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Macquarie Loses Head of U.S. Equity Capital Markets

June 17, 2010

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

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Asia Imposes Curbs to Slow Expanding Property Bubbles

June 17, 2010

By Shamim Adam and Malcolm Scott June 17 (Bloomberg) — From Shanghai to Singapore, policy makers are struggling in their efforts to curb property bubbles that threaten to derail the world’s fastest-growing region. In China, home prices are surging at a record pace even after authorities set price ceilings, demanded higher deposits, and limited second-home purchases. In Hong Kong, where the government has pledged to release more land to cool prices, a site auctioned on June 8 fetched the most since the market peak of 1997. It’s a similar story in Singapore and Taiwan as prices defy cooling measures. “Governments allow the property bubble to get so big and then try to use administrative measures to keep out speculators,” said Andy Xie , former Morgan Stanley chief economist for Asia-Pacific and now a private economist based in Shanghai. “It creates the risk of a very hard landing. The right thing to do is raise interest rates.” The International Monetary Fund has cautioned that Asia’s booming home prices “pose risks to financial stability.” Governments in the region are turning to market curbs rather than raising interest rates — at 20-year lows in some places — in an effort to avert a U.S.-style property crash. While real estate prices have yet to respond, equity investors have: a Bloomberg index of 192 Asia-Pacific real estate stocks has lost 15 percent in 2010 versus a 1.5 percent gain for its U.S. peer. “The property bubbles in Asia right now are reminiscent of the U.S. before the subprime crisis because they are both fuelled by debt when interest rates are too low,” Xie said. Hong Kong had its first signal this week of a possible turn in the market, when billionaire Lee Shau-kee ’s Henderson Land Development Co. announced that sales of 20 luxury apartments had been canceled, including a unit that would have set a world record price of HK$88,000 ($11,300) per square foot. Lending Binge China, while keeping interest rates steady, has restricted pre-sales by developers, curbed loans for third-home purchases, raised minimum mortgage rates, and tightened down-payment requirements for second-home purchases. The government is trying to peel back the effects of a $586 billion stimulus plan and $1.4 trillion lending binge that revived economic growth and sparked record property price increases. China’s banking regulator this week said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans. Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website June 15. While prices have yet to drop, sales volumes have. Property sales in Beijing, Shanghai and Shenzhen fell as much as 70 percent in May. China Vanke Co., the nation’s biggest publicly traded property developer, said its sales fell 20 percent in May from a year earlier. Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent. Cut Estimates Property prices rose 12.4 percent in May, compared with a record 12.8 percent increase in April, from a year earlier, indicating price declines are not keeping pace with the drop in transactions. The value of sales last month slid 25 percent from April. The data series, covering 70 cities, began in 2005. JPMorgan Chase & Co. analysts on June 8 cut their profit estimates for China’s developers by an average 9 percent in 2010 and 11 percent in 2011 on a “substantial slowdown” in sales. China Se Shang’s Property Index has tumbled 28 percent this year, with 32 of 34 members declining, led by Shanghai New Huangpu Real Estate Co. and Poly Real Estate Group Co. Hong Kong may increase sales taxes on some properties, is accelerating land auctions, and is scrutinizing developers’ sales techniques. Singapore plans to increase the supply of land for housing, has barred interest-only mortgages for uncompleted homes, and levied a seller’s stamp duty on some properties. ‘Regulatory Measures’ Taiwan’s financial regulator asked the bankers’ association to tighten lending procedures, while two state-owned lenders have raised mortgage rates and cut the amount of loans for buyers of luxury homes and property investors. Interest rates on the island have been at a record low since February 2009. “The regulatory measures are not aiming to crash the whole property market, they are aiming to cool the speculative end,” said Khiem Do , Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees $11 billion. Do is underweight Asian property in his funds and is looking to buy back into the worst hit Chinese property stocks. Home prices in Hong Kong have risen almost 40 percent from the beginning of 2009, driven by interest rates at 20-year lows, lagging supply growth and buying from rich mainland Chinese. The risk of a property bubble remained in the city amid liquidity and low interest rates, Norman Chan , chief executive of the Hong Kong Monetary Authority, said May 20. Ability to Pay Potential home purchasers should consider their ability to pay before taking out mortgages, Financial Secretary John Tsang said June 9, a day after a residential site sold at a public auction for HK$10.9 billion ($1.4 billion), beating estimates. In Taipei, home prices climbed 3.4 percent in May from April, Sinyi Realty Co., the biggest housing broker in Taiwan, said May 31. They have risen 29 percent to a record since September 2008 when the collapse of Lehman Brothers Holdings Inc. deepened the global credit crisis. Singapore Sales Private residential sales in Singapore rose to a nine-month high of 2,208 in April, the Urban Redevelopment Authority said, the highest since July 2009, showing the “resilience” of demand for new homes even after the government curbs, Li Hiaw Ho, executive director of CB Richard Ellis Research, said then. Sales dropped to 1,078 units in May. There continues to be concerns over “excessive” asset- price inflation in emerging Asia, the Singapore government said May 20. If asset prices correct too sharply in China, it could have “negative spillover” effects on regional economies, Ravi Menon , permanent secretary at the Singapore trade ministry, told reporters the same day. The failure to raise rates may allow the bubble to keep swelling, said Stephen Halmarick , Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which manages about $135 billion. “The lesson of subprime is that, if you let asset prices go too far for too long, the correction can be very damaging,” he said. To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net ; Malcolm Scott in Sydney at Mscott23@bloomberg.net

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BP Rebounds on Agreement to Phase in Oil Spill Fund Payments

June 17, 2010

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

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BP’s Gulf Spill Fuels Australian Opponents to Deepwater Drilling for Oil

June 17, 2010

By James Paton June 17 (Bloomberg) — BP Plc ’s Gulf of Mexico disaster is generating opposition to deepwater drilling off Australia, where the government is opening new exploration areas less than a year after the country’s third-worst oil spill. Resources Minister Martin Ferguson will receive the results tomorrow of an investigation into last August’s Timor Sea oil spill, he said in a phone interview. A month ago, he invited companies to bid for permits to explore new “frontiers” as Australia faces an import cost for oil and liquid fuels that may double in five years to A$30 billion ($26 billion). The country was self sufficient in oil as recently as 2000. Ferguson, who today ruled out suspending exploration, is offering 31 drilling areas in waters as deep as 3,750 meters, more than twice the depth of BP’s leaking well. Australia’s expanded search for oil and gas comes as BP’s spill, the worst in U.S. history, focuses attention on petroleum industry safety. “We should hold off on exploring in some of the deeper basins,” said Tina Hunter, an assistant law professor at Bond University in Queensland state who studies offshore oil regulation. “The last thing we need is to go into deeper waters and risk something like what happened in the U.S.” Chevron Corp., Royal Dutch Shell Plc and ConocoPhillips are among companies planning more than $185 billion of oil and gas projects in the country, according to the Australian Petroleum Production and Exploration Association. ‘Accidents Will Happen’ Increased drilling adds to the risk a disaster the size of the BP Gulf spill could occur off Australia, said Justin Marshall, a professor at the University of Queensland. “The public needs much greater assurance accidents can be dealt with effectively, because they will happen,” Marshall, a former president of the Australian Coral Reef Society , said by phone yesterday. “Safety measures need to be enforced at a much higher level, the risks to the environment are huge.” The U.S. probe into the BP spill and what caused the Deepwater Horizon drilling rig to explode on April 20, killing 11 workers, will focus on safety lapses and equipment failures. Oil producers around the world are bracing for stricter regulation. Norway will ban any deepwater drilling in new areas until the cause of the BP spill is known, Oil Minister Terje Riis-Johansen said June 8. Russia may tighten its rules, Energy Minister Sergei Shmatko said May 24. Obama Response BP’s spill was initially overseen by the U.S. Minerals Management Service . The agency, faulted for lax regulation, was broken into three by President Barack Obama on May 19, creating bodies to oversee leases, drilling safety and fee collection. When Ferguson opened the new areas on May 17, he said the country must streamline rules to make a single agency responsible for safety, well operations and the environment. “There is no intention by the government to scale back the development of the oil and gas industry in Australia,” Ferguson said today. “It is very important in terms of the nation’s energy security, jobs and the overall economy, but I am totally focused on the need to ensure we have the absolute best practices in place.” The National Offshore Petroleum Safety Authority, the Australian Maritime Safety Authority and the Northern Territory Department of Resources are among bodies that had oversight of the Montara spill. Moratorium Needed Australia needs a yearlong moratorium on deepwater drilling to study the Montara report and the BP spill, Bond University’s Hunter told Bloomberg Television today. Companies drilled 1,500 wells off Australia in the 25 years before the Montara accident without any blowouts, the petroleum group said. Explorers face stringent environmental conditions before drilling, Chief Executive Officer Belinda Robinson said in an e-mailed response to questions. Last year’s spill, about 250 kilometers (155 miles) off the Kimberley coast, shows Australia needs a single agency to monitor well safety, protect the marine environment and oversee spill response, according to Hunter. Calls to strengthen Australian regulations began before the Montara incident when a 2008 explosion at Apache Corp.’s Varanus Island gas plant caused fuel shortages in Western Australia, source of a third of the nation’s exports. ‘Consistent Approach’ “Some of the issues that have arisen as a result of the Varanus and Montara incidents mean we need to revisit our regulatory system and make sure we have the strongest possible national, consistent approach, rather than allowing potential differences to develop,” Ferguson said. Montara may have spilled about 30,000 barrels of oil between Aug. 21 and Nov. 3, based on estimates by Bangkok-based PTT. That would make it the third-biggest spill in Australian history, according to figures from the Maritime Safety Authority. The Timor Sea accident and a Chinese coal carrier that ran aground in April on the Great Barrier Reef have already damaged the marine environment, University of Queensland’s Marshall said. “The ocean is full of life, and when that oil sinks to the bottom it’s going to be killing things,” he said. Australian Greens party Senator Rachel Siewert urged the government to scrap the latest set of new drilling permits, concerned about the threat to whales, seals, turtles and other marine life in one area marked for exploration off the Western Australian coast. Parts of this block are “extremely deep,” as much as 3,750 meters, the Resources Department said. “If a Montara-size spill occurred there, you’d see oil on the coast,” Siewert said in a telephone interview. “There are dangers inherent in deepwater production, and the government should put a hold on exploration that we have control over.” To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net .

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

June 17, 2010

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

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BP Rebounds After Scrapping Dividend in Deal to Pay for Spill Swaps Slide

June 17, 2010

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

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

June 17, 2010

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

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Henderson’s Failed Hong Kong Home Sales May Drag Down Prices Stock Falls

June 16, 2010

By Kelvin Wong and Wing-Gar Cheng June 17 (Bloomberg) — The canceled sales of 20 Hong Kong luxury apartments worth HK$2.67 billion ($342 million) may be the first sign that government efforts to curb the soaring property market are having an effect. Most buyers have pulled out of the 39 Conduit Road project in Hong Kong’s Mid-Levels district, owner Henderson Land Development Co. said in a June 15 statement. The announcement comes after the city issued new rules restricting home buying and regulating marketing techniques seen as deceptive. “It shows investors are turning cautious in the luxury apartment market,” said Buggle Lau , chief property analyst at realty company Midland Holdings Ltd. “With credit tightening in the mainland, some of the Chinese investors are slowing their purchases in the luxury property market.” Henderson shares dropped as much as 4.1 percent and were trading at HK$46.35, down 3 percent, as of 10:16 a.m. in Hong Kong. They have lost 20 percent this year, the worst performers in the seven-member Hang Seng Property Index. The index advanced 0.2 percent today. The company was cut to “neutral” from “outperform” by Credit Suisse Group AG analysts Cusson Leung and Joyce Kwock , who said the cancellation may have hurt investor confidence in the Henderson’s sales execution. Henderson said it would take a charge of HK$734 million against earnings after the cancellation. The stock market was closed for a public holiday yesterday. Home Prices Hong Kong raised the requirement for down payments on luxury homes to 40 percent from 30 percent and cracked down on misleading marketing by developers after officials expressed concern that prices were rising too fast. Property values in China are outpacing all other major markets even after the government took measures such as restricting second-home purchases and changing lending requirements. Home prices in Hong Kong have risen 5.7 percent this year, adding to 2009’s 29 percent advance and raising concerns the market is overheating. The failure of the Conduit Road sales, including an apartment that would have set a world record price at HK$88,000 a square foot, marks a setback for billionaire owner Lee Shau- kee , Hong Kong’s second-richest man. In March, he said buyers were given more time to complete the deals. ‘Out of Line’ “I doubt they’ll be able to sell them at those prices again,” Raymond Ngai , a Hong Kong-based analyst at JPMorgan Chase & Co. said by telephone. “HK$30,000 per square foot is still quite possible, but HK$70,000 is just too out of line with the market.” Henderson booked sales of 25 apartments in Conduit Road as revenue for the 18 months ended December 2009, the company reported March 30. The total price of the 20 apartments whose sales collapsed came to HK$2.67 billion, Henderson spokeswoman Bonnie Ngan said by telephone yesterday. “We won’t be cutting prices,” Lee Shau-kee told reporters on June 15. “Maybe we’ll make more money when we sell these apartments again.” Hong Kong builders often sell apartments before they are completed, enticing customers by showing models of the homes. The government this month introduced restrictions on new home sales, including the use of show apartments, and demanded that developers disclose properties sold to their own executives, a practice that tends to exaggerate demand. ‘Transparent Environment’ “The government is determined to create a fairer and a more transparent environment for flat purchasers,” it said in a release following the Henderson announcement. Financial Secretary John Tsang in February announced higher stamp duty on luxury properties and pledged to raise the supply of land to reduce the risk of “a property bubble” and keep housing affordable. Emily Lau , a member of Hong Kong’s Legislative Council, said the government should start an investigation over the way Henderson conducted the sales. “Henderson said the sales were made, and now they say it’s fallen through,” she said. “Consumers have the right to know what happened since such high prices were involved.” To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

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Less May Be More for Murdoch, New York Times as Newspapers Put Up Paywalls

June 16, 2010

By Matthew Campbell June 17 (Bloomberg) — Rupert Murdoch ’s News Corp. -owned Times of London is offering free tickets to Toy Story 3 or the chance of a weekend at the Grosvenor Hotel in Dorset in an effort to convince readers to pay for news online. The newspaper this week began closing down its free website and will charge for access, mirroring a long-standing practice at the Financial Times and the Wall Street Journal. The New York Times Co. plans to do the same next year. Both concede the step will mean fewer readers. A drop in advertising revenue is forcing them to seek other, more steady, sources of income. “We don’t expect or require that all the people who do now will still look at it,” said Daniel Finkelstein , executive editor of the Times in London whose online fee will be 2 pounds ($2.89) a week. “What’s left is still a vast market.” Among the first general newspapers seeking to charge for online content, the Times and the New York daily are betting that a smaller number of committed, paying online readers may allow them to extract subscription fees and bigger advertising sales. Print ads in the U.S. last year slid 29 percent to about $24.8 billion, the lowest since 1984. With online ad sales holding up better, newspapers want to capture a bigger piece that pie, even as they lose some readers. “Obviously a huge number of casual readers will get their news elsewhere,” said Paul Richards , an analyst at Numis Securities Ltd. in London. “What you’ll have left is a core of readers that you can target more effectively with advertising and services. If you know who your readers are it’s easier to monetize them.” Hard to Do While the Financial Times has had some success with the strategy, the ability of general interest dailies to carry it off is less obvious, industry experts say. Luring paying online readers may be harder with news that is more easily available for free on the Web. “They’re not going to convince people to pay for news, because people weren’t paying for news,” said Nelson Phillips, professor of organization and management at Imperial College in London. “The big brands may be able to do it. But if you’re a mid-level paper, what do you have that’s not available on the Web for free?” Murdoch’s News Corp., which this week offered to buy the rest of U.K. pay-TV operator British Sky Broadcasting Plc for 7.8 billion pounds ($11.5 billion), is pushing a business model with clients paying for content as a driver of revenue growth . He’s using that same strategy at the Times of London and the Sunday Times. The Times is now offering paying subscribers access to free events and discounted products through its ’Times+’ service in an effort to build customer loyalty. Volume Battle In May, the Times of London said it would cut its editorial budget by 10 percent, leading to the departure of as many as 50 staff. Editor James Harding said the newspaper’s “losses are unsustainable.” Revenue at Times Co. ’s News Media Group, owner of the New York Times, tumbled 23 percent between 2007 and 2009 to $2.32 billion. The company as a whole reported a $20 million 2009 profit, after a $58 million loss in 2008. Charging for online content is among efforts at the two dailies to boost sales. “If you want to get into a battle on volume, Facebook has already won,” said Rob Grimshaw , managing director of Pearson Plc’s FT.com, alluding to the world’s largest social-networking site. “You can gain a lot more on yield,” and by offering advertisers information on paying visitors, he said. Striking a Balance The Financial Times, which has a daily circulation of about 390,000, began its current system for access to its FT.com site in 2007. The site has about 126,000 subscribers, each shelling out at least 3.29 pounds a week in the U.K., and two million more registered users, who provide basic personal information in exchange for 10 free stories a month. While the site usually charges about 35 to 40 pounds in fees from advertisers for every 1,000 views of a story, some parts of FT.com command “much higher” rates, according to Grimshaw. That compares with as little as one pound for less focused sites, he said. The FT’s website has succeeded in striking a balance between mass-market appeal and winning money from subscribers, said Alexander Wisch , a media analyst at Standard & Poor’s Equity Research in London. “They are able to draw ads and get the eyeballs, and at the same time to monetize subscriptions.” Specialized publications “do draw audiences, and they draw audiences that pay.” ‘Prix-Fixe Menus’ The New York Times will see “some effect” on readership after it implements a paywall next year, Times Co. Chief Executive Officer Janet Robinson said in an interview. “We feel that we will protect as much of the audience as possible” with a “metering” approach, that allows free access to a limited number of stories, she added. Existing paywalls usually follow one of three strategies: a flat-rate subscription for all content, a mix of paid and free articles determined by editors, or a metering system that allows readers a capped number of free stories of their choice. Flat-rate subscription models have the advantage of “decoupling” the unpleasant experience of payment from that of reading articles, according to Ziv Carmon, who researches consumer behavior at INSEAD in Singapore. Newspapers should “look at the prix-fixe menus in French restaurants,” he said. “If you’re eating a shrimp appetizer, you don’t think that every bite equals two bucks.” Makes No Sense The Financial Times in 2007 switched from a mix of free and paid content to its current metered model. “One person’s goldmine of an article was behind the wall, but it could be irrelevant to another person,” Grimshaw said. Still, any paywall strategy risks cutting newspapers off from an ecosystem of blogs and social media sites that was created partly by the availability of free content. The New York Times in 2007 abandoned its two-year TimesSelect experiment, which charged for access to some columnists and articles. Andrew Sullivan , a commentator at The Atlantic magazine whose site is among the top 15 blogs on the Web, dubbed the service “TimesDelete,” because of the difficulty of linking readers to stories behind the paywall. Tim Kevan, a legal blogger, on May 28 left the London-based Times, arguing that he didn’t want his work to become “the preserve of a limited few.” The Times’s Finkelstein argues that the newspaper needs to charge to invest in content output, even at the risk of smaller readership. “It doesn’t make sense for any length of time to give away the product you’re selling,” he said. To contact the reporter on this story: Matthew Campbell in London at mcampbell39@bloomberg.net .

