Gain in U.S. Payrolls Probably Too Small to Cut Unemployment

By Bob Willis - Oct 7, 2011 5:02 PM GMT+0700
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Job seekers wait in line outside of a job fair at the Park Ridge Community Center in Park Ridge, Illinois. Photographer: Tim Boyle/Bloomberg

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Oct. 7 (Bloomberg) -- James Shugg, a senior economist at Westpac Banking Corp., discusses the U.S. economy and the outlook for today's September non-farm payrolls report. He talks with Francine Lacqua on Bloomberg Television's "The Pulse." (Source: Bloomberg)

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Oct. 7 (Bloomberg) -- Sarah Hewin, senior economist at Standard Chartered Plc, discusses Bank of England and European Central Bank monetary policy and the outlook for today's U.S. September non-farm payrolls report. She speaks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

A projected gain in U.S. payrolls in September was probably too small to bring down the unemployment rate as concern mounted that the global recovery was losing momentum, economists said before a report today.

Employment climbed by 55,000 workers after no change in August, according to the median forecast of 91 economists surveyed by Bloomberg News. The jobless rate was 9.1 percent for a third consecutive month, according to the forecasts.

The debt crisis in Europe, political gridlock in the U.S. and plunging stock prices have led to a drop in consumer and business confidence that may keep hurting spending and hiring. The risk that the world’s largest economy may fall back into a recession has prompted the Federal Reserve and President Barack Obama to announce further measures to sustain the expansion.

“Businesses remain reluctant to add workers,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Much of the weakness in hiring can be blamed on uncertainty.”

Unemployment has exceeded 8 percent since February 2009, the longest stretch of such elevated joblessness since monthly records began in 1948.

Private payrolls, which exclude government jobs, rose 90,000 after a gain of 17,000 in the prior month, economists forecast the employment report will also show.

While a labor dispute at Verizon Communications Inc. (VZ) depressed employment in August, its resolution may have added about 45,000 workers back to payrolls last month, according to John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston.

State Workers

Conversely, the return of state government workers in Minnesota lifted the August payroll count by 23,000, a boost that wasn’t repeated last month.

The economy expanded at a 1.3 percent pace in the second quarter following a 0.4 percent gain in the first three months of 2011, the weakest performance in two years, the Commerce Department reported last week. Consumer spending grew 0.7 percent, the least since the last three months of 2009.

Jan Hatzius, chief economist at Goldman Sachs Group Inc. in New York, says the odds of a renewed U.S. recession are rising as confidence and spending have slumped. This week he said he saw a 40 percent chance the U.S. would slip back into a recession over the next year.

Julia Coronado, chief economist for North America at BNP Paribas in New York, forecasts a “mild recession.”

The projected gain in total payrolls would bring the average from July through September to 47,000, down from 97,000 in the second quarter and 166,000 in the first three months of the year.

200,000 a Month

Sustained increases of around 200,000 a month are needed to bring unemployment down about a percentage point over a year, according to Eric Green, chief market economist at TD Securities Inc. in New York.

Through August, the economy had recovered about 1.9 million of the 8.75 million jobs lost as a result of the 18-month recession that ended in June 2009.

“Economic growth remains slow,” Fed policy makers said Sept. 21 as they announced a plan to bring down longer-term lending rates. While officials said they “expect some pickup in the pace of recovery over coming quarters,” they anticipate “the unemployment rate will decline only gradually.”

Obama last month proposed a $447 billion jobs plan that economists surveyed by Bloomberg forecast would help avoid a return to recession by maintaining growth and pushing down the unemployment rate next year.

Stock Market

The Standard & Poor’s 500 Index had its biggest quarterly drop from July through September since 2008 on concern the recovery will falter. It’s climbed 6 percent so far this week. Futures expiring in December fell 0.2 percent from yesterday to 1,155.2 as of 10:33 a.m. in London.

Citigroup Inc. (C), the third-biggest U.S. bank, is among firms that have turned more cautious about hiring. It said last month it will limit hiring to only “critical” jobs as the economic slowdown continues and revenue slumps.

“We are currently only filling positions we believe are critical to the line of business or function,” Shannon Bell, a spokeswoman for the New York-based bank, said in an interview Sept. 15.

Nonetheless, some companies are planning to boost payrolls. Ford Motor Co. (F) this week said it has committed to add 12,000 hourly jobs in its U.S. manufacturing plants by 2015 as part of an agreement with the United Auto Workers.

Ford said it will be “in-sourcing” jobs from Mexico, China and Japan. Ford said this will be 5,750 hourly jobs more than a previously announced 7,000 positions to be added by the end of 2012.

                        Bloomberg Survey  ==============================================================                            Nonfarm  Private     Manu Unemploy                           Payrolls Payrolls Payrolls     Rate                             ,000’s   ,000’s   ,000’s        % ============================================================== Date of Release              10/07    10/07    10/07    10/07 Observation Period           Sept.    Sept.    Sept.    Sept. -------------------------------------------------------------- Median                          55       90        0     9.1% Average                         55       94        1     9.1% High Forecast                  115      157       20     9.2% Low Forecast                   -50       50      -15     9.0% Number of Participants          91       49       23       86 Previous                         0       17       -3     9.1% -------------------------------------------------------------- 4CAST                           20       60     ---      9.2% ABN Amro                        60       80     ---      9.1% Action Economics               100      130       -5     9.1% Aletti Gestielle                90      129       -2     9.1% Ameriprise Financial            40       55       -5     9.2% Banesto                         70     ---      ---      --- Bank of Tokyo- Mitsubishi       80      110     ---      9.1% Bantleon Bank AG                40     ---      ---      9.1% Barclays Capital                25       65        5     9.1% Bayerische Landesbank           70     ---      ---      9.1% BBVA                            60       75     ---      9.1% BMO Capital Markets             40     ---      ---      9.2% BNP Paribas                      0       50     ---      9.2% BofA Merrill Lynch              70       90     ---      9.1% Briefing.com                    50       90     ---      9.1% Capital Economics                0     ---      ---      9.1% CIBC World Markets              65     ---        -3     9.2% Citi                            50      110        5     9.1% ClearView Economics             80      110       10     9.2% Commerzbank AG                  75     ---      ---      9.1% Credit Agricole CIB              0     ---      ---      --- Credit Suisse                   35     ---      ---      9.2% Daiwa Securities America        95     ---      ---      9.1% DekaBank                        35     ---      ---      9.2% Desjardins Group                15     ---      ---      9.1% Deutsche Bank Securities        70       95     ---      9.1% Deutsche Postbank AG            70     ---      ---      9.1% DZ Bank                         52     ---      ---      9.1% Exane                           20     ---      ---      9.2% Fact & Opinion Economics        50       60     ---      9.2% First Trust Advisors            80      110        0     9.2% FTN Financial                   80      120     ---      9.1% Goldman, Sachs & Co.            50     ---      ---      9.1% Helaba                         100     ---      ---      9.1% High Frequency Economics         0       50     ---      9.2% HSBC Markets                    50       80     ---      9.2% Hugh Johnson Advisors          102      120       10     9.1% IDEAglobal                      50       75       -5     9.1% IHS Global Insight              25     ---      ---      9.2% Informa Global Markets          15       55        5     9.1% ING Financial Markets           40       85       -8     9.1% Insight Economics               75     ---      ---      9.2% Intesa-SanPaulo                 70     ---      ---      9.2% Iur Capital                    -30     ---      ---      --- J.P. Morgan Chase               30       90        0     9.2% Janney Montgomery Scott         76       94        0     9.1% Jefferies & Co.                 70      115       20     9.0% JH Cohn                         40       50     ---      --- Landesbank Berlin              105     ---      ---      9.1% Landesbank BW                   70     ---      ---      9.1% Laurentian Bank                 95      120     ---      9.1% LCA Consultores                  9     ---      ---      --- Manulife Asset Management       50     ---        -5     9.1% Maria Fiorini Ramirez           85      115     ---      9.1% Market Securities               20     ---      ---      9.1% MET Capital Advisors           -50     ---      ---      9.2% MF Global                       85      135        0     9.2% Mizuho Securities               75     ---      ---      9.2% Moody’s Analytics               60      100      -15     9.1% Morgan Keegan & Co.             70     ---      ---      9.2% Morgan Stanley & Co.           100     ---      ---      9.2% National Bank Financial        110     ---      ---      9.1% Natixis                         40     ---      ---      9.1% Nomura Securities               60       80        5     9.1% Nord/LB                         50       80      -10     9.1% OSK Group/DMG                   35     ---      ---      9.2% Paragon Research                25     ---      ---      9.2% Parthenon Group                 35       54     ---      9.1% Pierpont Securities            110      135     ---      9.1% PineBridge Investments          25       50     ---      9.2% PNC Bank                        65     ---      ---      9.2% Prestige Economics              35       70     ---      9.1% Raiffeisenbank International    85      130     ---      9.2% Raymond James                   90      115     ---      9.1% RBC Capital Markets             45       65     ---      9.2% RBS Securities                  30     ---      ---      9.1% Scotia Capital                  30     ---      ---      9.1% SMBC Nikko Securities           45       85     ---      9.1% Societe Generale               115      155     ---      9.0% Standard Chartered              55       90     ---      9.1% State Street Global Markets     71      104        1     9.1% Stone & McCarthy Research      100      157       15     9.1% TD Securities                   60       85     ---      9.1% UBS                             65      115     ---      9.1% UniCredit Research              50     ---      ---      9.2% Union Investment                40     ---      ---      9.1% University of Maryland          80      100        0     9.1% Wells Fargo & Co.               35     ---      ---      9.1% WestLB AG                       70     ---      ---      9.1% Westpac Banking Co.             30     ---      ---      9.2% Wrightson ICAP                  90      125     ---      9.1% ============================================================== 

