Weber Doesn’t See German Recovery Before Mid-2010, Bild Reports

By Simone Meier

July 1 (Bloomberg) -- German Bundesbank President Axel Weber said he doesn’t expect the economy to return to growth before mid-2010, Bild newspaper reported.

“I believe that we’ll see a gradual but slow recovery back to positive growth rates,” Weber said according to the newspaper. “I don’t expect that we’ll return to the positive area before the middle of next year. That’s why it’s a strong and simultaneous slowdown” and “a slow but gradual recovery towards an improvement at the end of next year.”

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Swiss Franc Little Changed at 1.0864 per Dollar, 1.5238 per Euro

By Gavin Finch

July 1 (Bloomberg) -- The Swiss franc was little changed against the dollar and the euro.

It was at 1.0864 per dollar as of 6:27 a.m. in London, and 1.5238 per euro.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net



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British Pound Declines Against Dollar, Weakens Versus Euro

By Daniel Tilles

July 1 (Bloomberg) -- The pound fell against the dollar and the euro.

The British currency slipped 0.2 percent to $1.6420 as of 6:19 a.m. in London, declining for a second day. Against the euro, the pound weakened 0.3 percent to 85.50 pence, also down for a second day.

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net

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Honduras Credit Rating May Be Cut on Political Risk, S&P Says

By Eric Sabo and Sam Nagarajan

July 1 (Bloomberg) -- Honduras’ sovereign rating may be cut should a prolonged political crisis and strained public finances erode foreign-exchange reserves, Standard & Poor’s said.

The credit assessor yesterday placed the nation’s foreign- and local-currency debt on creditwatch “with negative implications” after the Honduran military ousted President Manuel Zelaya in a coup on June 28. Police used tear gas and water canons to break up protesting backers of Zelaya the following day, while thousands rallied to support the newly installed interim President Roberto Micheletti.

“The current political crisis comes at a time of economic contraction at home and abroad, weakening the government’s ability to adjust fiscal and monetary policies,” S&P’s New York-based analysts Joydeep Mukherji and Roberto Sifon Arevalo said in a statement.

The $12.3 billion economy, the third smallest in Central America, may expand 1.5 percent in 2009, according to the International Monetary Fund, compared with a forecast for a 1.5 percent contraction for all of Latin America. The nation’s international reserves have dropped 13 percent from a record $2.7 billion reached in June 2006, according to data compiled by Bloomberg.

New Finance Minister Gabriela Nunez said the country will honor its international debt obligations. The local currency, the lempira, has been pegged at around 18.9 against the U.S. dollar since 2005.

S&P rates Honduran long-term debt B+, or the fourth-lowest non-investment grade, and short-term debt B, a level lower. Debt equivalent to more than 3 percent of gross domestic product will mature in three batches later this year and early 2010, and a potential loss of external liquidity could hurt the government’s ability to roll over the payment, S&P said.

Policy Paralysis

“Potential policy paralysis due to political uncertainty could raise the country’s vulnerability to a sudden external shock,” Mukherji and Arevalo wrote. “This could undermine confidence in the fixed exchange rate and weaken creditworthiness.”

The economy would be devastated should Central American neighbors extend a trade ban implemented after the coup, Roque Rivera, president of the Honduran banking association said yesterday. No U.S. banks have shut lines of credit with local lenders and it’s unlikely they will, Rivera said.

Honduran bonds are rated “so low” that there are no immediate plans to downgrade them following the ouster of President Manuel Zelaya, said Gabriel Torres, an analyst at Moody’s Investors Service.

Moody’s rates the nation’s foreign and local debt B2 due to a weak economy dependent on slumping remittances from Hondurans working abroad, according to a June 8 report.

“It’s the impact of the crisis in the U.S. more than the government crisis in Honduras that’s affecting the ratings right now,” Torres said yesterday in a phone interview.

To contact the reporter on this story: Eric Sabo in Panama City at esabo1@bloomberg.net; Sam Nagarajan in New Delhi at samnagarajan@bloomberg.net

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‘Snake Oil Salesman’ Amasses Most Funds in Scotland

By Peter Woodifield and Andrew MacAskill

July 1 (Bloomberg) -- Being vilified by politicians is a career enhancer if Martin Gilbert is any example.

Gilbert, the chief executive officer of Aberdeen Asset Management Plc, was condemned by a U.K. lawmaker in 2002 as a “sophisticated snake oil salesman” for his company’s part in selling funds that lost 620 million pounds ($1 billion). Gilbert completed a purchase today that makes his firm Scotland’s largest fund manager, with $218 billion of assets.

“He is an example of someone who confronted the mistakes he made and learned the lessons,” said John McFall, the Labour Party member of parliament who disparaged Gilbert seven years ago. “Martin’s story is relevant to what is going on in the financial industry.”

The rehabilitation of the 53-year-old Scot contrasts with the public outcry against former chairmen and CEOs ranging from Fred Goodwin, who led Royal Bank of Scotland Group Plc to the biggest loss in British history, to Citigroup Inc.’s Charles O. “Chuck” Prince, UBS AG’s Marcel Ospel and Merrill Lynch & Co.’s Stanley O’Neal, who presided over unprecedented losses before their premature departures during the past two years.

Goodwin, ousted last October as the U.K. government bailed out RBS, was grilled by the cross-party Treasury Committee on Feb. 10, with McFall asking him if “hubris on your part” brought down the bank.

“People’s memories are ultimately short,” said Colin McLean, CEO of Edinburgh-based SVM Asset Management Ltd., which oversees about $1 billion for clients. “What has happened doesn’t necessarily rule them out of another role.”

Acquisition Trail

Gilbert led a group in 1983 that bought an investment trust in Aberdeen in northeast Scotland from local law firm Brander & Cruickshank. The trust had 50 million pounds of client money, according to Aberdeen’s Web site.

Gilbert built Aberdeen in less than two decades into a company whose stock market value swelled to 1.1 billion pounds by 2001. He then was responsible for wayward investments that caused Aberdeen to lose more than 95 percent of its value in two years, prompting rebukes from government officials during regulatory probes.

Since then, Gilbert revived the firm by acquiring assets and clients from banks, such as the 212 million-pound purchase four years ago of Deutsche Bank AG’s U.K. fund business.

“We are determined not to make the same mistakes again,” Gilbert said in a telephone interview from a lounge in London’s Heathrow Airport en route to the U.S. to meet fund directors.