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Asian Nations Impose Curbs in Struggle to Slow Expanding Property Bubbles

June 16, 2010

By Shamim Adam and Malcolm Scott June 17 (Bloomberg) — From Shanghai to Singapore, policy makers are struggling in their efforts to curb property bubbles that threaten to derail the world’s fastest growing region. In China, home prices are surging at a record pace even after authorities set price ceilings, demanded higher deposits, and limited second-home purchases. In Hong Kong, where the government has pledged to release more land to cool prices, a site auctioned on June 8 fetched the most since the market peak of 1997. It’s a similar story in Singapore and Taiwan as prices defy cooling measures. “Governments allow the property bubble to get so big and then try to use administrative measures to keep out speculators,” said Andy Xie , former Morgan Stanley chief economist for Asia-Pacific and now a private economist based in Shanghai. It creates the risk of a very hard landing. The right thing to do is raise interest rates.” The International Monetary Fund has cautioned that Asia’s booming home prices “pose risks to financial stability.” Governments in the region are turning to market curbs rather than raising interest rates — at 20-year lows in some places — in an effort to avert a U.S.-style property crash. While real estate prices have yet to respond, equity investors have: a Bloomberg index of 192 Asia-Pacific real estate stocks has lost 15 percent in 2010 versus a 1.5 percent gain for its U.S. peer. “The property bubbles in Asia right now are reminiscent of the U.S. before the subprime crisis because they are both fuelled by debt when interest rates are too low,” Xie said. Hong Kong had its first signal this week of a possible turn in the market, when billionaire Lee Shau-kee ’s Henderson Land Development Co. announced that sales of 20 luxury apartments had been canceled, including a unit that would have set a world record price of HK$88,000 ($11,300) per square foot. Lending Binge China, while keeping interest rates steady, has restricted pre-sales by developers, curbed loans for third-home purchases, raised minimum mortgage rates, and tightened down-payment requirements for second-home purchases. The government is trying to peel back the effects of a $586 billion stimulus plan and $1.4 trillion lending binge that revived economic growth and sparked record property price increases. China’s banking regulator this week said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans. Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website June 15. While prices have yet to drop, sales volumes have. Property sales in Beijing, Shanghai and Shenzhen fell as much as 70 percent in May. China Vanke Co., the nation’s biggest publicly traded property developer, said its sales fell 20 percent in May from a year earlier. Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent. Cut Estimates Property prices rose 12.4 percent in May, compared with a record 12.8 percent increase in April, from a year earlier, indicating price declines are not keeping pace with the drop in transactions. The value of sales last month slid 25 percent from April. The data series, covering 70 cities, began in 2005. JPMorgan Chase & Co. analysts on June 8 cut their profit estimates for China’s developers by an average 9 percent in 2010 and 11 percent in 2011 on a “substantial slowdown” in sales. China Se Shang’s Property Index has tumbled 28 percent this year, with 32 of 34 members declining, led by Shanghai New Huangpu Real Estate Co. and Poly Real Estate Group Co. Hong Kong may increase sales taxes on some properties, is accelerating land auctions, and is scrutinizing developers’ sales techniques. Singapore plans to increase the supply of land for housing, has barred interest-only mortgages for uncompleted homes, and levied a seller’s stamp duty on some properties. ‘Regulatory Measures’ Taiwan’s financial regulator asked the bankers’ association to tighten lending procedures, while two state-owned lenders have raised mortgage rates and cut the amount of loans for buyers of luxury homes and property investors. Interest rates on the island have been at a record low since February 2009. “The regulatory measures are not aiming to crash the whole property market, they are aiming to cool the speculative end,” said Khiem Do , Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees $11 billion. Do is underweight Asian property in his funds and is looking to buy back into the worst hit Chinese property stocks. Home prices in Hong Kong have risen almost 40 percent from the beginning of 2009, driven by interest rates at 20-year lows, lagging supply growth and buying from rich mainland Chinese. The risk of a property bubble remained in the city amid liquidity and low interest rates, Norman Chan , chief executive of the Hong Kong Monetary Authority, said May 20. Ability to Pay Potential home purchasers should consider their ability to pay before taking out mortgages, Financial Secretary John Tsang said June 9, a day after a residential site sold at a public auction for HK$10.9 billion ($1.4 billion), beating estimates. In Taipei, home prices climbed 3.4 percent in May from April, Sinyi Realty Co., the biggest housing broker in Taiwan, said May 31. They have risen 29 percent to a record since September 2008 when the collapse of Lehman Brothers Holdings Inc. deepened the global credit crisis. Singapore Sales Private residential sales in Singapore rose to a nine-month high of 2,208 in April, the Urban Redevelopment Authority said, the highest since July 2009, showing the “resilience” of demand for new homes even after the government curbs, Li Hiaw Ho, executive director of CB Richard Ellis Research, said then. Sales dropped to 1,078 units in May. There continues to be concerns over “excessive” asset- price inflation in emerging Asia, the Singapore government said May 20. If asset prices correct too sharply in China, it could have “negative spillover” effects on regional economies, Ravi Menon , permanent secretary at the Singapore trade ministry, told reporters the same day. The failure to raise rates may allow the bubble to keep swelling, said Stephen Halmarick , Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which manages about $135 billion. “The lesson of subprime is that, if you let asset prices go too far for too long, the correction can be very damaging,” he said. To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net ; Malcolm Scott in Sydney at Mscott23@bloomberg.net

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

June 16, 2010

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

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

June 16, 2010

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

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Stocks, Oil Recover From Early Drop Treasuries Pare Gain

June 16, 2010

By Michael P. Regan and Esme E. Deprez June 16 (Bloomberg) — U.S. recovered from an early drop as BP Plc’s plan to put $20 billion into a fund to pay damages from the Gulf of Mexico oil spill eased concern about the company’s future. The dollar and Treasuries pared gains and oil rallied on lower refinery operating rates. The Standard & Poor’s 500 Index slipped less than 0.1 percent to 1,114.39 at 3:16 p.m. in New York after tumbling 0.7 percent earlier. Oil rose as much as 1.6 percent to a one-month high of $78.13 a barrel. The Dollar Index , which gauges the U.S. currency against six major trading partners, was little changed after jumping 0.5 percent earlier. The yield on the 10-year Treasury note slipped 3 basis point to 3.28 percent. BP’s U.S. shares reversed losses as Chairman Carl-Henric Svanberg agreed to provide $20 billion to pay “all proper claims” from the worst spill in U.S. history, easing concern about the company’s prospects as credit investors price in a record chance it will default within five years. The earlier drop in stocks came after FedEx Corp.’s earnings forecast trailed estimates and housing starts dropped more than forecast. “It quantifies to some degree the amount that BP is going to set aside,” said Marshall Front , chairman of Front Barnett Associates LLC in Chicago, which manages $500 million. “They earn $4.5 billion a quarter so this is not a staggering amount of money.” 200-Day Average The S&P 500 drifted between gains and losses after a 2.4 percent rally yesterday erased the index’s loss for the year. Apple Inc. and JPMorgan Chase & Co. paced gains in computer companies and banks. FedEx, the largest air-cargo carrier, tumbled 3 percent after forecasting annual profit that may trail the average analyst estimates by as much as 13 percent on higher costs for health-care and pensions. U.S. housing starts fell 10 percent, the biggest decline since March 2009, to a 593,000 annual rate, from a revised 659,000 pace in April that was less than previously estimated, Commerce Department figures showed. Building permits, a sign of future construction, unexpectedly fell to a one-year low. Single-family starts suffered the largest drop since 1991. Fannie Mae and Freddie Mac shares tumbled at least 39 percent after their regulator told the two mortgage-finance companies to delist their stock from the New York Stock Exchange. European stocks closed little changed, with the Stoxx Europe 600 Index at the highest level in a month, as gains by insurers offset a decline by auto-industry companies and a slump in technology shares after Nokia Oyj cuts its forecasts. Euro Pares Losses After rallying for two days, the euro slipped 0.3 percent to $1.2301, paring an earlier drop of 0.6 percent. The euro has weakened 14 percent this year against the dollar amid concern the region’s government debt crisis will weaken the currency shared by 16 nations. Spanish and Portuguese bonds fell relative to German bunds amid deepening concern the nations’ economic growth will be curtailed by spending cuts needed to reduce their budget deficits. Prime Minister Jose Luis Rodriguez Zapatero is trying to convince investors he can trim the euro region’s third-largest deficit, shore up the country’s banks and lift the economy out of a two-year slump. Spanish unions called for the first general strike in eight years to protest an overhaul in the country’s labor-laws, which the cabinet approved today. The difference in yield, or spread, between Spanish and German 10-year bunds, Europe’s benchmark government debt securities, widened to a record 221 basis points, from 206 basis points yesterday, according to Bloomberg generic data. The Portuguese-German spread increased 14 basis points to 292 basis points, and the Greek-German yield difference rose 27 basis points to 667 basis points. Spanish Default Swaps Credit-default swaps on Spanish government debt rose 7 basis points to 253, compared with the record-high closing level of 275 basis points on May 6, according to CMA DataVision. The MSCI Asia Pacific Index rallied 1.1 percent to a four- week high. Toyota Motor Corp., a carmaker that gets about 28 percent of its sales from North America, gained 1.2 percent in Tokyo. Nintendo Co. jumped 5.2 percent in Osaka, Japan, after the company introduced a new handheld video-game player. Markets in Hong Kong, China and Taiwan were closed today for a holiday. The MSCI Emerging Markets Index advanced for a seventh day, increasing 0.7 percent. Romania’s BET Index jumped 2.7 percent, the most worldwide, and the country’s government bonds rallied after Prime Minister Emil Boc survived a no-confidence vote. South Korea’s won led gains in emerging-market currencies, strengthening 1.4 percent against the dollar. Gold for immediate delivery slipped 0.4 percent to $1,229.82 an ounce. Copper slipped 0.3 percent to $3.0155 a pound in New York. To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net ; Esme E. Deprez in New York at edeprez@bloomberg.net .

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BroadSoft Prices Initial Offering at Bottom of Forecast Range Shares Drop

June 16, 2010

By Lee Spears and Inyoung Hwang June 16 (Bloomberg) — BroadSoft Inc. raised $67.5 million in an initial public offering, becoming the second U.S. company to price an IPO within its forecast range this week. The shares retreated 7.8 percent in their first day of trading. The Gaithersburg, Maryland-based maker of software enabling businesses to use voice services over the Internet sold 7.5 million shares at $9 each yesterday after offering them for $9 to $11, according to a company statement and a filing with the Securities and Exchange Commission. BroadSoft’s deal came after CBOE Holdings Inc. priced a $339 million offering at the top of the forecast range on June 14 and the Standard & Poor’s 500 Index erased its loss for the year. At least 34 companies worldwide had postponed or withdrawn IPOs since the beginning of May as the European debt crisis sent the S&P 500 down as much as 14 percent from its 2010 high. “The short-term stabilization of the markets which has occurred in the last two weeks has opened a window for IPOs,” said Lawrence Creatura , a Rochester, New York-based fund manager at Federated Investors Inc., which oversees $350 billion. “People seeking equity capital have to be conscious that this window may close at any time. So it’s no surprise that they’re eager to get deals done.” BroadSoft slid 70 cents to $8.30 as of 4:05 p.m. New York time in Nasdaq Stock Market trading. Goldman Sachs Group Inc. and Jefferies Group Inc. of New York managed the IPO. Oasis Petroleum Oasis Petroleum Inc. will lead four sales scheduled for today, data compiled by Bloomberg show. The Houston-based drilling and exploration company with oilfields in North Dakota and Montana is seeking $725 million including its overallotment option, in what would be the largest U.S. IPO this year. Morgan Stanley of New York and Zurich-based UBS AG are managing the sale. Oasis Petroleum is backed by EnCap Investments LP, a Houston-based private-equity firm. Oasis Petroleum focuses on developing and extracting “unconventional” oil- and natural-gas deposits from the ground, according to a filing with the SEC. It owns rights to 292,000 acres of land in North Dakota and Montana, 85 percent of which has not been developed, the filing showed. The company plans to spend $220 million on drilling and supporting activities in 2010, more than double the $89 million in 2009. Oasis Petroleum will try to access deposits through horizontal-drilling techniques, it said in the filing. ‘Systemic Risk’ The IPO comes eight weeks after a rig leased by London- based BP Plc exploded in the Gulf of Mexico, triggering the worst oil spill in U.S. history. President Barack Obama on May 27 extended a moratorium on deepwater offshore drilling permits, while BP has tentatively agreed to put about $20 billion into a fund to pay damages, people familiar with the talks said today. “Investors will be obviously looking for onshore options,” said Josef Schuster , the Chicago-based founder of IPOX Capital Management LLC and manager of the Direxion Long/Short Global IPO Fund. “The potential systemic risk coming from BP is not there with Oasis.” Schuster said any boost won’t be enough to spur him to buy shares of Oasis Petroleum, citing the performance of the IPOs of oil-exploration companies such as Athabasca Oil Sands Corp. this year. Calgary-based oil-sands developer Athabasca has tumbled 38 percent since raising C$1.35 billion ($1.32 billion) in March. Relative Value At the midpoint price of $14 a share, Oasis is valued at 2.19 times net tangible book value, a measure of shareholder equity that excludes assets that can’t be sold in liquidation. That’s 53 percent higher than the median ratio of 1.43 for 61 oil refining and marketing companies worldwide, data compiled by Bloomberg show. Higher One Holdings Inc. in New Haven, Connecticut; Bellevue, Washington-based Motricity Inc., and China Intelligent Lighting & Electronics Inc. of Guangdong, China, are also scheduled to sell stock today, according to Bloomberg data. Goldman Sachs is leading Higher One’s offering, while Goldman and JPMorgan Chase & Co. in New York are handling Motricity’s sale. New York-based Rodman & Renshaw LLC and WestPark Capital Inc. of Los Angeles were hired to run China Intelligent’s deal. To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net ; Inyoung Hwang in New York at ihwang7@bloomberg.net .

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BOE May Raise Rates Before Selling Bonds to Exit Stimulus Steps, King Says

June 16, 2010

By Scott Hamilton and Svenja O’Donnell June 16 (Bloomberg) — Bank of England Governor Mervyn King said officials will probably raise interest rates before selling bonds when they decide to remove stimulus in the economy, which is still struggling to shake off the effects of the recession. The Monetary Policy Committee “will not hesitate to begin to withdraw the current degree of stimulus when we judge that is necessary,” King said today in London. “That is most likely to be through a rise in bank rate with asset sales being conducted later in an orderly program over a period of time, leaving bank rate as the active instrument.” While U.K. inflation still exceeds the government’s 3 percent upper limit, Bank of England officials predict the rate will decline in the aftermath of the economic slump. The Bank of England last week kept its 200 billion-pound ($297 billion) bond stimulus in place to aid the economy as finance minister George Osborne prepares the deepest spending cuts in a generation. “If prospects for growth were to weaken, the outlook for inflation would probably be lower and monetary policy could then respond,” King said, speaking the Mansion House in the City, London’s financial district. “A range of indicators point to spare capacity in the economy rather than excess demand.” The central bank has kept the key interest rate at a record low of 0.5 percent since March 2009. King’s signal that it may increase before assets sales echoes the preferred strategy of a majority of U.S. Federal Reserve policy makers under Chairman Ben S. Bernanke , according to the minutes of their April meeting. The Fed has bought more than $1 trillion in mortgage- backed securities and kept its interest rate near zero. Fitch’s View Fitch Ratings said last week Britain’s new coalition government needs to accelerate budget-deficit cuts to protect the nation’s top credit rating. In his emergency budget on June 22, Osborne will outline the scale of the spending cuts required to eliminate a deficit of 11.1 percent of gross domestic product , the highest since World War II. “The steady reduction in the very large structural deficit over a period of a parliament cannot credibly be postponed indefinitely,” King said. “It is important that, in the medium term, national debt as a proportion of GDP returns to a declining path.” The debt crisis afflicting the euro region poses a risk to U.K. economic growth, he said. The European Central Bank last week cut its growth forecast for the euro region in 2011 to 1.2 percent from an earlier projection of 1.5 percent because of weaker domestic demand. The euro area accounts for about half of British exports. Recovery Threat “Much of the recent market volatility reflects concerns about the ability of governments to service their own debt and provide assistance where necessary to weakened banking systems, especially in the euro area,” King said. “Such risks have the potential to derail recovery and we cannot ignore them.” King said that the U.K. already has a lack of demand, highlighted by the unemployment rate close to 8 percent. Signs of inflation persisting are also lacking, including low measures of growth in money supply, earnings and spending. Inflation still accelerated to a 17-month high in April and was at 3.4 percent in May, holding above the bank’s 2 percent target for a sixth month. Consumers’ expectations for price increases in the coming year rose to the highest since 2008 in May, a quarterly Bank of England survey showed. “The MPC is conscious that there are always risks to the upside, and the apparent rise in inflation expectations is one that concerns us,” King said. “We have always explicitly recognized that there is a significant chance that inflation may turn out to be above target.” Still, King cautioned that the bank shouldn’t react to increases in the inflation rate based solely on commodity-cost fluctuations. “Our ability to keep measured inflation close to the target has been hindered by movements in world oil and commodity prices,” King said. Such cost pressures on their own “do not generate the continuous rise in prices to which monetary policy should respond.” To contact the reporters on this story: Scott Hamilton in London at shamilton8@bloomberg.net ; Svenja O’Donnell in London at sodonnell@bloomberg.net

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

June 16, 2010

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

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

June 16, 2010

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

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Buffett, Gates Press Billionaires to Give Half Their Wealth to Charities

June 16, 2010

By Andrew Frye and Katya Kazakina June 16 (Bloomberg) — Warren Buffett and Bill Gates are pressing fellow billionaires to commit at least half their wealth to charity in an effort to draw attention on the responsibilities the wealthiest have for aiding the needy. Buffett and Gates started a drive called “ The Giving Pledge ” to encourage high-profile philanthropic promises, according to the initiative’s website. A pledge of the majority of an individual’s fortune is “an understandable and quite reachable bar for the wealthiest — many will exceed it,” according to a document posted on the website. Buffett, the world’s third-richest person and chairman of Berkshire Hathaway Inc. , has pledged more than 99 percent of his wealth to philanthropy. The greatest part of his fortune, estimated in March at $47 billion by Forbes magazine, is being given in annual installments to the foundation established by Microsoft Corp. co-founder Gates and his wife Melinda Gates . “Bill and Melinda Gates and I are asking hundreds of rich Americans to pledge at least 50 percent of their wealth to charity,” Buffett wrote today in a pledge on Fortune’s website. Buffett said 1 percent of his wealth is enough for him and his family, and “neither our happiness nor our well-being would be enhanced” by keeping more. The initiative kicked off with a meeting in New York on May 5, 2009, that was organized by the Gateses, Fortune magazine reported, citing interviews with the couple and Buffett. The leaders of the effort may have a minimum goal of about $600 billion in commitments, Fortune said, based on the calculation of half of the $1.2 trillion in net worth of the 400 richest individuals compiled by Forbes magazine. ‘The Giving Pledge’ “It would easily double or triple the amount of philanthropy in America,” said Melissa Berman , president of Rockefeller Philanthropy Advisors, a non-profit organization that has advised the Bill & Melinda Gates Foundation on “The Giving Pledge” initiative. “If we would be able to get this influx for philanthropy from billionaires, it would inspire other Americans,” she said in an interview today. “And then we could really change what the world is like.” The idea to assemble a group of billionaire philanthropists to discuss strategies and encourage giving was Buffett’s, Fortune said. The meeting was hosted by David Rockefeller and included George Soros , Oprah Winfrey and Michael Bloomberg . Bill Gates ranks second on the Forbes list of billionaires. Bloomberg, the mayor of New York, is the majority owner of Bloomberg LP, the parent of Bloomberg News. The Gates Foundation, with an endowment of about $35 billion, combats disease and global poverty, and funds U.S. education initiatives. Those who take the pledge are invited to pick the causes that they fund. The effort will initially focus on U.S. billionaires and may expand to other countries. To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net ; Katya Kazakina in New York at kkazakina@bloomberg.net .