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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European Banks to Sell $40 Billion of Assets Amid Debt Crisis, KPMG Says

By Anne-Sylvaine Chassany - Oct 7, 2011 6:01 AM GMT+0700

European banks are planning to sell more than 30 billion euros ($40 billion) of assets as the debt crisis increases the need to raise capital, according KPMG LLP.

European lenders are accelerating asset sales after disposing of more than 26 billion euros of loans this year, according to a KPMG study released today. While the amount has been far from the “flurry of activity that was widely expected,” regulatory pressures and a deepening of the European debt crisis is forcing lenders to accept lower prices, the report said.

“Counter-intuitively, we saw a lower-than-expected level of bank disposals of loan portfolios in the first few years after the collapse of Lehman Brothers Holdings Inc.,” said Andrew Jenke, director in KPMG’s Portfolio Solutions Group. “But we are now starting to see banks - faced with the triple- whammy of sovereign debt crises, increased capital requirements and a funding mismatch - under a lot more pressure to extract value from their loan books.”

Banks including Royal Bank of Scotland Group Plc (RBS), Banco Espirito Santo SA (BES) and Dexia SA (DEXB), the French-Belgian bank that is facing a second government bailout in three years, are planning to sell assets because they are under pressure from regulators to shrink their balance sheets and boost liquidity. Lured by the prospect of buying portfolios at a discount, U.S. private-equity firms and hedge funds have raised more than $5 billion for funds targeting European distressed assets and corporate turnarounds compared with about $400 million during the 2002 recession, according to London-based researcher Preqin Ltd. Deals have been slow to materialize because lenders aren’t willing to sell at the discounts sought by investors.

‘Gap Is Narrowing’

“The pricing gap is still there,” Jenke said. “Banks are still expecting more than purchasers are able to pay for the assets. This gap is narrowing in some instances.”

The U.K. and Irish banks remain the biggest sellers, according to KPMG. RBS agreed in July to sell part of a 1.4 billion-pound ($2.2 billion) portfolio of commercial loans to Blackstone Group LP. (BX) Lloyds Banking Group Plc (LLOY) is selling a 6 billion-pound portfolio of shipping loans, according to the report. Anglo Irish Bank Corp. said in August it expects to complete the sale of $9.65 billion of U.S. real-estate loans.

Funds Being Raised

Apollo Global Management LLC, Leon Black’s private-equity firm, is seeking to raise $2.8 billion for a fund to buy European loans, two people with knowledge of the matter said in August. Oaktree Capital Management LP, the Los Angeles-based private-equity firm led by Howard Marks, is seeking as much as $3 billion for a fund that will buy assets in Europe, people with knowledge of the plans said previously. Hedge funds including New York-based Anchorage Capital Group LLC and Marathon Asset Management LP are also targeting Europe.

Asset sales should accelerate in Spain, KPMG said.

“The hottest topic over the past six months has been Spain,” the report said. “Local banks are seeking to shed non- core and non-performing loans and the impact of the caja restructuring is now starting to yield portfolio disposals.”

To contact the reporter on this story: Anne-Sylvaine Chassany in Paris at achassany@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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King Loses Faith in Europe as Bank of England Responds to Region’s ‘Virus’

By Svenja O’Donnell and Jennifer Ryan - Oct 7, 2011 6:07 PM GMT+0700

Bank of England Governor Mervyn King has lost faith in European governments’ ability to resolve the region’s debt crisis.

The central bank yesterday announced its biggest stimulus since the depths of the recession, citing “vulnerabilities” related to the euro-area turmoil. King said the move, the first loosening of U.K. monetary policy since 2009, was a response to what may be the worst financial crisis ever.

“It’s pretty much a vote of no confidence in European officials,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc and a former Bank of England official. “Either the virus is already in the U.K. so they had to respond, or they don’t believe the problem will be sorted out. I lean toward the second because of how much they’ve done.”

King’s refusal to wait for European governments signals determination to shield the U.K. from a crisis that threatens to tip Britain’s biggest trading partner into recession. It also shows concern that failure to protect bank funding markets risks recreating conditions that led to the collapse of Lehman Brothers Holdings Inc. three years ago.

The pound rose 0.6 percent to $1.5530 as of 12:05 p.m. in London. The yield on the 10-year government bond rose 6 basis points to 2.447 percent.

The U.K. central bank, which left its benchmark interest rate at a record-low 0.5 percent, raised the ceiling for so- called quantitative easing to 275 billion pounds ($426 billion) from 200 billion pounds. That’s the biggest expansion since the first round of stimulus in March 2009. Only 11 of 32 economists in a Bloomberg News survey predicted an increase.

‘Bold Move’

“The external environment has definitely darkened,” said Steven Bell, chief economist at hedge fund GLC Ltd. in London. “Why do we need to wait for them to get their act together? The Bank of England is correct. It’s a bold move, but a good one.”

Bank shares have plunged this year on concern that they will suffer if Greece defaults and as European officials clashed over how to resolve the turmoil. The Bloomberg Europe Banks Index has fallen 30 percent in 2011, compared with a 17 percent decline by the Stoxx Europe 600 Index. Lloyds Banking Group Plc has dropped 45 percent.

“This is the most serious financial crisis we’ve seen at least since the 1930s, if not ever,” King said on Sky News.

While European officials agreed on a second aid plan for Greece in July, they’ve indicated they may reopen the deal to impose larger losses on banks as part of the bailout. The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default.

Reality Check

“The deterioration in the euro zone and the reemergence of risks to the financial system add up to a very different picture from the one we were looking at six months ago,” former Bank of England policy maker Kate Barker said. The Bank of England’s measures don’t imply “they think there isn’t going to be some kind of solution. But it’s recognizing the reality.”