Split-Capital Trusts

Aberdeen was the biggest manager of split-capital trusts, a type of closed-end fund in Britain that came under the scrutiny of regulators after 27 of them collapsed.

Gilbert defended himself and his company in July 2002 in front of McFall’s panel of lawmakers. The Guardian newspaper at the time reported how Aberdeen was branded at the London hearing as “the unacceptable face of capitalism.”

Many of the split-capital trusts invested in each other, hastening their demise as the FTSE 100 Index sank to an eight- year low in 2003.

Aberdeen’s stock market value plummeted to 47 million pounds in April 2003 as the company was forced to sell six mutual funds to New Star Asset Management Plc to cover bank loans. The next year, Aberdeen’s sponsorship of the annual Boat Race along London’s Thames River between Oxford and Cambridge universities expired.

In December 2004, Aberdeen paid 78.3 million pounds for an industry-wide settlement of 194 million pounds to reimburse split-cap investors who had been attracted by slogans such as “the one-year-old that lets you sleep at night.”

‘Lucky to Survive’

“We were lucky to survive as a business,” said Gilbert, the son of a rubber planter from Aberdeen, during the telephone interview. “There are not many businesses that took the battering we took and made it through.”

The company no longer sells funds directly to individuals and has retreated from marketing.

Aberdeen today completed its 298 million-pound purchase of 62.8 billion francs ($57.8 billion) of assets from Credit Suisse Group AG’s Global Investors unit, it said in a regulatory statement. Aberdeen now manages 133 billion pounds, overtaking Standard Life Plc and Lloyds Banking Group Plc’s Scottish Widows, the Edinburgh stalwarts founded in the 19th century.

The Scottish company has about 1,850 workers and a market value of about 1.3 billion pounds with the completion of the Credit Suisse deal. Aberdeen’s shares have risen 19 percent since Dec. 30, the day before the Credit Suisse agreement was announced, while the FTSE 100 Index declined 3 percent.

Paying Stock

Gilbert paid stock to avoid overloading the company with debt. Zurich-based Credit Suisse, Switzerland’s biggest bank by market value, became Aberdeen’s largest shareholder, with stake of about 24 percent.

It followed the purchase an Australian unit of Deutsche Bank in March 2007 and a distribution agreement in October with Mitsubishi UFJ Financial Group Inc., Japan’s largest lender. That deal enables Aberdeen to tap Japanese investors in return for Mitsubishi buying up to 20 percent of the company.

“Fortunes and empires have always been built in choppy times and taking risks,” said Guy De Blonay, who helps manage about 43 billion pounds at Henderson Group Plc, including Aberdeen shares. “We are going to see more business people who have been bruised trying to regain their reputations.”

To contact the reporters on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net.

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U.S. Manufacturing Probably Shrank at Slowest Pace in 10 Months

By Courtney Schlisserman

July 1 (Bloomberg) -- Manufacturing in the U.S. probably shrank in June at the slowest pace in 10 months, another sign the worst of the recession may be over, economists said before a private report today.

The Institute for Supply Management’s factory index rose to 44.6, the highest level since August, according to the median forecast of 73 economists surveyed by Bloomberg News. Readings lower than 50 signal contraction.

Stabilization in consumer spending, the biggest part of the economy, may prompt factories to boost production in coming months. After trimming stockpiles at the fastest pace on record in the first quarter, companies continued to cut back in the last three months, meaning any pickup in demand will spark a recovery in manufacturing.

“Things are getting less bad,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “We’re probably getting close to the inflection point in the economy soon, some time in the third quarter probably.”

The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. Forecasts ranged from 47.5 to 40 after a reading of 42.8 in May.

Manufacturing accounts for about 12 percent of the world’s largest economy.

Other reports today may show companies cut fewer jobs in June, pending home resales steadied in May after three consecutive gains and spending on construction projects dropped in May for the first time in three months.

Regional Measures

Regional measures have indicated the manufacturing slump is easing. The Federal Reserve Bank of Philadelphia’s general economic index climbed to minus 2.2, the highest reading in nine months. The Institute for Supply Management-Chicago Inc.’s business barometer for June increased to 39.9, from 34.9.

“The pace of economic contraction is slowing,” the Fed said last week. Fed policy makers voted June 24 to hold the benchmark overnight lending rate between banks at an historic low of zero percent to 0.25 percent.

Stocks had their biggest quarterly increase since 1998 from April through June on growing evidence the worst economic slump in a half century was easing. The Standard & Poor’s 500 index gained 15 percent in the quarter ended yesterday, breaking a streak of six consecutive declines.

Bankruptcies at General Motors Corp. and Chrysler LLC have rippled through the auto industry and caused some suppliers to also file for protection from creditors.

“The next three months are going to be critical,” Tony Brown, purchasing chief for Ford Motor Co., said June 24 in an interview. “The Chapter 11 filings have increased the cash-flow pressure on the supply base.”

‘Cash for Clunkers’

Even so, government efforts to revive auto sales may give manufacturing and the economy a boost in the third quarter. The “cash for clunkers” bill that passed Congress in June gives consumers as much as $4,500 to trade in their old cars for more fuel-efficient vehicles.

An increase in auto sales will come as automakers slashed inventories to get rid of unwanted stocks, meaning manufacturers will need to crank up production again to meet the new demand, according to Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York.

Maki last week boosted his forecast for economic growth in the second half of 2009 by a half percentage point to 3 percent.

Other companies are already seeing an improvement.

The period of crisis management at General Electric Co. is “behind us” and some level of economic growth will take place next year, Chief Executive Officer Jeffrey Immelt said earlier this week.

“In some way, shape or form, 2010 and beyond will see economic growth,” Immelt said at the London School of Business on June 29. “How positive it is remains to be seen.”

