling behind on their mortgages as the U.S. has lost more than 7 million jobs since December 2007, driving the unemployment rate to 10.2 percent in October, the highest since 1983. Declining home prices in most markets also are preventing many owners from selling their properties, said Jay Brinkmann , the Washington-based trade group’s chief economist. “If you don’t have a job, you can’t pay a mortgage,” Brinkmann said in an interview. “You don’t pay a mortgage with economic output, you pay a mortgage with a paycheck.” The share of all types of mortgages with one or more payments overdue climbed to a record seasonally adjusted 9.64 percent in the third quarter. The foreclosure inventory increased to 4.47 percent from 4.3 percent. Both were the highest in 37 years of data. Foreclosure Starts The percentage of loans on which foreclosure actions were started was a record 1.42 percent. New foreclosures on prime fixed-rate loans increased to 0.71 percent from 0.67 percent, while FHA foreclosure starts rose to 1.31 percent from 1.15 percent. Subprime adjustable-rate foreclosures starts dropped to 4.92 percent from 5.52 percent and the total foreclosure inventory for the types of loans that sparked the global financial crisis rose to 24.7 percent from 24.4 percent, Brinkmann said. Defaults on FHA mortgages, which require down payments as small as 3.5 percent, may create another lending crisis, Toll Brothers Inc. Chief Executive Officer Robert Toll said yesterday. “It’s a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money,” said Toll, the head of the largest U.S. builder of luxury homes. Reserve Ratio The FHA’s insurance reserve ratio fell to 0.53 percent, the lowest level in history, and more steps are needed to shore up the agency that guarantees one of every five single family loans, Housing and Urban Development Secretary Shaun Donovan said Nov. 12. While the insurance fund’s capital ratio is at an all-time low, Donovan said those who say FHA is the next subprime- mortgage crisis are “dead wrong.” The quality of the loans FHA insures is “actually very good,” Donovan said. A report yesterday showing an unexpected drop in housing starts highlighted how the property market remains reliant on government support to sustain a recovery. Homebuilding seized up as builders waited for President Barack Obama to extend an $8,000 housing tax credit for first-time buyers, which has since been passed and expanded. Builders broke ground on 529,000 homes at an annual pace in October, down 11 percent from the previous month and the fewest since April’s all-time low, the Commerce Department said yesterday. Lower Loan Rates The U.S. economy returned to growth in the third quarter after a yearlong contraction, the Commerce Department said in an Oct. 29 report. The world’s largest economy expanded at a 3.5 percent pace from July through September. Household purchases climbed 3.4 percent, the most in two years. In the second quarter, U.S. banks held $34 billion of properties acquired through foreclosure, including repossessed homes and condominium projects gone bust, according to the Federal Deposit Insurance Corp. in Washington. That’s almost double the amount from a year earlier. Employment losses prevented many homeowners from refinancing during the quarter to make payments more affordable, Brinkmann said. U.S. mortgage rates tumbled more than a quarter of a percentage point during the third quarter, to an average of 5.04 percent from 5.32 percent at the beginning of July, according to Freddie Mac in McLean, Virginia. To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

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Ambac Bond Insurer’s Capital Surplus Climbs, Forestalling Trigger on Swaps

November 18, 2009

By Christine Richard Nov. 18 (Bloomberg) — Ambac Financial Group Inc. said its bond insurance unit’s regulatory capital surplus almost tripled in the third quarter under guidelines in Wisconsin, forestalling the chance of delinquency proceedings. Ambac Assurance Corp.’s regulatory surplus climbed to $856 million as of Sept. 30 from $305.6 million at the end of June, the New York-based company said today in a filing with the U.S. Securities and Exchange Commission. Wisconsin’s Office of the Commissioner of Insurance, which regulates the unit, requires that bond insurers have at least $2 million of surplus capital. Delinquency proceedings would have triggered termination payouts of $23.1 billion by Ambac Assurance on credit-default swap contracts, the company said in a filing on Nov. 9. Ambac Assurance held assets valued at $8.3 billion at the end of the third quarter. “Clearly it’s more positive than what the market expected,” said Rob Haines , an analyst at CreditSights Inc. in New York, who said he still expects the company to run through its capital. “It doesn’t change the endgame for the company, but it pushes it further out into the future.” Ambac rose 29 cents, or 42 percent, to 99 cents as of 10:23 a.m. in composite trading on the New York Stock Exchange. Bondholder Protection Credit-default swaps on Ambac Assurance rose 1 percentage point to 79 percent upfront as of 10:10 a.m. in New York, according to Phoenix Partners Group. That means it would cost $7.9 million initially and $500,000 annually to protect $10 million of Ambac debt for five years. In addition to the swaps payouts, delinquency proceedings would have required Ambac to accelerate the payment of $1.6 billion of holding-company debt, the bond insurer said in the Nov. 9 filing. Ambac increased its surplus in part by tearing up credit- default swap contracts on $5 billion of collateralized debt obligations in exchange for $520 million in payments to counter- parties, according to the filing today. Ambac was stripped of its top bond insurance rating last year after surging loss projections on securities backed by soured home loans. JPMorgan Chase & Co. analyst Andrew Wessel said in a report on Nov. 5 that Ambac’s regulatory capital was likely to have fallen into a deficit. Credit-default swaps pay the buyer face value if a borrower defaults on its debts in exchange for the underlying securities or the cash equivalent. Banks that bought credit swaps from Ambac and other insurers to hedge against losses on mortgage- related securities used swaps on the insurers to protect themselves if the companies fail to make good on the guarantees. CDOs repackage assets such as mortgage bonds and loans into new debt with varying degrees of risk. To contact the reporter on this story: Christine Richard in New York at crichard5@bloomberg.net

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HK TDC presents Third Asian Financial Forum January 2010

November 17, 2009

HK TDC presents Third Asian Financial Forum January 2010

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Buffett’s Berkshire Discloses Holdings in Exxon Mobil, Nestle, Travelers