Weakness in U.K. data alone was enough to warrant the additional stimulus, said Michael Saunders, chief European economist at Citigroup Inc. in London, who says the central bank isn’t finished yet. Britain’s economy grew less than initially estimated in the second quarter, with gross domestic product rising 0.1 percent, lower than the 0.2 percent previously published, data this week showed.

‘Great Deal More’

“You need to do it in very large scale to have much impact,” said Saunders. “If the downside risks to the euro area come through, they’ll have to do a great deal more QE.”

U.K. policy makers are prioritizing the recovery over the threat from inflation, which was 4.5 percent in August, more than double the Bank of England’s target. The central bank said that the deterioration in the outlook makes it “more likely” that inflation will undershoot its 2 percent goal in the medium term.

As the bank begins four months of bond purchases, King said he’s “confident” the new measures will work and that policy makers were spurred into action by a sharper-than-expected global slowdown.

“The world economy has slowed, America has slowed, China has slowed, and of course particularly the European economy has slowed,” he said in an interview with BBC Television broadcast yesterday. “That’s affecting our ability to engineer a recovery here so we took action.”

The European Central Bank may also be losing patience with governments, announcing yesterday a resumption of covered-bond purchases and year-long loans for banks. The ECB will spend 40 billion euros ($54 billion) on covered bonds starting next month and will offer banks two additional unlimited loans of 12 and 13-month durations.

“This is the start of a new round of global intervention,” said Stuart Thomson, a fixed-income fund manager in Glasgow at Ignis Asset Management, which oversees $125 billion. “It’s a belated recognition that after a major financial crash, there is a prolonged period of weak, volatile growth.”

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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BMW Strives to Enlarge Mini Market With Coupe

By Chris Reiter - Oct 7, 2011 5:01 AM GMT+0700
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A Mini Cooper cabriolet automobile, manufactured by Bayerische Motoren Werke AG, sits on display ahead of the Frankfurt Motor Show in Frankfurt. Photographer: Jason Alden/Bloomberg

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Mini, which was salvaged from the wreckage of the failed takeover of the U.K.’s Rover Group, is central to BMW’s strategy to meet tighter environmental standards and fend off Volkswagen.Photographer: Mark Elias/Bloomberg

Boris Knoblich is one of the reasons why Bayerische Motoren Werke AG (BMW) is struggling to create a bigger market for the Mini.

The 37-year-old media consultant from Berlin doesn’t have the Munich-based manufacturer’s urban car brand on his shopping list, rejecting the new two-seater Mini coupe that his dealer offered as a replacement to his BMW 1-Series compact.

“It’s a bit racy-looking compared with other Minis, but too small and not variable enough,” said Knoblich, who’s considering another 1-Series as well as an Audi A3 and Auris hybrid from Toyota Motor Corp. “I need a multifunctional car.”

Mini, which was salvaged from the wreckage of the failed takeover of the U.K.’s Rover Group, is central to BMW’s strategy to meet tighter environmental standards and fend off Volkswagen AG (VOW)’s Audi and Daimler AG (DAI)’s Mercedes-Benz. The world’s biggest maker of luxury vehicles plans to tighten cooperation between Mini and the namesake brand by sharing front-wheel drive technology after the Mini hatchback is overhauled in 2014.

The $22,000 coupe, which went on sale in Europe on Oct. 1 and will hit U.S. dealers later this fall, is the first of three new Mini variants that will go on sale by the end of next year, expanding the lineup to seven similarly sized vehicles. The new models, which all share the same basic underpinnings, will probably do little beyond keeping the brand’s sales from declining as the iconic Mini hatchback ages, analysts said.

“Mini can’t do the volumes that they want with the body styles that they have,” said Rebecca Lindland, an analyst IHS Automotive in Norwalk, Connecticut. “They have to push the envelope up and down” with larger and smaller models.

Worst Seller

Growth in Mini’s deliveries will probably slow to 2.7 percent in 2012 and 1.6 percent in 2013 after jumping 23 percent this year on demand for the four-door Countryman crossover, according to IHS Automotive forecasts. The helmet-topped coupe will be joined by a roadster and the Paceman, a sportier crossover, by the end of 2012.

The roadster and coupe are set to vie for the status as the brand’s worst seller, with coupe sales pegged at 6.2 percent of 2013 deliveries of 296,240 cars and the roadster at 5 percent, according to IHS.

Audi targeted Mini with the A1 subcompact. Daimler is adding to that pressure as it rolls out five new Mercedes compact cars starting with the revamped B-Class this fall. The automaker’s Smart city car will expand beyond a two-seater from 2013, after confronting its own size limits.

Mini isn’t concerned by the potential slow sales for the derivatives and plans further expansion to the lineup and markets, said Kay Segler, the brand’s chief.

Ten Minis

“I see great potential for Mini,” said Segler in an e- mail response to questions. “There’s no limit to our creativity. We can imagine additional models with typical Mini characteristics -- up to 10 models are conceivable.”

Mini, based in Oxford, England, plans to enter India next year after expanding to Indonesia in 2011, he said. BMW is targeting record Mini sales this year, with deliveries set to rise at least 10 percent.

The coupe, which competes with $19,545 Honda CR-Z, will be Mini’s first two-seater. The loss of the rear bench leads to a drop in weight of 60 kilograms (132 pounds), helping it accelerate to 100 kilometers (62 miles) per hour in 9 seconds, one tenth of a second faster than the corresponding hatchback.

The engines are shared with other Mini models. While it’s 2.9 centimeters (1.1 inches) shorter than the hatchback, the length and width are nearly identical, reflecting the size constraints faced by the brand’s models.

High Margins

“The coupe is quirky, but that’s what Mini is,” said Garel Rhys, president of the auto industry research center at the U.K.’s Cardiff University. “BMW is showing that they’re pretty clever and innovative with the derivatives.”

The close association of the coupe with the brand’s other models should boost profit margins, especially considering its price is 1,650 euros, or 8.4 percent, more than the similarly equipped hatchback, said Jonathon Poskitt, an analyst at J.D. Power and Associates in Oxford, England.

The coupe relies on “synergies” with other models and every variant has to “stand on its own,” Mini’s Segler said.

The new two-seater will likely appeal to men under 35 looking for a conspicuous car, said Werner Entenmann, head of Autohaus Entenmann in Esslingen near Stuttgart. He celebrated the introduction of the model with a party for 800 guests, including a champagne reception and cocktails.

‘No Middle Ground’

“We expect it to be a niche, lifestyle-oriented car,” said Entenmann, who plans to reserve one or two places for the coupe in his Mini showroom, which can display up to eight vehicles. “It either fascinates or leaves people cold. There’s no middle ground.”

The coupe is part of Mini’s development toward more independence, said the dealer, who sells Mini and BMW cars. He is hoping for a larger model from the brand. So is Knoblich.

“Mini works as a city car,” said the 1-Series driver. “But I need something that’s a city car, can drive long distances and transport stuff and people. Mini doesn’t offer that right now.”

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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European Stocks Advance as U.S. Adds More Jobs Than Estimated

By Julie Cruz - Oct 7, 2011 7:39 PM GMT+0700
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A stockbroker speaks on the telephone as he watches his computer screens at Shore Capital Group Ltd. in London. Photographer: Simon Dawson/Bloomberg

European stocks gained for a third day as a report showed the U.S. economy added more jobs than economists had estimated. Asian shares and U.S. index futures advanced.

Saipem SpA (SPM) rose 2.7 percent after JPMorgan Chase & Co. recommended buying the shares of the oilfield-services contractor. Vallourec SA (VK) sank 2.5 percent after lowering its forecast for second-half gross operating profit.

The Stoxx Europe 600 Index climbed 1.5 percent to 233.77 at 1:37 p.m. in London. The benchmark measure is headed for a weekly rally of 3.4 percent amid speculation policy makers will agree to shield banks from the crisis and as the Bank of England expanded its bond-purchase program. The gauge has still retreated 20 percent since this year’s high on Feb. 17 and is trading at about 9.8 times its companies’ estimated earnings, near the lowest since March 2009.