                        Bloomberg Survey

================================================================
                              ADP Construct     ISM  Pending
                          Payroll Spending     Manu    Homes
                           ,000’s     MOM%    Index     MOM%
================================================================

Date of Release              07/01    07/01    07/01    07/01
Observation Period            June      May     June      May
----------------------------------------------------------------
Median                        -395    -0.6%     44.6     0.0%
Average                       -388    -0.6%     44.6     0.5%
High Forecast                 -280     0.8%     47.5     7.0%
Low Forecast                  -532    -1.9%     40.0    -3.0%
Number of Participants          29       53       73       36
Previous                      -532     0.8%     42.8     6.7%
----------------------------------------------------------------
4CAST Ltd.                    -320    -1.0%     45.5    -3.0%
Action Economics              -350    -1.0%     44.0    -1.4%
AIG Investments               ---     -1.7%     44.5    -0.5%
Aletti Gestielle SGR          ---      ---      44.0     ---
Ameriprise Financial Inc      -450    -0.5%     44.0    -0.5%
Argus Research Corp.          ---      0.2%     46.0     ---
Banesto                       -415    -0.7%     44.0     1.6%
Bank of Tokyo- Mitsubishi     ---     -1.5%     46.0     ---
Bantleon Bank AG              ---      ---      45.0     ---
Barclays Capital              ---     -1.2%     46.0    -1.0%
BBVA                          -372     0.0%     43.6     1.1%
BMO Capital Markets           -320    -1.0%     44.0    -2.0%
BNP Paribas                   -280    -0.3%     43.0     ---
Briefing.com                  -400    -0.8%     44.0     0.0%
C I T I C Securities          -350     ---      45.0     ---
Calyon                        ---      ---      44.5     ---
Capital Economics             ---      0.0%     45.0     2.0%
CIBC World Markets            ---     -1.0%     41.0     ---
Citi                          ---     -0.4%     45.0     ---
ClearView Economics           ---      0.0%     44.0     7.0%
Commerzbank AG                ---      ---      46.0     ---
Credit Suisse                 ---     -0.5%     46.0     ---
Daiwa Securities America      ---     -0.5%     42.0     ---
Danske Bank                   ---      ---      46.5     ---
DekaBank                      ---     -0.1%     44.5    -1.0%
Desjardins Group              ---     -0.8%     43.3     ---
Deutsche Bank Securities      ---      0.4%     44.0     3.0%
Deutsche Postbank AG          ---      ---      44.5     ---
DZ Bank                       -390     ---      45.0     2.0%
Exane                         ---     -1.0%     45.0    -1.0%
First Trust Advisors          ---     -0.3%     45.2     ---
Fortis                        ---      ---      45.0     0.0%
Goldman, Sachs & Co.          ---      0.0%     46.0     ---
Herrmann Forecasting          -395    -1.0%     44.6     ---
High Frequency Economics      -400    -1.0%     45.0     0.0%
Horizon Investments           ---     -0.1%     45.0    -0.5%
HSBC Markets                  -370     0.0%     47.5     1.0%
IDEAglobal                    -345    -0.8%     45.0    -0.9%
IHS Global Insight            ---     -1.0%     46.5     ---
Informa Global Markets        -400    -0.2%     44.0     0.5%
ING Financial Markets         -350    -0.6%     44.0     0.5%
Insight Economics             ---     -0.8%     45.0     1.0%
Intesa-SanPaulo               ---     -0.5%     45.0     ---
J.P. Morgan Chase             ---     -1.2%     47.0    -2.0%
Johnson Illington Advisor     ---      ---      44.0     ---
Landesbank BW                 ---      0.0%     43.5     ---
Maria Fiorini Ramirez Inc     -532     0.8%     44.0     6.7%
Merrill Lynch                 -500    -1.0%     40.0     ---
MFC Global Investment Man     -400    -1.0%     45.0     ---
Moody’s Economy.com           -430    -0.6%     46.8    -1.5%
Morgan Keegan & Co.           ---     -0.7%     ---      ---
Morgan Stanley & Co.          ---     -1.9%     43.5     ---
National Bank Financial       ---      ---      45.0     ---
Natixis                       -315     ---      45.0     ---
Nomura Securities Intl.       -375     ---      43.5     ---
PNC Bank                      ---     -1.0%     45.0     ---
RBS Securities Inc.           ---      ---      45.0     ---
Schneider Foreign Exchang     -330     ---      47.0     1.5%
Scotia Capital                -400     ---      46.0     2.0%
Societe Generale              ---      ---      46.5     ---
Standard Chartered            -393     ---      44.5     2.1%
Stone & McCarthy Research     ---      0.1%     42.3     ---
TD Securities                 -400     ---      46.0     1.0%
Thomson Reuters/IFR           ---      0.0%     45.0     ---
Tullett Prebon                ---      ---      43.5     ---
UBS Securities LLC            ---     -0.5%     45.0     1.0%
Unicredit MIB                 ---      ---      44.0     ---
University of Maryland        -400    -0.8%     43.9    -1.4%
Wachovia Corp.                ---     -0.5%     43.5     ---
Wells Fargo & Co.             ---     -1.0%     44.0    -1.4%
WestLB AG                     -420     0.1%     44.0     1.2%
Westpac Banking Co.           ---      0.5%     44.5     ---
Woodley Park Research         ---     -1.5%     44.3    -0.6%
Wrightson Associates          -450     0.0%     44.0     0.0%
================================================================

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net.

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Fed’s Yellen Says Interest Rates May Stay Near Zero for Years

By Vivien Lou Chen

July 1 (Bloomberg) -- Federal Reserve Bank of San Francisco President Janet Yellen said the prospect that policy makers will leave the benchmark U.S. interest rate near zero for the next several years is “not outside the realm of possibility.”

“We have a very serious recession, we have a 9.4 percent unemployment rate,” and inflation possibly falling over time below the Fed’s preferred level, she told reporters yesterday after a speech to the Commonwealth Club of California in San Francisco. Given the recession’s severity, “we should want to do more. If we were not at zero, we would be lowering the funds rate.”

Yellen’s comments go beyond those made by other policy makers after a June 23-24 meeting, when they said the federal funds rate will likely stay at “exceptionally low levels” for “an extended period.” They have held the rate, also known as the overnight lending rate between banks, at between zero and 0.25 percent since December.

The Fed “did succeed in averting a full-blown meltdown,” Yellen said in the speech. Nevertheless, the threat of another financial shock, such as one from falling commercial real-estate prices, is “high on my worry list.”

Yellen said the U.S. economy may be about to “turn the corner” and reiterated her expectation that the recession will end later this year.

“Right now, we’re like a patient in intensive care whose condition has stabilized and whose fever is just starting to come down,” Yellen said in the speech. “We’re just completing the sixth quarter of recession, but the pace of decline has slowed markedly” and “confidence in the financial system is slowly returning.”

Hundred-Year Flood

The 62-year-old bank chief, who votes on monetary policy this year, compared the financial crisis to “a hundred-year flood: a disaster of the highest order which has put us on continuous emergency footing.”

“I expect that we will turn the growth corner sometime later this year, but I am not optimistic that the economy will spring back to normal anytime soon,” she said. Unemployment will “remain painfully high for several more years.”

