Economic Calendar

Friday, September 30, 2011

Stocks Retreat on Economic Growth Concern

By Daniel Tilles and Shiyin Chen - Sep 30, 2011 9:02 PM GMT+0700

Stocks fell, dragging the MSCI All- Country World Index to its biggest quarterly loss since 2008, while the yen and dollar strengthened as declines in Chinese manufacturing and German retail sales signaled global growth is slowing. Treasuries rose, and oil declined.

The MSCI All-Country World Index slid 2 percent at 10 a.m. New York time, extending its decline since June 30 to 18 percent. The Standard & Poor’s 500 Index slipped 1.7 percent as six of 10 industry groups lost more than 1.8 percent. The Stoxx Europe 600 Index retreated 2.1 percent, with Societe Generale SA dropping 8.8 percent. The yen rose against its 16 major peers. The dollar gained 1.2 percent versus the euro. Treasury 10-year notes snapped a five-day drop. Oil fell 2.1 percent.

Chinese manufacturing shrank a third month, the longest streak since 2009. German sales fell the most in more than four years, while European inflation unexpectedly quickened to the fastest in almost three years. Japanese industrial production grew less than economists forecast. The S&P 500 maintained losses after the Institute for Supply Management-Chicago Inc.’s business barometer and Thomson Reuters/University of Michigan gauge of consumer confidence beat projections.

“The situation is quite dark,” said Philipp Musil, who helps manage about $11 billion at Semper Constantia Privatbank AG in Vienna. “We’re very cautious about equities. All in all the figures are not good and many investors think we’re going straight into a recession.”

Morgan Stanley

Morgan Stanley slumped 6.9 percent. The owner of the world’s largest retail brokerage is being priced in the credit- default swaps market as less creditworthy than most U.S., U.K. and French banks and as risky as Italy’s biggest lenders. Goldman Sachs Group Inc. shares lost 3 percent. Deutsche Bank AG lost 6.6 percent as Handelsblatt reported that Germany’s biggest lender may lower its profit target.

The S&P 500 extended this quarter’s slide to 13 percent. Futures on the index maintained losses today after U.S. consumer spending increased 0.2 percent in August, matching the median economist projection in a Bloomberg survey. Growth slowed from the 0.7 percent increase in July.

“The U.S. economy is tipping into a new recession,” Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, said today during a radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “You have wildfire among the leading indicators across the board. Non- financial services plunging, manufacturing plunging, exports plunging. That is such a deadly combination.”

Yen, Euro

The yen climbed 1.2 percent against the euro. The Dollar Index, which tracks the U.S. currency against those of six trading partners, gained 0.8 percent. The Japanese and U.S. currencies are the best performers this quarter among the 10 tracked by Bloomberg Correlation-Weighted Currency Indexes, gaining 12 percent and 6.7 percent, respectively.

Japan’s factory output increased 0.8 percent in August from July, the trade ministry said in Tokyo today, missing the 1.5 percent median estimate of 28 economists surveyed by Bloomberg News. South Korean industrial production rose 4.8 percent from a year earlier, trailing the median 6.1 percent gain forecast in a separate Bloomberg survey. The won weakened 0.4 percent to 1,178.10 per dollar, completing its largest monthly loss since February 2009.

Treasury 10-year yields fell nine basis points to 1.91 percent. The yield on the German bund declining 13 basis points.

Oil fell 2.1 percent to $80.45 a barrel in New York.

The MSCI Emerging Markets Index dropped 2 percent, heading for the biggest monthly retreat since October 2008. China’s Shanghai Composite Index slipped 0.3 percent to the lowest level since April 2009, while Russia’s Micex Index sank 4.3 percent. The ruble weakened 0.9 percent against the dollar.

To contact the reporters on this story: Daniel Tilles in London at; Shiyin Chen in Singapore at

To contact the editor responsible for this story: Stuart Wallace at


Utilities Give Away Power as Sun Floods Grid

By Kari Lundgren and Lars Paulsson - Sep 30, 2011 7:45 PM GMT+0700
Enlarge image Utilities Giving Away Power as Wind, Sun Flood European Grid

Wind turbines operate on EDF Energies Nouvelles SA's 87-megawatt Salles-Curan wind farm in the department of l'Aveyron, France. Photographer: Nicolas Chorier/Lagarrigue/Egis Eau/EDF EN via Bloomberg

Wind turbines operated by Iberdrola Renovables SA stand at the Maranchon wind farm in Maranchon, Spain. Photographer: Denis Doyle/Bloomberg

The 15 mile-per-hour winds that buffeted northern Germany on July 24 caused the nation’s 21,600 windmills to generate so much power that utilities such as EON AG and RWE AG (RWE) had to pay consumers to take it off the grid.

Rather than an anomaly, the event marked the 31st hour this year when power companies lost money on their electricity in the intraday market because of a torrent of supply from wind and solar parks. The phenomenon was unheard of five years ago.

With Europe’s wind and solar farms set to triple by 2020, utilities investing in new coal and gas-fired power stations no longer face stable returns. As more renewables come on line, a gas plant owned by RWE or EON that may cost $1 billion to build will be stopped more often from running at full capacity. It may only pay for itself on days like Jan. 31, when clouds and still weather pushed an hour of power on the same-day market above 162 ($220) euros a megawatt-hour after dusk, in peak demand time.

“You’re looking at a future where on a sunny day in Germany, you’ll have negative prices,” Bloomberg New Energy Finance chief solar analyst Jenny Chase said about power rates in wholesale trading. “And a lot of the other markets are heading the same way.”

Europe’s biggest power markets give preference to renewable energy including forcing some utilities to use their fossil-fuel plants less. That cuts into profit, complicating investment decisions as the companies try to meet emission targets and replace older plants and networks that Citigroup Inc. estimates will cost them more than 900 billion euros by 2020.

Profit Margins

Northern Europe’s renewable-energy goals call for about 200 gigawatts of solar and wind capacity by 2020, or almost a third of the current installed base, compared with about 70 gigawatts today, according to the Finnish energy consultant Poyry. Even by 2014, gross profit from burning coal in Germany may skid by as much as 41 percent, according to Barclays Plc.

The gross margin at a coal power plant after deducting fuel and emission permit costs, the so-called clean dark spread, may “collapse” to as low at 3.50 euros a megawatt-hour, Barclays analysts including Peter Bisztyga said in a Sept. 1 report. The spread was at 6.15 euros today, Bloomberg data show.

Narrower margins mean it will take longer for companies to pay off building new gas- and coal-fired facilities. Those plants are needed. They can run around the clock, preventing blackouts when the sun sets or the wind dies as European power demand grows 5 percent through 2015 compared with 2010, according to Paris-based bank Societe Generale SA’s forecast.

‘Squeezed Out’

“The more intermittent technology like renewables, the more baseload generation will be squeezed out,” Volker Beckers, chief executive officer of RWE’s U.K. Npower unit, said in an interview at Bloomberg’s London bureau. Npower’s plants are largely coal- and gas-fired, or baseload, meaning they can run around the clock.

Electricite de France SA is spending 6 billion euros on its new 1,650-megawatt nuclear reactor at Flamanville in Normandy. Dong Energy A/S, Denmark’s biggest utility, inaugurated its first power station in the U.K. in February, an 824-megawatt combined-cycle gas turbine plant for 600 million pounds.

EON will miss its 2015 forecast by about 3 percent for earnings of 13.3 billion euros to 13.8 billion euros before interest, tax, depreciation and amortization if average power prices are 57.30 euros a megawatt-hour, below EON’s forecast of 60 to 62 euros, UniCredit analyst Lueder Schumacher said.

At 58.50 euros, RWE’s recurring net income will be 2.2 billion euros in 2013, compared with the German utility’s forecast of 2.5 billion, he estimated.

‘Depress’ Prices

“Too much wind can depress power prices, but then there are times when very little wind is blowing,” Poyry Director Phil Hare said in a telephone interview.

Based on weather patterns over the past 10 years, there’s a 72-hour period each year when a wind farm would produce less than 5 percent of its potential output, Hare said. “Some other plant has to be there, but the company has to make the return on its investment in just those 72 hours over 10 years.”

Germany’s renewable energy boom will make hedging the power output for utilities’ coal and natural-gas plants “more and more difficult,” according to an executive at Edison Trading SpA speaking at a conference in London.

The country’s renewable energy output may rise to 200 terawatt-hours in 2020 from 120 terawatt-hours last year, Andrea Siri, Edison’s head of continental power and origination, said yesterday, citing a regulatory forecast.

2 Million Homes

Solar plants in Germany generated as little as 23.8 megawatts at 7 a.m. Berlin time yesterday compared with 11,570 megawatts at 1:30 p.m., according to a European Energy Exchange AG’s website, tracking power capacity. A steady supply of 1,000 megawatts is enough for about 2 million homes in Germany.