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Manufacturing Powers U.S. Economic Recovery as Housing Is Mired in Slump

June 16, 2010

By Timothy R. Homan and Courtney Schlisserman June 16 (Bloomberg) — Production in the U.S. rose by the most since August and builders broke ground on fewer homes than projected, showing manufacturing is sustaining the recovery as the housing market retreats following the expiration of a government tax credit. Output at factories, mines and utilities increased 1.2 percent last month after a 0.7 percent gain in April, a Federal Reserve report in Washington showed today. Housing starts fell 10 percent, the biggest decline since March 2009, according to figures from the Commerce Department. Companies are rebuilding inventories and investing in new equipment as rising overseas demand drives profits at manufacturers including Deere & Co . Another report today showed producer prices fell last month, giving the Fed scope to keep interest rates near zero to sustain the recovery as less government spending and the European debt crisis hurts growth. “We continue to have an economic expansion that’s moderate overall and uneven,” said Richard DeKaser , chief economist at Woodley Park Research in Washington, who accurately forecast the gain in industrial production. “Clearly, the factory sector is helping to offset the weakness” in the housing market. Stocks dropped on a disappointing earnings forecast by FedEx Corp. and on concern over the outlook for housing. The Standard & Poor’s 500 Index fell 0.2 percent to 1,113.54 at 11:36 a.m. in New York. Treasury securities rose, sending the yield in the benchmark 10-year note down to 3.28 percent from 3.30 percent late yesterday. Exceeds Expectations Economists forecast industrial production would increase 0.9 percent in May, according to the median of 82 projections in a Bloomberg News survey. Estimates ranged from gains of 0.5 percent to 1.6 percent. Housing starts fell to a 593,000 annual rate from a revised 659,000 pace in April that was lower than previously estimated. Building permits , a sign of future construction, unexpectedly declined to a one-year low, the report from the Commerce Department showed. Single-family home starts suffered the biggest drop since 1991. The plunge followed the expiration of a government incentive worth as much as $8,000, which required contracts be signed by April 30 and closed by the end of this month. Builders are rushing to complete projects before the June closing deadline and are less focused on starting new projects. “Builders are obviously feeling very cautious, justifiably cautious,” said Robert Dye , a senior economist at PNC Financial Services Group Inc. in Pittsburgh. Home construction in the third quarter is “going to be weak and will be a drag on” the economy, Dye said. ‘Weak’ Homebuilding Prices paid to factories, farmers and other producers fell 0.3 percent in May, the third decline in four months, figures from the Labor Department also showed today. Excluding food and fuel, so-called core prices climbed 0.2 percent for a second month. The European debt crisis has prompted economists to trim inflation forecasts on increased prospects for weaker global growth and a strengthening dollar. With about 25 percent of U.S. plant space idle and unemployment hovering around 10 percent, companies have little ability to raise prices. “Slack in the labor force and excess capacity continue to keep inflationary pressure in check,” Lindsey Piegza , an economist at FTN Financial in New York, said in a note to clients. “Deflationary pressures continue to temper expectations of a near-term change in interest-rate policy.” Idle Resources The Fed’s production report showed capacity utilization, which measures the amount of a plant that is in use, rose to 74.7 percent last month from 73.7 percent in April. The rate is still lower than the 80 percent average over the last two decades. Excess capacity reduces the risk of bottlenecks that can force prices up, indicating inflation will remain low. The gain in output was paced by increases among auto, computer, electronics and machinery makers. Deere, the world’s largest farm-equipment maker, said on its website last week that sales of utility tractors rose in the “double digits” in May, compared with a 6 percent increase for the industry overall. Growing global demand for agricultural commodities, housing and infrastructure is driving sales, Samuel Allen , chief executive officer of the Moline, Illinois-based company, said last month in a statement. Deere last month raised earnings and sales forecasts for a second time this year after second-quarter profit topped analysts’ estimates. Rising Exports Manufacturing, which makes up about 11 percent of the economy, is benefiting from gains in business spending and global economic growth. U.S. exports have risen 10 of the last 12 months, helped by surging growth in emerging Asian and Latin American countries, according to figures from the Commerce Department. “People have an undue sense of pessimism relative to what is actually happening out there,” FedEx Chief Executive Officer Frederick Smith said, referring to growth in the shipment of high-value goods. Shipping demand is rising as a growing middle class in India, Brazil and China increasingly uses the Internet to order goods, he said on a conference call. “We expect stronger demand for our services and continued growth in revenue and earnings as global economic conditions continue to improve in fiscal 2011,” Smith said. To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net ; Courtney Schlisserman in Washington cschlisserma@bloomberg.net

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S&ampP 500 Rally Past 200-Day Average May Convince Investors Gains Will Last

June 16, 2010

By Esmé E. Deprez and Kelly Bit June 16 (Bloomberg) — The advance in the Standard & Poor’s 500 Index that sent the gauge above its average level in the last 200 days yesterday may spur more gains as investors become convinced the rally will last. Signs the U.S. economy is expanding pushed the benchmark index for American equities up 2.4 percent to 1,115.23, erasing its loss for the year and exceeding by 6.5 points the level monitored by investors who base trading decisions on chart patterns. The S&P 500 rose near the 200-day mean on June 3 and May 27 before declining as much as 5 percent in the next two days, according to data compiled by Bloomberg. Closing above technical levels can lure buyers who seek to benefit from price momentum, said Michael Nasto , the senior trader at U.S. Global Investors Inc., which manages about $2.5 billion in San Antonio. More investors may be drawn in should the S&P 500 climb 2.5 percent to surpass its 50-day moving average of 1,143. “That we moved through this technical level might give us a little bit of a pop in the coming days,” Nasto said. “It’s a very important inflection point in the absence of any really major economic or geopolitical news. A lot more people than usual are looking at this.” Equities increased yesterday as an 11th straight month of growth in the Federal Reserve Bank of New York’s manufacturing gauge added to evidence the economic rebound is weathering the European debt crisis. The S&P 500 has jumped 6.2 percent since June 7 as concern over European budget deficits eased and investors speculated growth in China and the U.S. will bolster the global recovery. Below Trend The S&P 500 closed below the 200-day average on May 20 for the first time since July 2009 and had remained under the trend line for 16 straight sessions. Its failure to hold above 1,105, the intraday high the day before May’s employment report spurred a 3.4 percent plunge, was cited in the index’s June 14 drop that erased a 1.3 percent rally. Technical levels are affecting markets in the absence of earnings and economic news and take on more influence as traders fixate on them, said Peter Sorrentino , who helps oversee $13.3 billion at Huntington Asset Advisors in Cincinnati. “No one disregards technical analysis now,” said Sorrentino. “If they do so, they do so at their own peril. Technical analysis has become increasingly important because of so much money chasing around. The momentum of money has become more important than the fundamentals beneath it.” Fundamental Catalysts Over longer periods, earnings and valuations will determine the price of stocks, not chart patterns, said Peter Boockvar , equity strategist at Miller Tabak & Co. in New York. “It doesn’t tell me anything,” Boockvar said. “It means nothing about where we’re going from here, just how far we’ve come. I look at technical analysis but I don’t use it for my trading decisions. Breaks above the 200-day moving average can be false breakouts — you can’t look at it in a vacuum.” Analysts project profits for companies in the 2010 will rise 17 percent this year, data compiled by Bloomberg show. The benchmark index fell 8.2 percent in May, its biggest monthly retreat since February 2009. The index trades for 13.7 times forecast profits in 2010, compared with an average of 16.4 since 1954, according to data compiled by Bloomberg. Crossing the 200-day average “doesn’t tell you that this correction is over but I think people would look at it as a plus,” said Michael Shaoul , chairman of Marketfield Asset Management, which oversees $770 million and whose flagship fund beat 97 percent of peers over the last year. “It would set up the test of the next resistance, which most people would say is at the 50-day moving average. I would call it a minor victory.” To contact the reporters on this story: Esmé E. Deprez in New York at edeprez@bloomberg.net ; Kelly Bit in New York at kbit@bloomberg.net .

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Bank of America Hires Abhinandan Deb of Barclays as Derivatives Strategist

June 16, 2010

By Zeke Faux and Julie Cruz June 16 (Bloomberg) — Bank of America Corp. hired Abhinandan Deb of Barclays Plc as an analyst for equity-linked securities in its London office. Deb, 30, was a London-based equity derivatives strategist at Barclays, the U.K.’s fourth-largest lender, until earlier this year. He started at Bank of America last week, according to information filed with the U.K. Financial Services Authority. “As long as the markets remain turbulent and a large percent of company profits come from trading including derivatives, demand for these positions will remain strong,” said Richard Lipstein , a managing director at Boyden Global Executive Search Ltd. in New York. “Volatility hasn’t gone away.” Deb and Rinat Rond , a spokeswoman for Charlotte, North Carolina-based Bank of America, declined to comment. To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net . Julie Cruz in Frankfurt at jcruz6@bloomberg.net .

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Wall Street Bonuses Should Be Tied to Securities, Harvard’s Bebchuk Says

June 16, 2010

By Christine Harper June 16 (Bloomberg) — Bonuses for Wall Street’s top executives should be tied to a basket of the firm’s securities, including bonds and stocks, to align managers with all stakeholders and discourage excess leverage and risk, Harvard Law School Professor Lucian Bebchuk said. Under current stock-based compensation arrangements, executives are “not exposed to the potential negative consequences that large losses could impose on other contributors to the capital structure, like preferred shareholders, bondholders and depositors,” Bebchuk said in a conference call with reporters yesterday. Wall Street chief executive officers including Goldman Sachs Group Inc. ’s Lloyd Blankfein and JPMorgan Chase & Co. ’s Jamie Dimon continue to receive pay awards that are made up of restricted stock. Because banks carry more debt than equity, a better compensation system would also link executives’ pay to the performance of bonds and preferred stock, Bebchuk said. “We could tie the payoffs to executives not just to the value of common shares but to the long-term value of a broader basket of securities,” Bebchuk said. “So, for example, instead of giving executives 3 percent of the value of the firm’s common shares, you could give them, say, 1 percent of the aggregate value of the common shares, preferred shares and bonds.” Goldman Sachs, which paid Blankfein a $9 million all-stock bonus for 2009, carried about $64 billion in common equity at the end of December compared with $230 billion in preferred stock and short- and long-term unsecured debt, according to a company filing. ‘Wages of Failure’ JPMorgan, which paid Dimon $17 million of restricted stock units and options for 2009, had $157 billion in common equity compared with $330 billion in preferred stock, long-term debt and other borrowed funds, a company filing showed. Bebchuk has been a vocal critic of Wall Street pay practices. His “Wages of Failure” paper last year showed that top officials at Lehman Brothers Holdings Inc. and Bear Stearns Cos cashed in $2.5 billion in the eight years before their firms collapsed in 2008. Bebchuk said the study helped counter the “standard narrative” that compensation didn’t contribute to the financial crisis because the executives’ finances were tied to their firms’ fortunes. He made his remarks yesterday on a call hosted by the Investor Responsibility Research Center Institute , a four-year- old New York-based not-for-profit organization that funds environmental, social and corporate governance research. He spoke about three papers he has helped write about executive compensation in the financial industry. European Proposals In March, the European Parliament’s top financial lawmaker made a similar recommendation when she advocated paying bankers’ bonuses in subordinated debt rather than shares or cash to limit the type of risk-taking that contributed to the financial crisis. Sharon Bowles , chairwoman of the assembly’s Economic and Monetary Affairs Committee, said bonuses would be held for five years in a pool that the bank could use as capital to absorb losses. Bankers’ bonuses should be capped at 50 percent of their pay, lawmakers on the EU committee said yesterday, as they voted on tougher capital and remuneration rules for banks. The plan will be voted on by the whole EU Parliament in July. To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net .

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Lee&rsquos Henderson Says 20 Apartment Sales Scrapped

June 16, 2010

By Kelvin Wong June 16 (Bloomberg) — Hong Kong billionaire Lee Shau-kee ’s Henderson Land Development Co. said the sale of 20 luxury apartments collapsed, ending HK$2.67 billion ($342 million) in deals that sparked a government inquiry and fueled efforts to rein in home prices. Most buyers pulled out of the 39 Conduit Road project in Hong Kong’s Mid-Levels district, Henderson said in a filing to the stock exchange yesterday, responding to government demands for more information on the sales of 24 units. Henderson said it has sold four of the units and will record a charge of HK$734 million in its half-year results. The failure of the sales, including a unit that would have set a world record price of HK$88,000 ($11,300) per square foot, marks a setback for Hong Kong’s second-richest man as regulators try to cool the city’s surging property market. Lee had said in March buyers could have more time to complete the deals. The cancellations are “quite a negative surprise,” said Raymond Ngai , Hong Kong-based analyst at JPMorgan Chase & Co. “Those record prices they reported earlier, I doubt they’ll be able to sell them at those prices again,” Ngai said by telephone. “To sell them for around HK$30,000 per square foot is still quite possible. But selling an apartment at HK$70,000 a square foot is just too out of line with the market.” No Price Cuts “We won’t be cutting prices,” Lee, Hong Kong’s second- richest man, told reporters yesterday. “Maybe we’ll make more money when we sell these apartments again.” Henderson announced the sale cancellations after the stock market in Hong Kong closed yesterday and the market is shut for a public holiday today. Henderson Land shares closed at HK$47.80 yesterday and have slumped 18 percent this year, the biggest drop among the seven-member Hang Seng Property Index . Responding to an outcry over rising property prices last year, Hong Kong raised down-payments on luxury homes to 40 percent from 30 percent and clamped down on marketing techniques. The HK$439 million apartment Henderson had said was sold for a record — based on usable space excluding common areas — was listed on the 68th floor while it was actually on the 45th. Floor numbers are often skipped in Hong Kong to avoid those considered unlucky. Henderson included sales of the 24 apartments plus one that was sold in a completed transaction as part of its revenue of HK$15.2 billion for the 18 months ended December 2009, the company reported March 30. Prices Climb The total price of the 20 apartments whose sales collapsed came to HK$2.67 billion, Henderson spokeswoman Bonnie Ngan said by telephone today. Henderson said yesterday it was confident in selling the apartments because of the “prestigious” location, and will be “sparing” with sales. Hong Kong’s government responded to Henderson’s filing, saying “clear market information” is important to the city. “The government is determined to create a fairer and a more transparent environment for flat purchasers,” the government said in a press release on its website. Home prices in Hong Kong have risen 5.7 percent this year, adding to 2009’s 29 percent advance and raising concerns the market is overheating. Hong Kong builders often sell apartments before they are completed, drawing in customers by showing models of the homes. The government this month tightened rules on new home sales, including the use of show apartments and asking developers to disclose properties sold to their own executives. Financial Secretary John Tsang in February announced higher stamp duty on luxury properties and pledged to raise the supply of land as it wants to reduce the risk of “a property bubble” and keep housing affordable. To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

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UN Aid Arrives for Kyrgyzstan Refugees in Uzbekistan as Death-Toll Mounts

June 16, 2010

By Chris Kirkham June 16 (Bloomberg) — United Nations relief supplies for around 200,000 refugees fleeing ethnic violence in Kyrgyzstan arrived in neighboring Uzbekistan, the UN High Commissioner for Refugees said today. “The first of six planned Ilyushin-76 cargo planes, each carrying 40 tons of UNHCR relief supplies for refugees, has landed at Andijan airport in Uzbekistan after departing with supplies loaded from the aid agency’s stockpile in Dubai,” the UNHCR said in an e-mailed statement. The UNHCR said more than 75,000 people have arrived since June 10, citing the Uzbek government, though some reports say the total number of displaced since the ousting of former President Kurmanbek Bakiyev in April may be around 275,000. The death toll from the last six days of rioting in the Osh and Jalalabad regions of Kyrgyzstan may be much higher than previously announced, according to news reports. Interim President Roza Otunbayeva said she believed 700 may have died, the Wall Street Journal reported, while Christian Cardon, a spokesman for the Red Cross, referred to “several hundreds” of deaths, according to the Associated Press. Rupert Colville , spokesman for the UN High Commissioner for Human Rights, said there was evidence the violence was coordinated and began with five attacks in Osh by men in ski masks, the AP said. ‘Dangerous’ “This is an extremely dangerous situation given the ethnic patchwork in this part of Kyrgyzstan, it’s a highly complex ethnic mix there with some 80 ethnic groups just in the Osh region,” Colville said, according to the AP. “It has been known for many years that this region is a potential ethnic tinderbox.” The violence erupted on June 10 when supporters of former President Kurmanbek Bakiyev clashed with groups loyal to the interim government. The Uzbeks welcomed Bakiyev’s overthrow in April, blaming him for impeding the minority’s business growth and ignoring its political leaders, while many Kyrgyz in the south supported Bakiyev, who comes from the region. The clashes were aimed at disrupting a June 27 referendum on a new constitution and were funded by people close to Bakiyev, according to the government’s first deputy head, Almazbek Atambayev , Interfax reported yesterday. “It was a carefully planned operation conducted by the enemies of the interim government,” Atambayev said. “Its goal was to overthrow the new authorities of Kyrgyzstan and to thwart the referendum. The information available to our special services confirms that all of these measures were funded by the Bakiyev family, particularly Bakiyev’s youngest son Maxim.” Influence The United Nations and the European Union urged Kyrgyzstan not to allow the unrest to derail the referendum and October parliamentary elections. Otunbayeva yesterday pledged to proceed with plans for the plebiscite, the Wall St. Journal said. The U.S. and Russia have been jostling for influence in Kyrgyzstan, where both countries have air bases. Russia agreed in April to give the provisional government $50 million. Edil Baisalov, the government’s chief of staff, said at the time that the U.S. planned to give emergency aid. The U.S. relies on the Manas air base outside the capital Bishkek to support operations in Afghanistan after Uzbekistan evicted the American military in 2005. U.S. troops gathered food and fuel and sent it to the worst-affected area, according to a statement from the U.S. Air Force received yesterday. Economic Backdrop The International Monetary Fund on May 25 warned Kyrgyzstan’s projected 4.6 percent economic expansion this year may be damped by political upheaval. The fund predicted 8 percent growth for Uzbekistan, the world’s third-biggest shipper of cotton, at the time. Landlocked Kyrgyzstan depends on remittances from migrant workers in Russia for about 40 percent of national income, and also relies on rent paid by the U.S. and Russia for their bases. Kyrgyzstan’s average monthly wage was $132 in January, according to the country’s National Statistical Committee. About a third of the population lives below the poverty level, making the country eligible for aid from the International Development Association, the World Bank’s support arm for the poorest economies. Maxim Bakiyev was detained in Britain on June 14 by the U.K. Border Agency after he landed at Farnborough airport in Hampshire on a rented private plane, Kyrgyzstan’s national security chief Keneshbek Duishebayev told Channel One broadcaster, according to Interfax. His father, who has taken refuge in Belarus, has denied accusations that he is involved in the unrest. To contact the reporter on this story: Anastasia Ustinova in St. Petersburg at austinova@bloomberg.net .