The world’s largest economy has lost 6 million jobs since December 2007, the start of the deepest recession in 50 years.

Under Chairman Ben S. Bernanke, the central bank has doubled its balance sheet and created unprecedented emergency programs to unclog credit markets.

Recent Data

While recent data indicate a smaller pace of decline in some areas of the economy, such as housing and new construction, joblessness is climbing and the increasing cost of residential loans is impeding new lending. The unemployment rate reached 9.4 percent in May and new mortgage lending is at a 13-year low.

Responding to audience questions after her speech, Yellen said China’s concern about the value of the dollar “is logical” given the country’s holdings in Treasuries.

China’s call for the creation of a reserve currency other than the dollar is “not practical at the current time,” and more of a “long-term” idea, she said.

Rising mortgage rates may “place a drag on a still very sick housing market,” while increasing oil prices may hurt the recovery, Yellen said in her speech. Still, the fiscal stimulus and a rebound in consumer demand and housing construction will probably prompt a revival in economic growth, she said.

“We’ve seen encouraging signs lately that the economy is poised to turn the corner,” the bank president said. “Our major banks have made excellent progress in establishing the capital buffers needed to continue lending even through a downturn that is more serious than we anticipate. But they are still nursing their wounds and credit will remain tight for some time to come.”

Predominant Risk

As for inflation, the “predominant risk” is that it will “be too low, not too high, over the next several years,” Yellen said. Inflation excluding food and energy may fall to about 1 percent over the next year and remain below 2 percent, with an unlikely possibility of turning into deflation if the economy fails to recover soon, she said.

The global financial crisis, which began with the collapse of the U.S. subprime-lending market in 2007, has led to $1.47 trillion of writedowns and credit losses at banks and other financial institutions, according to data compiled by Bloomberg.

The Fed “won’t hesitate” to withdraw the record stimulus it has put in place, when necessary, Yellen said. “If anything, I’m more concerned that we will be tempted to tighten policy too soon, thereby aborting recovery.”

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

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IMF Board Set to Authorize $150 Billion in Bond Debut

By Timothy R. Homan

July 1 (Bloomberg) -- The International Monetary Fund’s board of directors plans to approve authorization to issue as much as $150 billion of bonds for the first time as it seeks new sources of funds, an IMF official said.

The board is scheduled to vote on the matter today, the official said on condition of anonymity. The bonds are part of a wider effort to seek new funding as the lender helps countries from Iceland to Pakistan combat the global financial crisis.

The securities, the culmination of months of talks between the fund and its members, will offer the largest emerging-market nations a new way of making IMF contributions while they seek greater say at the fund. China, Brazil and Russia have favored the bonds instead of regular contributions as they wrangle with other members over redistributing the IMF’s voting power.

“The emerging market economies want to call the shots a little bit more,” said Simon Johnson, a former chief economist at the IMF who is now a senior fellow at the Peterson Institute for International Economics in Washington. “It’s all part of a longer evolution of the IMF.”

Leaders from the Group of 20 industrial and emerging nations agreed in April to boost IMF coffers by $750 billion to help the Washington-based agency shore up nations roiled by the credit crunch. The U.S. last month agreed to boost its contribution for the IMF by more than $100 billion.

Rates, Currency

Today’s vote likely will address details such as how to set the interest rates for the bonds and their currency.

Chinese officials have sought a greater role over time for the IMF’s unit of account, called Special Drawing Rights or SDRs, in an effort to reduce the U.S. dollar’s dominance in the global economy.

China’s government has also said it will buy $50 billion in notes. Russia and Brazil in June month announced plans to each buy $20 billion of bonds from the IMF.

India has indicated it would contribute to an IMF bond program. Montek Singh Ahluwalia, deputy chairman of the nation’s Planning Commission, wasn’t available to comment today.

IMF Managing Director Dominique Strauss-Kahn said last month there will be a “little” secondary market for the bonds. Strauss-Kahn said June 13 in Lecce, Italy, that they could be traded between “bondholders, either government or central banks.”

The IMF is also considering making them tradable between all central banks from countries that are IMF members, said a G- 8 official, who spoke on condition of anonymity. It would stop short of allowing them to trade on the open market, he said.

Budget Deficit

Treasury yields climbed this year and the dollar fell in part on concern that foreign central banks would reduce holdings of U.S. financial assets just as the Obama administration sells a record amount of debt to finance a growing budget deficit and pull the economy from the deepest recession since the 1930s.

China’s central bank last month renewed its call for a new global currency and said the IMF should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar. IMF First Deputy Managing Director John Lipsky said on June 6 it’s possible some day to take the “revolutionary” step of making SDRs a reserve currency.

SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Brazil’s Real to Extend Best Quarterly Rally, Figueiredo Says

By Fabio Alves

July 1 (Bloomberg) -- Brazil’s real will keep rising after posting its best quarterly performance on record as signs of a recovery in Latin America’s largest economy lure investment, said former central banker Luiz Fernando Figueiredo.

The currency may advance to as strong as 1.8 per U.S. dollar by year-end from 1.9518 yesterday, said Figueiredo, the founder of Sao Paulo-based Maua Investimentos Ltda, a hedge fund that manages $300 million. That exchange rate would be the strongest since Sept. 22, a week after Lehman Brothers Holdings Inc.’s collapse caused global credit markets to seize up.

“The ability of the Brazilian economy to recover rapidly will support the real,” Figueiredo, who served as central bank monetary policy director from 1999 to 2003, said in a telephone interview from Sao Paulo.

The real rose 19 percent in the second quarter, the best performance since it was introduced 15 years ago, and is up the same percentage in 2009, the second-biggest gain among the world’s most-traded currencies. The real rallied as a rebound in the price of the country’s commodity exports, central bank interest-rate cuts and the biggest initial public offering in the world this year swelled dollar inflows.

Only the South African rand, up 23 percent against the dollar, has gained more among the 16 most-traded currencies this year. The real’s advance pares last year’s 23 percent slide that was sparked by the credit crisis.

Record IPO

Last month’s initial public offering by Cia. Brasileira de Meios de Pagamentos, the Sao Paulo-based affiliate of Visa Inc., “is a sign of investor confidence in Brazil,” Figueiredo said. The company’s shareholders are raising 8.4 billion reais ($4.3 billion), the Brazilian securities regulator said last week.