November 17, 2009

By Andrew Frye Nov. 17 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. took stakes in Exxon Mobil Corp. and Nestle SA , betting on the world’s biggest oil and food companies. Berkshire held about 1.28 million Exxon shares and 3.4 million American depositary receipts of Nestle at the end of the third quarter, the Omaha, Nebraska-based company said in a regulatory filing yesterday. The stake in Irving, Texas-based Exxon would be worth about $95 million, based on yesterday’s stock price, while the Nestle holding would be valued at $161.5 million. Berkshire also raised its stake in Wal-Mart Stores Inc. , the largest retailer. “Berkshire is increasingly looking for companies that are world-leading brands,” said Tom Russo , partner at Gardner Russo & Gardner, which holds shares in Berkshire and Vevey, Switzerland-based Nestle. Buffett is drawing down Berkshire’s cash hoard to invest in some of the world’s biggest firms as credit markets improve. The $2.23 billion spent on stocks in the three months ended Sept. 30 is the most in a year and allowed Berkshire to add a stake in insurer Travelers Cos. and increase its holding of Wells Fargo & Co. Buffett agreed this month to take over Burlington Northern Santa Fe Corp. , the No. 1 U.S. railroad, for $26 billion . “They are all very unique and strong franchises,” said Mohnish Pabrai , founder of Irvine, California- based Pabrai Investment Funds, which owns shares in Berkshire and San Francisco-based Wells Fargo. “The equity bets are tending to be ones which can be held for a very long period of time.” Stocks Rally Berkshire, whose U.S. stock portfolio was valued at $56.5 billion at the end of the third quarter, is benefiting from the biggest rally in the Dow Jones Industrial Average since 1933. The addition of Exxon and New York-based Travelers gives Berkshire equity stakes in 11 of the Dow’s 30 companies. The 113-year-old Dow has surged 59 percent since March 9, the steepest run-up over the same number of days since 1933, according to data compiled by Bloomberg. Travelers , which was added to the Dow this year, has gained 58 percent over that period, while Exxon is up 15 percent to give the firm a market value of about $353 billion. “Exxon has probably the lowest cost structure in the industry, which I know is attractive to Buffett,” said Philip Weiss , a senior analyst at Argus Research Corp. “No matter where oil prices go, Exxon always fares better.” Stock picks by Buffett, the second-richest American, are watched by mutual funds and individuals looking for clues about his investment strategy. Berkshire’s biggest stockholding is an investment in Coca-Cola Co. worth about $10.7 billion. The firm’s holding in Walmart rose 90 percent in the third quarter and is valued at about $2 billion. Long-Term Advantage “Buffett buying more indicates that Walmart has a long- term competitive business advantage,” David Katz , who oversees $1.2 billion, including Walmart shares, at Matrix Asset Advisors in New York, said by telephone. “This fits exactly into what Warren Buffett likes: growth businesses where you’re not paying a lot.” Walmart, based in Bentonville, Arkansas, increased profit 3.2 percent in the quarter that ended Oct. 31 by reducing inventories 4.1 percent and boosting revenue 1.1 percent to $99.4 billion. It is accelerating efforts to curb expenses amid falling food prices and the worst U.S. unemployment rate in 26 years, Chief Executive Officer Mike Duke told analysts Nov. 12. “A terrible market or a terrible economy is your friend,” Buffett said at a forum in New York last week, when asked whether the stock market rally was unwarranted, given the recession. “It’s a terrible mistake to look at what’s going on in the economy today and decide whether to buy or sell stocks.” Wells Fargo Berkshire, already the largest shareholder in Wells Fargo, increased holdings of the bank by 3.6 percent to 313.4 million shares in the third quarter. The biggest-U.S. home lender has more than tripled from lows in March. Buffett has said he told students that month that if he had to put all his net worth into one stock, Wells Fargo “would be the stock.” Berkshire continued to cut its holdings in No. 2 U.S. oil refiner ConocoPhillips, trimming its stake about 11 percent in the three months ended Sept. 30. A decline in the value of the stake contributed to Berkshire’s worst quarterly loss in at least two decades in the first three months of 2009. Buffett called the investment a “major mistake” after building the shares with oil prices near their peak last year. Berkshire showed no stake in Eaton Corp. , the Cleveland- based maker of circuit breakers and fuel pumps. Buffett’s company held 2 million shares three months earlier. The firm cut holdings of NRG Energy Inc. , the second-largest power producer in Texas, by 17 percent to 6 million. WellPoint, SunTrust Berkshire reduced its stake in WellPoint Inc. , the largest U.S. health insurer by membership, by 3 percent to 3.39 million shares. The stake in Atlanta-based SunTrust Banks Inc. was cut by 3.9 percent in the three months to 3.07 million shares. Berkshire disclosed a stake of 3.63 million shares in trash hauler Republic Services Inc. Will Flower , a spokesman for Phoenix-based Republic, said the investment was “a good fit” with Berkshire’s strategy. Exxon spokesman Rob Young , Wal-Mart’s John Simley , Travelers spokesman Shane Boyd and Eaton’s Hilary Spittle declined to comment. The filing omits information about some transactions because Buffett is permitted to keep them confidential for now. The U.S. Securities and Exchange Commission sometimes allows companies to withhold data from the public to limit copycat investing while a firm is building or cutting a position. Berkshire disclosed that it had a stake in Exxon as of June 30, a holding not announced in the second-quarter report. Buffett’s reported portfolio doesn’t list stocks he’s not required to disclose, including non-U.S. holdings. To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net .

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Sonesta Announces 2009 Third Quarter Earnings

November 16, 2009

BOSTON, Nov. 16, 2009 (GLOBE NEWSWIRE) — Sonesta International Hotels Corporation (Nasdaq:SNSTA) today reported net income of $27,379,000, or $7.41 per share, in the quarter ended September 30, 2009, compared to net income of $2,792,000, or $0.76 per share, in the quarter ended September 30, 2008. Operating revenues, excluding other revenues from managed and affiliated properties, were $14,517,000 in the 2009 quarter, compared to $16,398,000 in the 2008 quarter. The Company had operating income of $148,000 in the third quarter of 2009, compared to operating income of $4,411,000 during the same period in 2008.