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

June 16, 2010

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

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Kan’s Fiscal Plan May Require $76 Billion Japan Tax Increase, Adviser Says

June 15, 2010

By Toru Fujioka and Tatsuo Ito June 16 (Bloomberg) — Japanese Prime Minister Naoto Kan may have to raise taxes by as much as 7 trillion yen ($76 billion) to fulfill his pledge to cap bond sales in coming years, according to an independent adviser to the government. Kan has committed to holding new bond sales to 44.3 trillion yen through the year to March 2012. At the same time, his administration is considering an annual public-spending limit of 71 trillion yen over the coming three years, according to two government officials familiar with the deliberations. “The two targets are inconsistent,” Toshiki Tomita , who has advised the government on a midterm fiscal plan that is scheduled for release this month, said in an interview today in Tokyo. “There would be a gap between revenue and spending of 6 or 7 trillion yen.” The shortfall underscores the challenge for Kan as he seeks to contain the world’s largest public debt and end what he calls Japan’s “unsustainable” dependency on borrowing. Standard & Poor’s and Moody’s Investors Service have said they will closely watch the budget strategy as Europe’s fiscal woes increase global scrutiny of sovereign debt. “It seems the government is going to make a tough target,” said Kiichi Murashima , chief economist at Citigroup Global Markets Japan Inc. in Tokyo. “We need to keep an eye on their level of commitment to this and how successful they will be.” Media including the Mainichi and Nikkei newspapers had previously reported the proposed spending ceiling. Kan, as finance minister under predecessor Yukio Hatoyama , urged the government to contemplate an increase in the country’s sales tax as part of efforts to restore fiscal health. He replaced Hatoyama as premier this month. Tax Increase ‘Challenging’ Tomita, who is a member of the government’s Fiscal Policy Committee, said Japan could raise taxes to fill the gap, though any increase in the next fiscal year would be “challenging.” Further spending cuts may also be tough as the country faces increasing costs such as for social welfare , he said. “The more seriously I think about it, the more difficult I think it will be,” said Tomita, 62, an economics professor at Chuo University in Tokyo. Unless taxes increase, “bond sales could end up at around 50 trillion yen,” he said. A key government tax panel may underscore the need to raise taxes in recommendations this month, the Asahi newspaper reported today, without saying where it got the information. The proposal doesn’t say when or by how much the sales levy should increase, the report said. The group will also propose increasing the maximum income tax rate, the newspaper said. 20 Percent Should policy makers delay increasing the consumption tax from the current 5 percent, an increase to as high as even 20 percent in the longer run will be insufficient to restore fiscal health, the Asahi reported, citing an unidentified Finance Ministry official. The International Monetary Fund said last month that the nation may need to raise the tax to 22 percent if the government doesn’t rein in spending. Voters have become open to the possibility of a higher sales tax as Japan’s coffers become more strained. A Nikkei newspaper survey taken in May showed that 49 percent of respondents opposed Hatoyama’s plan to delay raising the levy. Any multiyear pledge to cap spending, including grants to regional governments, would be the first since 2006, when then- Prime Minister Junichiro Koizumi announced a target of balancing the budget in five years. This month’s fiscal plan will include a goal of eliminating the primary budget deficit by 2020, according to the two officials. The primary shortfall, which excludes interest payments on bonds, is 7.1 percent of gross domestic product, or 33.5 trillion yen, for the year ending March 31, the Cabinet Office estimates. ‘Pay As You Go’ National Strategy Minister Satoshi Arai said last week that the fiscal plans “need to keep a pay-as-you-go principle,” and will be based on Kan’s pledge to limit new bond sales. This year’s budget was compiled by using 10 trillion yen of so-called hidden money — funds from special accounts — and it’s hard to expect Kan to secure the same amount of cash from those sources next year, said Tomita, who is a senior independent fellow at an institute that provides policy research for the Finance Ministry. “If we rely on hidden money or just manipulating figures within the account, it’s possible we will be seen as another Greece,” he said. To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net ; Tatsuo Ito in Tokyo at tito@bloomberg.net .

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Lee Shau-Kee’s Henderson Says World-Record Hong Kong Home Sale Scrapped

June 15, 2010

By Kelvin Wong June 16 (Bloomberg) — Henderson Land Development Co. , controlled by Hong Kong billionaire Lee Shau-kee , said it will take a charge of HK$734 million ($94 million) against earnings after sales of 20 luxury flats were canceled — including one it had claimed as a world record. While Henderson had included transactions for 24 units in the 39 Conduit Road project in its earnings, just four of the sales have closed, it said in a filing to the stock exchange yesterday. The charge will come from first-half results, and will be less for the full year if any of the apartments are sold again, the company said. Henderson made the disclosure after Hong Kong’s government repeatedly told the company to explain home sales that were agreed though not completed. Henderson said in October it sold an apartment in the project for a world record HK$88,000 a square foot. That transaction was one of those canceled, spokeswoman Bonnie Ngan said by telephone. The cancellations are “quite a negative surprise that nobody was expecting,” said Raymond Ngai , Hong Kong-based analyst at JPMorgan Chase & Co. “Those record prices they reported earlier, I doubt they’ll be able to sell them at those prices again,” Ngai said by telephone. “To sell them for around HK$30,000 per square foot is still quite possible. But selling an apartment at HK$70,000 a square foot is just too out of line with the market.” No Price Cuts “We won’t be cutting prices,” Lee, Hong Kong’s second- richest man, told reporters yesterday. “Maybe we’ll make more money when we sell these apartments again.” Responding to an outcry over rising property prices last year, Hong Kong raised down-payments on luxury homes to 40 percent from 30 percent and clamped down on marketing techniques. The HK$439 million apartment Henderson said was sold for a record — based on usable space excluding common areas — was listed on the 68th floor while it was actually on the 45th. Floor numbers are often skipped in Hong Kong to avoid those considered unlucky. Henderson included sales of the 24 apartments plus one that was sold in a completed transaction as part of its revenue of HK$15.2 billion for the 18 months ended December 2009, the company reported March 30. Henderson said yesterday it had paid back deposits of 5 percent of the agreed purchase prices and entered cancellation agreements, refunding other payments. It’s confident because of the “prestigious” location, and will be “sparing” with sales. Prices Climb Hong Kong’s government responded to Henderson’s filing, saying “clear market information” is important to the city. “The government is determined to create a fairer and a more transparent environment for flat purchasers,” the government said in a press release on its website. Home prices in Hong Kong have risen 5.7 percent this year, adding to 2009’s 29 percent advance and raising concerns the market is overheating. Hong Kong builders often sell apartments before they are completed, drawing in customers by showing models of the homes. The government this month tightened rules on new home sales, including the use of show apartments and asking developers to disclose properties sold to their own executives. Financial Secretary John Tsang in February announced higher stamp duty on luxury properties and pledged to raise the supply of land as it wants to reduce the risk of “a property bubble” and keep housing affordable. To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

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BP Suspends Recovery of Gulf Oil After Ship Fire

June 15, 2010

By Jim Polson June 15 (Bloomberg) — BP Plc said it temporarily stopped collecting oil from its leaking well off Louisiana after a fire aboard the collecting vessel, allowing petroleum to again spill unhindered into the Gulf of Mexico. There was no damage as a result of the fire, which was put out “within a few minutes,” said Robert Wine , a BP spokesman. Oil recovery was shut down as a precaution at about 10:30 a.m. New York time and is expected to resume today after equipment inspection and safety checks, Wine said. The fire atop the derrick of the drillship Discoverer Enterprise may have been caused by lightning, London-based BP said today in an e-mailed statement. The company said there were no injuries. The National Weather Service had forecast isolated thunderstorms in the area. “It’s just going to be an interruption,” said Bruce Lanni , a portfolio strategist at Nollenberger Capital Partners Inc. in San Francisco, which manages $1.2 billion. Lanni said he and the company own BP shares. “They are going to obviously adhere to all of the inspections to make sure that they don’t get caught up in an issue on this one, too.” The drillship had been collecting about 15,000 barrels a day from the well for the past week, and today’s recovery rate will fall an undetermined amount as a result of the shutdown, Wine said. The drillship is capturing oil from a well that began leaking after an April 20 explosion and fire aboard the Deepwater Horizon drilling rig in the Gulf. Burning Oil “If that is not bad luck, I don’t know what is,” Fadel Gheit , an analyst with Oppenheimer & Co. in New York, said of the lightning strike. Gheit rates the shares as outperform. The fire today occurred as crew prepared to begin collecting oil and gas aboard a second vessel, a step aimed at reducing the amount of oil spilling into the Gulf. The rig has been customized to burn all the oil and gas it gathers. Operations may begin today on the floating rig Q4000, expected to increase the oil-capture capacity more than 50 percent to 28,000 barrels a day, Wine said. The rig wasn’t collecting oil when the Discoverer Enterprise stopped, he said. A government panel estimated the well was leaking 20,000 barrels to 40,000 barrels a day before the company cut off a kinked pipe on June 3, potentially increasing the flow rate. The U.S. Coast Guard asked BP to arrange sufficient collection equipment to capture all the oil, and provide back-up systems in the event of a breakdown. The company submitted a plan on June 13 saying it aims to collect as much as 53,000 barrels a day by June 30 and 80,000 barrels a day in mid-July. To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net .

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Kan Bond Sale Pledge May Require $76 Billion Japan Tax Rise, Adviser Says

June 15, 2010

By Toru Fujioka and Tatsuo Ito June 16 (Bloomberg) — Japanese Prime Minister Naoto Kan may have to raise taxes by as much as 7 trillion yen ($76 billion) to fulfill his pledge to cap bond sales in coming years, according to an independent adviser to the government. Kan has committed to holding new bond sales to 44.3 trillion yen through the year to March 2012. At the same time, his administration is considering an annual public-spending limit of 71 trillion yen over the coming three years, according to two government officials familiar with the deliberations. “The two targets are inconsistent,” Toshiki Tomita , who has advised the government on a midterm fiscal plan that is scheduled for release this month, said in an interview today in Tokyo. “There would be a gap between revenue and spending of 6 or 7 trillion yen.” The shortfall underscores the challenge for Kan as he seeks to contain the world’s largest public debt and end what he calls Japan’s “unsustainable” dependency on borrowing. Standard & Poor’s and Moody’s Investors Service have said they will closely watch the budget strategy as Europe’s fiscal woes increase global scrutiny of sovereign debt. “It seems the government is going to make a tough target,” said Kiichi Murashima , chief economist at Citigroup Global Markets Japan Inc. in Tokyo. “We need to keep an eye on their level of commitment to this and how successful they will be.” Media including the Mainichi and Nikkei newspapers had previously reported the proposed spending ceiling. Kan, as finance minister under predecessor Yukio Hatoyama , urged the government to contemplate an increase in the country’s sales tax as part of efforts to restore fiscal health. He replaced Hatoyama as premier this month. Tax Increase ‘Challenging’ Tomita, who is a member of the government’s Fiscal Policy Committee, said Japan could raise taxes to fill the gap, though any increase in the next fiscal year would be “challenging.” Further spending cuts may also be tough as the country faces increasing costs such as for social welfare , he said. “The more seriously I think about it, the more difficult I think it will be,” said Tomita, 62, an economics professor at Chuo University in Tokyo. Unless taxes increase, “bond sales could end up at around 50 trillion yen,” he said. A key government tax panel may underscore the need to raise taxes in recommendations this month, the Asahi newspaper reported today, without saying where it got the information. The proposal doesn’t say when or by how much the sales levy should increase, the report said. The group will also propose increasing the maximum income tax rate, the newspaper said. 20 Percent Should policy makers delay increasing the consumption tax from the current 5 percent, an increase to as high as even 20 percent in the longer run will be insufficient to restore fiscal health, the Asahi reported, citing an unidentified Finance Ministry official. The International Monetary Fund said last month that the nation may need to raise the tax to 22 percent if the government doesn’t rein in spending. Voters have become open to the possibility of a higher sales tax as Japan’s coffers become more strained. A Nikkei newspaper survey taken in May showed that 49 percent of respondents opposed Hatoyama’s plan to delay raising the levy. Any multiyear pledge to cap spending, including grants to regional governments, would be the first since 2006, when then- Prime Minister Junichiro Koizumi announced a target of balancing the budget in five years. This month’s fiscal plan will include a goal of eliminating the primary budget deficit by 2020, according to the two officials. The primary shortfall, which excludes interest payments on bonds, is 7.1 percent of gross domestic product, or 33.5 trillion yen, for the year ending March 31, the Cabinet Office estimates. ‘Pay As You Go’ National Strategy Minister Satoshi Arai said last week that the fiscal plans “need to keep a pay-as-you-go principle,” and will be based on Kan’s pledge to limit new bond sales. This year’s budget was compiled by using 10 trillion yen of so-called hidden money — funds from special accounts — and it’s hard to expect Kan to secure the same amount of cash from those sources next year, said Tomita, who is a senior independent fellow at an institute that provides policy research for the Finance Ministry. “If we rely on hidden money or just manipulating figures within the account, it’s possible we will be seen as another Greece,” he said. To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net ; Tatsuo Ito in Tokyo at tito@bloomberg.net .

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China’s Housing Boom Not a Bubble, Morgan Stanley’s Roach Says Tom Keene

June 15, 2010

By Mary Childs and Tom Keene June 15 (Bloomberg) — The property boom in China isn’t a bubble because it’s supported by “solid” demand for residential housing, according to Stephen Roach , chairman of Morgan Stanley Asia Ltd. While portions of the real-estate market such as high-end apartments are overheating, demand for residential homes will remain robust as rural Chinese migrate to bigger cities, Roach said in a radio interview from Hong Kong with Tom Keene on Bloomberg Surveillance. “This is just a sliver of the property boom,” Roach said, citing that each year since 2000, between 15 and 20 million people migrate to Beijing, Shanghai, and second- and third-tier cities in mainland China. That’s two and a half New York Cities created annually, he said. “This underpins a huge demand for residential property. This property has not overheated and the demand for this property is very, very solid.” The nation’s property prices rose 12.4 percent in May from a year earlier, the second-fastest pace on record. China’s banking regulator said today it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans. China’s lawmakers have raised down payment requirements and mortgage rates and restricted loans for multiple-home buyers as they seek to dampen record property price gains. The government’s “decisive” actions in April are working to cool the sections of the housing market that were overheating, according to Roach. “By all accounts, it looks like the measures are working for now,” he said. ‘Horrible Misconception’ China, the world’s fastest-growing major economy, expanded 11.9 percent in the first quarter from a year earlier. The Shanghai Composite Index , which tracks the bigger of China’s stock exchanges, has dropped 22 percent this year. Markets in China are closed from June 14 to June 16 for a holiday. China has kept the yuan linked to the dollar as a crisis- fighting policy, swelling its Treasury holdings and fueling complaints from U.S. lawmakers that it has an unfair advantage in global commerce. American lawmakers said they’ll go ahead with legislation targeting the yuan as U.S. and Chinese leaders prepare to meet at a Group of 20 summit this month in Canada. Floating the yuan won’t rebalance the trade deficit, Roach said. “It’s just bad economics to pretend we can fix the lives of middle class American workers by getting the Chinese to revalue its currency vis-a-vis the dollar — it’s a horrible misconception,” Roach said. “If we don’t boost our national savings rate, with trillion dollar deficits as far as the eye can see, the Chinese piece of our multilateral trade deficit just goes somewhere else. It goes to a higher-cost producer and that taxes the American people.” ‘Reasonably Well Protected’ Treasury Secretary Timothy F. Geithner said last week that a more flexible yuan would allow China to pursue “a more effective, independent monetary policy, which is particularly important now, with China’s economy facing a risk of inflation in goods and in asset prices.” China shouldn’t cave to the pressure and should revalue the yuan when its financial system is more developed, Roach said. “They’ve still got a long way to go in opening up their capital account, opening up their financial system and making certain their financial institutions can be reasonably well protected from the ups and downs of financial markets and currency gyrations,” he said. “It’s a process. Over the next 10 years, you will see China take enormous steps toward making their currency fully convertible but it will take that long or possibly even longer to do that.” To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net ; Tom Keene in New York at tkeene@bloomberg.net

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Honda Works to Improve Employee Communication After China Supplier Strikes