Power prices on the Epex Spot SE exchange in Paris that handles German and French supply vary hour-by-hour depending on how available capacity is. At times they can become negative when renewable energy peaks and there’s a surplus of power.

At such times, generators or the grid operator pay consumers to take their electricity if they aren’t able to reduce output or hedge it. Grid operators in Germany, Europe’s biggest power market, are also required to take renewable output if it is available, just as in Spain and France.

The highest-ever hourly price in the combined German-French intraday market was 162.06 euros a megawatt-hour for delivery between 6 p.m. and 7 p.m. in Germany on Jan. 31, while the lowest was minus 55.11 euros for 2 p.m. to 3 p.m. on Feb. 6, data from the exchange showed.

Negative German Prices

The negative German prices on July 24 occurred on a day when winds averaged 15 mph in the northern state of Mecklenburg- Western Pomerania, home to many wind farms, Bloomberg weather data show.

Germany’s same-day electricity price was below zero for nine hours on that windy day on July 24, with negative prices for a total of 31 hours so far in 2011, according to Epex data. France had 9 negative hours this year.

The joint French-German intraday market started last year and has so far helped to “buffer the volatility of prices,” Epex company spokesman Wolfram Vogel said by e-mail on Sept. 16.

“The law in Germany is that renewables have priority, so utilities have the choice of turning plants down for a few hours or paying a negative price to someone in Germany or abroad,” EON spokesman Georg Oppermann said in a telephone interview. The company’s traders can protect EON against losses by watching weather patterns, he added.

‘Clearly a Negative’

“The huge amount of renewable capacity due to be added to the grid will depress not just spreads but also the outright power price,” UniCredit analyst Scott Phillips said. “This is clearly a negative predominantly for all thermal power plants, particularly coal.”

Britain plans to install more than 8,000 offshore wind turbines by 2020 to get 15 percent of electricity from renewable sources. Germany installed 7.4 gigawatts of solar photovoltaic capacity last year, the most of any nation, driving total capacity to 17,200 megawatts. Spain aims to get 20.8 percent of its total energy from marine energy, geothermal and offshore wind projects, as well as hydropower, by 2020.

German wind power capacity peaked at close to 12,000 megawatts on July 24, according to Meteogroup data, the last day of negative prices. Four days later, the most that the country’s wind parks generated was 315 megawatts.

Photovoltaic and solar-thermal plants may meet most of the world’s demand for electricity by 2060 -- and half of all energy needs -- with wind, hydropower and biomass plants supplying much of the remaining generation, the International Energy Agency said in August.

Capacity Payments

U.K. energy regulator Ofgem is considering paying generators to keep plants open as back-up suppliers, compensating them for down time. The so-called capacity payments, which also are being studied in Germany, are likely to favor gas over coal, as gas plants can be turned on and off faster, according to Phillips.

Subsidized power rates called feed-in tariffs, a proposed carbon floor price in Britain and other measures favoring renewable projects will lead to a shift in the “merit order” of plants across Europe, he said. Power from renewable projects will be the first to be used, followed by gas-fired power plants, which release less carbon-dioxide than coal stations.

“Margins are going to get worse over the next few years but as the value of the plant for backup starts getting interest, it becomes an issue of what they’re worth, not what they cost,” Hare said.

To contact the reporter on this story: Kari Lundgren in London at Lars Paulsson in London at

To contact the editor responsible for this story: Will Kennedy at


Poll: Investor Confidence in Obama Plummets

By Mike Dorning - Sep 30, 2011 11:00 AM GMT+0700

Global investors’ confidence in President Barack Obama has plummeted over the past four months, with almost three-quarters of them now viewing his policies as a drag on the U.S. business climate.

Perceptions of European leaders such as German Chancellor Angela Merkel and French President Nicolas Sarkozy also have turned sharply negative after months of tumult in global financial markets, according to a Bloomberg Global Poll. The quarterly poll, conducted Sept. 26, covered 1,031 investors, traders and analysts who are Bloomberg subscribers.

Obama’s overall standing with investors has reversed, with 57 percent now viewing the U.S. president unfavorably compared with 55 percent who saw him favorably in the last poll, in May.

“He does not understand the urgency of the debt crisis and its global ripple effect,” poll respondent Scott Troxel, 46, head of the Scandinavian desk at Tradition Group in Lausanne, Switzerland, said in an e-mail. “President Obama must get in front of the problems by taking real risk in achieving a bipartisan solution to long-term debt reduction, credible short- term job stimulus, and tax reform that is more clear and thoughtful than a tax on billionaires.”

Investors’ opinion of Obama’s domestic political opponents also has turned more negative after a protracted standoff on the U.S. debt limit that took the country to the brink of default and as economic growth has slowed. Congressional Republicans are held in even lower esteem than Obama, with 68 percent of investors holding a negative view of the lawmakers versus 51 percent who said so in the last poll.

Declining Fortunes

The sour mood toward U.S. political leaders coincides with a gloomy assessment of the nation’s economy and a decline in investors’ personal fortunes. Half of poll respondents believe the U.S. will dip back into recession within a year and, for the first time since July 2009, more lost personal net worth than gained over the past 12 months. In May, those who said they had a winning 12-month performance outnumbered losers almost 4-to-1.

Since the last investor poll was completed on May 10, the benchmark Standard & Poor’s 500 Index of U.S. stocks declined more than 14 percent and the MSCI All-Country World Index of global stocks is down more than 18 percent through 5 p.m., New York time, yesterday.

Obama “has done nothing but oversee an economic train wreck,” says Keith Temperton, 46, a trader at Tavira Securities Ltd. in Monaco.

Confidence in Hu

Almost three times as many investors in the U.S. believe China’s leader, Hu Jintao, is good for his country’s business climate as say Obama is for the U.S. Forty percent of U.S. investors say they are optimistic about Hu’s policies versus 14 percent who say the same for Obama.

Worldwide, 74 percent of respondents say they are pessimistic about the impact of Obama’s policies on the business climate in the U.S., up from 52 percent in May. Seventy-one percent say they are pessimistic about Sarkozy’s policies, up from 58 percent in May, and 59 percent are pessimistic about Merkel, up from 36 percent in May.

Still, investors support some of Obama’s major policy proposals. Fifty-two percent say public works spending on road, bridges and school construction -- a component of Obama’s jobs plan -- will significantly lower unemployment.

And poll respondents say Obama, a Democrat, has laid out a better vision for the nation’s economic future than Republicans, by 42 percent to 34 percent. The rest say they aren’t sure.

That view is significant because of the political outlook of global respondents: Those describing themselves as “right- of-center” outnumber “left-of-center” investors 44 percent to 12 percent; 37 percent say they are “centrist.”

Obama Preferred Overseas

Overseas investors continue to diverge from their U.S. counterparts in their appraisal of Obama and his policies, as they have since the quarterly poll began in July 2009, though his standing has dropped across all regions. Among investors outside the U.S., 52 percent view him favorably while only 17 percent do inside the U.S.

U.S. investors favor Republicans over Obama on their vision for the economy by more than 2-to-1 while investors in other countries prefer Obama’s strategy, also by more than 2-to-1.

The same regional differences emerge on specific policies. Almost two-thirds of U.S. investors say an infrastructure program won’t significantly reduce unemployment while 63 percent of overseas investors say it will.

Even so, 63 percent of U.S. investors now hold an unfavorable view of congressional Republicans; they were evenly split on the party’s lawmakers in the May poll.

Every Region

Congressional Democrats are rated unfavorably by investors in every region of the globe. Overall, 63 percent of poll respondents have a negative view of the party’s lawmakers, up from 57 percent in May.

The quarterly Bloomberg Global Poll was conducted by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 3.1 percentage points.

To contact the reporter on this story: Mike Dorning in Washington D.C. at

To contact the editor responsible for this story: Mark Silva at


European Stocks Decline on Economy, Extending Quarterly Slump

By Julie Cruz - Sep 30, 2011 8:22 PM GMT+0700

European stocks fell, extending the Stoxx Europe 600 Index’s largest quarterly decline since 2008, as reports on Chinese manufacturing and German retail sales added to concern the economy is slowing.

Deutsche Bank AG (DBK) lost 6.7 percent as Handelsblatt reported that Germany’s biggest lender may lower its profit target. Metro AG (MEO) fell 4.4 percent after German retail sales declined the most in more than four years in August. Royal Philips Electronics NV tumbled 5.1 percent as HSBC Holdings Plc cut its earnings estimates for the company.