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European, Asian Stocks Gain on APEC, Economy; BHP, Rio, U.S. Futures Rise

November 16, 2009

By Adria Cimino Nov. 16 (Bloomberg) — European and Asian shares rose and U.S. stock-index futures gained after the Asia-Pacific Economic Cooperation forum pledged to maintain stimulus spending and Japan’s economy expanded more than forecast. BHP Billiton Ltd., the world’s biggest mining company, and Rio Tinto Group rallied more than 2.6 percent as commodities advanced. ThyssenKrupp AG , Germany’s largest steelmaker, surged 3.2 percent after JPMorgan Chase & Co. recommended the stock. Europe’s Dow Jones Stoxx 600 Index added 0.8 percent to 249.82 at 9:23 a.m. in London, the highest intraday level in almost four weeks. The gauge has advanced 58 percent since March 9 amid signs government spending and record-low interest rates are helping to drag the economy out of recession. “We’ll continue to have good signs from the economy,” said Charles Dautresme , a strategist at Axa Investment Management in Paris, which oversees about $753 billion. “We’re optimistic about stocks. The rally should continue with positive elements from the economy and profits revised higher for 2010.” European and U.S. stocks have risen for two straight weeks after the Group of 20 nations agreed to maintain stimulus efforts and earnings at companies from Credit Agricole SA to Wal-Mart Stores Inc. beat analysts’ estimates. Standard & Poor’s 500 Index futures advanced 0.8 percent today before a report forecast to show U.S. retail sales rebounded in October. Asian Shares The MSCI Asia Pacific Index climbed 0.7 percent after APEC leaders said over the weekend they will keep stimulus measures until there is “durable” growth. Japan’s Nikkei 225 Stock Average rose 0.2 percent as the Cabinet Office said the world’s second-biggest economy grew at an annual 4.8 percent rate in the third quarter. Economists had estimated a 2.9 percent gain. Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, tumbled 5.5 percent to 480 yen after the Nikkei newspaper said the company will sell 1 trillion yen ($11.2 billion) in shares. Basic resources shares advanced the most among the 19 industry groups in the Stoxx 600. BHP surged 2.6 percent to 1,865.5 pence and Rio Tinto, the world’s third-biggest mining company, advanced 4.4 percent to 3,272 pence as copper, zinc and lead increased on the London Metal Exchange. Randgold Resources Ltd., a producer of gold in Mali, jumped 5 percent to 4,942 pence and Petropavlovsk Plc, the third- largest producer of the precious metal in Russia, added 3.2 percent to 1,305 pence as gold climbed to a record. ThyssenKrupp Rises ThyssenKrupp rose 3.2 percent to 24.61 euros. JPMorgan upgraded the shares to “overweight” from “neutral,” saying the steelmaker’s restructuring efforts in combination with an estimated recovery in the steel market next year represent “a compelling investment.” Yara International ASA increased 3.7 percent to 207 kroner. The world’s largest fertilizer maker was raised to “buy” from “hold” at Citigroup Inc., which said “nitrogen fertilizer demand should be robust in 2010.” Hennes & Mauritz AB lost 4.4 percent to 417 kronor. Europe’s second-largest clothing retailer said total revenue rose 7 percent in October from the year before, while sales at shops open at least a year fell 3 percent. Retail sales in the U.S. probably rebounded in October, easing concern households will curtail spending once government incentives fade, economists said before a report today. Purchases rose 0.9 percent, according to the median estimate of 66 economists in a Bloomberg News survey. Excluding autos, sales probably rose 0.4 percent, the third straight increase. To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net .

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Japan’s Hatoyama Says `Worrisome’ Economy Will Probably Needs Extra Budget

November 14, 2009

By Mayumi Otsuma Nov. 14 (Bloomberg) — Japanese Prime Minister Yukio Hatoyama said the nation’s economy remains “worrisome” and that another supplementary budget is “probably” warranted. The country’s employment condition is “severe,” Hatoyama told a group of reporters in Singapore, where he’s attending a meeting of Asia-Pacific Economic Cooperation leaders. Hatoyama’s comment today echoes the assessment of Deputy Prime Minister Naoto Kan , who said this week a second extra budget will probably be around 2.9 trillion yen ($32 billion). While economists estimate that growth accelerated in the third quarter, joblessness and deflation threaten to hurt the rebound in 2010. Japan’s economy probably expanded for a second quarter in the three months ended Sept. 30 as government incentives prompted consumers to buy cars and electronics, according to economists’ forecasts ahead of a Nov. 16 report. The world’s second-largest economy grew an annualized 2.9 percent in the third quarter, accelerating from the previous quarter’s 2.3 percent pace, the median of 20 estimates in a Bloomberg News survey shows. Even after seven months of rising production , factories are using only about two-thirds of their capacity . The unemployment rate , which unexpectedly fell to 5.3 percent in September, may resume rising through the next year while monthly wages including overtime and bonuses slipped for a 16th month, economists say. Redeploying Funds Kan’s estimate for the extra budget matched the amount officials redeployed from the first supplementary package. Hatoyama froze 2.9 trillion yen from the nation’s first extra budget, which was compiled by the previous government. The frozen funds “should be used on things that can benefit households and improve the labor market,” Kan said this week. Only 2.7 trillion yen of the 2.9 trillion yen can be used in the fiscal year ending March 31 because of legislative reasons, Kan said. Hatoyama reiterated today that his administration aims to cap new bond sales at 44 trillion yen. Government debt yields have risen since the Democratic Party of Japan won power in August on concern that pledges to support households will swell the world’s largest public debt. Japan’s debt burden will climb to twice the size of the economy next year, according to the Organization for Economic Cooperation and Development. To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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Euro-Zone Economy Emerges From Recession as Exports Offset Slow Spending

