Adobe to Sell Software Online to Spur Sales

By Aaron Ricadela - Oct 8, 2011 11:01 AM GMT+0700

Adobe Systems Inc. (ADBE) is overhauling the way it sells its most popular software to spur more frequent purchases by distributing programs such as Photoshop and Dreamweaver over the Internet.

Chief Technology Officer Kevin Lynch plans to release what Adobe calls its Creative Cloud software package early next year. The company will let customers rent programs on a monthly basis and share their work across PCs and mobile devices, rather than make larger purchases that can cost more than $1,000.

The move may help San Jose, California-based Adobe, the largest maker of graphic-design software, rely less on biennial releases to spur sales and record more consistent revenue growth. The Creative Cloud products make it easier for Adobe users to share their ideas over the Web, Lynch said in an interview.

“The reason we’re still here is we’re willing to change,” Lynch said in his San Francisco office, surrounded by the six computers, two tablets and a massive digital drafting table he keeps to test new product ideas. “If you look at Adobe software historically, it’s a person using a computer to make something. It’s no longer a solo experience. You’re not alone in the cloud.”

Sharing Work

Creative Cloud will move Adobe tools including the Photoshop photo-editing software, website-design tool Dreamweaver and publishing application InDesign to versions that customers can download for a subscription over the Web. They can share their work online through a so-called cloud computing service.

Adobe’s creative-solutions division supplied 45 percent of the company’s profit last quarter and delivered a gross margin of 95 percent. The company is facing competition from Apple Inc. and Microsoft Corp. and an industry shift away from its Flash technology for Web programming. The new way of selling software will add another challenge: protecting a gross profit margin that tops the software sector, according to Bloomberg data.

Computer users will pay less for online versions of Adobe’s tools than they do for versions that run on Macs and Windows PCs, said Brent Thill, an analyst at UBS AG in San Francisco.

Pricing to Come

“In the near term, the cloud is dilutive,” said Thill. Adobe, which plans to set pricing for the cloud computing version of its design tools in November, may need to keep prices affordable to attract freelance designers who are typically tight on cash, he said. Large publishing and advertising companies that use Adobe tools will continue to buy more expensive desktop versions because they’ll perform faster.

“Creative professionals don’t have a lot of money,” said Thill, who recommends buying Adobe shares because they are inexpensive. “Until the bandwidth gets good enough, no one’s going to go all the way to the cloud.”

Lynch compares the change from desktops to mobile devices and Web software to the shift from typed commands to mice 20 years ago. Creative Cloud will include access to six new “Touch Apps” for creating printed pages and websites using iPads and other tablet computers. Adobe announced the software earlier this week at a technical conference in Los Angeles.

While not as robust as Adobe’s pricey desktop tools, the Touch Apps may provide enough features to satisfy many users, said Lynch.

Soul of Photoshop

“It’s not everything Photoshop can do today on the desktop, but it is the soul of Photoshop,” he said.

Adobe has tinkered with subscription pricing before. Its Creative Suite 5.5 -- an interim release in April -- let customers download subscription-priced versions of Photoshop and Dreamweaver. This time, the company is folding Web, desktop and tablet versions of its software together under one pricing plan.

Lynch, who joined Adobe through its 2005 acquisition of his old company, Macromedia Inc., is also reckoning with the increasing popularity of HTML5 and other industry-standard software tools for creating video and graphics on the Web. Adobe got Flash in the deal, and the tools have been widely used.

Now the HTML5 programming language is supplanting them, and Adobe is adapting by supporting the new technology in more of its products. One new tool is the development software for mobile devices called PhoneGap that Adobe gained in its Oct. 3 acquisition of closely held Nitobi Software.

State of Innovation

“We see HTML in a state of great innovation right now,” said Lynch. “We are absolutely very focused on delivering new technology to the Web.”

Flash software has been shunned by Apple for its iPhone and iPad devices, most notably in a 2010 letter Steve Jobs wrote and posted online. The letter criticized Flash as outdated and ill- suited for the mobile device world.