The Stoxx 600 fell 1.8 percent to 224.86 at 2:19 p.m. in London. The measure has rallied 4 percent this week as policy makers increased efforts to contain the region’s debt crisis and U.S. jobs and growth data exceeded forecasts. The gauge is still heading for the biggest quarterly decline since 2008, having plunged 18 percent since the end of June. The index has dropped 5.3 percent in September, a fifth straight month of losses.

“The situation is quite dark right now,” said Philipp Musil, who helps manage about $11 billion at Semper Constantia Privatbank AG in Vienna. “We’re very cautious about equities. All in all the figures are not good and many investors think we’re going straight into a recession.”

National benchmark indexes retreated in every western European market. Germany’s DAX Index slid 3.2 percent, while the U.K.’s FTSE 100 Index dropped 1.7 percent. France’s CAC 40 fell 2.4 percent.

Chinese Economy

In China, the reading of 49.9 for the September purchasing managers’ index, released by HSBC Holdings Plc and Markit Economics today, was unchanged from August and compared with a preliminary 49.4 figure published last week. The gauge was below 50, the level that separates expansion from contraction, for eight months through March 2009.

The Institute for Supply Management-Chicago Inc.’s U.S. business barometer eased to 55 this month from 56.5 in August, according to the median forecast of economists surveyed. Readings greater than 50 signal growth. The University of Michigan’s final confidence index for the month was probably 57.8, unchanged from a preliminary reading issued two weeks ago and up from August’s 55.7, the lowest since November 2008.

A stronger-than-expected Chicago ISM number “could help boost sentiment in a market that is probably positioned for further downside,” said Ben Potter, a market strategist at IG Index in Melbourne. “If economic data begins to improve, we wonder whether it may take a little bit of the focus off of the euro-zone crisis.”

Inflation Accelerates

European inflation unexpectedly accelerated to the fastest in almost three years in September, complicating the European Central Bank’s task as it fights the region’s worsening sovereign-debt crisis. The euro-area inflation rate jumped to 3 percent from 2.5 percent in August, the European Union’s statistics office said. That’s the biggest annual increase in consumer prices since October 2008.

Deutsche Bank slid 6.7 percent to 26.35 euros. The bank may lower its target for achieving a record 10 billion euros ($13.6 billion) in profit this year, Handelsblatt reported, citing unidentified people close to the management board.

BNP Paribas (BNP) SA and Societe Generale (GLE) SA, France’s biggest banks, fell 5.5 percent to 29.43 euros and 9.9 percent to 18.99 euros, respectively. UBS AG downgraded Societe Generale to “neutral” from “buy” and cut its price forecast on the stock to 21 euros from 35 euros, while reducing its price estimate on BNP to 31 euros from 36 euros.

Metro Falls

Metro, Germany’s largest retailer, dropped 4.4 percent to 31.89 euros. German retail sales, adjusted for inflation and seasonal swings, slumped 2.9 from July, when they rose 0.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists had forecast a 0.5 percent decline, according to the median of 18 estimates in a Bloomberg survey.

Philips slumped 5.1 percent to 13.41 euros in Amsterdam trading after HSBC cut its earnings estimates by 20 percent to 30 percent for the next two years and predicted “many challenges” for the Dutch electronics company.

“Philips’ figures could certainly be better and generally more and more earnings are being revised down,” said Markus Huber, head of German sales trading at ETX Capital in London. “I wouldn’t be surprised if the company cut its forecast. Consumers might scale back in the short term because of the prevailing uncertainty.”

Luxuries Drop

Luxury-goods stocks declined as the gauge of Chinese manufacturing indicated a contraction. Swatch AG slid 7.3 percent to 301.30 francs. The world’s largest watchmaker makes 33 percent of its revenue in greater China, according to Bloomberg data. Burberry Group Plc (BRBY), the U.K.’s largest luxury- goods maker, lost 7.3 percent to 1,113 pence. The company makes 33 percent of its revenue in the Asia Pacific region, Bloomberg data shows.

Bayerische Motoren Werke AG (BMW) and Daimler AG (DAI), the world’s biggest makers of luxury cars, led declines in European automakers as the industry posted the worst performance of all 19 groups in the Stoxx 600. BMW slid 6.8 percent to 49.14 euros while Daimler fell 4.2 percent to 33.38 euros. Daimler sells 10 percent of its vehicles in China, Bloomberg data show.

Lundin Petroleum AB (LUPE) surged 31 percent to 116.20 kronor in Stockholm, the biggest gain in at least 10 years, after saying its Avaldsnes prospect may contain contingent resources of 800 million to 1.8 billion barrels of recoverable oil.

To contact the reporter on this story: Julie Cruz in Frankfurt at

To contact the editor responsible for this story: Andrew Rummer at


Obama Backed by 63% of Investors for Buffett Rule to Cut Deficit

By David J. Lynch - Sep 30, 2011 11:00 AM GMT+0700
Enlarge image Obama Backed by 63% of Investors for Buffett Rule

Berkshire Hathaway Inc. chief executive officer Warren Buffett left, meets with U.S. President Barack Obama. Photographer: Andrew Harrer/Bloomberg

Global investors overwhelmingly support President Barack Obama’s proposed tax increase for those earning annual incomes of $1 million or more in an effort to reduce the deficit.

By a margin of 63 percent to 32 percent, respondents in a Bloomberg Global Poll approved of the president’s proposal, known as the “Buffett rule” in a nod to Warren Buffett, the chairman of Berkshire Hathaway Inc., who has said it is wrong that he pays a smaller share of his income in taxes than does his secretary.

Obama said Sept. 19 that making sure that the wealthy pay at least the same tax rate as the middle class was “just the right thing to do.” House Speaker John Boehner accused the president of practicing “class warfare,” saying any new tax would hurt job creation and Buffett’s situation was not typical.

The call for the rich to pay more, however, found backing among financial professionals in the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. “Higher tax payments could help to avoid or delay potential social disturbances and in addition create some kind of a general solidarity,” says Henry Littig, chief executive officer of Henry Littig Global Investments AG in Cologne, Germany, a poll respondent.

In the U.S., support for the idea was lower, with more than half opposing it, although four in 10 supported it. “The U.S. does not have a tax rate problem -- we have a spending and entitlement problem,” said poll respondent Jay Wright, managing director of Samco Capital Markets in San Antonio, Texas. “And if we do not address it quickly we are going to be Greece.”

Strong Support

Support for the millionaire’s tax was highest in Europe, where French President Nicolas Sarkozy plans a 3 percent surcharge on incomes above 500,000 euros ($680,000.) European poll respondents backed Obama 78 percent to 17 percent; Bloomberg customers in Asia supported the president’s idea 69 percent to 21 percent.

“Increasing taxes on millionaires may not harm the economy, but it will not help it either,” said Don Lindsey, chief investment officer at George Washington University, who participated in the survey. “What we need is a complete overhaul of the tax system.”

In a New York Times op-ed last month, Buffett wrote that his federal income tax bill was $6.94 million, or 17.4 percent of his taxable income -- a lower rate than any of the other 20 employees in his Omaha, Nebraska, office.

‘Send in a Check’

Buffett has repeatedly said that his secretary pays a higher share of her income in taxes than he does, prompting Republicans such as Senate Minority Leader Mitch McConnell to gibe: “If he’s feeling guilty about it, I think he should send in a check.”

Some participants in the Bloomberg poll agreed. “Buffett is being very deceptive,” said Michael Prisby, corporate investment officer at Citizens Financial Bank in Munster, Indiana. “He may be taxed at a capital gains rate of 15 percent, but that doesn’t mean all high earners are.”

On average, taxpayers with annual incomes of more than $1 million last year paid a 29 percent tax rate, compared with 15.1 percent for those making between $50,000 and $75,000, according to the non-partisan Tax Policy Center in Washington.

Some high-income individuals, like Buffett, do pay a lower average tax rate because much of their income is derived from capital gains rather than wages. In 2009, the most recent Internal Revenue Service data shows that 1,470 individuals with at least $1 million in annual income paid no income tax.

‘Disproportionate Rewards’

The debate over a “Buffett rule” tax caps an era in which have gone to those at the top of the nation’s income distribution. Between 1993 and 2008, the top 1 percent of families captured 52 percent of total income gains, according to a 2010 paper by economist Emmanuel Saez of the University of California, Berkeley.

“The Buffett rule does not apply to all rich people or the average rich person, but it does apply to some rich people,” said Roberton Williams, an analyst at the Tax Policy Center.

The administration has said it has no plans to submit a detailed millionaires’ tax proposal to Congress. For now, that means the main significance of the Buffett rule is political not financial.

The proposed tax is the rhetorical centerpiece of White House jockeying in the run-up to the deliberations of a congressional “supercommittee” seeking $1.5 trillion in deficit reduction by Nov. 23.