November 13, 2009

By Simone Meier Nov. 13 (Bloomberg) — The euro-area economy emerged from its worst recession since World War II in the third quarter as exports from Germany and France helped compensate for households’ reluctance to increase spending. Gross domestic product in the economy of the 16 nations using the euro rose 0.4 percent from the second quarter, when it fell 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast the economy to grow 0.5 percent, according to the median of 34 estimates in a Bloomberg survey. Europe’s economy is gathering strength after governments stepped up stimulus measures and the European Central Bank injected billions of euros into markets to encourage lending. While confidence in the economic outlook is at a 13-month high, rising unemployment, the expiration of stimulus plans and a surging euro are threatening to undermine a recovery. “The euro-zone economy has officially turned the corner and that is cause for relief, but not celebration,” said Martin van Vliet , a senior economist at ING Bank in Amsterdam. “The economy remains in a fragile state and is recovering mainly because of government stimulus and temporary inventory effects.” The euro was little changed against the dollar after the release, trading at $1.4874 at 10:30 a.m. in London after rising as high as $1.4902 earlier today. The yield on the German 10- year benchmark bond dropped 0.2 basis points to 3.34 percent. Global Economy In the year, euro-area GDP declined a seasonally adjusted 4.1 percent in the July-September period after dropping 4.8 percent in the second quarter. In the 27-nation EU, GDP rose 0.2 percent from the previous three-month period, when it dropped 0.3 percent. The statistics office is scheduled to publish a breakdown of third-quarter GDP on Dec. 3. The global economy is also gathering steam, led by China, where the manufacturing industry expanded at the fastest pace in 18 months in October. In the U.S., the world’s biggest economy, leading economic indicators rose for a sixth month in September. Lafarge SA, the world’s largest cement maker based in Paris, witnessed the “first signs of stabilization in the global economic slowdown” in the third quarter, according to Chief Executive Officer Bruno Lafont . Stefan Jacoby , head of Volkswagen AG’s North America division, said on Nov. 11 that “things are looking up” for Europe’s biggest carmaker. Largest Economy In Germany, Europe’s largest economy, GDP rose a seasonally adjusted 0.7 percent from the second quarter, when it increased 0.4 percent. The French economy expanded 0.3 percent in the third quarter, while Italy showed 0.6 percent growth. All three GDP figures were below economist forecasts. Europe’s recovery is being threatened by the dollar’s 18 percent slide against the euro and the region’s policy makers are calling on China to shoulder some of that burden by allowing the yuan to appreciate. China has kept its currency steady against the dollar since July 2008 and ECB President Jean-Claude Trichet said on Nov. 5 that a stronger yuan would be “welcome.” While China’s central bank this week scrapped a pledge in its quarterly report to keep the yuan “basically stable,” President Hu Jintao didn’t address the currency peg in a speech to executives in Singapore today. Some economies are trailing the European recovery. In the U.K., where Prime Minister Gordon Brown is struggling to shore up his popularity before elections due in June, the economy remains mired in its longest recession on record. GDP dropped 0.4 percent in the third quarter, extending the contraction over sixth quarters. The Spanish economy also contracted for a sixth quarter in the three months through September. Cosmetics Maker For now, companies are relying on faster growing markets to bolster sales. Paris-based Pernod Ricard SA, the world’s second- biggest liquor maker, said on Nov. 3 that demand is “very lively” in China and India. L’Oreal SA, the world’s largest cosmetics maker, on Nov. 5 reported stronger demand for shampoos and makeup in Asia and Latin America. “Sales are accelerating in emerging markets,” L’Oreal CEO Jean-Paul Agon said on that day in Paris. “Overall, the situation is getting better.” With a global recovery taking hold, central banks have signaled they are ready to wind down some unconventional measures. The ECB left its key rate at 1 percent on Nov. 5 and signaled that it won’t offer banks unlimited cash over 12 months next year. The U.S. Federal Reserve earlier this month outlined the conditions needed for it to raise borrowing costs. ‘At a Trot’ “The euro zone exited recession at a trot rather than at a canter in the third quarter,” said Howard Archer , chief European economist at IHS Global Insight in London. “The likely fragility of the recovery means that both governments and the ECB need to be wary about withdrawing stimulus measures too soon or too aggressively.” With the euro’s ascent against the dollar since mid- February making exports more expensive and rising unemployment undermining consumer demand, the economy may be slow to gain momentum. Europe’s jobless rate rose to 9.7 percent in September, the highest since January 1999. Dublin-based Smurfit Kappa Group Plc, Europe’s largest maker of cardboard boxes, said on Nov. 10 that “a consumer-led economic recovery” hasn’t yet materialized. Peter Voser, CEO of Royal Dutch Shell Plc, Europe’s largest oil company, said on Oct. 29 that the outlook remains “very uncertain.” “The recovery is fragile and sluggish,” International Monetary Fund Director Dominique Strauss-Kahn said on Nov. 13. “The recovery will take place earlier in Asia than in the U.S. and in the U.S. earlier than in Europe.” To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

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U.S. Trade Deficit Jumps Most in a Decade on Demand for Imported Cars, Oil