June 15, 2010

By Liza Lin and Yuki Hagiwara June 16 (Bloomberg) — Honda Motor Co. , Japan’s second- largest carmaker, said it is working to improve employee-manager communication after three of its parts factories in China were hit by strikes in the past month. “We need to have more opportunities for managers to listen to employees regularly,” Yoshiyuki Kuroda , a spokesman for the Tokyo-based carmaker, said by phone. Without a system in place to communicate with individual workers, the company was unable to predict that strikes were coming, he said. Honda’s statement comes after employees at a parts factory in southern China agreed to suspend a walkout through June 17 while union leaders and management continue wage negotiations. The stoppage at Honda Lock (Guangdong) Co. in Zhongshan, Guangdong province, follows disruptions at two other Honda suppliers that forced the company to raise wages. There are no effective channels in China for workers and management to negotiate, said Geoffrey Crothall , a spokesman for the Hong Kong-based advocacy group China Labour Bulletin . Discussions between the parties are handled by government-linked union officials who aren’t elected by the workers, he said. “Very often, you get an accumulation of complaints related to working conditions, the attitude of managers,” Crothall said. “Gradually, things build up and it just takes one incident to push the workers to strike.” Toyota, Nissan Honda shares rose 0.2 percent to close at 2,717 yen in Tokyo trading yesterday, while the Nikkei 225 Stock Average gained 0.1 percent. The carmaker is trying to set up a system that will enable a flow of communication from workers via managers to Japanese company officials and Honda’s management team, spokesman Kuroda said. Toyota Motor Corp., Japan’s largest automaker, and Nissan Motor Co., the third-largest, also build cars in Guangdong. “We are telling our suppliers in China to speak to the labor unions so that we have a smooth operation there,” Nissan’s Chief Operating Officer Toshiyuki Shiga said last week in Yokohama, where the company is based. Toyota holds talks with its Chinese workers every year from April to May, said Paul Nolasco , a Tokyo-based spokesman for the company. Wages are rising, he said, declining to disclose the carmaker’s average pay in the country. “Toyota tries to listen to workers in China, always, to prevent strikes,” Nolasco said. ‘Tide of Higher Wages’ Honda Lock, which is wholly owned by Honda Motor, operates the Zhongshan factory through a joint venture with the local township government. The plant supplies key systems, door handles and sensors for Honda’s Chinese car production . The factory’s union leaders and management have set a June 18 deadline to reach an agreement, said Liu Shengqi, a former protest leader. Hirotoshi Sato , a spokesman for Miyazaki, Japan- based Honda Lock, said the company “will listen to workers’ demands again and give an answer” at that time. “There is a tide of higher wages, and anyone, any company getting in the way, will get knocked over,” said Edwin Merner , who oversees $3 billion as president of Atlantis Investment Research Corp. in Tokyo. Rising prices in China for housing and food “will mean continuing pressure on wages,” he said. Honda Lock’s Sato said the company doesn’t disclose what the company has offered or what workers are demanding. Liu, the former protest organizer, and Zhang Jun, a worker at the plant, said Honda Lock has proposed a 200 yuan monthly pay increase. Dayshift workers were offered an additional 3 yuan per day and night workers 14 yuan per shift, Liu said. ‘Dissatisfied Employees’ Employees, who began striking on June 9, have demanded a 72 percent raise to 1,600 yuan ($234) a month and higher overtime wages, Honda said on June 10. The factory employs about 1,400 people. About 90 percent of employees are unhappy with the 200 yuan offer, said Zhang, the plant worker. If a deal isn’t reached this week, they will go back on strike, Liu said. “There are still some dissatisfied employees,” said Takayuki Fujii, a Beijing-based spokesman for Honda Motor . It’s too soon to say whether the disruptions at the plant may affect Honda’s car assembly in China, Fujii said. So far, the carmaker has had a sufficient stock of parts to keep factories running. “Over the short term, there is very limited impact on Honda’s sales volume as they have inventories,” said Yankun Hou, an analyst at Nomura Holdings Inc. in Hong Kong. Still, automakers in China will have to get used to paying higher wages, he said. Car Production Honda’s two car plants in Guangzhou, Guangdong, were shut yesterday and will remain closed today for a public holiday, said Tomoko Uchida , a spokeswoman for the company in Tokyo. Workers attending a June 12 protest at the Zhongshan plant said they were inspired to take action after hearing that Honda raised salaries for striking employees at a parts plant in Foshan, Guangdong, last month. Honda said May 31 it agreed to increase pay by 24 percent at the Foshan component factory to end a walkout that shut production at all four of its Chinese car-assembly plants, the first time labor issues forced Honda to halt local output. To contact the reporter on this story: Liza Lin in Singapore at llin15@bloomberg.net

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Maxis May Raise Up to $1.4 Billion to Expand, Repay Debt, CFO Rashidi Say

June 15, 2010

By Chong Pooi Koon June 16 (Bloomberg) — Maxis Bhd. , Malaysia’s biggest mobile-phone operator, may raise as much as 4.5 billion ringgit ($1.4 billion) through bonds and bank credit to expand and repay debt, Chief Financial Officer Rossana Rashidi said. The company controlled by billionaire T. Ananda Krishnan raised 11.2 billion ringgit in Southeast Asia’s biggest public offering in November, with all the proceeds going to its parent . It now needs funds for expansion with plans to spend 1.4 billion ringgit this year to enlarge its broadband internet network to meet rising demand, the company said in a statement yesterday. “We have been talking to our bankers. At this stage, the company is preparing to potentially tap longer-term debt in both the bank credit market as well as the bond market,” Rossana said in an interview yesterday. Maxis, based in Kuala Lumpur, hopes to raise the funds within the next three to six months, Rossana said, adding that it has yet to decide on the structure. The company will use 2.5 billion ringgit of the proceeds to repay a bridging loan and the rest for capital expenditure, she said. The mobile-phone operator is exploring both Islamic and conventional financing, Rossana said. It is also considering whether to use ringgit or dollars, she said. The company added 400,000 subscribers in the first quarter, taking the total to more than 12.6 million, Maxis said on May 31. It posted a profit of 552 million ringgit, or 7.4 sen a share, in the three months ended March 31 after adding customers to its wireless broadband services. Maxis wants to expand its third-generation network to reach 80 percent of Malaysia’s population by the year-end, it said in yesterday’s statement. “Clearly, there’s a lot of pressure on voice,” Chief Executive Officer Sandip Das said in an interview. “The next revenue is going to come from underserved geography, data and broadband. That’s where the company is investing big time.” Maxis rose 1 percent to close at 5.31 ringgit yesterday and has shed 1.1 percent this year. To contact the reporter on this story: Chong Pooi Koon at pchong17@bloomberg.net

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Henderson Cancels Sale of Flats as Hong Kong Questions World Record Price

June 15, 2010

By Kelvin Wong June 16 (Bloomberg) — Henderson Land Development Co. , controlled by Hong Kong billionaire Lee Shau-kee , said it will take a charge of HK$734 million ($94 million) against earnings after sales of 20 luxury flats were canceled — including one it had claimed as a world record. While Henderson had included transactions for 24 units in the 39 Conduit Road project in its earnings, just four of the sales have closed, it said in a filing to the stock exchange yesterday. The charge will come from first-half results, and will be less for the full year if any of the apartments are sold again, the company said. Henderson made the disclosure after Hong Kong’s government repeatedly told the company to explain home sales that were agreed though not completed. Henderson said in October it sold an apartment in the project for a world record HK$88,000 a square foot. That transaction was one of those canceled, spokeswoman Bonnie Ngan said by telephone. The cancellations are “quite a negative surprise that nobody was expecting,” said Raymond Ngai , Hong Kong-based analyst at JPMorgan Chase & Co. “Those record prices they reported earlier, I doubt they’ll be able to sell them at those prices again,” Ngai said by telephone. “To sell them for around HK$30,000 per square foot is still quite possible. But selling an apartment at HK$70,000 a square foot is just too out of line with the market.” No Price Cuts “We won’t be cutting prices,” Lee, Hong Kong’s second- richest man, told reporters yesterday. “Maybe we’ll make more money when we sell these apartments again.” Responding to an outcry over rising property prices last year, Hong Kong raised down-payments on luxury homes to 40 percent from 30 percent and clamped down on marketing techniques. The HK$439 million apartment Henderson said was sold for a record — based on usable space excluding common areas — was listed on the 68th floor while it was actually on the 45th. Floor numbers are often skipped in Hong Kong to avoid those considered unlucky. Henderson included sales of the 24 apartments plus one that was sold in a completed transaction as part of its revenue of HK$15.2 billion for the 18 months ended December 2009, the company reported March 30. Henderson said yesterday it had paid back deposits of 5 percent of the agreed purchase prices and entered cancellation agreements, refunding other payments. It’s confident because of the “prestigious” location, and will be “sparing” with sales. Prices Climb Hong Kong’s government responded to Henderson’s filing, saying “clear market information” is important to the city. “The government is determined to create a fairer and a more transparent environment for flat purchasers,” the government said in a press release on its website. Home prices in Hong Kong have risen 5.7 percent this year, adding to 2009’s 29 percent advance and raising concerns the market is overheating. Hong Kong builders often sell apartments before they are completed, drawing in customers by showing models of the homes. The government this month tightened rules on new home sales, including the use of show apartments and asking developers to disclose properties sold to their own executives. Financial Secretary John Tsang in February announced higher stamp duty on luxury properties and pledged to raise the supply of land as it wants to reduce the risk of “a property bubble” and keep housing affordable. To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

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BP, White House Escrow-Fund Deal Is Said to Stall Over Size, Supervision

June 15, 2010

By Stanley Reed June 15 (Bloomberg) — BP Plc and the Obama administration haven’t reached agreement on setting up an escrow fund to pay cleanup costs and claims stemming from the Gulf of Mexico oil spill, people familiar with the negotiations said today. The two sides continue to negotiate over issues including the size of the fund, who would administer it and whether BP shareholders would have to approve the transfer of funds required for the account, according to the people, who asked not to be identified describing the private talks. President Barack Obama is to meet with BP Chairman Carl- Henric Svanberg and Chief Executive Officer Tony Hayward tomorrow to discuss dealing with the spill, triggered by the April 20 explosion and collapse of a BP-leased rig called Deepwater Horizon. The spill is the worst in U.S. history. The administration wants a third party to make decisions about damage claims, an administration official said. How the administrator is selected is part of negotiations with London- based BP, and the president’s aides consider the talks tomorrow at the White House crucial to resolving differences, according to the official, who briefed reporters on condition of anonymity. To contact the reporter on this story: Stanley Reed in Washington at sreed13@bloomberg.net .

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Bulls on Brink as S&ampP 500 Makes Third Pass at 200-Day Moving-Average Level

June 15, 2010

By Esme E. Deprez and Kelly Bit June 15 (Bloomberg) — The rally in the Standard & Poor’s 500 Index above its average level in the last 200 days is captivating Wall Street for the third time in two weeks. The benchmark gauge for American equities gained as much as 2 percent to 1,111.76 as of 2:55 p.m. in New York, exceeding by 3 points the level considered significant by investors who base trading decisions on chart patterns. The S&P 500 increased to near the 200-day mean on June 3 and May 27 before losing as much as 5 percent in the next two days. Technical levels are affecting trading in the absence of earnings and economic news and take on more influence as traders fixate on them, said Peter Sorrentino , who helps oversee $13.3 billion at Huntington Asset Advisors in Cincinnati. The S&P 500’s failure to hold above 1,105, its intraday high the day before May’s employment report spurred a 3.4 percent plunge, was cited in the index’s drop yesterday as it erased a 1.3 percent early rally. “No one disregards technical analysis now,” said Sorrentino. “If they do so, they do so at their own peril. Technical analysis has become increasingly important because of so much money chasing around. The momentum of money has become more important than the fundamentals beneath it.” Recovery From Plunge The S&P 500 tumbled as much as 14 percent from a 19-month high on April 23 through June 7 as concern grew that Europe’s debt crisis will derail the economic recovery and BP Plc’s leaking well in the Gulf of Mexico triggered the worst oil spill in U.S. history. Equities rallied today as an 11th straight month of growth in the Federal Reserve Bank of New York’s manufacturing gauge added to evidence the economic rebound is weathering the European debt crisis. The S&P 500 has rebounded 5.7 percent since June 7 as concern over European budget deficits eased and investors speculated growth in China and the U.S. will bolster the global recovery. “The bulls are slowly starting to wrestle back control,” Christopher Verrone and Nicholas Bohnsack , technical analysts at Strategas Research Partners in New York, wrote in a note to clients today. More than 50 percent of New York Stock Exchange -listed shares have risen above their 200-day moving averages, Verrone and Bohnsack said. The Dow Jones Transportation Index , Nasdaq Composite Index and Philadelphia Semiconductor Index are among other benchmark gauges that have topped their 200-day moving averages in recent days. ‘It Means Something’ The S&P 500 closed below the 200-day average on May 20 for the first time since July 2009 and remained under the trend line for 16 straight sessions before today. “To the extent of people looking at this, it means something,” said Michael Shaoul , chairman of Marketfield Asset Management, who oversees $770 million and whose flagship fund beat 97 percent of peers over the last year. “It doesn’t tell you that this correction is over, but I think people would look at it as a plus and it would set up the test of the next resistance, which most people would say is at the 50-day moving average.” The S&P 500’s 50-day moving average is 1,143, about 3 percent above today’s level, according to Bloomberg data. To contact the reporters on this story: Esmé E. Deprez in New York at edeprez@bloomberg.net ; Kelly Bit in New York at kbit@bloomberg.net .

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Parsons Says Citigroup on `Road to Recovery,’ No Longer Has Bailout Option

June 15, 2010

By Greg Miles and Bradley Keoun June 15 (Bloomberg) — Citigroup Inc. is on the “road to recovery” and wouldn’t have access to another rescue from the government should the need arise, Chairman Richard Parsons said. “I don’t think there is the political will” for another bailout, Parsons said today at a Bloomberg Link Boards & Risk Conference in Washington. He said the New York-based company has no need for more aid from the U.S. Citigroup posted a $4.25 billion profit for the first quarter after recording $27 billion of losses in 2008 and 2009 that prompted a $45 billion government rescue. The $700 billion Troubled Asset Relief Program to stabilize the nation’s banking system prompted calls for legislation that would prohibit such government intervention in the future and impose restrictions on the types of businesses large financial institutions could own. Parsons said he doesn’t think the government should break up large banks such as Citigroup because “the marketplace requires institutions like ours” to serve global companies with operations in more than 50 countries. “Trying to bomb everybody back to the stone age, is the way I call it, trying to make everybody go back to being a community bank so that you’re not systemically important would be counterproductive, would be from a U.S. perspective shooting ourselves in the foot in terms of global competition ,” Parsons said. Board Rotation Parsons, 62, who took over as Citigroup’s chairman in February 2009, said he “basically” agrees with former Citigroup director John Deutch ’s comments last year that all of the directors who served before the bank’s bailout should rotate off in an “orderly fashion.” Parsons said he told new Citigroup directors that he would stay at the bank “at least until we got the ship off the sandbar and back out to deep water.” He declined to estimate when that might happen. “I think the ship is lifting off the sandbar,” he said. In December Citigroup repaid $20 billion of the bailout funds, and the government is now selling its remaining 21 percent stake in the lender. The bank’s share price rose 7 cents to $3.95 as of 1:17 p.m. in New York Stock Exchange composite trading. To contact the reporters on this story: Greg Miles in Washington at gmiles1@bloomberg.net ; Bradley Keoun in New York at bkeoun@bloomberg.net

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CBOE Shares Surge After IPO Proceeds of $339 Million Are at Top of Range

June 15, 2010

By Lee Spears and Inyoung Hwang June 15 (Bloomberg) — CBOE Holdings Inc. , the last major U.S. securities exchange owned by its members, surged as much as 16 percent after completing its transformation into a public company with an initial public offering. The operator of the biggest options exchange climbed as much as $4.75 to $33.75 in Nasdaq Stock Market trading as of 10:52 a.m. New York time. CBOE raised $339 million selling 11.7 million shares at $29 each yesterday after offering them at $27 to $29, a Securities and Exchange Commission filing showed. The sale came after Europe’s debt crisis spurred more than 30 companies worldwide to postpone or withdraw IPOs since April. Derivatives trading increased almost fivefold in the past decade and the CBOE is the venue for options based on the Standard & Poor’s 500 Index and the VIX gauge of U.S. equity volatility. “Pricing at the upper end was justified,” said David Goerz , who oversees $17 billion at Highmark Capital Management Inc. in San Francisco. “The CBOE is going to have an advantage in growing profitability. There’s hope for significant upside for derivatives-related exchanges in particular.” Goldman Sachs Group Inc. of New York was hired to lead the sale. Chicago-based Schiff Hardin LLP provided legal advice. CBOE was the first American company to sell shares in an initial offering since Pasadena, California-based GenMark Diagnostics Inc. on May 28. IPOs had dried up as concern the European debt turmoil is spreading beyond Greece and slower- than-estimated U.S. jobs growth in May helped push the S&P 500 down 10 percent from its 2010 high on April 23. Valuations, Takeovers At the IPO price, CBOE is at least 53 percent more expensive than NYSE Euronext and Deutsche Boerse AG . Record derivatives trading and the potential for a takeover by its competitors help justify the premium, Chicago-based IPOX Capital Management LLC, which invests in IPOs, said before the sale. The Chicago Board Options Exchange, now called CBOE, was founded in 1973 as the first public venue for trading equity options. It began with products based on 16 companies listed on the New York Stock Exchange and introduced options based on stock indexes in 1983. The CBOE S&P 500 Volatility Index , or VIX, which measures how much investors will pay to protect against losses in the S&P 500, posted its biggest weekly increase on record last month after the Dow Jones Industrial Average briefly tumbled almost 1,000 points before recouping some of its losses. ‘Very Optimistic Future’ “They’re selling a product that’s going to be in great demand,” said Michael Yoshikami , who oversees about $1 billion as chief investment strategist at YCMNet Advisors in Walnut Creek, California. “In the world we live in right now where people want to buy more and more insurance against uncertainty, CBOE has a very optimistic future.” CBOE , which became a for-profit company in 2006, is converting each of its 930 seats into 80,000 Class A shares, accounting for 74.4 million, according to a filing with the SEC. Some former members of the Chicago Board of Trade that helped establish the CBOE will together receive 16.3 million Class B shares. Both Class A and Class B shares become common stock. About 2.09 million of those shares were offered in CBOE’s 11.7 million share sale. The remaining stakes held by owners can’t be sold to the public for 180 days to 360 days. The cost of a CBOE seat in the past two decades through last week had been as low as $131,500 in August 2002 and as high as $3.3 million in June 2008, data compiled by the CBOE and Bloomberg show. At 80,000 shares a seat, the per-share expense has ranged from $1.64 to $41.25 and averaged $10.89. That means the initial sale handed owners an immediate paper gain of 166 percent on average at $29 a share. Members’ Payout That’s in addition to the $100,000-a-seat payout each CBOE member received, which will cost the exchange about $113.4 million. The expense exceeds the amount the company earned in all of 2009, data compiled by Bloomberg show. Speculation that CBOE may be acquired helped spur Thomas Caldwell , who owned 56 seats as chairman of Toronto-based Caldwell Financial Ltd., to add to his holdings this month. The industry had at least $61 billion of acquisitions since 2007, data compiled by Bloomberg show. Nymex Holdings Inc. , CBOT Holdings Inc. and International Securities Exchange Holdings Inc. were bought within three years of their IPOs after government regulations boosted competition. “It would have been impossible for anyone to take over CBOE prior to it becoming a public company,” said Caldwell. “Once you are a public company the market decides your value.” Relative Value Buyers of the IPO paid 22.5 times CBOE’s estimated 2010 earnings of $1.29 a share, according to data compiled by Diego Perfumo , an analyst who covers exchanges at Equity Research Desk LLC in Greenwich, Connecticut. That’s more than the two biggest publicly traded U.S. derivatives exchanges. Chicago-based CME Group Inc. , the world’s largest futures market, is valued at 18.9 times projected earnings, and IntercontinentalExchange Inc. of Atlanta, the second-biggest U.S. futures market, trades at 21.3 times estimated profit, data compiled by Bloomberg show. NYSE , which generated 39 percent of its operating profit from derivatives last year, and Deutsche Boerse, part-owner of the International Securities Exchange, CBOE’s largest competitor in U.S. equity options, also trade at a discount to the Chicago- based bourse. NYSE, the world’s biggest equity exchange, is valued at 12.1 times 2010 estimated profit, and Frankfurt-based Deutsche Boerse trades at 14.7 times. Trading Fees CBOE, which makes most of its money from trading fees, accounted for 32 percent of options volume in May, when trading reached a record 405.9 million contracts, according to Chicago- based Options Clearing Corp. That’s 13 percentage points more than ISE of New York, which had one in every five contracts. Per-share earnings at CBOE may climb 22 percent this year on increasing demand for equity derivatives, according to an estimate by Equity Research Desk. That’s more than the CME’s 19 percent gain and the 13 percent increase for the NYSE , analysts’ estimates compiled by Bloomberg show. Deutsche Boerse’s profit may decline 9 percent in 2010. CBOE is the first of six initial offerings that are scheduled for this week, data compiled by Bloomberg show. Five companies are slated to sell shares tomorrow. Houston-based Oasis Petroleum Inc. , the drilling and exploration company with oilfields in Montana and North Dakota, is seeking as much as $630 million in what would be the largest U.S. IPO this year. “If you look at the IPOs that have priced here of late, it’s been a mixed bag,” said YCMNet’s Yoshikami. CBOE “is not indicative of the IPO market per se, because this is a unique company in a unique space,” he said. To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net ; Inyoung Hwang in New York at ihwang7@bloomberg.net .