Earlier this week, Douglas Edwards, who described himself as “unemployed by choice” after retiring as an early employee from Google, urged the president to “please raise my taxes” at a town hall in Mountain View, California.

Far From Rich

Lionel Mellul, co-founder of Momentum Trading Partners in New York, said he endorsed the idea of the rich paying more, while taking issue with the $1 million threshold. A New Yorker with a $1 million annual income is “far from really being rich,” he said.

In follow-up interviews, many respondents called for a stem-to-stern overhaul of the tax code.

“Until the administration completely overhauls the personal and corporate tax code to both drive growth and incentivize the efficient transfer of capital and risk, the wealthy people will just have their tax lawyers find more loopholes to lower their taxes,” said Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco.

The quarterly Bloomberg Global Poll was conducted by Selzer & Co., a Des Moines, Iowa-based firm, on Sept. 26. It has a margin of error of plus or minus 3.1 percentage points.

To contact the reporter on this story: David Lynch at

To contact the editor responsible for this story: Christopher Wellisz at


Anil Ambani Group Shares Fall as Indian Investigators Widen Telecom Probe

By Ketaki Gokhale - Sep 30, 2011 1:25 PM GMT+0700
Enlarge image Indian Billionaire Anil Ambani

Indian billionaire Anil Ambani. Photographer: Adeel Halim/Bloomberg

Reliance Communications Ltd. (RCOM), the flagship company of Indian billionaire Anil Ambani, fell to a record in Mumbai trading and led other group stocks lower after investigators widened a phone-license probe.

Reliance Communications declined 7.4 percent to 71.9 rupees as of 11:50 a.m. in Mumbai, headed for its lowest close. Reliance Capital Ltd. (RCAPT) dropped 9.1 percent to 326.9 rupees, while Reliance Infrastructure Ltd. (RELI) lost 6.2 percent to 378.3 rupees.

The Central Bureau of Investigation said in court yesterday that they will extend the probe to see if Ambani’s Reliance Telecom Ltd. benefited from the sale of second-generation mobile-phone permits to ineligible companies. Three of Ambani’s executives, who were arrested on April 20, retracted a statement disowning responsibility, K.K. Venugopal, a lawyer representing the CBI said.

“This is going to continue until things get clearer -- until there are chargesheets and legal cases,” said K.K. Mital, fund manager at Globe Capital Market Ltd. in New Delhi. “The markets are going to keep reacting.”

Investigators are probing the role of Reliance Telecom, a Reliance Communications unit, in the transfer of Swan Telecom Pvt. to Mauritius-based Delphi Investments Ltd., Venugopal said. Reliance ADA Group Managing Director Gautam Doshi and Senior Vice Presidents Hari Nair and Surendra Pipara were among nine people charged in April and subsequently arrested by the CBI in connection with the probe of a sale of wireless permits to ineligible companies.

Auditors Report

The CBI is conducting further investigations after the Ambani group officials retracted an earlier statement and told the court they were not the real beneficiaries of a deal to transfer shares in Swan Telecom, a mobile-phone company that has been charged in the probe, Venugopal told the court.

There’s been no change in stance “by any of the Reliance executives,” spokesman Daljeet Singh said in a statement today. Neither Reliance Telecom nor Reliance ADA Group “are beneficiaries of any telecom license issued in January 2008.”

The Comptroller and Auditor General of India said in a report submitted to parliament on Nov. 16 that applications from companies including Swan Telecom should have been rejected because they were ineligible. Swan Telecom suppressed information and submitted false documents in its license application, the auditor said.

Department of Telecommunications rules stipulate that an operator can’t own 10 percent or more in another operator that provides services in the same telecom zone.

Reliance Telecom “held only 9.9 percent of the equity share capital of Swan Telecom at the time of filing the relevant license application in March 2007,” the company said in an e- mailed statement Feb. 13.

The company said “as per the provisions of the Companies Act 1956, the preference share capital held by Reliance Telecom in Swan Telecom is not to be included for purposes of determining shareholding levels.”

Reliance Telecom is a wholly owned unit of Reliance Communications, India’s second-largest mobile-phone carrier.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at

To contact the editor responsible for this story: Arijit Ghosh at


Philips Declines as HSBC Cuts Estimates on ‘Many Challenges’

By Benedikt Kammel and Maaike Noordhuis - Sep 30, 2011 3:22 PM GMT+0700

Royal Philips Electronics NV declined as much as 5.6 percent in Amsterdam trading, the most in six week, after HSBC Holdings Plc (HSBA) cut its earnings estimates by 20 percent to 30 percent for the next two years and predicted “many challenges” for the Dutch electronics company.

The stock fell as much as 79 cents to 13.33 euros, and traded at 13.35 as of 10:21 a.m. Philips has fallen 42 percent so far this year, valuing the company at about 13.64 billion euros ($18.46 billion).

HSBC, in a report to investors today, said their sum-of- parts valuation of the stock is 12.5 euros, “suggesting we have not yet reached fundamental valuation ‘bedrock,’” analyst Colin Gibson wrote.

Gibson predicted restructuring costs of 450 million euros next year and 350 million euros the year after, and a loss of 300 million euros tied to the television operations, which Philips has agreed to exit. HSBC predicted revenue of 22.5 billion euros this year and a net loss of 330 million euros. The mean estimate of analysts surveyed by Bloomberg is for sales of 22.45 billion euros and a loss of about 471 million euros for 2011.

In lighting, where Philips is the global market leader, the company will “find it difficult to pass price pressure up the supply chain as it owns its own supply chain in this business,” HSBC wrote. The company’s presence in consumer markets makes it “more exposed to government austerity measures and to their impact on short-term growth in key European markets,” according to the report.

Philips itself aims to lift earnings before interest, taxes and amortization to 10 percent to 12 percent of sales by 2013, on sales growth of 4 percent to 6 percent.

“As a result of our efforts and despite economic challenges, we are confident that we can deliver our 2013 financial targets,” Chief Executive Officer Frans van Houten said September 13. Philips is aiming for an Ebita margin of 15 percent to 17 percent for its health-care subsidiary, while the goal for the lighting and consumer lifestyle divisions is 8 percent to 10 percent.

To contact the reporters on this story: Benedikt Kammel in Berlin at; Maaike Noordhuis in Amsterdam at

To contact the editor responsible for this story: Benedikt Kammel at


Asian Currencies Set for Worst Month Since 1997 Crisis Caused IMF Bailouts

By David Yong - Sep 30, 2011 10:41 AM GMT+0700
Enlarge image Asia Currencies Set for Worst Month Since '97

Images of various currencies are displayed outside a money changer in Kuala Lumpur, Malaysia. Photographer: Goh Seng Chong/Bloomberg News

Asian currencies were set for their biggest monthly loss in more than a decade as concern some European nations will struggle to pay their debts and a global slowdown bolstered demand for the relative safety of the dollar.

South Korea’s won is poised for its worst month since February 2009 and Taiwan’s dollar dropped the most since 1997 as global funds pulled more than $4 billion from their stock markets. About three-quarters of 1,031 investors, analysts and traders said the euro-area economy will fall into recession during the next 12 months, according to a Bloomberg quarterly Global Poll published yesterday. The Federal Reserve warned of “significant downside risks” to the U.S. economy on Sept. 21.

“The odds are rising for a recession in Europe and we are seeing adjustments to market positioning on risk aversion,” said Roy Teo, a currency strategist at ABN Amro Private Bank in Singapore. “Asian economies and currencies will not be spared as global growth is revised down.”

The Bloomberg-JPMorgan Asia Dollar Index slid 3.9 percent this month to 114.98, the biggest drop since December 1997, as of 11:22 a.m. in Hong Kong. The won lost 9.6 percent to 1,179.95 per dollar, Taiwan’s dollar lost 5 percent to NT$30.556 and Malaysia’s ringgit weakened 6.9 percent to 3.1918, according to data compiled by Bloomberg. The Thai baht depreciated 3.9 percent to 31.17, its worst performance since March 2001.

Global funds pulled $2.6 billion from Taiwanese equities this month through yesterday and cut their holdings in South Korea by $1.5 billion, exchange data show. In Thailand, they sold $612 million more equities and $61 million more government debt than they bought.

Market Intervention

The International Monetary Fund lowered its forecast for 2011 global growth to 4 percent from 4.3 percent, and for 2012 to 4 percent from 4.5 percent last week, predicting a “severe” fallout if Europe fails to contain its debt crisis. Central banks in Malaysia and Indonesia confirmed in the past two weeks that they intervened to support their currencies, while counterparts in India, South Korea and Thailand said they were prepared to take similar action.