November 13, 2009

By Bob Willis Nov. 13 (Bloomberg) — The trade deficit in the U.S. widened in September by the most in a decade, reflecting rising demand for imported oil and automobiles as the economy rebounded from the worst recession since the 1930s. The gap grew a larger-than-anticipated 18 percent to $36.5 billion, the highest level since January, from a revised $30.8 billion in August, the Commerce Department said today in Washington. Imports surged by the most in 16 years, swamping a gain in exports. Demand for foreign products may remain elevated in coming months as consumer and business spending improve and companies aim to prevent inventories from collapsing even more. Exports may also rise as expanding economies in Asia and Europe and a weak dollar drive demand for American goods, giving manufacturers such as Dow Chemical Co. a lift. “The recent upturn in imports reflects a stronger U.S. economy,” Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “A rebound in exports is helping the economy transition from recession to recovery.” The trade gap was projected to widen to $31.8 billion, from an initially reported $30.7 billion in August, according to the median forecast in a Bloomberg News survey of 77 economists. Deficit projections ranged from $28.6 billion to $34.1 billion. A collapse in world trade earlier this year brought the gap down to $26.4 billion in May, its lowest level since November 1999, as imports plunged even faster than exports. As commerce begins to pick back up, global leaders agree more needs to be done to strengthen the expansion. Geithner, Obama U.S. Treasury Secretary Timothy Geithner and other finance ministers at the Asia-Pacific Economic Cooperation forum in Singapore this week reiterated a pledge to maintain stimulus efforts “until a durable recovery in private demand is secured.” Asia is “leading the world” back to recovery, Geithner told reporters at a joint press briefing with his APEC counterparts. President Barack Obama began a swing through Asia today as world leaders work toward a rebalancing that will make global growth more reliant on spending by Asian consumers and businesses and less dependent on their American counterparts. Imports climbed 5.8 percent, the most since March 1993, to $168.4 billion. The figures reflected a $4.1 billion increase in imported oil as the cost of a barrel of crude climbed to the highest level since October 2008 and volumes also rose. Auto Imports Purchases of foreign-made autos and parts surged by $1.7 billion to $16.4 billion, due mainly to a $1.3 billion increase in imports from Canada and Mexico as North American vehicle production picked up. Imports from South Korea also climbed. The federal “cash for clunkers” auto trade-in program, which expired in late August, generated momentum in car sales and boosted demand for parts and supplies. Automotive inventory restocking is also boosting demand for foreign-made autos and parts. U.S. sales for South Korea-based Hyundai Motor Co. increased in September for the third month in a row, while Toyota Motor Corp. is boosting production of models such as Corollas and Camry sedans to rebuild its U.S. inventory. “Our inventories are continuing to recover with a very good pipeline as we move into the fourth quarter,” Robert Carter, Toyota’s North America sales chief, said on a conference call last month. Buyers Overseas Exports rose 2.9 percent to $132 billion, the most this year, propelled by sales of civilian aircraft, industrial machines and petroleum products. The dollar this month was down 12 percent from a five-year high reached in March against a trade-weighted basket of currencies from it’s biggest trading partners. China’s economy grew 8.9 percent in the third quarter from the same period in 2008, the best performance in a year. Exports to the Asian nation were the highest since October, even as imports from China also climbed. “The economic outlook for the rest of 2009 appears to be stabilizing, with strong growth in Asia Pacific, especially China, and other emerging geographies,” Andrew Liveris, Dow Chemical’s chief executive officer, said in an Oct. 22 statement. Factory Pickup Dow’s factories around the world ran at 78 percent of capacity in the third quarter, an increase of 3 percentage points, because of increased demand in developing markets, including China and Brazil, as well as relatively low North American ingredient costs that led to increased exports. The largest U.S. chemical maker yesterday said cost cuts and rising sales will boost earnings more than analysts estimate. After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit grew to $41.7 billion, the highest since January. The figures suggest the government may revise down their estimate for third-quarter economic growth. The U.S. is growing again after posting its worst contraction in seven decades. The world’s largest economy expanded at a 3.5 percent annual rate in the third quarter, the best performance in two years. Economists surveyed last month forecast a 3 percent rate of growth this quarter. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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Trade Gap in U.S. Probably Widened on Demand for Imports as Economy Grew

November 13, 2009

By Bob Willis Nov. 13 (Bloomberg) — The trade deficit in the U.S. probably widened in September, reflecting rising demand for imported oil and automobiles as the economy rebounded from the worst recession since the 1930s, economists said before a report today. The gap increased to $31.8 billion from $30.7 billion the prior month, according to the median of 77 estimates in a Bloomberg News survey. Other figures today may show the cost of goods from abroad rose in October for a third straight month. Demand for foreign products may keep growing in coming months as consumer and business spending improve and companies aim to prevent inventories from becoming too lean. Exports may also rise as expanding economies in Asia and Europe along with a weak dollar drive demand for American goods, giving manufacturers such as Dow Chemical Co. a lift. “Domestic demand is clearly picking up and that is going to be pulling in imports ,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The trend over the next few months will be for imports to pick up faster than exports.” The Commerce Department’s trade figures are due at 8:30 a.m. in Washington. Economists’ deficit estimates ranged from $28.6 billion to $34.1 billion. A report from the Labor Department at the same time may show import prices rose 1 percent in October as crude oil climbed, according to the survey median. The cost of foreign goods probably fell 5.5 percent from a year earlier, the survey showed. Global Expansion A collapse in world trade earlier this year brought the gap down to $26.4 billion in May, its lowest level since November 1999, as imports plunged even faster than exports. As commerce begins to pick back up, global leaders agree more needs to be done to strengthen the expansion. U.S. Treasury Secretary Timothy Geithner and other finance ministers at the Asia-Pacific Economic Cooperation forum in Singapore this week reiterated a pledge to maintain stimulus efforts “until a durable recovery in private demand is secured.” Asia is “leading the world” back to recovery, Geithner told reporters at a joint press briefing with his APEC counterparts. The leaders are working toward a rebalancing that will make global growth more reliant on spending by Asian consumers and businesses and less dependent on their American counterparts. China’s economy grew 8.9 percent in the third quarter from the same period in 2008, the best performance in a year. Growth in Asia “The economic outlook for the rest of 2009 appears to be stabilizing, with strong growth in Asia Pacific, especially China, and other emerging geographies,” Andrew Liveris, Dow Chemical’s chief executive officer, said in an Oct. 22 statement. Dow’s factories around the world ran at 78 percent of capacity in the third quarter, an increase of 3 percentage points, because of increased demand in developing markets, including China and Brazil, as well as relatively low North American ingredient costs that led to increased exports. The largest U.S. chemical maker yesterday said cost cuts and rising sales will boost earnings more than analysts estimate. The U.S. is also growing again after posting its worst contraction in seven decades. The world’s largest economy expanded at a 3.5 percent annual rate in the third quarter, the best performance in two years. Economists surveyed this month forecast a 3 percent rate of growth this quarter. Stocks have surged since March on signs the recession was easing. The Standard and Poor’s 500 Index has gained 61 percent since reaching a 13-year low March 9. An improving economy and rebounding equities may support consumer confidence even as the job market continues to deteriorate. The Reuters/University of Michigan preliminary sentiment index for this month, due today at 10 a.m., may rise to 71 from 70.6 in October, according to the median estimate of economists surveyed. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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Spanish Economy Contracts for a Sixth Quarter, Slowing European Rebound