The MSCI Asia Pacific Index jumped 2.1 percent, while Standard & Poor’s 500 Index futures advanced 1.1 percent.

European stocks gained as a U.S. report today showed employers added more payrolls than forecast in September, job gains were revised up in the previous two months and hours and earnings increased, helping ease concerns the U.S. labor market is deteriorating.

Payrolls climbed by 103,000 workers after a revised 57,000 increase in August that was more than originally estimated, Labor Department data showed. The median forecast in a Bloomberg News survey called for an increase of 60,000. The gain reflected the return to work of 45,000 telecommunications employees. The jobless rate held at 9.1 percent.

The European Central Bank said yesterday it will reintroduce yearlong loans, giving banks access to unlimited cash through January 2013. The central bank will also resume purchases of covered bonds to encourage lending. At the same time, the European Commission is pushing for a coordinated capital injection into banks and German Chancellor Angela Merkel said policy makers “shouldn’t hesitate” if it turns out financial institutions are undercapitalized.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer in London at arummer@bloomberg.net;

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British Bank Ratings Lowered by Moody’s

By Howard Mustoe and Michelle E. Frazer - Oct 7, 2011 6:17 PM GMT+0700
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Royal Bank of Scotland Group Plc had its rating cut two levels by Moody's. Photographer: Simon Dawson/Bloomberg

Moody’s Investors Service cut the senior debt and deposit ratings of 12 British lenders including Royal Bank of Scotland Group Plc (RBS) and Lloyds Banking Group Plc (LLOY), saying the government would be less likely to provide support in the event of failure.

Lloyds TSB Bank Plc, Santander UK Plc and Co-Operative Bank Plc had their ratings lowered one step by Moody’s, while RBS and Nationwide Building Society were cut two levels. Seven smaller building societies were cut from one to five levels, the rating company said in a statement today. Clydesdale Bank was confirmed at A2, with a negative outlook.

“Moody’s has pulled the trigger a little early in its assessment that governments will materially reduce the level of extraordinary support on offer to their banking systems with the escalation of the sovereign and banking crisis almost certainly about to result in a broad government-backed recapitalization of the continent’s banks,” Michael Symonds, a credit analyst at Daiwa Capital Markets Europe Ltd. said in a note today.

The Bank of England, the Financial Services Authority and the Treasury have provided guidance that banks that fail in the future shouldn’t expect a taxpayer-funded bailout, Moody’s said. The government-sponsored Independent Commission on Banking’s report published last month is “credit-negative for bondholders longer-term as they indicate that new structures, such as ring- fencing, could be introduced to aid resolution and allow senior bondholders to share the burden of bank failure,” the service said.

Future Support

“Moody’s reassessment assumes a decrease in the probability that the U.K. government would provide future support to financial institutions if needed,” Moody’s said in the statement.

RBS, which rose 7.8 percent yesterday, traded down 3.9 percent to 23.41 pence at 12:05 p.m., while Lloyds was down 3 percent to 34.81 pence. The stocks have declined by 40 percent and 48 percent respectively this year.

“The equity market is already ahead of Moody’s as viewing sovereigns as weak and therefore sovereign support to banks as being weak,” said Alex Potter, an analyst at Berenberg Bank in London. “This is predicated purely on the change of assumptions from Moody’s on support from the U.K. government; this is nothing to do with saying RBS itself is weaker.”

Strongly Capitalized

RBS said it has made “significant progress” in strengthening its credit profile since 2008, and reducing its loan-to-deposit ratio to 114 percent from 154 percent, in a separate statement. The bank gained 45.5 billion pounds of taxpayer aid to lift its capital following the 2008 banking crisis.

“One of the reasons they’re doing this is they think the British government is moving in the direction of trying to get away from guaranteeing the biggest banks in Britain,” Chancellor of the Exchequer George Osborne told BBC Radio 4’s “Today” program. “In other words, trying to move away from the too big to fail problem.”

Lloyds said “it is important to note that both the standalone rating and short-term ratings remain unchanged,” in an e-mailed statement. “This change will have minimal impact on our funding costs”.

RBS said it is one of the most strongly capitalized banks in Europe following a newspaper report saying it might need extra capital after a new round of European Union stress tests.

“The design of any new application of the EU stress tests is completely up in the air,” RBS said in an e-mailed statement following the story in the Financial Times. “Any analysis of how any bank will be affected is nothing more than speculation.”

Future Problems

European lenders may need as much as 200 billion euros ($269 billion) of additional capital, according to the International Monetary Fund’s European head Antonio Borges.

“RBS reported an 11.1 percent Core Tier 1 capital ratio as at 30 June 2011, which places us among the strongest capitalized banks in Europe,” the bank said.

In Europe and elsewhere “there is a desire to ensure that if there are problems at banks in the future, that it’s also debt holders and not just equity holders and subordinated bondholders that share that pain, and that’s what we’re reflecting in our ratings here,” Elisabeth Rudman, senior vice president at Moody’s, said in a telephone interview. “It’s not that we think they’ll let these banks fall apart in a crisis.”

RBS had a five-grade increase in its ratings because of implicit government support and Lloyds had a four-level benefit, which Moody’s has lowered, but not eliminated, she said.

For the customer-owned building societies, “these institutions are smaller, to resolve and do an orderly wind- down,” said Rudman. “That’s why we decided with these smaller institutions, we’re not including any systemic support into the debt rating.”

To contact the reporters on this story: Howard Mustoe in London at hmustoe@bloomberg.net; Michelle E. Frazer in London at mfrazer@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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EU Leaders Under Investor Pressure to Devise Bank Rescue Plan Before G-20

By Gavin Finch and Liam Vaughan - Oct 7, 2011 5:37 PM GMT+0700
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European Commission president Jose Manuel Barroso. Photographer: Jock Fistick/Bloomberg

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Oct. 7 (Bloomberg) -- Cormac Leech, an analyst at Canaccord Genuity Ltd., discusses the state of Europe's banking industry after Moody's Investors Service cut the debt ratings of banks in the U.K. and Portugal. He talks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

European Union leaders are under pressure from investors to devise a comprehensive plan to rescue the region’s banks before a Group of 20 summit in November.

“A blanket recapitalization of banks, in some cases, over- capitalizing those banks, would be the only thing that’s going to restore confidence at this juncture,” Simon Maughan, head of sales and distribution at MF Global Ltd. in London, said in a Bloomberg Television interview yesterday.

Plans to inject capital into Europe’s banks are “well under way,” European Commission President Jose Barroso said yesterday. The European Central Bank also reintroduced yearlong loans, giving banks unlimited access to cash through January 2013. Lenders in the region may need as much as 200 billion euros ($269 billion) of additional capital, according to the International Monetary Fund’s European head Antonio Borges.

Speculation that EU leaders may agree on a comprehensive recapitalization plan has helped to boost the Bloomberg Europe Banks and Financial Services Index 9 percent in the past two days. Bank stocks dropped 30 percent this year as investors became concerned that financial firms will have to write down their holdings of Greek, Italian, Spanish and Portuguese government bonds.

Investors are also pushing up the cost of borrowing for those governments on concern that they will have to bail out their lenders. The challenge is for EU leaders to break that cycle before rising funding costs trigger a default by Greece or force banks to curtail lending and cause a recession.

‘Meltdown’

“If they can’t address this in a credible way, I believe within perhaps two to three weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system,” Robert Shapiro, chairman of the economic consulting firm Sonecon LLC in Washington and an adviser to the IMF, told the British Broadcasting Corp.’s Newsnight yesterday. “It will spread everywhere because the global financial system is so interconnected,” he said. “This would be a crisis that would be more serious than the crisis in 2008.”