“Asia’s currencies are under pressure because of fund outflows as investors have been risk averse due mainly to the European debt crisis,” said Kozo Hasegawa, a trader at Sumitomo Mitsui Banking Corp. in Bangkok. “Sentiment may not recover anytime soon.”

Government reports today showed industrial production rose less than economists expected in South Korea and Japan. Taiwan kept its benchmark interest rate on hold at a quarterly review yesterday, ending a run of five increases since mid-2010.

Production, Trade

The won dropped 0.5 percent in Seoul today, approaching a one-year low of 1,196.13 reached Sept. 23. Factory output rose 4.8 percent in August from a year earlier, less than the 6.1 percent drop forecast in a Bloomberg survey of economists. Data tomorrow are expected to show exports rose in September at the slowest pace in three months, based on a separate survey. The Bank of Korea reported yesterday an August current-account surplus of $401 million that was the smallest in seven months.

Europe’s debt crisis “will continue to dominate market sentiment for at least a month,” said Kim Doo Hyun, a senior currency dealer with Korea Exchange Bank in Seoul. “Investors will pay attention to trade data after the current-account surplus narrowed in August.”

The baht fell 0.1 percent today and touched a one-year low of 31.24 per dollar yesterday. Indonesia’s rupiah slipped 0.4 percent to 8,824 in Jakarta, contributing to a 3.3 percent drop for the month. India’s rupee has declined 5.9 percent to 48.96 per dollar this month in Mumbai, after sliding 4.1 percent in August. The Philippine peso weakened 2.5 percent to 43.84 per dollar, while China’s yuan fell 0.1 percent to 6.3867.

To contact the reporter on this story: David Yong in Singapore at

To contact the editor responsible for this story: Sandy Hendry at


Europe Prepares Next Steps After Merkel Win

By Tony Czuczka and Patrick Donahue - Sep 30, 2011 5:01 AM GMT+0700
Enlarge image Germany's Chancellor Angela Merkel

Germany's chancellor Angela Merkel. Photographer: Michele Tantussi/Bloomberg

European leaders are turning their focus to the next steps to stem the region’s debt crisis after German lawmakers approved an expansion of the euro-area rescue fund’s firepower.

With the European Commission now expecting the overhauled 440 billion-euro ($599 billion) European Financial Stability Facility in place by mid-October, euro finance chiefs will next week discuss accelerating enactment of a permanent rescue fund that provides more capital and a tool for managing defaults.

“I’m not convinced that this bailout package is going to be remotely enough for the euro zone itself,” Wilbur Ross, the billionaire chairman of private-equity firm WL Ross & Co., said yesterday in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “I think it should start with a ‘T,’ not a ‘B,’” he said, referring to trillions instead of billions.

European officials are also studying measures that include leveraging the EFSF, said Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London. There may be ‘‘an orderly Greek default later this year, with a haircut on Greek debt, an immediate recapitalization of Greek banks, European guarantees for restructured Greek debt and conditional fiscal support’’ for Greece, he said.

With concern growing that Greece will be unable to avoid default, Greek Prime Minister George Papandreou will meet French President Nicolas Sarkozy today in Paris after seeing European Union President Herman Van Rompuy in Warsaw.

German Vote

In Berlin yesterday, the lower house of parliament, voting 523 in favor and 85 against, approved giving the EFSF powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. It raises Germany’s guarantees to 211 billion euros from 123 billion euros.

The upper house, or Bundesrat, holds a nonbinding vote on the enhanced fund today.

France, which ratified the EFSF expansion this month, hailed the German vote. The European Commission said the expanded rescue fund is set to be in place by mid-October.

Additional measures now in play include reopening the second Greek rescue agreed in July to increase the financial industry’s contribution and creating a safety net for Europe’s banks.

Merkel’s alliance of Christian Democrats and Free Democrats mustered enough votes to pass the changes on the strength of her ruling majority. That meant she didn’t depend on the opposition Social Democrats and Greens, both of which also backed the bill.

‘Some Time Yet’

‘‘In the end, the unity of the coalition was stronger than the dissent,” Peter Altmaier, parliamentary whip of Merkel’s Christian Democratic Union, told ZDF television. Even so, “we will have to deal with this issue for some time yet.”

Merkel, who heads the biggest country contributing to bailouts for Greece, Ireland and Portugal, spent weeks cajoling dissenters in her coalition to back the July 21 accord by euro- area leaders to expand the fund. Resistance was most vocal from members of the Free Democratic Party, Merkel’s junior coalition ally that has flirted with an anti-bailout stance.

Provisions inserted into the bill to satisfy Germany’s constitutional court and potential rebels will allow lawmakers to vote on all new aid requests from the fund.

Almost two years into the debt crisis centered on Greece, the U.S. is urging European governments to go further and show more urgency. Europeans haven’t responded “as effectively as they needed to,” President Barack Obama said during a roundtable discussion at the White House this week.

Europeans “are aware of our responsibility,” German Finance Minister Wolfgang Schaeuble said on Deutschlandfunk radio yesterday. “We have to take as many precautions as we can. We must ensure that Europe doesn’t become the starting point of a new, big financial and economic crisis in the world.”

To contact the reporters on this story: Tony Czuczka in Berlin at; Brian Parkin at

To contact the editor responsible for this story: James Hertling at


FBI Said to Be Probing Solyndra for Possible Account Fraud

By Seth Stern and Jim Snyder - Sep 30, 2011 5:17 AM GMT+0700
Enlarge image Solyndra Chiefs Won’t Answer U.S. House Queries

FBI agents exit the Solyndra LLC headquarters in Fremont, California, on Sept. 8. The company sought bankruptcy protection two days before the raid by Federal Bureau of Investigation agents. Photographer: David Paul Morris/Bloomberg

The FBI is investigating Solyndra LLC for possible accounting fraud and the accuracy of financial representations made to the government, according to an agency official.

The FBI is examining possible misrepresentations in financial statements, according to the FBI official, who requested anonymity because the investigation is continuing.

Solyndra, which made cylindrical-shaped solar panels, filed for bankruptcy protection on Sept. 6 and fired about 1,100 workers with little notice, about two years after winning a $535 million U.S. loan guarantee from the Energy Department.

The company’s offices in Fremont, California, were raided by Federal Bureau of Investigation agents on Sept. 8. The Justice Department hasn’t said why Solyndra is being probed.

“The company is not aware of any wrongdoing by Solyndra officers, directors or employees” related to the Energy Department loan guarantees or other actions and “is cooperating fully” with the U.S. Attorney in San Francisco, according to a Sept. 20 statement from Solyndra. David Miller, a company spokesman, didn’t immediately return a phone call and an e-mail seeking comment today.

Solyndra’s collapse has prompted congressional scrutiny of President Barack Obama’s administration, which issued final approval of the loan that also won support from officials in the administration of George W. Bush.

White House Pressure

Republicans on the House Energy and Commerce Committee, which has investigated the loan since February, have said the administration pressured federal loan officers to expedite the review of Solyndra’s application so it could be promoted as a stimulus success story.

The company was the first to receive a guarantee under the stimulus act and was the largest award given to a solar manufacturer under the program.

Democrats, who dispute claims politics played a role, joined Republicans in criticizing Solyndra Chief Executive Officer Brian Harrison for what they said were misrepresentations of the company’s finances in meetings with lawmakers.

“When Mr. Harrison was in my office in July, he said that Solyndra’s future was bright, with sales and production booming,” Representative Henry Waxman of California, top Democrat on the Energy committee, said at a Sept. 23 hearing on where Harrison was a witness. “I’d like to know why he told me that in July, and then filed for bankruptcy one month later.”

Harrison, Stover

Harrison and Chief Financial Officer Bill Stover invoked their Fifth Amendment rights against self-incrimination and refused to answer questions at the hearing.

Harrison joined Solyndra in July 2010, after Solyndra had received its loan guarantee and its auditor had warned its financial difficulties were deep enough to raise questions about how long it could survive.

Companies seeking guarantees were required to estimate project costs, list private investors and provide a model detailing cash flows for the life of the project, according to the 2006 Energy Department solicitation for loan guarantees.

Solyndra submitted an application in 2006 and added details in October 2007 after the company was identified by the Bush administration as a potential candidate for a guarantee.

It is unlawful for applicants for federal loan guarantees to make untrue, misleading or incomplete statements, according to James F. Bowe Jr., an energy regulatory lawyer with Dewey & LeBoeuf in Washington, who isn’t involved in the Solyndra case.

IPO Withdrawn

The company withdrew a planned initial public offering in June 2010, citing adverse market conditions. A month earlier, Obama toured the new manufacturing factory that U.S. aid helped to build and said Solyndra was a testament to “American ingenuity and dynamism.”