November 12, 2009

By Emma Ross-Thomas Nov. 12 (Bloomberg) — Spain’s economy contracted for a sixth quarter in the three months through September, with a housing-market collapse and rising unemployment keeping the country in a recession even as the euro region returned to growth. Gross domestic product fell 0.3 percent in the third quarter from the previous three months, when it dropped 1.1 percent, the Madrid-based National Statistics Institute said today. That was stronger than the median forecast of a 0.4 percent contraction in a Bloomberg survey of 18 economists. The economy shrank 4 percent from a year earlier. The euro-region economy probably expanded last quarter, leaving Spain trailing the economies of Germany, France and Italy, which all grew in the period, the European Commission forecasts. The International Monetary Fund expects the Spanish recession to push the unemployment rate to 20 percent next year. Madrid-based Banco Santander SA , Europe’s second-biggest bank by market value, said on Oct. 28 that its home market posed the greatest “threat” to earnings. “The recession is easing, it’s probably ending quite soon, but Spain is definitely lagging compared to other major euro- area counties,” said Giada Giani , an economist at Citigroup in London, who expects unemployment to rise to around 20 percent in 2010 even as the economy returns to growth in the first quarter. “Growth will remain very weak, partly because unemployment will remain high,” she said. Weak Market The euro region probably grew 0.5 percent in the third quarter, according to the median forecast from a Bloomberg News survey of 34 economists . GDP data for Germany, France, Italy and the European Union is published tomorrow. Diageo Plc , the London-based maker of Smirnoff vodka, has cited Spain as a weak market and said on Aug. 27 that it had cut marketing spending in the country to reflect lower consumer demand. The third-quarter decline in GDP was less than a third of the contraction registered from April to June, backing comments from the government that the worst of the recession is over. Telefonica SA , Europe’s second-largest phone company, said today that commercial activity in Spain increased “strongly” in the third quarter, compared with the first half of the year. Government Stimulus Consumer spending was probably bolstered by car sales after the government introduced incentives, Giani said. Under a program created in May, Spain’s central and regional governments together offer as much as 1,000 euros ($1,500) for each vehicle purchase and the industry matches with a 1,000-euro discount. New car registrations, a proxy for sales, rose 26 percent in October from a year earlier, according to automobile association Anfac in Madrid. The government has injected funds worth 2.3 percent of GDP into the economy this year, creating around 400,000 jobs and swelling its budget deficit to one of the highest in Europe. Spain still has the highest unemployment rate in the euro region at 19.3 percent, according to the EU’s statistics office , and more than four in 10 young people are out of work, adding to pressure on public finances. Next year, the government plans to raise taxes to rein in the shortfall. The recession, prompted by the collapse of the housing market as well as the global financial crisis, has eroded the popularity of Prime Minister Jose Luis Rodriguez Zapatero . The opposition People’s Party would win 41 percent of the vote if elections were held now, compared with 37.7 percent for the Zapatero’s Socialist Party, according to a poll published Nov. 2 by the government’s Center for Sociological Research . Spaniards consider unemployment to be the biggest problem, the poll showed. To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Sentiment on U.S. Stocks Reverses Two-Month Decline; U.K. Outlook Worsens