The IPO, which is a record in Brazil and the biggest in the world since March 2008, may spur other companies to raise capital through share sales, helping lure foreign capital to the country, Figueiredo said.

“There are other share offers in the works that may attract strong demand from foreign investors, especially because a rebound in the economy will also improve profits of the Brazilian companies,” he said.

The benchmark Bovespa stock index has gained 37 percent this year after a record 41 percent tumble in 2008.

Figueiredo’s real call is more bullish than the consensus forecast. The currency will weaken to 2 per dollar by year-end, according to a central bank survey of about 100 economists released June 29.

15-Year Anniversary

“This has more to do with the dollar climbing back against the euro and other currencies than any specific weakness in the real per se,” said Flavia Cattan-Naslausky, a currency strategist with RBS Securities Inc. in Greenwich, Connecticut. She predicts the real will end the year at 2.10 per dollar.

The real’s rally in the April-to-June period was the biggest quarterly advance since its debut on July 1, 1994. The government created the real, the country’s sixth new currency since 1986, to curb inflation that was running at over 5,000 percent a year. Annual inflation was 5.2 percent in May.

“With the support of all the reforms that took place, Brazil looks better in every economic aspect 15 years after the real was introduced,” Gustavo Franco, who helped design the 1994 currency plan as a central bank director, said in a telephone interview from Rio de Janeiro. “There’s a degree of enchantment among international investors with the Brazilian economy.”

Economic Recovery

Franco, who is now a partner at Rio-based Rio Bravo Investimentos, which manages $1.4 billion, said he expects the real to keep strengthening. He declined to provide a forecast.

Brazil’s gross domestic product shrank 1.8 percent in the first quarter from a year ago, less than the 2.8 percent median estimate in a Bloomberg survey of economists.

The economy will shrink 0.5 percent this year before rebounding to post 3.5 percent growth in 2010, according to the central bank survey. Figueiredo predicts a 0.5 percent contraction in 2009 and a 4.2 percent expansion next year.

“The Brazilian economy is rebounding faster than expected,” Figueiredo said.

To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net

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Yen Falls to 2-Week Low Versus Euro on China Manufacturing Gain

By Ron Harui and Yoshiaki Nohara

July 1 (Bloomberg) -- The yen declined to a two-week low against the euro after a report showed China’s manufacturing expanded for a fourth month, increasing demand for higher- yielding assets.

The yen also fell versus all of the 16 most-active currencies after an Australian report showed retail sales rose for a third month, adding to signs the global recession is easing. South Korea’s won gained the most against the yen of the major currencies after a government report showed exports fell at the slowest pace in eight months. The dollar rose for a second day against the pound before a U.S. report that economists say will show the contraction in manufacturing eased.

“China’s PMI seems to be having a negative impact on the yen,” said Akira Hoshino, chief manager of the foreign-exchange trading department in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender by market value. “Risk-taking appetite appears to be returning a bit. The yen is being sold.”

The yen declined to 136.00 per euro as of 7:54 a.m. in London from 135.21 in New York yesterday. It earlier dropped to 136.01, the lowest level since June 15. The yen weakened to 96.87 per dollar from 96.36. The currency has lost 6.9 percent against the euro and 6.4 percent versus the dollar this year.

The dollar was little changed at $1.4040 per euro from $1.4033 and rose to $1.6414 per pound from $1.6458. The won strengthened 0.5 percent to 1,267.65 against the U.S. currency, and gained 1 percent to 13.087 per yen.

China Manufacturing

The yen fell after China’s Federation of Logistics and Purchasing said its Purchasing Managers’ Index rose to 53.2 in June from 53.1 in May. A reading above 50 indicates an expansion. Asia’s second-biggest economy may keep improving, enabling the nation to meet its 8 percent growth target this year, central bank Governor Zhou Xiaochuan said this week.

Australia’s retail sales increased by twice as much as economists estimated, the statistics bureau said today in Sydney. Sales gained 1 percent in May from April, when they climbed 0.3 percent, the bureau said.

The benchmark interest rate is 0.1 percent in Japan, compared with 1 percent in the 16-nation euro region, 3 percent in Australia and 2.5 percent in New Zealand.

The Korean won added to its best quarterly gain in more than four years on optimism the worst of the nation’s economic slump is ending.

Overseas shipments may return to growth from October, helped by a recovery in global demand, Lee Dong Geun, deputy minister for trade and investment policy at the Ministry of Knowledge Economy, said on June 29. Exports fell 11.3 percent in June from a year earlier, easing from May’s 28.5 percent drop, the government said.

‘Definitely Bullish’

“We are definitely bullish on the won,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. “The external balance has improved a lot, and it seems that the economy has probably bottomed out in the first quarter.”

The yen was little changed earlier after the Bank of Japan’s quarterly Tankan survey showed sentiment among the largest manufacturers rose less than economists expected.

The index of sentiment among large makers of electronics, cars and other products climbed to minus 48 in June from minus 58 in March, the central bank said in Tokyo. Economists surveyed by Bloomberg News predicted minus 43. A negative number means pessimists still outnumber optimists.

‘Worse Than Expected’

“Japan’s economic situation is worse than expected,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo. “Investors may try to err on the side of being cautious. That will lead to stock declines and prompt demand for the yen as a safe haven.”

The dollar gained for a third day against the yen on speculation a report will show manufacturing in the U.S. shrank in June at the slowest pace in 10 months.

The Institute for Supply Management’s factory index advanced to 44.6, the highest level since August, according to a Bloomberg News survey of economists before the Tempe, Arizona- based group releases the data today. Readings lower than 50 signal contraction.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, was little changed at 80.183.

The euro strengthened against the yen on speculation the European Central Bank will keep interest rates unchanged at a meeting tomorrow to aid the recovery.

Economic confidence in the euro region rose in June more than economists forecast, the European Commission reported this week. Consumer sentiment climbed to minus 25 in June from minus 28 in May. ECB member Axel Weber, who heads the Bundesbank, said last week the central bank has used up its scope to cut rates.

“The euro-zone economy is recovering at a faster pace,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “For the next several months, the ECB is unlikely to cut rates further. This would be positive for the euro.”

-- With assistance from Judy Chen in Shanghai, Victoria Batchelor in Sydney and Courtney Schlisserman in Washington. Editors: Nicholas Reynolds, Brian Fowler

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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Oil Rises After Industry Report Shows Drop in Crude Inventories

By Christian Schmollinger and Ben Sharples

July 1 (Bloomberg) -- Oil rose above $70 a barrel after an industry report showed the biggest decline in crude inventories since September in the U.S., the world’s biggest consumer.