Even a recapitalization of European banks may fail to reassure investors because they will still question the ability of governments to meet their borrowing costs. Injecting capital into Europe’s banks won’t provide the “silver bullet” that is needed to solve the crisis, said Huw van Steenis, a banking analyst at Morgan Stanley in London. It needs to be done in conjunction with measures to shore up sovereign debt, he said.

“The banking crisis isn’t going to be resolved until the sovereign crisis is resolved,” said David Watts, a strategist at CreditSights Inc. in London. “Capital isn’t the way to go because the needs are too big and will weaken the sovereign.”

Relying on ECB

Banks would need to raise about 148 billion euros in the event of a 60 percent writedown on their holdings of Greek debt, 40 percent for Portugal and Ireland and 20 percent for Italy and Spain, Kian Abouhossein, a JPMorgan Chase & Co. analyst, wrote in a note to clients Sept. 26. Deutsche Bank AG (DBK), Germany’s biggest lender, would need 9.7 billion euros more capital, Commerzbank AG (CBK) 5.1 billion euros and France’s Societe Generale (GLE) SA 6 billion euros, Abouhossein said.

European lenders are struggling to fund themselves and are reliant on emergency cash from the ECB. U.S. money-market funds cut their holdings of commercial paper sold by foreign financial firms, mostly European, by 31 percent in the third quarter, according to data compiled by Bloomberg. Lenders increased overnight deposits at the ECB yesterday to the highest in more than a year. Banks parked 221 billion euros at the ECB, the most since July 2010.

‘Scaring the World’

“The priority is to work hard and fast to prevent banks’ funding drying up, as this will only exacerbate funding difficulties for companies and consumers at a time when they are already under pressure due to the wilting recovery,” said Yael Selfin, head of macro consulting at PricewaterhouseCoopers in London. “The alternative could easily see the euro-zone economy going back into recession.”

Smarting from global criticism including U.S. President Barack Obama’s comment that Europe’s fiscal pain is “scaring the world,” EU leaders are looking at the November G-20 summit in Cannes as a deadline to show they are in control of events.

“They won’t want to go to Cannes without putting a plan in place to solve the euro zone’s problems,” Maughan said in an interview. EU leaders want to use the meeting to push through the Basel Committee on Banking Supervision’s latest round of capital requirements, he said. “That will be totally derailed if all that happens is that China, the U.S. and a whole number of other countries just lecture them on why they haven’t sorted their own problems out.”

Berlin Meeting

EU leaders must still decide who provides additional capital to the banks and what form it will take. German Chancellor Angela Merkel said on Oct. 5 that Europe’s rescue fund should be relied upon only as a last resort.

“If a country cannot do it using its own resources and the stability of the euro as a whole is put at risk because the country has difficulties, then there’s the possibility of using the EFSF,” or the European Financial Stability Facility, she said. Using the EFSF rescue fund is “always tied to a certain conditionality.”

French President Nicolas Sarkozy said he will discuss bank refinancing with Merkel when he visits Berlin on Oct. 9. Sarkozy, who was speaking today in Yerevan, Armenia, declined to comment further on banks.

Magnifying ESFS

German lawmakers last week approved an expansion of the rescue fund, setting the stage for the overhauled 440 billion- euro facility to be in place by mid-October. If approved by all 17 euro-zone countries, the fund will be able to provide money to governments, which could then inject it into their banks.

Policy makers are debating how to magnify the firepower of the EFSF to as much as 1 trillion euros. While one route would be for the facility to operate like a bank and borrow from the ECB, using bonds it purchases as collateral, Jean-Claude Trichet, president of the central bank, said yesterday that leverage wasn’t “appropriate.”

“The EFSF is simply not large enough to provide support to both troubled banks and troubled sovereigns,” said Sony Kapoor, managing director of London-based policy group Re-Define Europe. “Even after its upgrade, the EFSF won’t be able to support weak banks in troubled countries that are exactly the kind of institutions that most need its support.”

New Stress Tests

Southern European states are most likely to need money from the EFSF to recapitalize their banks, said Nick Firoozye, a senior rates strategist at Nomura Holdings Inc. in London.

“France and Germany can recapitalize their own banks, but it’s likely that Spain and Italy would need EFSF support to do so,” Firoozye said. “France and Germany are able to raise money in the bond markets at a cheaper rate than they can do through the EFSF. Europe needs to do the bank recapitalizations in a coordinated fashion to make sure they are effective.”

EU regulators’ stress tests on the region’s lenders in July failed to reassure investors that European banks will be adequately capitalized in the event of sovereign defaults. Eight banks failed the European Banking Authority’s tests, with a combined shortfall of 2.5 billion euros.

A new round of tests that require banks to maintain a minimum core Tier 1 capital ratio of 7 percent to 8 percent after writedowns on Greek, Italian, Irish, Spanish and Portuguese government debt would provide the trigger for further injections, Firoozye.

Preference Shares

Still to be decided are the instruments individual governments will use to inject capital into their banks.

Under one option being discussed, banks will issue preference shares to governments that would convert into core Tier 1 equity if a lender fails to reach a set capital target within a given timeframe, Morgan Stanley’s van Steenis wrote in a note. That would avoid immediate dilution of shareholders and allow lenders to raise capital when there is less stress in the markets, he said. Banks would be likely to face limits on compensation and dividends paid to investors until they repaid the government.

Also under consideration are mandatory convertible bonds, which would automatically convert into common equity on a set date; or contingent convertible bonds, which would convert into common equity if a bank’s capital levels drop below a predefined trigger, according to JPMorgan’s Abouhossein.

Edouard Carmignac, whose Paris-based Carmignac Gestion fund oversees about 40 billion euros, has called on the ECB to buy unlimited amounts of distressed countries’ sovereign debt. That would “relieve European banks of the more than problematic need for massive, immediate recapitalizations required by the depreciation of their sovereign debt holdings,” Carmignac wrote in a full-page advertisement in the Financial Times on Oct. 5.

European leaders need to address concerns about Italy’s solvency or risk treating only the symptoms of the crisis, Jon Peace, a banking analyst at Nomura, wrote in a report today.

“The intensity of policy debate has taken a step up, but it is a complex process and there is still a lot to be decided,” said Morgan Stanley’s van Steenis. “Odds are the recapitalization program is in November.”

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net; Liam Vaughan in London at lvaughan6@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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Trichet Keeps Banks Afloat as Governments Confront Risk of Greek Default

By Gabi Thesing and Jeff Black - Oct 7, 2011 3:41 PM GMT+0700
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The European Central Bank (ECB) sculpture is reflected in a window in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg

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Oct. 7 (Bloomberg) -- Cormac Leech, an analyst at Canaccord Genuity Ltd., discusses the state of Europe's banking industry after Moody's Investors Service cut the debt ratings of banks in the U.K. and Portugal. He talks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

The European Central Bank’s move to keep euro-area banks afloat is buying governments more time to recapitalize them as Greece edges closer to default.

The ECB said yesterday it will reintroduce yearlong loans, giving banks access to unlimited cash through January 2013, and resume purchases of covered bonds to encourage lending. At the same time, the European Commission is pushing for a coordinated capital injection into banks and German Chancellor Angela Merkel said policy makers “shouldn’t hesitate” if it turns out financial institutions are undercapitalized.

“Politicians, including Angela Merkel, have finally realized the urgency in protecting banks as a Greek default can no longer be ruled out and no-one wants a Lehman in Europe,” said Christoph Kind, head of asset allocation at Frankfurt Trust, which manages $24 billion. “From its side, the ECB is making sure that banks won’t face funding issues throughout that period.”

Financial shares advanced yesterday after Merkel fed speculation that policy makers are working on plans to boost bank capital to stem the spread of the sovereign debt crisis. Europe’s rescue fund, the European Financial Stability Facility, could be relied upon as a last resort to bolster banks if needed, she said, adding that Germany is ready to discuss possible bank aid at this month’s European Union summit.