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Manufacturing in U.S. Sustains Recovery as Homebuilder Confidence Declines

June 15, 2010

By Shobhana Chandra and Courtney Schlisserman June 15 (Bloomberg) — Manufacturing is leading the U.S. economic rebound, helping protect the recovery from a slowdown in housing following the expiration of a government tax credit, reports today indicated. Factories in the region covered by Federal Reserve Bank of New York grew at a faster pace in June, signaling they are weathering the turmoil caused by the European debt crisis, according to the bank’s so-called Empire State index . Builder confidence fell this month, while global demand for U.S. financial assets in April exceeded forecasts, other reports showed. Gains in business investment and exports may keep powering American industry, sustaining the world’s largest economy as it climbs out of the recession. The decrease in builder sentiment reflected a gloomier outlook for sales, which combined with a collapse in mortgage applications, adds to evidence housing may slump following the expiration of a government incentive. “Manufacturing is being a counterweight to weaker parts of the economy,” said Robert Dye , a senior economist at PNC Financial Services Group Inc. in Pittsburgh. “We’re going to see some weak home sales numbers. We’re transitioning from a government-aided recovery.” Stocks climbed on signs efforts to curb government debt in Europe are not hurting the global economic rebound. The Standard & Poor’s 500 Index rose 1.3 percent to 1,103.95 at 12:33 p.m. in New York. Crude oil rallied above $76 a barrel and the euro topped $1.23 on the improving outlook. Worse than Forecast Economists forecast the New York Fed’s index would increase to 20 this month from 19.1 in May, according to the median of 55 projections in a Bloomberg News survey. Estimates ranged from 15 to 25. The report showed orders and sales accelerated, while employment climbed at a slower pace. Factories nationally have added 126,000 workers to payrolls since the start of the year, according to Labor Department data. Manufacturers boosted payrolls by 29,000 in May, a fifth consecutive gain, the workweek lengthened and the average amount of overtime climbed to the highest level in two years as production accelerated on factory floors. “The manufacturing recovery is continuing at a pretty rapid pace into the middle of the year,” said Zach Pandl , an economist at Nomura Securities International Inc. in New York. “So far, we have seen no signs of spillover from Europe to the U.S.” Some of the region’s companies reflect the growth in manufacturing. Pall Corp., a supplier of filters for drugmakers and refineries, reported third-quarter earnings that exceeded analysts’ estimates as sales increased. Full-year profit per share will be at the high end of Pall’s March projections, the Port Washington, New York-based company said. ‘Firmly Under Way’ “The expected industrial recovery appears to now be firmly under way,” Chief Executive Officer Eric Krasnoff said in a statement on June 8. The outlook for housing is less sanguine. The National Association of Home Builders/Wells Fargo confidence index dropped to 17 from 22 in May, lower than all estimates of economists surveyed and the biggest decrease since November 2008. Readings lower than 50 mean more respondents said conditions were poor. The builders group’s indexes of current single-family home sales, buyer traffic and sales expectations for the next six months all fell, with the latter dropping to lowest level since March 2009. Under a government incentive program, which was renewed and expanded in November, buyers had to sign contracts by the end of April and close deals by June 30 to qualify for the credit worth up to $8,000. Pause in Housing The number of mortgage applications to purchase properties dropped in the first week of June to the lowest level since 1997, according to figures from the Mortgage Bankers Association. Global investors bought a net $83 billion of long-term U.S. equities, notes and bonds in April, exceeding the median forecast of economists surveyed which called for a $70 billion increase, data from the Treasury Department also showed. Net purchases reached a record $140.5 billion in March. Signs of a sustained recovery, as well as a flight from the financial-market turmoil in Europe, may increase the flow of investment into the U.S. International investors accumulated Treasuries for an 11th straight month, today’s report showed. “Overseas investors still love Treasuries,” said Ward McCarthy , chief financial economist at Jefferies & Co. in New York. “Safety is still the primary concern. I expect this pattern will be repeated in the May and June data as well.” Also today, prices of goods imported into the U.S. fell in May, led by the biggest drop in petroleum costs since December 2008, a report from the Labor Department showed. The 0.6 percent decrease in the import price index was less than the median forecast of economists surveyed and followed a 1.1 percent gain in April. Prices excluding petroleum rose 0.5 percent for a second month, led by higher costs for capital goods and metals. To contact the reporters on this story: Shobhana Chandra in Washington schandra1@bloomberg.net ; Courtney Schlisserman in Washington cschlisserma@bloomberg.net .

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Manufacturing in U.S. Sustains Recovery as Homebuilder Confidence Declines

June 15, 2010

By Shobhana Chandra and Courtney Schlisserman June 15 (Bloomberg) — Manufacturing is leading the U.S. economic rebound, helping protect the recovery from a slowdown in housing following the expiration of a government tax credit, reports today indicated. Factories in the region covered by Federal Reserve Bank of New York grew at a faster pace in June, signaling they are weathering the turmoil caused by the European debt crisis, according to the bank’s so-called Empire State index . Builder confidence fell this month, while global demand for U.S. financial assets in April exceeded forecasts, other reports showed. Gains in business investment and exports may keep powering American industry, sustaining the world’s largest economy as it climbs out of the recession. The decrease in builder sentiment reflected a gloomier outlook for sales, which combined with a collapse in mortgage applications, adds to evidence housing may slump following the expiration of a government incentive. “Manufacturing is being a counterweight to weaker parts of the economy,” said Robert Dye , a senior economist at PNC Financial Services Group Inc. in Pittsburgh. “We’re going to see some weak home sales numbers. We’re transitioning from a government-aided recovery.” Stocks climbed on signs efforts to curb government debt in Europe are not hurting the global economic rebound. The Standard & Poor’s 500 Index rose 1.3 percent to 1,103.95 at 12:33 p.m. in New York. Crude oil rallied above $76 a barrel and the euro topped $1.23 on the improving outlook. Worse than Forecast Economists forecast the New York Fed’s index would increase to 20 this month from 19.1 in May, according to the median of 55 projections in a Bloomberg News survey. Estimates ranged from 15 to 25. The report showed orders and sales accelerated, while employment climbed at a slower pace. Factories nationally have added 126,000 workers to payrolls since the start of the year, according to Labor Department data. Manufacturers boosted payrolls by 29,000 in May, a fifth consecutive gain, the workweek lengthened and the average amount of overtime climbed to the highest level in two years as production accelerated on factory floors. “The manufacturing recovery is continuing at a pretty rapid pace into the middle of the year,” said Zach Pandl , an economist at Nomura Securities International Inc. in New York. “So far, we have seen no signs of spillover from Europe to the U.S.” Some of the region’s companies reflect the growth in manufacturing. Pall Corp., a supplier of filters for drugmakers and refineries, reported third-quarter earnings that exceeded analysts’ estimates as sales increased. Full-year profit per share will be at the high end of Pall’s March projections, the Port Washington, New York-based company said. ‘Firmly Under Way’ “The expected industrial recovery appears to now be firmly under way,” Chief Executive Officer Eric Krasnoff said in a statement on June 8. The outlook for housing is less sanguine. The National Association of Home Builders/Wells Fargo confidence index dropped to 17 from 22 in May, lower than all estimates of economists surveyed and the biggest decrease since November 2008. Readings lower than 50 mean more respondents said conditions were poor. The builders group’s indexes of current single-family home sales, buyer traffic and sales expectations for the next six months all fell, with the latter dropping to lowest level since March 2009. Under a government incentive program, which was renewed and expanded in November, buyers had to sign contracts by the end of April and close deals by June 30 to qualify for the credit worth up to $8,000. Pause in Housing The number of mortgage applications to purchase properties dropped in the first week of June to the lowest level since 1997, according to figures from the Mortgage Bankers Association. Global investors bought a net $83 billion of long-term U.S. equities, notes and bonds in April, exceeding the median forecast of economists surveyed which called for a $70 billion increase, data from the Treasury Department also showed. Net purchases reached a record $140.5 billion in March. Signs of a sustained recovery, as well as a flight from the financial-market turmoil in Europe, may increase the flow of investment into the U.S. International investors accumulated Treasuries for an 11th straight month, today’s report showed. “Overseas investors still love Treasuries,” said Ward McCarthy , chief financial economist at Jefferies & Co. in New York. “Safety is still the primary concern. I expect this pattern will be repeated in the May and June data as well.” Also today, prices of goods imported into the U.S. fell in May, led by the biggest drop in petroleum costs since December 2008, a report from the Labor Department showed. The 0.6 percent decrease in the import price index was less than the median forecast of economists surveyed and followed a 1.1 percent gain in April. Prices excluding petroleum rose 0.5 percent for a second month, led by higher costs for capital goods and metals. To contact the reporters on this story: Shobhana Chandra in Washington schandra1@bloomberg.net ; Courtney Schlisserman in Washington cschlisserma@bloomberg.net .

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Stocks, Oil Advance on Manufacturing Growth Greek Bonds Drop

June 15, 2010

By Rita Nazareth and Esme E. Deprez June 15 (Bloomberg) — Stocks rose, sending the MSCI World Index to a sixth straight gain, and oil climbed as growth in New York manufacturing added to signs the global economy is weathering Europe’s debt crisis. Greek bonds sank after Moody’s Investors Service cut the nation’s credit rating to junk. The Standard & Poor’s 500 Index climbed 1.2 percent to 1,102.56 at 11:01 a.m. in New York after the Federal Reserve Bank of New York’s general economic index showed an 11th consecutive month of growth. The MSCI World increased 1.1 percent to extend its longest rally since October. Greek 10-year bond yields jumped 74 basis points to 9.08 percent. Oil rallied above $76 a barrel and the euro strengthened topped $1.23. Stocks in Europe rebounded from early losses as News Corp.’s offer for British Sky Broadcasting Plc offset concern Greece’s downgrade will worsen the region’s debt crisis. U.S. equities also gained after a government report showed prices of imported goods fell in May, led by the biggest drop in petroleum costs since December 2008. “We’ve moved from recession to recovery and now we’re moving into expansion,” said Mike Ryan , New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $663 billion. “Inflation remains subdued, suggesting the Fed will remain on the sidelines. The risk-off trade is starting to ebb a little bit.” 200-Day Average The S&P 500 erased yesterday’s 0.2 percent drop and climbed above its highest closing level since June 3. The index rallied as much as 1.3 percent yesterday, approaching its 200-day average of 1,108, before erasing gains after Greece’s credit downgrade. The S&P 500 is down 9.5 percent from its 19-month high in April amid concern European government spending cuts will slow the economic recovery and as BP Plc’s leaky well in the Gulf of Mexico pollutes the Louisiana coast in the worst oil spill in U.S. history. Almost $6 trillion has been erased from the value of global equities since the MSCI World Index reached its 2010 peak in April. “The market stopped at resistance yesterday right around 1,105 on the S&P,” said Bruce Bittles , chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees more than $75 billion in client assets. “The most important thing would be to close above 1,105 on much stronger volume. That would indicate the correction has run its course.” Industrials Rally General Electric Co. and Boeing Co. paced gains in all 57 industrial companies in the S&P 500. The Fed’s so-called Empire State Index rose to 19.6, in line with the median forecast of economists surveyed by Bloomberg News. Readings greater than zero signal expansion in the gauge that covers New York, northern New Jersey and southern Connecticut. CBOE Holdings Inc., the last major U.S. securities exchange owned by its members, rose on its first day of trading. CBOE raised $339 million selling 11.7 million shares at $29 each yesterday. The shares rallied 15 percent to $33.42. Treasuries were little changed, with the 10-year yield at 3.26 percent. Net buying of long-term U.S. equities, notes and bonds totaled $83 billion in April, compared with net purchases of a record $140.5 billion in March, Treasury Department data released today showed. Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $70 billion in April. Asian, Europe Stocks The MSCI Asia Pacific Index increased 0.2 percent and more than three stocks advanced for every one that declined in Europe’s Stoxx 600, led by media companies. BSkyB, the U.K.’s biggest pay-TV provider, surged 17 percent after the company rejected News Corp.’s offer of 700 pence a share, signalling BSkyB may have to improve its bid. The MSCI Emerging Markets Index of 21 countries gained 0.6 percent, rebounding from a 0.4 percent drop earlier today. Russia’s Micex index advanced 2.6 percent as oil, the country’s main export, rose 1.7 percent to $76.36 a barrel in New York amid forecasts that a government report will show U.S. supplies fell for a third week. The Dubai Financial Market General Index dropped 1.3 percent to the lowest closing level since March 2009, after Tristan Cooper , a Moody’s analyst, said in an interview in Abu Dhabi that the emirate’s state-owned companies may have to restructure more debt. The euro strengthened against nine of 16 major currencies, while the dollar weakened against 14. Greek, German Yield Spreads The extra yield, or spread , investors demanded to hold Greek 10-year bonds instead of German bunds, Europe’s benchmark government debt securities, widened to 641 basis points, the highest since May 7, according to Bloomberg generic data. The bund yield was three basis points higher at 2.67 percent. Greek credit swaps signal a 48 percent probability the nation will default within five years. The cost of insuring $10 million of Greece’s bonds for five years jumped $43,500 to $799,000 a year, making the nation’s debt the third most expensive to protect after Venezuela and Argentina, according to CMA DataVision. Standard & Poor’s already cut Greece to below investment grade on April 27. Greece, Spain and Portugal are cutting spending to tackle their budget deficits, which swelled as the recession crimped government tax revenue. Greek Prime Minister George Papandreou pledged to bring the deficit, which increased to 13.6 percent of gross domestic product last year, to 8.1 percent of GDP this year and to under the 3 percent European Union limit in 2014. Spain, Portugal Cuts Spain and Portugal need additional budget cuts to meet deficit targets even as their shortfalls threaten to choke growth and produce a “snowball” effect on their debt levels, according to a draft European Commission document obtained by Bloomberg News. The draft report is dated May 26. Germany’s DAX Index of stocks climbed 0.6 percent even as investor confidence fell to 28.7 this month from 45.8 in May, lower than economists forecast, the ZEW Center for European Economic Research said today. The Reuters/Jefferies CRB Index of commodities climbed 1.1 percent to the highest level since May 13. “I think it’s important that commodity prices firm up here,” said Robert W. Baird’s Bittles. “The firming trend would be helpful in calming fears about a double dip. If they continue to drop that would suggest that the global economy is really losing steam.” To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Esme E. Deprez in New York at edeprez@bloomberg.net .