By December, the company was almost out of cash and sought to restructure the loan agreement with the Energy Department. The department at the time knew the company had failed to set aside $5 million in the first of six payments into a reserve fund, Damien LaVera, an agency spokesman, said in an e-mail. The new deal eliminated the payments, he said.

The agreement made the government’s debt subordinate to $75 million in private investment in a last-ditch effort to save the company, Energy Department officials have said.

Harrison replaced Solyndra founder Chris Gronet as chief executive. Gronet remained chairman until Aug. 19, when the company announced his departure, 12 days before it halted operations on Aug. 31.

Gronet, a former executive at Applied Materials Inc. (AMAT), expressed anger when action on the loan guarantee was postponed in January 2009, Energy Department e-mails show.

“I was appalled to learn on Friday that our application is being delayed yet again,” Gronet wrote in an e-mail to Steve Isakowitz, the Energy Department’s chief financial officer, in the early morning hours on Jan. 12, 2009.

He later spurned an apology from David Frantz, director of the loan program under Bush, according to an e-mail sent later that day.

“I find the response completely unacceptable,” Gronet wrote. “An apology from David is not enough.”

To contact the reporter on this story: Jim Snyder in Washington at

To contact the editor responsible for this story: Larry Liebert at


New Zealand Yields Surge as Currency Slumps on Rating Cuts by Fitch, S&P

By Tracy Withers and Chris Bourke - Sep 30, 2011 1:02 PM GMT+0700
Enlarge image New Zealand Loses AAA Debt Ratings

New Zealand’s dollar slid for a third day, declining to 76.93 U.S. cents as of 1:38 p.m. in Wellington from 77.10 cents yesterday in New York, when it dropped as much as 1.5 percent. Photographer: Mark Coote/Bloomberg

New Zealand lost its top credit grades at Standard & Poor’s and Fitch Ratings, the first Asia- Pacific nation in a decade to have its local-currency debt cut from AAA. Government bond yields rose by the most this year.

The outlook is stable after the long-term local-currency rating was reduced one level to AA+ and foreign-currency debt was cut to AA from AA+, S&P said in a statement. New Zealand’s dollar extended its biggest quarterly drop since 2008 after Fitch announced similar moves yesterday. Both credit assessors cited concern that government and household debt is expanding.

Joining the U.S. and Italy among nations suffering ratings cuts in 2011, New Zealand was hit by earthquakes in the past year that strained government coffers. Bond yields surged on concern investors will sell New Zealand debt, adding to the case for Reserve Bank Governor Alan Bollard to hold record-low interest rates after the economy almost stalled last quarter.

“New Zealand now is ‘under scrutiny’ because of the debt troubles offshore,” said Helen Kevans, an economist in Sydney at JPMorgan Chase & Co. “The fact that further stress in global financial markets could hamper New Zealand’s funding ability appeared among the major catalysts driving the decisions.”

Currency, Bonds

New Zealand’s dollar slid for a third day, declining to 76.72 U.S. cents as of 6:03 p.m. in Wellington from 77.10 cents yesterday in New York. The currency has weakened 7.5 percent since June. Ten-year yields rose 11 basis points, or 0.11 percentage point, to 4.42 percent, the biggest climb since Nov. 18, 2010.

The downgrade “follows our assessment of the likelihood that New Zealand’s external position will deteriorate further at a time when the country’s fiscal settings have been weakened by earthquake-related spending pressures and fiscal stimulus to support growth,” S&P said in its statement.

New Zealand’s economy grew 0.1 percent in the three months through June from the previous quarter, less than the 0.5 percent growth that economists predicted, a government report showed on Sept. 22. The jobless rate has stayed above 6 percent since the second quarter of 2009, compared with the 4.8 percent average over the past decade.

The ratings companies announced their decision midway through the Rugby World Cup, which New Zealand is hosting through Oct. 23. The central bank forecast the tournament, with an estimated 95,000 visitors, will boost spending by about NZ$700 million ($538 million).

Cash Rate

Bollard on Sept. 15 left the official cash rate at a record-low 2.5 percent for a fourth straight meeting, saying worsening global economic and financial risks made it prudent to stay on hold. Twelve of 17 economists surveyed by Bloomberg News expect the rate will be unchanged until next year.

Increased funding costs, “through a further tightening in financial conditions, would delay any interest-rate hikes from the RBNZ,” Philip Borkin, an economist at Goldman Sachs & Partners New Zealand Ltd., said in a note to clients.

New Zealand’s 10-year bond yield is 244 basis points more than the equivalent U.S. note, with the spread widening from a one-month low of 227 on Sept 27. The premium New Zealand 10-year bonds offer over similar-maturity Australian government debt rose 13 basis points to 18, the biggest increase since Sept. 8.

Fewer AAAs

The cuts on New Zealand’s debt reduce the number of nations with AAA local-currency ratings from all three risk assessors to 14, with Australia, Canada and Singapore the only non-European issuers in that group. The AA foreign-currency rating is Fitch’s third-highest grade, leaving New Zealand at the same level as Japan and Kuwait, and below Spain and Australia.

Moody’s Investors Service reaffirmed New Zealand at Aaa for both local and foreign-currency debt in May.

“We’re the only highly rated country with a two-notch gap between our Moody’s rating and Standard & Poor’s,” Finance Minister Bill English told reporters today. “Two of them at least now take the view that despite the fact the position has improved and there’s a plan in place for it to continue improving, they are more sensitive to it.”

The downgrades highlight that New Zealand is vulnerable to global financial turmoil because it remains a highly indebted country, English said.

‘Matter of Time’

“It must be only a matter of time before Moody’s at least attaches a negative outlook to New Zealand” in its rating, said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore.

S&P carried out an unprecedented cut of America’s credit rating on Aug. 5 to AA+ from AAA for both local- and foreign- currency debt, helping spur the S&P 500 Index toward its biggest quarterly drop since 2008. U.S. Treasuries have gained 6 percent this quarter, the largest advance since 2008.

New Zealand’s net external debt of 83 percent of gross domestic product in U.S. dollar terms at the end of last year compares with the median of 10 percent for AA-rated nations, Fitch said. The current-account deficit, the widest measure of trade because it includes services and investment income, is likely to widen to 4.9 percent of GDP in 2012 and to 5.5 percent the following year, Fitch said.

New Zealand’s ranking was cut in part because the sustained shift in the domestic savings-to-investment ratio required to narrow the current-account shortfall is “unlikely within the forecast period,” Fitch said. The country’s 150 percent household indebtedness relative to disposable income compares with 157 percent in Australia, 159 percent in the U.K. and 116 percent in the U.S.

Surplus Planned

The country’s ratings remain supported by the government’s aim to return to budget surplus in 2015, Fitch said. That timetable could be set back by upwards revisions to estimates of damage from a Feb. 22 earthquake in Christchurch that killed 181 people, it said.

Foreign investors owned about NZ$32 billion of New Zealand government bonds at Aug. 31, or about 63 percent of the total outstanding, according to central bank figures. The government yesterday sold a record-equaling NZ$1 billion of bonds, receiving bids totaling NZ$1.53 billion.

To contact the reporters on this story: Tracy Withers in Wellington at; Chris Bourke in Wellington at

To contact the editor responsible for this story: Stephanie Phang at


Morgan Stanley Seen as Risky as Italian Banks

By Christine Harper and Shannon D. Harrington - Sep 30, 2011 7:24 AM GMT+0700
Enlarge image Morgan Stanley Seen as Risky as Italian Banks

The price of Morgan Stanley credit-default swaps has continued to climb even though the firm’s shares have risen this week. Photographer: Scott Eells/Bloomberg

Morgan Stanley (MS), which owns the world’s largest retail brokerage, is being priced in the credit- default swaps market as less creditworthy than most U.S., U.K. and French banks and as risky as Italy’s biggest lenders.

The cost of buying the swaps, or CDS, which offer protection against a default of New York-based Morgan Stanley’s debt for five years, has surged to 456 basis points, or $456,000, for every $10 million of debt insured, from 305 basis points on Sept. 15, according to prices provided by London-based CMA. Italy’s Intesa Sanpaolo SpA (ISP) has CDS trading at 405 basis points, and UniCredit SpA (UCG) at 424, the data show. A basis point is one-hundredth of a percent.

“The CDS spreads are making investors and creditors nervous” about Morgan Stanley, said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates the company’s stock “outperform,” in an e-mail.

The price of Morgan Stanley credit-default swaps has continued to climb even though the firm’s shares have risen this week. The stock jumped 93 cents, or 6.6 percent, to $15.09 in New York Stock Exchange composite trading yesterday, the fourth- biggest gainer in the 81-member S&P 500 Financials Index. Shares are down 45 percent since the start of the year.