Euro, Stocks

The euro headed for a weekly advance after two weeks of losses, trading at $1.3448 at 10:36 a.m. in Frankfurt. Stocks gained for a third day in Europe after the overnight advance in Asia, with the Stoxx 600 up 0.7 percent to 231.8 at 9:00 a.m. in London.

European leaders are under pressure from global counterparts to find a solution to the debt crisis as it threatens to tip the world economy back into recession. EU leaders hold a summit on Oct. 18 followed by a meeting of the Group of 20 on Nov. 3-4. French President Nicolas Sarkozy said today he will discuss banks with Merkel when he visits Berlin on Oct. 9.

Germany’s Deutsche Bank AG on Oct. 4 scrapped its profit forecast and announced 500 job cuts and further writedowns on Greek bond holdings, while Belgium’s Dexia SA is facing its second bailout in three years.

The ECB’s measures buy banks “a lot of time as Europe is basically moving toward recapitalizing the sector,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London. “Where the ECB can and does contribute very aggressively is to breaking the nexus between the sovereigns and the banks.”

ECB Purchases

The ECB will spend 40 billion euros ($53 billion) on covered bonds from next month and offer banks two additional unlimited loans of 12 and 13-month durations, President Trichet said at a press conference in Berlin yesterday after leaving the benchmark interest rate at 1.5 percent. The ECB will continue to lend banks as much money as they need in its regular refinancing operations at least until July 2012.

The ECB used the same measures during the global financial crisis to avert a credit crunch.

The 2.5 trillion-euro market for covered bonds -- assets backed by mortgages or public-sector loans -- underpins much of Europe’s real estate lending, which almost ground to a halt in the wake of Lehman Brothers Holdings Inc.’s collapse in September 2008.

Fear Factor

Banks’ overnight deposits with the ECB jumped to the most in more than a year this week as concern about other institutions’ sovereign debt holdings discouraged them from lending to each other.

“For the banking sector the focus is more on liquidity rather than capital,” UniCredit SpA Chief Executive Officer Federico Ghizzoni said in an interview published yesterday.

Policy makers are “determined to do everything necessary to ensure that Europe’s banks are able to play their essential role in lending,” commission President Jose Barroso told reporters in Brussels yesterday. “Close coordination at European level is essential.”

Chairing his final rate-setting meeting before handing the reins to Italy’s Mario Draghi at the end of the month, Trichet resisted calls to reverse two rate increases earlier this year even as the debt crisis threatens to tip Europe back into recession.

Klaus Baader, co-chief economist at Societe Generale SA in London, said the ECB’s decision to focus on greasing the banking sector rather than cutting rates “is a completely appropriate reaction to the current conditions” as “the problem in the euro area is not an excessively high level of short term interest rates.”

Risk to Growth

Still, the crisis has “started to infect the real economy,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt.

The ECB in September cut its growth forecasts to 1.6 percent from 1.9 percent for 2011 and to 1.3 percent from 1.7 percent for 2012. Euro-area service and manufacturing industries last month contracted for the first time in more than two years.

Deutsche Bank Chief Executive Officer Josef Ackermann blamed the slowdown in Europe for his bank’s troubles. About 42 percent of revenue from the bank’s sales and trading operations came from Europe last year, Ackermann said on Oct 4.

The bank will write down its Greek sovereign debt holdings by about 250 million euros for the third quarter after a 155- million-euro value reduction at the end of the second quarter.

Banks Gain

France’s Natixis (KN) and BNP Paribas (BNP) SA were among the biggest gainers on the 46-member Bloomberg Europe Banks and Financial Services Index yesterday. Natixis climbed as much as 13 percent, while Paribas was up as much as 7.8 percent.

Trichet yesterday said European banks and supervisors including the European Banking Authority should do everything they can to address the need for recapitalization and banks shouldn’t be reluctant to accept state help when needed.

“There finally seems to be a plan in Europe and what the ECB did yesterday certainly complemented that,” said Gilles Moec, co-chief European economist at Deutsche Bank in London. “The ECB has always been ready to step up to the plate if governments show a willingness to shoulder responsibility. It wasn’t always the case in the past, but it looks like it’s coming together now.”

To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Jeff Black in Frankfurt at Jblack25@bloomberg.net.

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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U.S. Payrolls Rise 103,000 in September, Jobless Rate 9.1%

By Bob Willis - Oct 7, 2011 7:58 PM GMT+0700
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Job seekers wait in line outside of a job fair at the Park Ridge Community Center in Park Ridge, Illinois. Photographer: Tim Boyle/Bloomberg

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Oct. 7 (Bloomberg) -- Employers added more payrolls than forecast in September, job gains were revised up in the prior two months and hours and earnings increased, helping ease concerns the U.S. labor market is deteriorating. Payrolls climbed by 103,000 workers after a revised 57,000 increase the prior month that was more than originally estimated, Labor Department data showed today in Washington. Betty Liu, Lizzie O'Leary and Michael McKee report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Oct. 7 (Bloomberg) -- Jan Hatzius, chief economist at Goldman Sachs Group, talks about the outlook for today's U.S. September non-farm payrolls report and the economy. Hatzius speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." Jeffrey Sachs, an economics professor at Columbia University, also speaks. (Source: Bloomberg)

Employers added more payrolls than forecast in September, job gains were revised up in the prior two months and hours and earnings increased, helping ease concerns the U.S. labor market is deteriorating.

Payrolls climbed by 103,000 workers after a revised 57,000 increase the prior month that was more than originally estimated, Labor Department data showed today in Washington. The median forecast in a Bloomberg News survey called for a rise of 60,000. The gain reflected the return to work of 45,000 telecommunications employees. The jobless rate held at 9.1 percent.

Faster job growth is a sign employers remain confident the U.S. will avoid a renewed slump, even as unemployment is forecast to remain above 8 percent through 2013. The risk that the world’s largest economy may fall back into a recession has prompted the Federal Reserve and President Barack Obama to announce further measures to sustain the expansion.

“It’s steady growth at a painfully slow pace,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado, who forecast a gain of 100,000 jobs. “The economy isn’t doing well but it didn’t lose the momentum that the markets feared. If anything, the third and fourth quarters will be stronger than the first and second.”

Futures on the Standard & Poor’s 500 Index expiring in December climbed 0.9 percent to 1,168.20 at 8:55 a.m. in New York after losing as much as 0.4 percent. The yield on the 10- year Treasury note rose 10 basis points to 2.09 percent.

Revisions to previous reports added a total of 99,000 jobs to payrolls in July and August. The figure for August was revised to a gain of 57,000 from no change.

Economist Estimates

Estimates of the 91 economists surveyed by Bloomberg for overall payrolls ranged from a decline of 50,000 to a 115,000 increase. The unemployment rate was projected to hold at 9.1 percent, according to the survey median.

Unemployment has exceeded 8 percent since February 2009, the longest stretch of such elevated joblessness since monthly records began in 1948.

Private payrolls, which exclude government jobs, rose 137,000 after a gain of 32,000 in the prior month, the Labor Department said.

The share of the eligible population holding a job rose to 58.3 percent from 58.2 percent.

While a labor dispute at Verizon Communications Inc. (VZ) depressed employment in August, its resolution added about 45,000 workers back to payrolls last month.

Conversely, the return of state government workers in Minnesota that lifted the August payroll count by 23,000 wasn’t repeated last month.

Government Employment

Government payrolls decreased by 34,000 in September. Employment at state governments rose by 2,000 last month while local government employment slumped 35,000.

Factory payrolls declined 13,000 in September, the biggest decrease since August 2010, after a 4,000 decline in August.

Employment at service-providers increased 85,000 in September, the most since April. Construction employment climbed 26,000 last month, the biggest gain since February and led by a jump in non-residential building payrolls.