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NewPage Bonds Fall as Nardelli Takes Over Paper Company After CEO Departs

June 15, 2010

By John Detrixhe June 15 (Bloomberg) — NewPage Corp. bonds fell the most in almost six weeks as Robert Nardelli assumed leadership of the company after Chief Executive Officer E. Thomas Curley and Chairman Mark Suwyn resigned from the maker of coated paper. Michael Edicola , vice president of human resources, also left NewPage, which is owned by Cerberus Capital Management LP. Nardelli, CEO of Cerberus Operating & Advisory Co. and a former chairman of Chrysler LLC and Home Depot Inc., was named a director and non-executive chairman of NewPage, the Miamisburg, Ohio-based company said today in a statement. “We thank Mark, Tom and Mike for their accomplishments at NewPage, and wish them well in their future endeavors,” Nardelli said in the statement. The board has formed a search committee to recommend a new CEO, according to the statement. NewPage’s 11.375 percent notes due in 2014 declined 2.1 cents to 91.3 cents on the dollar to yield 14 percent as of 11:50 a.m., according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. It was biggest drop for the senior secured debt since May 6. To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Stocks, Oil Advance on New York Manufacturing Growth Greek Bonds Decline

June 15, 2010

By Rita Nazareth and Esme E. Deprez June 15 (Bloomberg) — Stocks rose, sending the MSCI World Index to a sixth straight gain, and oil climbed as growth in New York manufacturing added to signs the global economy is weathering Europe’s debt crisis. Greek bonds sank after Moody’s Investors Service cut the nation’s credit rating to junk. The Standard & Poor’s 500 Index climbed 1.2 percent to 1,102.56 at 11:01 a.m. in New York after the Federal Reserve Bank of New York’s general economic index showed an 11th consecutive month of growth. The MSCI World increased 1.1 percent to extend its longest rally since October. Greek 10-year bond yields jumped 74 basis points to 9.08 percent. Oil rallied above $76 a barrel and the euro strengthened topped $1.23. Stocks in Europe rebounded from early losses as News Corp.’s offer for British Sky Broadcasting Plc offset concern Greece’s downgrade will worsen the region’s debt crisis. U.S. equities also gained after a government report showed prices of imported goods fell in May, led by the biggest drop in petroleum costs since December 2008. “We’ve moved from recession to recovery and now we’re moving into expansion,” said Mike Ryan , New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $663 billion. “Inflation remains subdued, suggesting the Fed will remain on the sidelines. The risk-off trade is starting to ebb a little bit.” 200-Day Average The S&P 500 erased yesterday’s 0.2 percent drop and climbed above its highest closing level since June 3. The index rallied as much as 1.3 percent yesterday, approaching its 200-day average of 1,108, before erasing gains after Greece’s credit downgrade. The S&P 500 is down 9.5 percent from its 19-month high in April amid concern European government spending cuts will slow the economic recovery and as BP Plc’s leaky well in the Gulf of Mexico pollutes the Louisiana coast in the worst oil spill in U.S. history. Almost $6 trillion has been erased from the value of global equities since the MSCI World Index reached its 2010 peak in April. “The market stopped at resistance yesterday right around 1,105 on the S&P,” said Bruce Bittles , chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees more than $75 billion in client assets. “The most important thing would be to close above 1,105 on much stronger volume. That would indicate the correction has run its course.” Industrials Rally General Electric Co. and Boeing Co. paced gains in all 57 industrial companies in the S&P 500. The Fed’s so-called Empire State Index rose to 19.6, in line with the median forecast of economists surveyed by Bloomberg News. Readings greater than zero signal expansion in the gauge that covers New York, northern New Jersey and southern Connecticut. CBOE Holdings Inc., the last major U.S. securities exchange owned by its members, rose on its first day of trading. CBOE raised $339 million selling 11.7 million shares at $29 each yesterday. The shares rallied 15 percent to $33.42. Treasuries were little changed, with the 10-year yield at 3.26 percent. Net buying of long-term U.S. equities, notes and bonds totaled $83 billion in April, compared with net purchases of a record $140.5 billion in March, Treasury Department data released today showed. Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $70 billion in April. Asian, Europe Stocks The MSCI Asia Pacific Index increased 0.2 percent and more than three stocks advanced for every one that declined in Europe’s Stoxx 600, led by media companies. BSkyB, the U.K.’s biggest pay-TV provider, surged 17 percent after the company rejected News Corp.’s offer of 700 pence a share, signalling BSkyB may have to improve its bid. The MSCI Emerging Markets Index of 21 countries gained 0.6 percent, rebounding from a 0.4 percent drop earlier today. Russia’s Micex index advanced 2.6 percent as oil, the country’s main export, rose 1.7 percent to $76.36 a barrel in New York amid forecasts that a government report will show U.S. supplies fell for a third week. The Dubai Financial Market General Index dropped 1.3 percent to the lowest closing level since March 2009, after Tristan Cooper , a Moody’s analyst, said in an interview in Abu Dhabi that the emirate’s state-owned companies may have to restructure more debt. The euro strengthened against nine of 16 major currencies, while the dollar weakened against 14. Greek, German Yield Spreads The extra yield, or spread , investors demanded to hold Greek 10-year bonds instead of German bunds, Europe’s benchmark government debt securities, widened to 641 basis points, the highest since May 7, according to Bloomberg generic data. The bund yield was three basis points higher at 2.67 percent. Greek credit swaps signal a 48 percent probability the nation will default within five years. The cost of insuring $10 million of Greece’s bonds for five years jumped $43,500 to $799,000 a year, making the nation’s debt the third most expensive to protect after Venezuela and Argentina, according to CMA DataVision. Standard & Poor’s already cut Greece to below investment grade on April 27. Greece, Spain and Portugal are cutting spending to tackle their budget deficits, which swelled as the recession crimped government tax revenue. Greek Prime Minister George Papandreou pledged to bring the deficit, which increased to 13.6 percent of gross domestic product last year, to 8.1 percent of GDP this year and to under the 3 percent European Union limit in 2014. Spain, Portugal Cuts Spain and Portugal need additional budget cuts to meet deficit targets even as their shortfalls threaten to choke growth and produce a “snowball” effect on their debt levels, according to a draft European Commission document obtained by Bloomberg News. The draft report is dated May 26. Germany’s DAX Index of stocks climbed 0.6 percent even as investor confidence fell to 28.7 this month from 45.8 in May, lower than economists forecast, the ZEW Center for European Economic Research said today. The Reuters/Jefferies CRB Index of commodities climbed 1.1 percent to the highest level since May 13. “I think it’s important that commodity prices firm up here,” said Robert W. Baird’s Bittles. “The firming trend would be helpful in calming fears about a double dip. If they continue to drop that would suggest that the global economy is really losing steam.” To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Esme E. Deprez in New York at edeprez@bloomberg.net .

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BP Bankruptcy Would Offer No Protection From Gulf Damages, Cleanup Costs

June 15, 2010

By Margaret Cronin Fisk and Linda Sandler June 15 (Bloomberg) — BP Plc , whose potential liability for the Gulf of Mexico oil spill has lawmakers and analysts raising the specter of bankruptcy, would be unlikely to avoid paying claims by seeking court protection, restructuring experts said. The spill, the worst in U.S. history, threatens wetlands, wildlife, fishing and tourism in five states. BP has spent more than $1.43 billion to stop the leak and clean it up, and to compensate local businesses and residents since the April 20 explosion of the Deepwater Horizon oil rig. The U.K. energy company faces more than 200 lawsuits , and the U.S. is assessing the cost of restoring natural resources destroyed or fouled by the spill. BP’s liabilities include $37 billion in cleanup and potential litigation expenses, according to a June 2 Credit Suisse report. While a U.S. bankruptcy may halt many claims, it wouldn’t allow BP to avoid paying for most of the cleanup and damages, said New York bankruptcy lawyer Martin Bienenstock of Dewey & LeBoeuf LLP. “It’s highly unlikely the claims would be so large that BP would pay any valid claims less than in full,” said Bienenstock, who advised General Motors Co. and Chrysler Financial Corp. in their bankruptcies. “The environmental claims and other claims would all ride through bankruptcy and be paid in the normal course.” BP said it won’t seek court protection. “We categorically deny those rumors,” said David Nicholas , a company spokesman. Lowest Price BP fell yesterday to its lowest price in more than seven years, down 46 percent from the day the oil rig blew up, killing 11 workers. The cost to protect $10 million of BP debt for a year reached $695,000, according to CMA DataVision. It was $29,000 on April 30. “The bankruptcy option is clearly there,” said John Olson, managing partner of Houston Energy Partners, a hedge fund unit of Sanders Morris Harris Group Inc . “BP’s board and CEO can say they’ve ruled it out, but you can’t rule it out, realistically.” Olson doesn’t hold any BP shares. On June 13, White House Adviser David Axelrod called on BP to establish an escrow account for claims tied to the spill. U.S. Senate Majority Leader Harry Reid requested that the London-based company set up a $20 billion fund administered by an independent trustee, according to a letter from his office. The Obama administration should consider placing the company in receivership to preserve its assets because BP is likely to end up in bankruptcy, said Representative Steve Cohen , a Tennessee Democrat. Louisiana State Treasurer John Kennedy agreed, saying bankruptcy is a possibility and state and federal governments need to plan for it. The spill has sullied or threatened the coastlines of Louisiana, Alabama, Mississippi, Florida and Texas. ‘Ability to Pay’ The plan by state and federal governments to stop the gusher, clean it up and compensate victims “is all predicated on BP’s ability to pay for these objectives. And I say we need a plan in the event that it cannot pay for these objectives,” Kennedy said. “I don’t want us to miss a beat in the event that BP decides to seek protection of the U.S. bankruptcy laws.” Such a U.S. bankruptcy filing, restructuring experts said, wouldn’t protect BP from liability for damage and cleanup costs stemming from the disaster. It may simply provide the company with a single venue from which to pay claims quickly. Environmental Bankruptcy In last year’s settlement of the largest-ever U.S. environmental bankruptcy, all claims were paid in full by the debtor, mining company Asarco LLC , said Gregory Evans, a lawyer at Milbank Tweed Hadley & McCloy LLP in Los Angeles. Asarco paid $1.8 billion in restoration and cleanup costs for water, land and air pollution at 100 sites across the U.S. under the auspices of the U.S. Bankruptcy Court in Corpus Christi, Texas. The Asarco court employed a process called estimation, which lets injured parties and the company present evidence of claims directly to the judge on an expedited basis. Estimation removed trial lawyers from the process and skirted years of potential delays, said Evans, who helped lead Tucson, Arizona-based Asarco through the bankruptcy. “The perception is that a company runs to bankruptcy to avoid its environmental liabilities,” said Evans. “But if the assets are there to pay a claim, and the judge decides the amount is fair, then that is what is owed.” Every Dollar Asked After a federal judge discharged Asarco from bankruptcy in December, Associate U.S. Attorney General Tom Perrelli said taxpayers got more than a dollar back for every dollar asked. BP, the largest oil and gas producer in the Gulf of Mexico, may put all or part of the company into Chapter 11 bankruptcy, said Lynn Lopucki , a law professor at the University of California, Los Angeles. That would immediately halt spill litigation against it and place all claims under the control of the bankruptcy judge, he said. “All claims could be liquidated expeditiously using the bankruptcy code’s magical estimation power, and the company could set aside an amount of stock or cash flow to pay off the estimated claims over a period of years,” Bienenstock, the New York bankruptcy lawyer, said. The alternative to seeking court protection might be a “nightmare” lasting five or 10 years as BP dealt with claims while its stock remained under a cloud, he said. Houston Energy Partners’ Olson said that while bankruptcy is “a plausible tactic” to protect BP’s North American assets, “any whisper of bankruptcy is something the short sellers would be likely to encourage.” Public Sentiment BP fell 36.45 pence to 355.45 pence in London trading yesterday. The company closed at 655.40 the day of the spill. While providing an organized, single venue for addressing spill-related claims, a Chapter 11 filing might also inflame public sentiment. President Barack Obama said in an interview with NBC News broadcast June 8 that he’s looking for “whose ass to kick” and that BP Chief Executive Officer Tony Hayward “wouldn’t be working for me.” “Political pressure can change what judges do. It would be very difficult for any judge to make a ruling in favor of BP right now,” said Lopucki. “It’s better right now for BP to avoid any court decisions.” A bankruptcy filing would carry risks for BP management, including Hayward and the board, Lopucki said. “The people in charge are generally forced out,” he said. “Bankruptcy seems to accelerate the process.” BP wouldn’t succeed in assigning liability to a subsidiary that is subsequently placed into bankruptcy because creditors may seek to reverse the move, said John Penn , an attorney at Haynes & Boone LLP in Fort Worth, Texas, and a former president of the American Bankruptcy Institute. Evans, the Asarco lawyer, cited the example of Exxon Mobil Corp. and the two decades of litigation it faced over the 1989 Exxon Valdez oil spill as a justification for letting judges, not juries, resolve the claims. “Everyone deserves representation, but not to the point of the company spending 10 years circling the drain,” Evans said. “Justice delayed is justice denied, even for the company.” To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net and; Linda Sandler in New York at lsandler@bloomberg.net .

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Global Demand for U.S. Assets Rises More Than Forecast, Led by U.K., Asia

June 15, 2010

By Vincent Del Giudice June 15 (Bloomberg) — Global demand for long-term U.S. financial assets rose more than forecast in April as investors in the U.K., China and Japan added to their holdings of Treasuries, a government report showed. Net buying of long-term equities, notes and bonds totaled $83 billion in April, compared with net purchases of a record $140.5 billion in March, Treasury Department data released today in Washington showed. Including short-term securities such as stock swaps, foreigners bought a net $15 billion, compared with net buying of $26 billion the previous month. Signs of a sustained recovery in the U.S., as well as a flight from the financial-market turmoil in Europe, may increase the flow of investment into the world’s largest economy. International investors accumulated Treasuries for an 11th straight month, today’s report showed. “The flight to safety trade for Treasuries was just starting to shift into high gear during April,” said Chris Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFK Ltd. in New York, before today’s report. Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $70 billion in April. Seven economists participated in the survey, with estimates ranging from net selling of $25 billion to net buying of $150 billion. U.K. Increases Holdings of Treasuries in the U.K. totaled $321.2 billion in April, an increase of $42.2 billion from March, the report showed. China remained the biggest foreign investor in U.S. Treasuries, after its holdings rose by $5 billion in April to $900.2 billion, according to the Treasury’s statistics. Japan, the second-largest owner, increased its holdings by $10.6 billion in April to $795.5 billion. China has kept the yuan pegged to the dollar as a crisis- fighting policy, swelling its Treasury holdings and fueling complaints from U.S. lawmakers that it has an unfair advantage in global commerce. During a visit to Beijing last month, Treasury Secretary Timothy F. Geithner said he’s “as confident as I’ve ever been” that China has a growing incentive to let its currency gain against the dollar, and he welcomed President Hu Jintao’s pledge of steady and gradual changes to the exchange-rate system. The Treasury’s reporting on long-term securities captures international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac , which buy home mortgages. Treasuries, Agencies Total foreign purchases of Treasury notes and bonds were $76.4 billion in April, compared with purchases of $108.5 billion in March. Foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac registered net buying of $14.3 billion in April after buying of $22 billion in March. The Standard & Poor’s 500 Index in April rose 1.5 percent, the third straight month of increases, while the Dollar Index , a gauge of the U.S. currency’s strength against six other major currencies, gained 1 percent. U.S. Treasuries gained 1.1 percent in April, according to an index compiled by Bank of America Corp.’s Merrill Lynch unit. The euro dropped 1.6 percent against the dollar in April, a fifth straight monthly decline. Net foreign purchases of equities were $10.1 billion in April after net buying of $11.2 billion in March. Investors purchased a net $10.1 billion in U.S. corporate debt in April, buying $16 billion in March. During the financial crisis, investors have sought U.S. securities “because they had confidence in this country and our ability to act to fix our problems,” Geithner told the Senate Finance Committee last week. “We are going to do everything we can to make sure we continue to earn that confidence because it’s so important to our economic strength.” To contact the reporters on this story: Vincent Del Giudice in Washington at Or vdelgiudice@bloomberg.net

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Murdoch’s Offer to Control BSkyB Fits Strategy to Charge for News, Movies

June 15, 2010

By Kristen Schweizer June 15 (Bloomberg) — Rupert Murdoch -controlled News Corp.’s 7.8 billion-pound ($11.5 billion) offer to take over British Sky Broadcasting Plc fits his business model: boosting operations where clients pay for content. Subscription-based businesses such as U.K. pay-TV provider BSkyB, of which News Corp. already owns a 39 percent stake, make it easier to generate secure and rising sales compared with content reliant on a volatile advertising market, analysts said. “There’s definitely a theme here to get people to pay for content,” said Alex DeGroote, a media analyst at Panmure Gordon & Co. in London. “News Corp. has a conviction that getting people to pay will work and Murdoch’s not backing down from that.” The bid for the remainder of BSkyB reflects Murdoch’s ambitions to generate more money from subscriptions at a time when many newspapers, magazines and TV shows are free online and films and music can easily be downloaded illegally. News Corp., which already charges for online access to The Wall Street Journal , will also begin charging for the websites of The Times of London and The Sunday Times this month. BSkyB today spurned the News Corp. offer, asking for the bid to be raised by at least 14 percent. The company’s independent directors said today they may accept an offer of more than 800 pence a share, higher than the 700 pence a share News Corp. offered for the 61 percent stake it doesn’t already own in BSkyB. Value of Customers “The value of a customers to BSkyB is how much they pay for services,” said Paul Richards , an analyst with Numis Securities Ltd. in London. “All evidence shows the more services they have, the less likely they are to leave.” Formed in 1990 with the merger of Murdoch’s Sky Television and British Satellite Broadcasting, BSkyB has about 9.77 million subscribers. Buying exclusive live broadcasting rights in 1992 to popular events such as the Premier League, England’s top soccer league, helped it win clients. It added offerings such as the History Channel and Disney Channel in 1995. Murdoch said last year he would start online subscriptions for all company news sites and even considered blocking Google Inc. ’s Internet search engine from displaying News Corp. news articles. Online news aggregators should pay to distribute his company’s stories, Murdoch said. The Times and The Sunday Times are the first of four U.K. news titles owned by News Corp.’s international unit that will move to an online pay model. Newspaper Access The Financial Times, which also charges readers to access the newspaper online, has no plans to pull its content from Google, even though users are seven times less likely to subscribe to the FT.com when they arrive via Google News pages, Rob Grimshaw , FT.com managing director, said in April. Continuing its quest to charge for content, News Corp. said yesterday it bought e-reading platform Skiff LLC and invested an undisclosed amount into Journalism Online LLC, a venture that helps publishers collect revenue from Internet readers. Journalism Online, co-founded by Steven Brill and Gordon Crovitz , runs Press+, a service that provides online readers a universal account to access news. It also helps publishers adjust pricing and offerings for paid access to their content, including managing the so-called meter model, which grants free access until a reader surpasses a certain threshold. News Corp., which also owns the Twentieth Century Fox film studio, said on May 4 that the company is evaluating how to use its $8.18 billion in cash. News Corp. recorded $176 million in earnings from its BSkyB stake in the quarter ended March 31, compared with a $7 million loss a year earlier. The satellite service’s operating profit increased with the addition of high- definition TV subscribers. To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net .