Oil reversed some of yesterday’s 2.2 percent loss after the industry-funded American Petroleum Institute said crude supplies fell 6.8 million barrels to 349.7 million last week. A U.S. Energy Department report today will probably show crude-oil stockpiles declined 2 million barrels, according to the median of 15 estimates in a Bloomberg News survey.

“Because of the bullish factor of the big drop in the API oil inventories the market has now rebounded to $70,” said Ken Hasegawa, a commodity derivatives sales manager at broker Newedge in Tokyo. “The EIA data tonight will give better direction to the market.”

Oil for August delivery gained as much as 86 cents, or 1.2 percent, to $70.75 a barrel on the New York Mercantile Exchange, and was at $70.48 at 2:45 p.m. Singapore time. Oil dropped from an eight-month high yesterday after a decline in June U.S. consumer confidence.

“A fall in crude inventories will cause the market to move higher,” said Mike Sander, an investment adviser with Sander Capital in Seattle. Should the government report also show a decline, “it will reinforce crude to stay at or go above current levels,” he said.

Oil in New York posted a 41 percent quarterly gain, the biggest since 1990. Prices have rallied as rebounding world equity markets and a weaker dollar encouraged investors to buy the commodity as an alternative investment.

The U.S. currency traded at $1.4037 versus the euro at 2:39 p.m. in Singapore, following a 0.4 percent gain yesterday.

Fuel Supply

The Energy Department report, due at 10:30 a.m. in Washington, will probably show that U.S. fuel inventories rose last week and gasoline supplies climbed 2 million barrels, according to the Bloomberg survey. Stockpiles of distillate fuel, a category that includes heating oil and diesel, increased 1.5 million barrels.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the energy Department for its weekly survey.

Oil-supply totals from the API and DOE moved in the same direction 76 percent of the time over the past four years, according to data compiled by Bloomberg.

Gasoline for August delivery gained as much as 2.57 cents, or 1.4 percent, to $1.9277 a gallon. Yesterday, it declined 3.34 cents, or 1.7 percent, to end the session at $1.9020 a gallon in New York. U.S. gasoline inventories rose 209,000 barrels last week, the API said yesterday.

Crack Spreads

Refiners have more incentive to produce gasoline as the so- called crack spread, or profit margin, for the fuel is at $10.02 a barrel today. That’s higher than the income a processor could make on producing diesel fuel, at $5.09 a barrel.

Refinery utilization remained unchanged at 85 percent of capacity last week, the API said. The Energy Department said on June 24 processing rates climbed 1.15 percentage points to 87.1 percent in the week ended June 19.

“The operation rate of the refineries could be increased because of the healthy gasoline margin,” said Newedge’s Hasegawa.

Brent crude oil for August settlement rose as much as 90 cents, or 1.3 percent, to $70.20 a barrel on London’s ICE Futures Europe exchange. It was at $69.90 a barrel at 2:48 p.m. Singapore time.

China’s manufacturing expanded for a fourth month as government stimulus spending and record bank lending sparked a recovery in the world’s third-biggest economy.

The Purchasing Managers’ Index rose to a seasonally adjusted 53.2 in June from 53.1 in May, the Federation of Logistics and Purchasing said today in Beijing. A reading above 50 indicates an expansion. China is the largest crude oil user after the U.S.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net.

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Copper Rebounds on Demand Optimism as China Manufacturing Grows

By Glenys Sim

July 1 (Bloomberg) -- Copper rebounded on optimism demand may be recovering as manufacturing in China, the world’s largest consumer, expanded for a fourth month and on speculation the country’s bank lending climbed to a record in June.

China’s Purchasing Managers’ Index rose to a seasonally adjusted 53.2 in June from 53.1 in May, the Federation of Logistics and Purchasing said today. A reading above 50 indicates an expansion. Copper has surged 64 percent on the London Metal Exchange this year on speculation Chinese demand will offset falling consumption in the rest of the world.

“Sentiment is quite positive among investors at the moment,” said Lin Yougu, research manager at Shanghai Jiuheng Futures Brokerage Co. “There is speculation that China’s bank lending rose to a record in June, which is making investors more optimistic about economic recovery and growth.”

Three-month delivery copper on the London Metal Exchange gained as much as 1.5 percent to $5,040 a metric ton and traded at $5,030 at 10:41 a.m. Singapore time. Copper for September delivery in New York climbed 1 percent to $2.2950 a pound.

October-delivery copper on the Shanghai Futures Exchange fell as much as 2.7 percent to 39,800 yuan ($5,825) a ton, tracking overnight declines in London and New York, before trading at 39.960 yuan.

China’s 4 trillion yuan ($585 billion) stimulus plan and bank lending of 5.84 trillion yuan in the first five months, almost triple the amount in the same period last year, are driving growth in the world’s third-biggest economy, resulting in record copper imports.

Among other LME-traded metals, zinc gained 0.7 percent to $1,560 a ton, lead climbed 0.6 percent to $1,699.50 a ton and nickel added 0.5 percent to $15,450 a ton. Aluminum was little changed at $1,628 a ton, while tin advanced 1.1 percent to $14,300 a ton as of 10:50 a.m. in Singapore.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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Rubber Drops After Tankan Confidence Rises Less Than Forecast

By Aya Takada

July 1 (Bloomberg) -- Natural rubber futures dropped after a Bank of Japan survey showed business confidence rebounded less than expected, raising concern that a slow recovery may curb demand for the raw material.

Futures in Tokyo lost as much as 2.7 percent after rising yesterday to the highest in almost two weeks. An index of confidence among large Japanese makers of electronics, cars and other products climbed to minus 48 in June from a record minus 58 in March, the Tankan survey showed today. Economists surveyed by Bloomberg News had predicted minus 43.

“Futures were sold as the data showed the reality of the economy was not as good as investors had expected,” Kazuhiko Saito, chief analyst at Tokyo-based commodity broker Fujitomi Co., said today in a telephone interview.

Rubber for December delivery, the most-active contract, fell as much as 4.3 yen to 157.9 yen a kilogram ($1,628 a metric ton) on the Tokyo Commodity Exchange before trading at 160.9 yen at 10:51 a.m. local time. It was the second decline this week.

Big companies surveyed by the Japanese central bank plan to cut spending at a faster rate than they predicted three months ago as profits fall and factories lie idle.