November 11, 2009

By Sapna Maheshwari and Eric Martin Nov. 11 (Bloomberg) — Investors grew more optimistic about U.S. equities for the first time since August as a record number of companies beat profit estimates and worker productivity, manufacturing and home sales exceeded forecasts. Users in Brazil , Germany, Spain and Switzerland also became more bullish, according to the Bloomberg Professional Confidence Survey conducted from Nov. 2 to Nov. 6. The 1,232 responses were collected as the MSCI World Index snapped a two-week losing streak and the Standard & Poor’s 500 Index rebounded from its first monthly drop since February. The MSCI World gauge of 23 developed nations has surged 68 percent since March 9 on signs the first global recession since World War II is ending. Stocks extended gains this week after finance ministers from the so-called Group of 20 nations agreed to keep interest rates low and maintain record budget deficits to ensure the recovery takes hold. “The risk right now is not to be in stocks,” said Jose Carlos Diez , who is the chief economist at Intermoney in Madrid and participated in the survey. “Economic reports are indicative that the rebound, if not even, will be sustained. However cautious or pessimistic you were, you see that reality is getting ahead of you and that you may be missing out.” The rally has pushed valuations on the MSCI World up to 31 times reported earnings, near the highest level since 2002, data compiled by Bloomberg show. Third-quarter profits at a record 80 percent of S&P 500 companies have beaten projections, according to Bloomberg data going back to 1993. Growing Bullishness Users predict shares will gain during the next six months in Brazil, Germany, Mexico, Italy and Switzerland , according to the Bloomberg survey. Sentiment fell for the third straight month in Japan and France , and plummeted the most in more than a year in the U.K. While pessimism decreased in the U.S. and Spain, their gauges remained below 50, meaning investors still expect stocks to decline. The index for sentiment in America rose 1.3 percent to 44.1. The S&P 500 gained 3.2 percent during the survey period as Warren Buffett’s Berkshire Hathaway Inc. of Omaha, Nebraska, made its biggest purchase, buying Fort Worth, Texas-based Burlington Northern Santa Fe Corp. , in what he called an “all- in wager on the economic future of the United States.” The reading for U.S. investors last exceeded 50 in May, the third month of a rally that lifted the S&P 500 as much as 62 percent from a 12-year low. The advance pushed the index’s valuation to more than 20 times the reported operating income of its companies, the most expensive level since 2002, according to data compiled by Bloomberg. Brazil Investors The sentiment gauge in Brazil climbed 1.8 percent to 76. The Bovespa index rose 4.8 percent last week, its steepest advance since July, as profits at companies from Rio de Janeiro- based Cia. Siderurgica Nacional SA , the nation’s third-largest steelmaker, to Sao Paulo-based Vivo Participacoes SA , the country’s biggest mobile-phone company, beat estimates. “The market feels more confident that the recovery that began probably in the third quarter is a sustainable one,” said John Canally , a Boston-based economist at LPL Financial, which oversees $259 billion. Germany’s confidence measure jumped 17 percent to 62.5. The DAX Index advanced last week after the Economy Ministry said German factory orders rose for a seventh month in September as exports helped Europe’s largest economy rebound. Switzerland, Mexico Switzerland’s survey index climbed the most among the 10 nations tracked by Bloomberg, surging 30 percent to 55.83. While optimism fell in Mexico and Italy, investors still anticipate gains. The confidence measure dropped 6.3 percent to 57.56 in Mexico and 6.4 percent to 59.32 in Italy. Users in Japan became more convinced stocks will fall, with the sentiment measure dropping 2.5 percent to 44.3. The Nikkei 225 Stock Average declined for the past two weeks, led by financial companies, on concern they will be forced to raise funds. Investors also forecast stocks will fall in France, where the sentiment measure dropped 11 percent to 43.48. Sentiment deteriorated the most in the U.K. for a second month, falling 23 percent to 38.73. Edinburgh-based Royal Bank of Scotland Group Plc announced plans last week to sell its insurance division and some branches after an agreement with the European Union to permit state aid. Shares of Britain’s biggest government-controlled bank plunged more than 10 percent in each of the past two weeks. The confidence measure increased 10 percent to 38.82 in Spain , where investors have never forecast an advance in the Bloomberg survey, which began in 2007. The country has the highest unemployment rate in Europe, according to data compiled by Bloomberg. To contact the reporters on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net ; Eric Martin in New York at emartin21@bloomberg.net .

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Tighter Bank Lending Standards Reinforce Fed’s Decision to Keep Rates Low

November 10, 2009

By Scott Lanman Nov. 10 (Bloomberg) — The Federal Reserve said U.S. banks kept tightening lending standards for companies and consumers last quarter, reinforcing the central bank’s decision to leave its benchmark interest rates at record lows for a long time. At the same time, the number of banks making it tougher to borrow diminished, the Fed said yesterday in its quarterly Senior Loan Officer survey. Demand for most types of loans weakened at a smaller number of banks than in the second quarter, the survey showed. The report helps explain why Fed policy makers last week said “tight credit” remains a drag on the economy and pledged to keep their benchmark interest rate near zero for an “extended period.” JPMorgan Chase & Co. is among the banks that have reduced lending in response to stricter underwriting standards for consumer loans and lower demand among companies. “The fact that banks are still tightening standards is just another reason why the Fed is not going to be raising rates anytime soon,” said Dean Maki , chief U.S. economist at Barclays Capital Inc. in New York, who predicts the Fed won’t tighten until September. While the Fed isn’t about to raise rates, with fewer banks making it tougher to borrow, “credit may be less of a headwind to growth in coming quarters than is commonly believed,” said Maki, a former Fed economist. The percentage of banks tightening standards was “quite similar” to the end of the last recession, in 2001, he said. Separately, the Fed said yesterday that nine of 10 bank holding companies deemed short of capital in May have raised their reserves enough to withstand the risk of higher unemployment and slower economic growth. Talks With Treasury The one exception, GMAC Inc., “is expected to meet its remaining buffer need by accessing” one of several government programs to help the auto industry, the Fed said. GMAC is “in discussions with the U.S. Treasury on the structure of its investment,” it said. The survey of loan officers at 57 U.S. banks and 23 U.S. branches of foreign banks was conducted from about Oct. 6 to Oct. 20, the central bank said. The report doesn’t identify respondents. Loans and leases held by U.S. commercial banks have declined for 10 straight months, falling to $6.7 trillion as of Oct. 28 from $7.2 trillion at the end of 2008, according to a separate statistical release from the Fed. Commercial and industrial loans have dropped to $1.37 trillion from $1.6 trillion, commercial real-estate loans have declined to $1.66 trillion from $1.72 trillion, and consumer loans have fallen to $847 billion from $857 billion at the end of last year. Commercial Loans In response to a special question on the decline in commercial and industrial loans, banks cited lower originations of loans and decreased draws on revolving credit lines as the two most important reasons for the drop. About a net 15 percent of banks tightened standards on commercial and industrial loans, half of the prior survey and below the peak of about 80 percent a year ago, the Fed said. Also, about a net 15 percent of respondents said they tightened standards for credit-card loans, the smallest since April 2008 and down from 35 percent in the July survey. Banks were extending commercial real estate loans more often than refinancing them, the survey showed. About 75 percent reported extending more than one-fourth of construction and land development loans scheduled to mature by September. The Standard & Poor’s 500 Index advanced 2.2 percent to 1,093.08 at 4:05 p.m. in New York for its sixth straight gain. Financial companies gained the most of 10 industry groups in the S&P 500, adding 3.6 percent collectively. ‘Work Constructively’ Last month, the Fed and other regulators urged commercial real estate lenders to “work constructively” to arrange modifications with borrowers who show a willingness to repay debt. Loan originations by the biggest U.S. banks receiving government assistance fell by 17 percent in August from a month earlier, the Treasury Department said Oct. 15. In its monthly survey of lending by the top 22 recipients of capital injections from the $700 billion Troubled Asset Relief Program, the Treasury also said total loan balances fell by 1 percent in August from a month earlier. Loans at New York-based JPMorgan fell to $653.1 billion at the end of the third quarter from $761.4 billion a year earlier. The decline reflected “some tightening of underwriting standards” on consumer loans, including credit cards, Chief Financial Officer Michael Cavanagh told analysts during an Oct. 14 call following the release of the quarter’s results. Loan demand from companies also fell, he added. Bank of America Corp.’s loans and mortgages shrank to $878.4 billion from $922.3 billion a year earlier. The drop was due to “lower consumer spending and a resurgence in the capital markets” that allowed corporations to issue bonds and equity to pay off debt, Kenneth Lewis , chief executive officer of the Charlotte, North Carolina-based bank, said on an Oct. 16 conference call with analysts after the third-quarter report. To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net .