Implied Risk

Moody’s Analytics, an arm of Moody’s Investors Service that’s separate from the company’s credit-rating business, said in a report yesterday that Morgan Stanley’s CDS prices imply that investors see the bank’s credit rating as having declined to Ba2 from Ba1 in the last month. The company is actually rated six grades higher at A2 by Moody’s Investors Service.

By comparison, Bank of America Corp. (BAC) and France’s Societe Generale (GLE) SA, which have CDS trading at 403 basis points and 320 basis points respectively, have prices that imply a rating of Ba1, higher than the implied rating on Morgan Stanley, said Allerton Smith, a banking-risk analyst at Moody’s Analytics in New York.

Mark Lake, a spokesman for Morgan Stanley in New York, declined to comment.

Morgan Stanley was the biggest recipient of emergency loans from the Federal Reserve during the financial crisis and also benefited from capital provided by Tokyo-based Mitsubishi UFJ Financial Group Inc., now the biggest shareholder, and the U.S. Treasury, which it repaid with interest.

2008 Peak

While the price of Morgan Stanley’s credit-default swaps is at the highest level since March 2009, it’s nowhere near the peak reached in 2008. On Oct. 10 of that year, the annual price for five-year protection rose to the equivalent of 1,300 basis points, according to data provided by CMA, a unit of CME Group Inc. that compiles prices quoted by dealers in the privately negotiated market.

The credit-default swaps market can be thinly traded, and the recent jump in prices may reflect no more than a single big counterparty seeking to hedge contracts, said Hintz, a former Morgan Stanley treasurer. Morgan Stanley, one of the biggest traders of CDS among U.S. banks, doesn’t make a market in its own swaps, according to Smith of Moody’s Analytics.

The CDS market has features “that may not exist in other markets like the bond market or the equities market,” Smith said in a telephone interview. Having fewer participants trading in the Morgan Stanley name could result in a “disproportionate spread movement,” he said.

The daily average trading volume in Morgan Stanley shares over the last three months is 27 million shares, according to data compiled by Bloomberg. By contrast, a three-month study released this week by the Federal Reserve Bank of New York found that most single-name CDS trade less than once a day, while the most active trade more than 20 times per day.

Swaps Volume

Trading in Morgan Stanley credit-default swaps has risen recently to 257 contracts last week, compared with 187 for Goldman Sachs Group Inc. (GS), according to the Depository Trust & Clearing Corp. That compares with a weekly average of 73 trades in Morgan Stanley and 91 in Goldman Sachs in the six months that ended on Aug. 26, DTCC data show.

There was a net $4.6 billion of protection bought and sold on Morgan Stanley debt as of Sept. 23, according to DTCC. Even with the higher trading volume, investor skittishness in the face of Europe’s sovereign debt crisis may be leaving few market participants willing to sell CDS protection to meet the demand for hedges, said Hintz.

“With the EU teetering, few other firms are going to jump in and write CDS on a global capital markets player like MS,” Hintz said in his e-mail, referring to the European Union and to Morgan Stanley’s stock-market ticker symbol.

Trading Decline

The rise in Morgan Stanley’s CDS prices may also relate to an expected decline in third-quarter trading revenue or to the company’s exposure to French banks, Smith said.

Ruth Porat, the bank’s chief financial officer, said at an investor conference on Sept. 13 that the fixed-income trading environment in the third-quarter was worse than 2010’s fourth quarter, when Morgan Stanley posted its lowest debt-trading revenue since the 2008 crisis. The company, led by Chief Executive Officer James Gorman, 53, reported second-quarter revenue from both investment banking and fixed-income trading that beat rival Goldman Sachs for the first time on record.

Morgan Stanley had $39 billion of cross-border exposure to French banks at the end of December before accounting for offsetting hedges and collateral, according to an annual filing with the U.S. Securities Exchange Commission. Cross-border outstandings include cash deposits, receivables, loans and securities, as well as short-term collateralized loans of securities or cash known as repurchase agreements or reverse repurchase agreements.

‘Galloping Wider’

While Morgan Stanley hasn’t updated those figures, Hintz estimated in a Sept. 23 note to investors that the bank’s total risk to France and French lenders is less than $2 billion when collateral and hedges are included.

As of June 30, Morgan Stanley had about $5 billion of funded exposure to Greece, Ireland, Italy, Portugal and Spain, which was reduced to about $2 billion when offsetting hedges were accounted for, according to a regulatory filing. The company also had about $2 billion in overnight deposits in banks in those countries and about $1.5 billion of unfunded loans to companies in those countries, the filing shows.

“Their spreads just are galloping wider,” Smith said. “Is it rational that Morgan Stanley CDS spreads would be wider than French bank CDS spreads if the concern is exposure to French banks? I don’t think that makes perfect sense.”

Bond Yield Climbs

Goldman Sachs, which like Morgan Stanley converted from a securities firm to a bank in 2008, had $38.5 billion of gross cross-border exposure to French banks as of June 30, according to a regulatory filing. The firm’s five-year credit-default swaps are trading at 308 basis points, according to CMA.

Morgan Stanley’s 10-year debt has also shown signs that investors are growing concerned. The yield on the company’s $1.5 billion of 5.5 percent senior unsecured notes that comes due in July 2021 has climbed to 6.3 percent from 5.46 percent on Sept. 15, according to prices reported by Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

That’s still lower than the 6.91 percent yield on 4.125 percent bonds issued by Intesa Sanpaolo that come due more than a year earlier, in April 2020, according to Bloomberg data.

Morgan Stanley’s reliance on the debt markets, instead of depositors, to provide funding for its assets may be one cause of concern, some analysts said. Morgan Stanley and Goldman Sachs, which were the second-biggest and biggest U.S. securities firms before converting to banks, both got less than 10 percent of their funding from depositors as of June 30, according to company filings with the SEC.

By contrast, Bank of America and JPMorgan Chase & Co. (JPM), the two largest U.S. banks by assets, funded more than half of their balance sheets with retail deposits at the end of June, filings show.

“The market is just very sensitive to anybody considered to be wholesale funded,” John Guarnera, a financial analyst at Societe Generale in New York, said in a Sept. 23 telephone interview. “If you’re a bank, you can fall back on the fact that you have a strong retail deposit base. Morgan Stanley has deposits, but not like you’d see out of a BofA or a JPMorgan.”

To contact the reporters on this story: Christine Harper in New York at; Shannon D. Harrington in New York at

To contact the editors responsible for this story: David Scheer at; Alan Goldstein at


China’s Space Lab Launch Closes Gap With U.S. Dependent on Russian Rockets

By Ben Richardson and Simone Baribeau - Sep 29, 2011 11:18 PM GMT+0700
Enlarge image China Launch of Lab Closes Gap With U.S. in ‘Crowded’ Space

A Long March 2F rocket carrying the country's first space laboratory module Tiangong-1 lifts off from the Jiuquan Satellite Launch Center on September 29, 2011 in Jiuquan, Gansu province of China. Photograph: Lintao Zhang/Getty Images

China launched its first space laboratory module yesterday in a step toward a manned station orbiting Earth, two months after the final shuttle mission halted the U.S.’s ability to put people into orbit.

The Tiangong-1 blasted off 9:16 p.m. local time, according the official Xinhua News Agency. President Hu Jintao watched from the control center in Beijing and Premier Wen Jiabao was at the launch site in Jiuquan, Gansu province. The liftoff is part of a program that aims to put a man on the moon by 2020 and, together with high-speed trains, the Beijing Olympics and the world’s biggest nuclear-power expansion, serves as a marker for the nation’s emergence as a global power.

“China sees space as one of the things that will confirm ‘we’re now on a par with Western countries, we’ve entered the club,’” said James Lewis, a senior fellow at the Center for International and Strategic Studies in Washington who specializes in technology and security. “It’s prestige, it’s catching up with the West and it’s exploring ways to overcome the U.S. information advantage.”

Yesterday’s launch helps cement China’s lead over emerging nations such as India, Iran and South Korea that are pumping money into matching rocket and docking technology pioneered by the Soviet Union and U.S. five decades ago. As China expands, the U.S. is scaling back on routine manned missions: President Barack Obama last year scrapped plans to return to the moon, setting a goal instead of making a “leap into the future” of deep-space travel.

The U.S. move away from “chokingly expensive” manned flight is a more sustainable model, said Joan Johnson-Freese, a professor at the U.S. Naval War College in Newport, Rhode Island. Still, with the shuttle grounded, the U.S. is reliant on Russia to fly astronauts to the International Space Station until commercial operators can fill the gap.