“This Tankan makes me very skeptical about the sustainability of the recovery,” said Takahide Kiuchi, chief economist at Nomura Securities Co. The “economy may start to deteriorate after the third quarter.”

Rubber for November delivery on the Shanghai Futures Exchange, the most-active contract, lost 0.8 percent to 15,480 yuan ($2,266) a ton at 9:58 a.m. local time.

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

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El Nino Weather Event Likely, Australian Bureau Says

By Madelene Pearson

July 1 (Bloomberg) -- El Nino weather conditions, which can cause a drought in Australia and in the Asia Pacific, are likely to occur after more signs of the phenomenon emerged, Australia’s Bureau of Meteorology said.

“More evidence of a developing El Nino has emerged during the past fortnight, and computer forecasts show there’s very little chance of the development stalling or reversing,” the forecaster said today in a statement on its Web site.

El Nino weather conditions occur about every four to seven years and shift weather patterns around the world. Previous El Ninos in 2002 and 2006 cut rainfall in Australia, slashing farm output in the nation, the world’s fourth-largest wheat exporter.

“El Nino events are usually, but not always, associated with below average rainfall in the second-half of the year across large parts of southern and inland eastern Australia,” the bureau said today.

All international climate models predict the tropical Pacific to continue to warm and to be above El Nino thresholds throughout most of the second-half of 2009, it said.

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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Gold Extends Quarterly Rise as Physical Buyers Boost Purchases

By Glenys Sim

July 1 (Bloomberg) -- Gold gained in Asia, extending its third quarterly increase, as jewelers and other physical buyers were attracted by the precious metal’s drop below $940 an ounce.

The National Spot Exchange Ltd. in India, the world’s largest consumer, yesterday launched small-denomination contracts to lure households to trade physical gold. Turkey, the world’s third-largest manufacturer of gold jewelry in 2007, imported $125 million worth of the metal in the past three weeks as the wedding season boosts demand, according to a report in Turkish newspaper Referans yesterday.

“We see a little bit of physical buying emerge whenever the market dips, but in the near term, gold will continue to trade in the $920 to $950 range,” said Adrian Koh, an analyst at Phillip Futures in Singapore. “In the longer term, gold remains supported by inflation expectations.”

Gold for immediate delivery rose as much as 0.4 percent to $930.41 an ounce and traded at $929.25 at 2:08 p.m. in Singapore. The metal dropped as much as 1.5 percent yesterday, and is up 5.3 percent this year.

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, dropped 5.2 metric tons to 1,120.55 tons yesterday, according to the company’s Web site.

Still, a rebound in the dollar may limit gold’s gains as the metal maintains its inverse relationship to the currency, said Koh. The dollar index, which tracks the greenback against six major currencies, gained for a second day after a report showed an unexpected drop in U.S. consumer confidence for June, increasing demand for the world’s main reserve currency.

Among other precious metals for immediate delivery, silver climbed 0.2 percent to $13.625 an ounce, platinum fell 0.4 percent to $1,172.50 an ounce and palladium lost 0.6 percent to $249.25 an ounce as of 2:10 p.m. in Singapore.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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Chinese Stocks Advance as Manufacturing Expands; Zoomlion Gains

By Bloomberg News

July 1 (Bloomberg) -- China’s stocks rose, led by industrial and financial companies, as an expansion in the country’s manufacturing for a fourth month indicated the world’s third-largest economy is recovering.

Changsha Zoomlion Heavy Industry Science & Technology Development Co. gained 4.1 percent and Angang Steel Co. advanced 4 percent. Bank of China Ltd., the country’s third-largest lender, added 1.1 percent.

“Expectations the economy will recover will push stock prices higher,” said Wang Peng, Shanghai-based chief investment officer at First Trust Fund Management Co., which oversees about $2.1 billion. “We expect listed companies to post earnings gains in the third or fourth quarter.”

The Shanghai Composite Index rose 30.34, or 1 percent, to 2,989.71 as of 1:25 p.m., extending a 64 percent annual advance. It breached the 3,000 level today for the first time in more than a year. Shares on the index trade at 25.6 times earnings, the most expensive since March 2008, weekly data compiled by Bloomberg show.

The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, gained 1.5 percent to 3,214.21.

The official Purchasing Managers’ Index increased to a seasonally adjusted 53.2 in June from 53.1 in May, a government report showed today, above the 50 level that indicates an expansion. Export orders expanded for a second month, according to the reports. Another PMI, released today by CLSA Asia-Pacific Markets, also showed an expansion.

Zoomlion, Angang

Zoomlion Heavy, China’s second-biggest maker of concrete- handling machinery, climbed 4.1 percent to 23.25 yuan. Angang Steel, China’s second-largest steelmaker by market value, rose 4 percent to 13.72 yuan. Guangxi Liugong Machinery Co., a Chinese maker of construction equipment, added 2.8 percent to 17.11 yuan.

Growth is likely to continue to improve in June, Zhang Liqun, an economist at the State Council Development and Research Center, said in a statement, describing the economy as in a “preliminary” recovery.

Bank of China gained 1.1 percent to 4.54 yuan. Bank of Communications Ltd., part-owned by HSBC Holdings Plc, added 2.3 percent to 9.22 yuan. Central Huijin Investment Co. said today it has no plans to sell its holdings in Chinese banks.

The Shanghai index has rebounded in 2009, making it the world’s second-best performer, after plunging 65 percent last year. Stocks have rallied as investors bet a 4 trillion yuan ($585 billion) stimulus plan and record lending will revive an economy that grew the least since 1999 in the first quarter.

The economy may keep improving in the third and fourth quarters, enabling the nation to meet its 8 percent economic growth target for this year, central bank Governor Zhou Xiaochuan said this week.

“The domestic economy is definitely recovering but this has been mostly priced in and it wouldn’t be surprising if the market stages a correction at some point,” said Chen Wenzhao, a strategist at China Merchants Securities Co. in Shanghai. [bn:WBTKR=000513:CH]

Livzon Pharmaceutical Group Inc. [] rose 6.9 percent to 28.40 yuan after the company, known in Chinese as Lizhu Pharmaceutical, said one of its drugs was found in tests to inhibit swine flu.

--Zhang Shidong. Editors: Richard Frost, Linus Chua

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

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Asian Stocks Drop on Share Sale Concerns, Falling Commodities

By Patrick Rial and Masaki Kondo

July 1 (Bloomberg) -- Asian stocks dropped on concern share sales will dilute the holdings of equity investors and as falling commodities prices drove resource producers lower.