Average hourly earnings rose 0.2 percent to $23.12, today’s report showed. The average work week for all workers climbed six minutes to 34.3 hours.

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 16.5 percent, the highest this year, from 16.2 percent. The number of Americans working part-time for “economic reasons” jumped 444,000 to 9.3 million.

Jobs Recovered

Through August, the economy had recovered about 1.9 million of the 8.75 million jobs lost as a result of the 18-month recession that ended in June 2009.

Sustained increases of around 200,000 a month are needed to bring unemployment down about a percentage point over a year, according to Eric Green, chief market economist at TD Securities Inc. in New York.

The economy expanded at a 1.3 percent pace in the second quarter following a 0.4 percent gain in the first three months of the year, the weakest performance in two years, the Commerce Department reported last week. Consumer spending grew 0.7 percent, the least since the last three months of 2009.

Jan Hatzius, chief economist at Goldman Sachs Group Inc. in New York, says the odds of a renewed U.S. recession are rising as confidence and spending have slumped. This week he said he saw a 40 percent chance the U.S. would slip back into a recession over the next year.

Julia Coronado, chief economist for North America at BNP Paribas in New York, forecasts a “mild recession.”

Fed on Economy

“Economic growth remains slow,” Fed policy makers said Sept. 21 as they announced a plan to bring down longer-term lending rates. While officials said they “expect some pickup in the pace of recovery over coming quarters,” they anticipate “the unemployment rate will decline only gradually.”

Obama last month proposed a $447 billion jobs plan that economists surveyed by Bloomberg forecast would help avoid a return to recession by maintaining growth and pushing down the unemployment rate next year.

Citigroup Inc. (C), the third-biggest U.S. bank, is among firms that have turned more cautious about hiring. It said last month it will limit hiring to only “critical” jobs as the economic slowdown continues and revenue slumps.

“We are currently only filling positions we believe are critical to the line of business or function,” Shannon Bell, a spokeswoman for the New York-based bank, said in an interview Sept. 15.

New York City

States and local governments are freezing hiring or cutting staff. New York Mayor Michael Bloomberg’s administration this week asked agency heads to cut spending by $2 billion over the next 18 months and freeze hiring on concern that a slowing economy may reduce city revenue.

“We’re looking at extreme economic uncertainty, and state and federal governments that are likely to further cut funds they return to the city,” Caswell Holloway, deputy mayor for operations, said in a statement. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

Some companies are planning to boost payrolls. Ford Motor Co. (F) this week said it has committed to add about 12,000 hourly jobs in its U.S. manufacturing plants by 2015 as part of an agreement with the United Auto Workers.

Ford said it will be “in-sourcing” jobs from Mexico, China and Japan. Ford said this will be 5,750 hourly jobs more than a previously announced 7,000 positions to be added by the end of 2012.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Stock Futures in U.S., Commodities Climb, Treasuries Tumble on Jobs Report

By Michael P. Regan and Rita Nazareth - Oct 7, 2011 7:42 PM GMT+0700
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Traders work at the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg

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Oct. 7 (Bloomberg) -- Employers added more payrolls than forecast in September, job gains were revised up in the prior two months and hours and earnings increased, helping ease concerns the U.S. labor market is deteriorating. Payrolls climbed by 103,000 workers after a revised 57,000 increase the prior month that was more than originally estimated, Labor Department data showed today in Washington. Betty Liu, Lizzie O'Leary and Michael McKee report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Oct. 7 (Bloomberg) -- Jan Hatzius, chief economist at Goldman Sachs Group, talks about the outlook for today's U.S. September non-farm payrolls report and the economy. Hatzius speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." Jeffrey Sachs, an economics professor at Columbia University, also speaks. (Source: Bloomberg)

U.S. stock-index futures and commodities rallied, erasing earlier losses, while Treasuries and the dollar tumbled after larger-than-forecast growth in jobs tempered concern that the economy was slowing.

Futures on the Standard & Poor’s 500 Index expiring in December climbed 1.1 percent to 1,170.8 at 8:40 a.m. in New York, after losing as much as 0.4 percent earlier. The S&P GSCI Index of 24 commodities rose 0.8 percent, extending its three- day advance to 6.2 percent for the best rally over a similar time period since 2009. Ten-year Treasury yields climbed 12 basis points to 2.11 percent and the Dollar Index lost 0.5 percent. European equities reversed earlier declines.

Payrolls climbed by 103,000 workers after a revised 57,000 increase the prior month, Labor Department data showed. The median forecast in a Bloomberg News survey called for a rise of 60,000. The gain including the return to work of 45,000 striking telecommunications employees. The jobless rate held at 9.1 percent.

"We’re not going into a recession," Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, said in a telephone interview. His firm oversees more than $38 billion. "The market likes the report because the expectations were so much lower. People were overly pessimistic."

U.S. stocks rallied for a third day yesterday, extending the S&P 500’s rebound from a one-year intraday low on Oct. 4 to 8.4 percent, as European officials detailed plans to tame the sovereign debt crisis and reports on retail sales and jobless claims tempered concern that the economy would relapse into a recession.

Fourth Quarter Predictions

Wall Street strategists say the S&P 500 will post the biggest fourth-quarter rally in 13 years even after they cut forecasts at a rate exceeded only during the credit crisis.

The benchmark index for U.S. stocks will climb 15 percent in the fourth quarter to end 2011 at 1,300, according to the average estimate of 12 strategists surveyed by Bloomberg. The last time they were this bullish in October was 2008, when the group predicted a 27 percent gain and the index lost 18 percent.

The S&P 500 sank 14 percent in the third quarter and this week came within 1 percent of extending its decline from its April peak to 20 percent on a closing basis, the common definition of a bear market. The slump pushed the index to 12 times reported earnings, the cheapest valuation level since 2009, according to data compiled by Bloomberg.

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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Oracle Embraces Cloud to Help Fuel Growth Without More Big Acquisitions

By Aaron Ricadela - Oct 7, 2011 11:01 AM GMT+0700

Oracle Corp. (ORCL), the world’s second- largest software maker, aims to eschew big acquisitions and promote growth from within, relying on hardware sales and a new cloud-computing service to broaden use of its products.

After gobbling up more than 70 companies in a $40 billion buying spree, any additional large deals would have to clear an “enormous hurdle,” Oracle co-President Safra Catz said yesterday at a meeting with analysts in San Francisco.

The company instead will focus on what it already has, including the Sun Microsystems server business it purchased last year for $7.4 billion. Oracle is packaging its database and business applications into customized computers to entice customers. The company also is touting its new Fusion business applications and a service called the Oracle Public Cloud, which delivers software online via cloud computing.

“People realize M&A is a big part of the Oracle growth story -- on the other hand, no one wants to see a big, dilutive acquisition,” said Bill Whyman, an analyst who covers the technology industry at ISI Group Inc.

Large deals would create distractions for management, Oracle co-President Mark Hurd said at yesterday’s event. The company will focus on “organic” growth from existing products during the current fiscal year, he said.

‘Strong Year’

“We think we’re going to have a really strong year,” said Hurd, who joined Oracle in 2010 after serving as Hewlett-Packard Co. (HPQ)’s chief executive officer.

Oracle, based in Redwood City, California, embarked on its run of acquisitions in 2005 when it bought the human-resources software maker PeopleSoft Inc. The company has relied on deals to boost sales to $35.6 billion in the fiscal year ended in May. This year, revenue is projected to rise 8 percent to $38.6 billion, according to analysts’ estimates compiled by Bloomberg.

The company combined the features it acquired from PeopleSoft, J.D. Edwards and Siebel Systems into the Fusion apps, which Oracle made available this week at its OpenWorld conference, following six years of development. Fusion software handles business tasks such as sales, human resources, finance and inventory management.

Customers will be able to run the more than 100 Fusion applications on their own computers or in Oracle’s data centers, through the Oracle Public Cloud. The cloud service will be available within weeks, the company said.