Lost Leadership

“It would not be good for China to move forward in the 2020s with a manned lunar program and eventually be ferrying individuals to and from the lunar surface with the U.S. program grounded,” she said in a e-mailed response to questions. “Ceding human spaceflight to the Chinese over the long term would have significant strategic leadership implications.”

China, which made its first successful manned flight in 2003 aboard the Shenzhou spacecraft, plans to put a capsule on the moon in 2013 and have the technology for a manned mission in 2020, Xu Shijie, a member of the Chinese People’s Political Consultative Conference said on March 3 in Beijing. The country plans to launch its own orbital station in about 2020.

The module launched yesterday will be used to practice docking techniques needed before moving to the next phase of building a station, according to the website of China Manned Space Engineering, the country’s space agency.

Military Shadow

While China’s achievements are lauded at home, a lack of transparency over budgets and possible military applications of space technology have raised concerns overseas. CMSE is led by Chang Wanguan, a member of China’s top military body, the Central Military Commission.

“There’s no separation between their ostensibly civilian program and their military program,” said Dean Cheng, a research fellow on Chinese security at the Heritage Foundation, a Washington think tank that describes its mission as designing and promoting conservative public policies.

The Chinese government is “convinced this is the next phase of major competition,” said Huang Jing, a professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. China believes “whoever dominates in outer space will dominate in military warfare.”

Benefit for All

The government’s intentions are entirely peaceful, Foreign Ministry spokesman Hong Lei told reporters in Beijing yesterday. China aims “to contribute to peaceful utilization of space for the benefit of all human kind,” he said.

The more that can be done to increase the civilian component of China’s space program the better, Mark Stokes, executive director of the Arlington, Virginia-based Project 2049 Institute, said by telephone. The U.S. should find ways to cooperate without aiding the military side and is capable of parsing the two, he said.

Space “is a metric of national power,” said Stokes, whose organization focuses on policies promoting security in Asia, according to its website. “If this would make China feel better about itself, if it gives it more confidence, gives it more security, gives it more pride, it’s better than some other ways of doing that.”

The U.S. government aims to encourage responsible behavior in space, Gregory Schulte, deputy assistant secretary of defense for space policy, told lawmakers in May. “Space is ‘‘increasingly congested, contested and competitive,’’ he said, according to a transcript of the hearing. ‘‘A more cooperative, predictable environment enhances our national security and discourages destabling behavior.’’

Space Shower

China in 2007 blew up one of its own satellites in a test of its ability to disrupt global communications networks. The explosion spread thousands of pieces of debris in what the European Space Agency described as ‘‘by far the worst break-up event in space history.’’ The impact of a 10-centimeter fragment of debris on a spacecraft or station ‘‘will most likely entail a catastrophic disintegration of the target,’’ according to the agency’s website.

The U.S. Navy in 2008 used a Raytheon Co. SM-3 missile to destroy a malfunctioning spy satellite that was headed for earth loaded with toxic chemicals. The strike was timed to ensure debris burned up on re-entry.

The challenge for the U.S. isn’t just getting China to agree to rules. Dozens of countries claim space programs, though some -- like North Korea and Iran -- use that as a cover for missile development, Lewis said.

‘‘Governments need to begin discussing space security more directly,” James Clay Moltz, who teaches at the Naval Postgraduate School in Monterey and is author of the forthcoming book “Asia’s Space Race,” wrote in an e-mailed response to questions. “A shooting war in space is in no one’s interest. We need to start talking about conflict prevention, keep-out zones, and stronger norms against destructive activities.”

To contact the reporters on this story: Ben Richardson in Hong Kong at; Simone Baribeau in Miami at

To contact the editor responsible for this story: Peter Hirschberg at


It’s 1987 Without Bubble in Japan as Job Losses Spur Hollowing-Out Concern

By Aki Ito - Sep 30, 2011 3:20 PM GMT+0700
Enlarge image It’s 1987 Without the Bubble in Japan

Commuters crowd a train station in Tokyo. Employers cut payrolls by 160,000 and a further 200,000 workers retired or abandoned efforts to find a job, leaving the seasonally adjusted number of employed at 59.4 million. Photographer: Toshiyuki Aizawa/Bloomberg

Sept. 30 (Bloomberg) -- Curtis Freeze, founder of Honolulu-based Prospect Asset Management Inc., talks about Japan's economy, financial markets, and government. Freeze speaks from Tokyo with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

Japan’s labor force shrank last month to its smallest size since October 1987, when the nation’s stock-market benchmark was 185 percent higher and land prices were 85 percent greater than today.

Employers cut payrolls by 160,000 and a further 200,000 workers retired or abandoned efforts to find a job, leaving the seasonally adjusted number of employed at 59.4 million, the statistics bureau said today in Tokyo. Separate figures showed industrial production rose 0.8 percent from the previous month, less than all but three of 28 forecasts in a Bloomberg survey.

The data deepen concern that Japan’s recovery from the March earthquake will be stunted by manufacturers shifting operations abroad because of gains in the yen, a deterioration in consumer confidence and prospects for higher taxes at home. The challenges add to the burden of an economy already beset by a shrinking and aging population.

“We’ve seen an acceleration in the hollowing out of industry this year with the yen’s surge and the earthquake,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “The government doesn’t have a sense of crisis about the yen and emerging economies are luring Japanese companies away.”

The yen traded at 76.74 as of 9:12 a.m. in London, about 1 percent from the post-World War II record high of 75.95 on Aug. 19. The Nikkei 225 Stock Average finished little changed at 8,700.29, compared with the peak of 38,915.87 when it closed out 1989, capping a four-year run when it soared almost 200 percent.

Noda’s Response

Prime Minister Yoshihiko Noda’s government on Sept. 27 said it will start implementing measures to cope with the yen’s gains, including subsidies for companies struggling to retain workers. Finance Minister Jun Azumi said today that Japan plans to bolster funds needed to intervene and lengthen monitoring of foreign-exchange market positions until the end of the year, from an initial plan to end the review this month.

“The yen staying around the high-70s could throw cold water on the Japanese economy’s recovery trend,” Azumi said at a press conference in Tokyo. “We will take bold actions when needed and we don’t rule out taking any necessary measures while closely monitoring speculative trading.”

Manufacturers including Panasonic Corp. have announced plans to shift operations overseas. Panasonic, one of the world’s largest consumer electronics companies, is moving the headquarters of its $57 billion procurement operation to Singapore from Osaka in the year starting April 2012, Masaaki Fujita, an executive in charge of the business, said this month.

Exports Disappoint

Exports and retail sales data released this month also missed analysts forecasts, casting doubt on whether gross domestic product will rebound as much as forecast this quarter. GDP is expected to grow at a 4.6 percent annual pace in the three months through September, ending three quarters of decline, according to the average forecast of 42 economists surveyed by Japan’s government-affiliated Economic Planning Association.

The jobless rate fell to 4.3 percent in August from 4.7 percent as people left the workforce, today’s report showed. Household spending decreased 4.1 percent from a year earlier, compared with the median estimate in a Bloomberg News survey for a 2.8 percent drop.

A stagnating economy has also depressed consumer sentiment, with the nation’s Economy Watchers survey showing confidence among merchants and others who deal with consumers slipping to 47.3 in August, the first drop since March.

Not Enough

“I’m worried where things will go after this year, when we’ll start to see more of an impact from the strong yen and slowing growth in the U.S.,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. Reconstruction won’t be enough to fuel a “V-shaped rebound,” he said.

Japan plans to spend a total of 19 trillion yen ($247 billion) over five years for rebuilding after the magnitude-9 temblor and tsunami that devastated the northeast coast. The nation’s ruling Democratic Party of Japan this week proposed a 9.2 trillion yen temporary tax increase and selling of state assets to help pay for the effort.

In a sign that weaker global demand is affecting other Asian markets, South Korea’s industrial production also rose less than economist estimates in August, gaining 4.8 percent from a year earlier, Statistics Korea said today. Meanwhile, a gauge of Chinese manufacturing shrank for a third month in September, the longest contraction since 2009, according to the purchasing managers’ index released by HSBC Holdings Plc and Markit Economics today.

Yen Gains

“Continuing yen strength will prompt companies to factor in a stronger yen in their business planning,” said Takahiro Sekido, a former analyst at the Bank of Japan and now a chief economist at Credit Agricole SA in Tokyo. “The biggest concern is the European debt crisis and the U.S. economy. With uncertain overseas demand,” Japan’s recovery may weaken, he said.

The International Monetary Fund predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal overhaul. Deepening debt woes in Europe have also put pressure on the yen’s exchange rate against its European counterpart, threatening to depress earnings at companies including Sony Corp.

To contact the reporter on this story: Aki Ito in Tokyo at

To contact the editor responsible for this story: Paul Panckhurst at