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Fewer Banks Tightened Loan Standards Last Quarter Amid Recovery, Fed Says

November 9, 2009

By Scott Lanman Nov. 9 (Bloomberg) — The Federal Reserve said fewer banks tightened lending standards for companies and consumers in the third quarter than in the prior period as the U.S. economy grew for the first time in more than a year. Demand for most types of loans weakened at a smaller number of banks than in the second quarter, the Fed also said today in its quarterly Senior Loan Officer survey. For prime residential mortgages, a larger number of banks reported stronger demand, the central bank said. The report suggests the return to economic growth hasn’t spurred loan demand or prompted easier lending terms. Fed policy makers, in their statement on monetary policy last week, identified “tight credit” as a drag on the economy and repeated that interest rates will remain low for an “extended period.” The survey of 57 U.S. banks and 23 U.S. branches of foreign banks was conducted from about Oct. 6 to Oct. 20, the central bank said. Employers continued cutting jobs even after the economy expanded at a 3.5 percent annual pace in the third quarter. The unemployment rate rose above 10 percent last month for the first time since 1983, a Nov. 6 Labor Department report showed. Loans and leases held by U.S. commercial banks have declined for 10 straight months, falling to $6.7 trillion as of Oct. 28 from $7.2 trillion at the end of 2008, according to a separate statistical release from the Fed. Commercial and industrial loans have dropped to $1.37 trillion from $1.6 trillion, commercial real-estate loans have declined to $1.66 trillion from $1.72 trillion, and consumer loans have fallen to $847 billion from $857 billion at the end of last year. Commercial, Industrial Loans In response to a special question on the decline in commercial and industrial loans, U.S. banks cited lower originations of loans and decreased draws on revolving credit lines as the two most important reasons for the drop. About a net 15 percent of banks tightened standards on commercial and industrial loans, half of the prior survey and below the peak of about 80 percent a year ago, the Fed said. Also, about a net 15 percent of respondents said they tightened standards for credit-card loans, the smallest since April 2008 and down from 35 percent in the July survey. Banks were extending commercial real estate loans more often than refinancing them, the Fed survey showed. About 75 percent of U.S. banks reported extending more than one-fourth of construction and land development loans that were scheduled to mature by September. ‘Work Constructively’ Last month, the Fed and other regulators urged commercial real estate lenders to “work constructively” to arrange modifications with borrowers who show a willingness to repay debt posing the biggest threat to the U.S. banking industry. Loan originations by the biggest U.S. banks receiving government assistance fell by 17 percent in August from a month earlier, the Treasury Department said Oct. 15, the most recent report. In its monthly survey of lending by the top 22 recipients of capital injections from the $700 billion Troubled Asset Relief Program, the Treasury also said total loan balances fell by 1 percent in August from a month earlier. To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net .

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Fewer U.S. Homeowners Owe More Than Properties Are Worth, Zillow Reports

November 9, 2009

By Daniel Taub Nov. 9 (Bloomberg) — The number of U.S. homeowners who owe more than their properties are worth fell in the third quarter as values stabilized and some homes were lost to foreclosure, Zillow.com said. About 21 percent of owners of mortgaged homes were underwater, down from 23 percent in the second quarter, the Seattle-based real estate data provider said today in a report. “The decline in the percentage of homeowners with negative equity is a positive sign, and is directly attributable to the stabilization of home values from the second quarter to the third,” Zillow Chief Economist Stan Humphries said in a statement. “It is also attributable to many homeowners who were previously underwater on their mortgage losing their homes to foreclosure.” U.S. foreclosure filings climbed to 937,840 in the third quarter, a 23 percent increase from a year earlier, Irvine, California-based RealtyTrac Inc said Oct. 15. Zillow estimated that the median value of single-family houses, condominiums and cooperative apartments declined 6.9 percent in the same period. The rate of decline slowed, as home values dropped 0.4 percent from the second quarter to a median of $190,400, Zillow said. Bank sales of foreclosed properties accounted for 21 percent of all U.S. home sales in September, Zillow said. Such transactions made up 74 percent of sales in Merced, California; 69 percent in Stockton, California; and 68 percent in the Las Vegas area. About 27 percent of homes sold nationwide went for less than the sellers originally paid for them, Zillow said. Credit, Unemployment Rising foreclosures that began with defaults on subprime mortgages, a global recession and increasing unemployment have hurt the U.S. housing market. Unemployment surged to a 26-year high of 10.2 percent in October, the Labor Department said last week. Payrolls fell by 190,000 workers. Housing will hit bottom by March 2010, with lower-priced properties recovering value more quickly than expensive homes, First American CoreLogic said last month. U.S. home values have dropped 21 percent from their peak, Zillow said. The closely held company uses data from public records going back to 1996. Its mortgage figures come from information filed with individual counties. To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net .

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