Social Network

Users can navigate the Fusion programs through the Oracle Social Network, which spotlights tasks that need completing and lets people share documents, CEO Larry Ellison said earlier this week during a demonstration of the software. The approach mimics some of the features of Salesforce.com Inc. (CRM)’s Chatter, a social- networking service for businesses.

A feud between Oracle and Salesforce escalated this week after Salesforce CEO Marc Benioff was scrubbed from a scheduled appearance at the OpenWorld show. Benioff said it was because he criticized Ellison for selling expensive computers instead of just promoting online services.

“I pissed Larry off so badly that he canceled my keynote,” Benioff said at a press conference this week.

Oracle, which ranks second to Microsoft Corp. in worldwide software sales, has seen its stock climb 9 percent over the past 12 months. The shares rose 56 cents, or 1.9 percent, to $30.07 yesterday on the Nasdaq Stock Market.

Oracle also is introducing new hardware that it developed with Sun technology. Earlier this week, the company unveiled two computer systems, one with faster data-analysis capabilities and another for organizing information from the Web, as it aims to win market share from Hewlett-Packard, International Business Machines Corp. (IBM) and SAP AG. (SAP)

‘No Confusion’

Shifting into the cloud helps Oracle keep pace with those rivals, which are delivering more software via the Internet. It also steps up Oracle’s competition with cloud pioneers, including Salesforce.

“This is a really clear sign that they’re in the cloud now -- there’s no confusion,” said Brent Thill, an analyst at UBS AG in San Francisco. He recommends buying Oracle’s shares. While the company already had the technical capability to run applications and databases in its data centers, it hasn’t delivered that message to customers until now, Thill said.

“They needed to close more of a marketing gap than a functionality gap,” Thill said.

Fusion apps mainly compete with software from Salesforce and SAP. Customers will be able to visit an Oracle website and sign up to run their apps and database software as an online service through a browser. Oracle plans to keep companies’ data separate from others’ information to bolster security.

The shift to a cloud-based subscription model won’t hurt profits or rankle buyers, Oracle said.

The cloud service is built on industry-standard technology that customers understand, Ellison said this week at OpenWorld. He didn’t speak at yesterday’s analyst meeting, following the death of Steve Jobs, a personal friend.

“Just because you go to the cloud doesn’t mean you forget everything you learned about information technology over the last 20 years,” Ellison said.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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BMW Struggling to Enlarge Mini Market With Smallest Coupe: Cars

By Chris Reiter - Oct 7, 2011 5:01 AM GMT+0700
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Mini, which was salvaged from the wreckage of the failed takeover of the U.K.’s Rover Group, is key to BMW’s strategy to meet tighter environmental standards and fend off Volkswagen AG’s Audi and Daimler AG’s Mercedes-Benz. Photographer: Hannelore Foerster/Bloomberg

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A Mini Cooper cabriolet automobile, manufactured by Bayerische Motoren Werke AG, sits on display ahead of the Frankfurt Motor Show in Frankfurt. Photographer: Jason Alden/Bloomberg

Boris Knoblich is one of the reasons why Bayerische Motoren Werke AG (BMW) is struggling to create a bigger market for the Mini.

The 37-year-old media consultant from Berlin doesn’t have the Munich-based manufacturer’s urban car brand on his shopping list, rejecting the new two-seater Mini coupe that his dealer offered as a replacement to his BMW 1-Series compact.

“It’s a bit racy-looking compared with other Minis, but too small and not variable enough,” said Knoblich, who’s considering another 1-Series as well as an Audi A3 and Auris hybrid from Toyota Motor Corp. “I need a multifunctional car.”

Mini, which was salvaged from the wreckage of the failed takeover of the U.K.’s Rover Group, is central to BMW’s strategy to meet tighter environmental standards and fend off Volkswagen AG (VOW)’s Audi and Daimler AG (DAI)’s Mercedes-Benz. The world’s biggest maker of luxury vehicles plans to tighten cooperation between Mini and the namesake brand by sharing front-wheel drive technology after the Mini hatchback is overhauled in 2014.

The $22,000 coupe, which went on sale in Europe on Oct. 1 and will hit U.S. dealers later this fall, is the first of three new Mini variants that will go on sale by the end of next year, expanding the lineup to seven similarly sized vehicles. The new models, which all share the same basic underpinnings, will probably do little beyond keeping the brand’s sales from declining as the iconic Mini hatchback ages, analysts said.

“Mini can’t do the volumes that they want with the body styles that they have,” said Rebecca Lindland, an analyst IHS Automotive in Norwalk, Connecticut. “They have to push the envelope up and down” with larger and smaller models.

Worst Seller

Growth in Mini’s deliveries will probably slow to 2.7 percent in 2012 and 1.6 percent in 2013 after jumping 23 percent this year on demand for the four-door Countryman crossover, according to IHS Automotive forecasts. The helmet-topped coupe will be joined by a roadster and the Paceman, a sportier crossover, by the end of 2012.

The roadster and coupe are set to vie for the status as the brand’s worst seller, with coupe sales pegged at 6.2 percent of 2013 deliveries of 296,240 cars and the roadster at 5 percent, according to IHS.

Audi targeted Mini with the A1 subcompact. Daimler is adding to that pressure as it rolls out five new Mercedes compact cars starting with the revamped B-Class this fall. The automaker’s Smart city car will expand beyond a two-seater from 2013, after confronting its own size limits.

Mini isn’t concerned by the potential slow sales for the derivatives and plans further expansion to the lineup and markets, said Kay Segler, the brand’s chief.

Ten Minis

“I see great potential for Mini,” said Segler in an e- mail response to questions. “There’s no limit to our creativity. We can imagine additional models with typical Mini characteristics -- up to 10 models are conceivable.”

Mini, based in Oxford, England, plans to enter India next year after expanding to Indonesia in 2011, he said. BMW is targeting record Mini sales this year, with deliveries set to rise at least 10 percent.

The coupe, which competes with $19,545 Honda CR-Z, will be Mini’s first two-seater. The loss of the rear bench leads to a drop in weight of 60 kilograms (132 pounds), helping it accelerate to 100 kilometers (62 miles) per hour in 9 seconds, one tenth of a second faster than the corresponding hatchback.

The engines are shared with other Mini models. While it’s 2.9 centimeters (1.1 inches) shorter than the hatchback, the length and width are nearly identical, reflecting the size constraints faced by the brand’s models.

High Margins

“The coupe is quirky, but that’s what Mini is,” said Garel Rhys, president of the auto industry research center at the U.K.’s Cardiff University. “BMW is showing that they’re pretty clever and innovative with the derivatives.”

The close association of the coupe with the brand’s other models should boost profit margins, especially considering its price is 1,650 euros, or 8.4 percent, more than the similarly equipped hatchback, said Jonathon Poskitt, an analyst at J.D. Power and Associates in Oxford, England.

The coupe relies on “synergies” with other models and every variant has to “stand on its own,” Mini’s Segler said.

The new two-seater will likely appeal to men under 35 looking for a conspicuous car, said Werner Entenmann, head of Autohaus Entenmann in Esslingen near Stuttgart. He celebrated the introduction of the model with a party for 800 guests, including a champagne reception and cocktails.

‘No Middle Ground’

“We expect it to be a niche, lifestyle-oriented car,” said Entenmann, who plans to reserve one or two places for the coupe in his Mini showroom, which can display up to eight vehicles. “It either fascinates or leaves people cold. There’s no middle ground.”

The coupe is part of Mini’s development toward more independence, said the dealer, who sells Mini and BMW cars. He is hoping for a larger model from the brand. So is Knoblich.

“Mini works as a city car,” said the 1-Series driver. “But I need something that’s a city car, can drive long distances and transport stuff and people. Mini doesn’t offer that right now.”

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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