Orix Corp., Japan’s No. 1 non-bank lender, fell 4.8 percent after the Nikkei newspaper said it will sell stock, while Aluminum Corp. of China Ltd. lost 0.5 percent on its plan to raise $1.46 billion by selling shares. BHP Billiton Ltd., the world’s largest mining company, declined 2.1 percent, following a drop in oil, copper and nickel. Baoshan Iron & Steel Co. jumped 3 percent as Chinese manufacturing rose a fourth month.

The MSCI Asia Pacific Index lost 0.2 percent to 102.96 as of 3:06 p.m. in Tokyo, after swinging between gains and losses. The measure rallied 15 percent in the first half of 2009, the best start to a year since 1999 and outpacing gains by gauges in Europe and the United States.

“I’m expecting to see more companies sell shares,” said Yoshinori Nagano, a senior strategist at Tokyo-based Daiwa Asset Management, which oversees the equivalent of $90 billion. “China’s economy is on its feet again, thanks to government stimulus measures.”

Japan’s Nikkei 225 Stock Average retreated 0.2 percent to 9,939.93. The Tankan index of business confidence came in below economist forecasts, yet still showed the first improvement in sentiment in more than two years. The gauge of large manufacturers rose to minus 48 in June from minus 58 in March, the Bank of Japan said today. Economists surveyed by Bloomberg News had predicted minus 43.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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‘Snake Oil Salesman’ Becomes Biggest Money Manager in Scotland

By Peter Woodifield and Andrew MacAskill

July 1 (Bloomberg) -- Being vilified by politicians is a career enhancer if Martin Gilbert is any example.

Gilbert, the chief executive officer of Aberdeen Asset Management Plc, was condemned by a U.K. lawmaker in 2002 as a “sophisticated snake oil salesman” for his company’s part in selling funds that lost 620 million pounds ($1 billion). Gilbert completes a purchase today that makes his firm Scotland’s largest fund manager, with about $230 billion of assets.

“He is an example of someone who confronted the mistakes he made and learned the lessons,” said John McFall, the Labour Party member of parliament who disparaged Gilbert seven years ago. “Martin’s story is relevant to what is going on in the financial industry.”

The rehabilitation of the 53-year-old Scot contrasts with the public outcry against former chairmen and CEOs ranging from Fred Goodwin, who led Royal Bank of Scotland Group Plc to the biggest loss in British history, to Citigroup Inc.’s Charles O. “Chuck” Prince, UBS AG’s Marcel Ospel and Merrill Lynch & Co.’s Stanley O’Neal, who presided over unprecedented losses before their premature departures during the past two years.

Goodwin, ousted last October as the U.K. government bailed out RBS, was grilled by the cross-party Treasury Committee on Feb. 10, with McFall asking him if “hubris on your part” brought down the bank.

“People’s memories are ultimately short,” said Colin McLean, CEO of Edinburgh-based SVM Asset Management Ltd., which oversees about $1 billion for clients. “What has happened doesn’t necessarily rule them out of another role.”

Acquisition Trail

Gilbert led a group in 1983 that bought an investment trust in Aberdeen in northeast Scotland from local law firm Brander & Cruickshank. The trust had 50 million pounds of client money, according to Aberdeen’s Web site.

Gilbert built Aberdeen in less than two decades into a company whose stock market value swelled to 1.1 billion pounds by 2001. He then was responsible for wayward investments that caused Aberdeen to lose more than 95 percent of its value in two years, prompting rebukes from government officials during regulatory probes.

Since then, Gilbert revived the firm by acquiring assets and clients from banks, such as the 212 million-pound purchase four years ago of Deutsche Bank AG’s U.K. fund business.

“We are determined not to make the same mistakes again,” Gilbert said in a telephone interview from a lounge in London’s Heathrow Airport en route to the U.S. to meet fund directors.

Split-Capital Trusts

Aberdeen was the biggest manager of split-capital trusts, a type of closed-end fund in Britain that came under the scrutiny of regulators after 27 of them collapsed.

Gilbert defended himself and his company in July 2002 in front of McFall’s panel of lawmakers. The Guardian newspaper at the time reported how Aberdeen was branded at the London hearing as “the unacceptable face of capitalism.”

Many of the split-capital trusts invested in each other, hastening their demise as the FTSE 100 Index sank to an eight- year low in 2003.

Aberdeen’s stock market value plummeted to 47 million pounds in April 2003 as the company was forced to sell six mutual funds to New Star Asset Management Plc to cover bank loans. The next year, Aberdeen’s sponsorship of the annual Boat Race along London’s Thames River between Oxford and Cambridge universities expired.

In December 2004, Aberdeen paid 78.3 million pounds for an industry-wide settlement of 194 million pounds to reimburse split-cap investors who had been attracted by slogans such as “the one-year-old that lets you sleep at night.”

‘Lucky to Survive’

“We were lucky to survive as a business,” said Gilbert, the son of a rubber planter from Aberdeen, during the telephone interview. “There are not many businesses that took the battering we took and made it through.”

The company no longer sells funds directly to individuals and has retreated from marketing.

Aberdeen today completes its 250 million-pound purchase of 75 billion francs ($68 billion) of assets from Credit Suisse Group AG’s Global Investors unit. Aberdeen will then manage about 140 billion pounds, overtaking Standard Life Plc and Lloyds Banking Group Plc’s Scottish Widows, the Edinburgh stalwarts founded in the 19th century.

The Scottish company will have about 1,850 workers and a market value of about 1.3 billion pounds with the completion of the Credit Suisse deal. Aberdeen’s shares have risen 19 percent during the past six months, while the FTSE 100 Index has declined to 3 percent.

Paying Stock

Gilbert is paying stock to avoid overloading the company with debt. Zurich-based Credit Suisse, Switzerland’s biggest bank by market value, becomes Aberdeen’s largest shareholder, with a 25 percent stake.

It follows the purchase an Australian unit of Deutsche Bank in March 2007 and a distribution agreement in October with Mitsubishi UFJ Financial Group Inc., Japan’s largest lender. That deal enables Aberdeen to tap Japanese investors in return for Mitsubishi buying up to 20 percent of the company.

“Fortunes and empires have always been built in choppy times and taking risks,” said Guy De Blonay, who helps manage about 43 billion pounds at Henderson Group Plc, including Aberdeen shares. “We are going to see more business people who have been bruised trying to regain their reputations.”

To contact the reporters on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net.

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