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UBS May Sidestep Swiss `Game of Chicken’ as Lawmakers Vote on U.S. Treaty

June 15, 2010

By Klaus Wille June 15 (Bloomberg) — UBS AG may escape a “game of chicken” played by Swiss lawmakers as the price of failure to back a tax treaty with the U.S. would be too high: the bank’s American operations and the country’s export industry. Deputies in Switzerland’s lower house may support the treaty in a second vote today after last week rejecting the handover of details of as many as 4,450 suspected tax dodgers to U.S. authorities, according to academics and analysts, including Georg Lutz of the University of Lausanne. The dispute stems from a U.S. crackdown on offshore tax evasion that led Switzerland to agree last August to give up account data. The parliament has to approve the accord, and the U.S. may opt to reopen a civil lawsuit and criminal prosecution unless the government honors the agreement. “What we’re seeing at the moment is a high-stakes game of chicken,” said Evan Stewart, a lawyer at Zuckerman Spaeder LLP in New York, in an interview. Further legal proceedings “would seriously jeopardize UBS’s business in the U.S.,” he said. The nationalist Swiss People’s Party, which voted against the deal last week in protest against a proposal to boost corporate taxes on bonuses, may back the accord today to avoid a clash with U.S. authorities. “The People’s Party will eventually recognize the importance of the question and support the treaty,” said Martin Naville , the chief executive of the Swiss-American Chamber of Commerce, a lobbying group for Swiss and American businesses. Georg Lutz, a political scientist at the University of Lausanne, said the party “will give in” eventually. UBS Chief Executive Officer Oswald Gruebel last week said he’s “confident” that parliament will approve the accord. Like Adolescents “Too much is at stake with this treaty,” This Jenny , a deputy in the upper house of parliament for the People’s Party, said June 9. “We can’t afford this posturing, and this going back and forth like adolescents. We should try to build bridges.” UBS, Switzerland’s biggest bank, avoided U.S. prosecution in February 2009 by paying $780 million, admitting it helped wealthy Americans evade U.S. taxes from 2000 to 2007, and handing over account data on more than 250 U.S. clients. The next day, the U.S. sued Zurich-based UBS, seeking data on 52,000 Swiss accounts. UBS settled that case in August, agreeing to hand over as many as 4,450 names to the Swiss government to review before passing them on to the Internal Revenue Service. Unless the Swiss disclose the names, the U.S. may extend the deferred- prosecution agreement beyond its term of 18 months and may reopen the lawsuit that sought 52,000 names. The People’s Party and the Swiss Social Democratic Party voted against the accord in the lower house after they tied their approval to conditions. In the upper house, where the two parties’ support wasn’t needed, the accord was rubberstamped. Parliamentary Deadline The Swiss legislature has until June 18, the last day of the current parliamentary session, to approve the treaty and circumvent a January court ruling that said the deal isn’t enforceable under current Swiss legal provisions. If the lower house votes down the treaty, there won’t be another ballot, while the two houses will negotiate again if the lower house supports the treaty but asks for a referendum. The People’s Party has said it will support the deal with the condition that lawmakers reject proposals to increase corporate taxes on bonuses. The Social Democrats are linking their support to a tax on bankers’ bonuses. The People’s Party is the biggest party in the lower house with 58 deputies, potentially tipping the balance after the treaty was rejected with 104 votes to 76 last week. UBS Plans John Cryan , UBS’s chief financial officer, said the bank would find it easier to recruit private bankers if the country backs the treaty, according to an analyst note from Helvea SA. The accord also would help boost the morale of clients and staff in the U.S., who seem to have been “particularly spooked” by last week’s vote, said Peter Thorne , an analyst at Helvea, after attending a meeting with Cryan in London. One face-saving option for the People’s Party is to accept the requests by all other parties to discourage “excessive” bonuses through higher taxation at the company level. Christoph Blocher, the party’s vice-president and a former member of the government, was quoted by Tages-Anzeiger on June 9 as saying politicians may be able to “find a way out.” Prosecution in the U.S. would put UBS “out of business the next day,” Robert Fink , a tax attorney at Kostelanetz & Fink LLP in New York, told Bloomberg News by telephone. “Financially, it could be catastrophic.” U.S. Business “They could shut down UBS in the U.S.,” said George M. Clarke III, a tax attorney of Miller & Chevalier in Washington. “They could forbid the bank from accessing the Federal Reserve system. It could get ugly.” Almost 37 percent of UBS’s 65,233 employees worked in the Americas at the end of 2009. UBS’s Wealth Management Americas unit managed 690 billion Swiss francs ($604 billion) at the end of the year. A rejection would have a “massive negative effect on the entire Swiss economy,” the Swiss-American Chamber of Commerce wrote in a May briefing note, and Justice Minister Eveline Widmer-Schlumpf has said the agreement had removed “an existential threat” from UBS. “Large and small Swiss companies with international business face uncertain times” regarding taxation, a potential tax haven status and possible discrimination in the U.S., the lobbying group said. “Overall, the potentially affected companies represent 35 percent of the Swiss economy with approximately 1 million jobs,” the chamber said. Plan B Should lawmakers fail to approve the accord, the government may seek renewed negotiations with the U.S. authorities. “I think Switzerland and UBS have a Plan B up their sleeves,” said Rainer Schweizer , a law professor at the University of St. Gallen. “I’m sure the government has examined some alternatives.” Lawmakers are aware of the consequences. “The Americans might not ask us whether they should implement retaliation measures,” Pirmin Bischof , a member of the lower house for the Christian Democrat People’s Party, said on June 7. “As a superpower, they will simply enact them, and we can gnash our teeth.” To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

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SocGen, BNP Paribas Said to Consider Bidding for Allied Irish Unit Stake

June 15, 2010

By Ambereen Choudhury and Brett Foley June 15 (Bloomberg) — Societe Generale SA and BNP Paribas SA are among banks considering a bid for Allied Irish Banks Plc’s stake in Bank Zachodni WBK SA of Poland valued at about $3 billion, according to three people with knowledge of the matter. Poland’s PKO Bank Polski SA and OAO Sberbank of Russia are also interested in making an offer for the 70 percent stake, said the people, who declined to be identified because the matter is private. Indicative offers are due later this month and at least two private-equity firms are also interested in making bids, another person said. Bank Zachodni, based in Warsaw, has a market value of 14.6 billion zloty ($4.4 billion). The international banks may be seeking to increase exposure to Poland’s economy, which was the only European Union nation to avoid a recession last year. The economy may expand 3 percent in 2010, according to a government forecast. Dublin-based Allied Irish said in March it plans to sell stakes in banks in the U.S. and Poland to help meet its bank regulator’s requirement to raise 7.4 billion euros ($9 billion) of capital. Proceeds from the disposal of businesses in the U.S., Poland and the U.K. are expected to meet a “substantial part” of the capital needs, Allied Irish Chairman Dan O’Connor said April 28. Spokeswomen at Societe Generale and BNP declined to comment. Allied Irish spokesman Ronan Sheridan declined to comment, as did Sergei Rachkovsky, a spokesman for Sberbank in Moscow. Bank Zachodni spokesman Piotr Gajdzinski declined to comment. SocGen CEO Societe Generale Chairman and Chief Executive Officer Frederic Oudea said earlier today the price of Bank Zachodni seems “too high.” Oudea was speaking to reporters ahead of a presentation to investors in Paris. Bank Zachodni’s shares have more than doubled in the past 12 months. PKO Bank Polski’s “strategy for 2010 to 2012 is based on organic growth,” Chief Executive Officer Zbigniew Jagiello said in an e-mail when asked about a possible bid. Still, “no potential acquisition that could lead to an increase of the bank’s assets or its market position should be excluded.” Polish law requires an investor that buys more than 66 percent of a publicly traded company to bid for the rest of the shares. Allied Irish is among lenders transferring loans at a discount to the country’s National Asset Management Agency. Ireland’s banking system began unraveling two years ago after the economy entered a recession and the real-estate market collapsed. To contact the reporters on this story: Ambereen Choudhury in London achoudhury@bloomberg.net ; Brett Foley in London at bfoley8@bloomberg.net .

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Murdoch’s $11.5 Billion Offer for Rest of BSkyB Is Rejected by Broadcaster

June 15, 2010

By Jonathan Browning June 15 (Bloomberg) — British Sky Broadcasting Plc , the U.K.’s largest pay-TV provider, spurned a 7.8 billion-pound ($11.5 billion) offer from Rupert Murdoch’s News Corp. , asking for the bid to be raised by at least 14 percent. BSkyB shares rose as much as 22 percent, the biggest jump in more than 10 years. The company’s independent directors said today they may accept an offer of more than 800 pence a share, higher than the 700 pence a share News Corp. offered for the 61 percent stake it doesn’t already own in BSkyB. “I wouldn’t think News Corp. would enter into this if they didn’t think they were going to get BSkyB,” said Steve Malcolm , an analyst at Evolution Securities in London. “In an uncertain world they are looking at BSkyB’s pretty resilient pay-TV business and thinking this is not a bad place to be.” News Corp., the owner of the Wall Street Journal and the Fox television channel, said on May 4 that the company is evaluating how to use its $8.18 billion in cash. Taking over the U.K. pay-TV unit would be in line with Chairman and Chief Executive Officer Murdoch ’s drive to boost News Corp.’s presence in subscription-driven businesses. BSkyB Non-Executive Chairman, James Murdoch , who is Rupert Murdoch’s son, won’t participate in the discussions. Formed in 1990 with the merger of Murdoch’s Sky Television and British Satellite Broadcasting, BSkyB has about 9.77 million subscribers. Buying exclusive live broadcasting rights in 1992 to popular events such as the Premier League, England’s top soccer league, helped it win clients. It added offerings such as the History Channel and Disney Channel in 1995. Right Time BSkyB rose as much as 131.5 pence to 732 pence and stood at 714 pence as of 10:17 a.m. in London. “It is the unanimous view of the independent directors that there is a significant gap between the proposal from News Corp. and the value of the company,” Nicholas Ferguson , BSkyB’s senior independent non-executive director, said today. Four out of 14 BSkyB board members represent News Corp. The New York-based company said it will work with BSkyB to seek approval from “relevant” regulators for the bid. News Corp. will pay BSkyB 20 million pounds if it doesn’t get clearances. “We believe that this is the right time for BSkyB to become a wholly-owned part of News Corp. with its greater scale and broader geographic reach,” News Corp. said today. News Corp.’s 700 pence offer represents a multiple of about 11.8 times BSkyB’s earnings before interest, tax, depreciation and amortization of 1.14 billion pounds for the pro-forma 12 months ended March, the company said. News Corp. could boost earnings and free cash flow by taking full control of BSkyB, BTIG LLC analyst Richard Greenfield wrote in a note to clients yesterday. Stock Discount News Corp. recorded $176 million in earnings from its BSkyB stake in the quarter ended March 31, compared with a $7 million loss a year earlier. The satellite service’s operating profit increased with the addition of high-definition TV subscribers. News Corp. shares may benefit from full ownership of BSkyB by eliminating a discount in the stock that reflects the partial ownership, Hale Holden , a Barclays Capital debt analyst, wrote in a May 25 report. The decline in the value of the British pound relative to the U.S. dollar may also have increased the likelihood of such a deal, he said. In December, News Corp. raised its stake in Sky Deutschland AG, Germany’s biggest pay-TV service, to more than 45 percent. News Corp. fell 25 cents to $13.12 in Nasdaq Stock Market trading . The Class A shares have fallen 4.2 percent this year. BSkyB said in April high-definition subscriber additions increased 76 percent in the last quarter after it cut installation prices. Deutsche Bank AG and JPMorgan Cazenove are acting as financial advisers for News Corp. BSkyB is being advised by Morgan Stanley and UBS Investment Bank. Merrill Lynch is also providing advice to BSkyB. To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net .

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New York Fed’s Enhanced Power May Come at Expense of Reduced Independence

June 14, 2010

By Craig Torres and Caroline Salas June 15 (Bloomberg) — The Federal Reserve Bank of New York, which carried out central-bank rescues of money markets and Wall Street firms, is poised to have its powers expanded even more — at the risk of reduced independence. Senate and House negotiators meet today to begin hammering out a financial-regulation bill that puts the New York Fed at the forefront of the central bank’s new role as overseer for financial stability. Lawmakers also want its chief, now nominated by the bank’s board, to be a White House appointee. Senate Banking Committee Chairman Christopher Dodd says the selection process must be overhauled to avoid conflicts of interest at the regional Fed bank, which supervises firms including JPMorgan Chase & Co. and Goldman Sachs Group Inc., where New York Fed chief William Dudley spent two decades. Opponents, including St. Louis Fed President James Bullard , say the legislation represents an effort by politicians to exert more control over monetary policy. “Congress is concerned about accountability,” Gary Stern , Minneapolis Fed president from 1985 to 2009, said in a telephone interview. “You would get a different kind of person in the job. I am an economist by training. You might continue to get some people like that. But you might get people who are more active politically.” The so-called base text of the financial-overhaul legislation would give the central bank a seat on a newly created Financial Stability Oversight Council. The Fed would be delegated to watch over firms that “may pose risks to financial stability,” including banks it supervises and non-bank financial firms. Authority Extended The New York Fed might have its authority extended to firms such as GE Capital. Jeffrey Immelt , chairman of General Electric Co., the parent of GE Capital, sits on the New York Fed Board. Dodd’s proposal to have the regional Fed chief appointed to a five-year term subject to Senate approval means politicians would pick two-thirds of the Federal Open Market Committee. Dudley, whose term ends in February, is vice chairman of the rate-setting panel. Of the Fed’s 12 regional bank presidents, he’s the only one with a permanent vote on the FOMC alongside the seven Washington-based governors. The New York Fed executes monetary policy through its trading desk, which bought billions in bonds during the financial crisis. The Fed’s total assets have expanded to $2.33 trillion as it bought Treasury bonds, mortgage-backed securities and agency debt to lower interest rates. That compares with $903 billion two years ago. Treasury Secretary Timothy Geithner , a former New York Fed president, said in March he opposes White House appointment because it “would tilt the balance substantially in New York’s favor.” ‘Loose Money’ “What Congress ultimately wants out of this is loose money,” said Mark Calabria , a former Senate Banking Committee staffer who is now a director of financial-regulation studies at the Cato Institute in Washington, a research center that favors free markets. Bernard Sanders , a Vermont independent, said having the New York Fed president nominated by the White House “is a great thing” because it removes bankers from the decision. Senator Judd Gregg , a New Hampshire Republican, called it “bad policy” because it “injects too much congressional activity into the operational side of the Fed.” Even so, the presidential appointment clause probably “is going to survive” Gregg said in a June 9 interview. Krishna Guha , a spokesman for the New York Fed, declined to comment. Many emergency programs approved by the Board of Governors were designed by Geithner when he headed the Fed, with help from Dudley, who was then executive vice president in charge of markets. Dudley once slept on the carpet of his ninth-story Liberty Street office instead of checking into a nearby hotel during the crisis. Berkeley Doctorate Dudley, 57, holds an economics doctorate from the University of California at Berkeley and worked as a Fed economist from 1981 to 1983. He joined Goldman Sachs in 1986 and became its top U.S. economist. He moved to the New York Fed in 2007 and succeeded Geithner in 2009. Dudley’s salary at the New York Fed last year was $410,780. The search committee that picked Dudley was comprised of former Goldman Sachs chairman Stephen Friedman , who was chairman of the New York Fed Board; Charles Wait , chairman of the Adirondack Trust Co. of Saratoga Springs, New York; and Denis Hughes , president of the AFL-CIO in New York. Six of the nine directors that sit on regional Fed boards are bankers or people chosen by them. Political appointment of the New York Fed chief “makes a lot of sense” given its permanent vote on rates and the larger role the Fed will play in financial-system oversight, said Ken Rogoff , a Harvard University economist. Center of Gravity “I can understand concern about giving an administration too much power to shift the center of gravity at the Fed, but presumably the confirmation process still provides some degree of checks and balances,” said Rogoff, a former International Monetary Fund chief economist. Fed officials disagree. The St. Louis Fed’s Bullard, in a letter to 13 senators last month, said the change “would introduce an unprecedented level of political intervention in the operation of a reserve bank.” “I don’t think that is the right way to go,” Fed Chairman Ben S. Bernanke said at a Joint Economic Committee hearing in April. Marvin Goodfriend , an economist at Carnegie Mellon University and a former Richmond Fed policy adviser, said the legislation “goes right to the heart of the Fed’s independent powers.” The Fed opened the door to greater political pressures by stepping into the realm of fiscal policy with rescues of Bear Stearns Cos. and American International Group Inc., says Allan Meltzer , a historian of the central bank. “The Fed has done more credit allocation and fiscal policy than ever before,” said Meltzer, an economist at Carnegie Mellon University in Pittsburgh. “Most of the damage was done before this bill.” To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net ; Caroline Salas in New York at csalas1@bloomberg.net

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Bank of Japan Creates $33 Billion Program to Expand Credit to Companies

June 14, 2010

By Mayumi Otsuma June 15 (Bloomberg) — The Bank of Japan will offer as much as 3 trillion yen ($33 billion) in loans to companies for as long as four years in an effort to strengthen the economic recovery. The loans will be channeled through banks, and the central bank will accept requests from lenders through March 2012, it said in a statement released today in Tokyo. Credit will be extended at the benchmark interest rate , which the board today unanimously voted to keep unchanged at 0.1 percent. Pressure on Governor Masaaki Shirakawa to do more may mount in coming months as newly appointed Prime Minister Naoto Kan , who as deputy repeatedly urged further BOJ steps, unveils plans to contain the world’s largest debt . The plan is too small to lower borrowing costs and is unlikely to spur the economy or satisfy politicians, said economist Hirokata Kusaba . “The new program is unlikely to make any contribution to growth in Japan,” said Kusaba, a senior economist at Mizuho Research Institute Ltd. in Tokyo. “The new administration won’t relent from pressure on the central bank to do more as it strives to restore the soundness of public finances without jeopardizing growth.” The Nikkei 225 Stock Average climbed 0.2 percent at 2:32 p.m. in Tokyo, after earlier dropping as much as 0.5 percent. The yen was little changed at 91.58 per dollar. The yield on Japan’s benchmark 10-year bond fell half a basis point to 1.225 percent. Critical Challenge “The most critical challenge the Japanese economy is currently facing is to raise the potential economic growth rate and productivity,” the bank said. Today’s measure “aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations of economic growth.” The BOJ said it will target 18 growth areas including the environment, health and tourism while ensuring that it “does not directly involve itself in the allocation of funds to individual firms and industries.” It will also avoid hampering interest-rate policy and money-market operations, it said. Shirakawa instructed his staff to work on the credit plan in April, after previous efforts failed to stem the deflation that has discouraged spending and squeezed profits. Vice Finance Minister Motohisa Ikeda told reporters after attending the meeting that that the lending program is appropriate and consistent with the government’s growth strategy. Kan is expected to unveil midterm growth and fiscal plans before a summit of Group of 20 leaders this month. Work Together Yesterday, Kan said in parliament that the government and the central bank will work together to stamp out deflation. After being sworn in as leader last week, he said his administration must focus on curbing government debt, warning the Japan could “go bankrupt” if remedies aren’t taken. The Bank of Japan offered to provide dollar loans to lenders at 1.23 percent today, to help ease concerns that credit will contract in the wake of Europe’s sovereign-debt crisis. It decided to resume a U.S. dollar currency swap agreement with the Federal Reserve on May 10. Japan’s central bank cut the benchmark interest rate to 0.1 percent in December 2008 and all 14 economists surveyed by Bloomberg News expected it to be kept unchanged today. Last December, following calls to act from politicians including Kan, the board unveiled a credit program that it doubled to 20 trillion yen in March, which offers three-month funds at 0.1 percent. Consider Expanding If the economy were to receive a severe shock, the BOJ would consider expanding the facility, a person familiar with the matter said last week. The outstanding amount of loans provided through the program was around 20 trillion yen yesterday, according to Tokyo Tanshi, a money market brokerage. “There is no liquidity problem,” said Kiichi Murashima , chief economist at Citigroup Global Markets Japan Inc. in Tokyo. “The central bank knows companies already have plenty of cash in their pockets and are starting to increase capital spending. Banks are already supporting growing sectors.” Economic growth accelerated to an annualized 5 percent in the first quarter, and government survey yesterday showed business confidence improved last month even as Europe’s woes roiled financial markets. “Japan’s economy shows further signs of a moderate recovery, inducted by improvement in overseas economic conditions,” the bank said in its policy statement. Kan, who was finance minister before becoming premier, has advocated inflation targeting and said he hopes to see consumer prices gain as much as 2 percent. Prices have slumped for 14 straight months. “With the economy recovering, political pressure on the BOJ probably won’t mount immediately,” said Chotaro Morita , chief strategist at Barclays Capital Japan Ltd. “Should the economy start to lose momentum or if European financial turmoil flares up, the government may have difficulty pushing for its fiscal reform and then put heat on the BOJ.” To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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