Microsoft says the new design for Windows 8 won’t allow the use of Flash in its Internet Explorer 10 Web browser. Another version of the browser that relies on the older design of Windows will still run Flash.

Lynch declined to speculate on how relations with Apple might change in the post-Jobs era.

He preferred to recall his days as an early Mac developer in the 1980s, and of demonstrating Dreamweaver on stage with Jobs in 1997.

“He’s a very quick thinker, his patience is very short -- all that is true,” he said. Happily, the demo went well.

Adobe fell 5 cents to $25.28 yesterday in New York. The stock has dropped 18 percent this year.

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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AT&T Says Preorders for New Apple IPhone 4S Broke Company’s Sales Records

By Adam Satariano - Oct 8, 2011 7:08 AM GMT+0700

AT&T Inc. (T) received more than 200,000 preorders for the iPhone 4S in 12 hours, marking the company’s most successful debut yet for the Apple Inc. (AAPL) device.

There has been “extraordinary demand” for the new iPhone, the Dallas-based carrier said today in a statement. AT&T, along with Verizon Wireless and Sprint Nextel Corp. (S), provide service for the phone.

The rush of orders signals that there’s pent-up demand for the new model, which followed the previous version by 16 months -- longer than usual. Apple unveiled the iPhone 4S at a press conference earlier this week, pricing it at $199, $299 and $399, depending on the features. The device comes with new voice- command features and a higher-resolution camera.

It also has an A5 chip that will make graphics seven times faster than the old processor and an “intelligent antenna system” for improved call quality. The phone works with both CDMA and GSM wireless standards, and users will have up to 8 hours of talk time on one charge.

The new model will be the first Apple product release since the Oct. 5 death of co-founder Steve Jobs. The iPhone represents the company’s biggest source of revenue, accounting for nearly half of its sales. For the first time, the device is available from all three of the largest U.S. carriers. The other two, Verizon and Sprint, haven’t disclosed preorder sales.

Shares of Cupertino, California-based Apple fell $7.57, or 2 percent, to $369.80 today. The stock has risen 15 percent this year.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Jobs’s Focus May Have Hurt Gov’t Sales

By Kathleen Miller - Oct 7, 2011 10:40 PM GMT+0700
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Apple employees line the stairs as they welcome customers during the opening of the first Apple retail store in Hong Kong on Sept. 24, 2011. Photographer: Dale de la Rey/AFP/Getty Images

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People browse products inside the Apple Inc. store during the official opening in Shanghaion July 10, 2010. Photographer: Qilai Shen/Bloomberg

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“Government employees want to bring their iPhones to work,” said the University of Maryland’s Don Kettl. “There is increasing demand by individual employees to use Apple products with government work because they like them and want them.” Photo: Daniel Barry/Getty Images

Under Steve Jobs, Apple Inc. (AAPL) sold billions of dollars worth of electronics without much help from the world’s biggest buyer, the U.S. government.

That’s because Apple and Jobs, who died Oct. 5, focused on “millions of individual consumer decisions as opposed to decisions made by a small number of people for a whole lot of employees,” said Don Kettl, dean of the school of public policy at University of Maryland-College Park. “They had much more of a retail than wholesale strategy.”

Government sales may be on the rise as federal workers push to use more of the computers, mobile phones and electronic devices made by the world’s most valuable technology company. Apple has also applied for a security clearance that could result in more tablets and smart phones finding their way into the Pentagon.

In the 12 months ending Sept. 30, 2010, the latest fiscal year for which complete data are available, the federal government spent $50.8 million on Apple products, either directly or through resellers and integrators, according to data compiled by Bloomberg Government. The company, based in Cupertino, California, reported $65.2 billion in revenue for its fiscal year that ended Sept. 25, 2010.

Dell Sales

By contrast, $1.9 billion of products made by Dell Inc. (DELL), a technology company with roughly the same revenue as Apple last year, were bought by the government that year. Dell, of Round Rock, Texas, reported revenue of $61.5 billion in the 12 months ending Jan. 28, 2011.

Apple succeeded without much government business, said Stan Soloway, the president and CEO of the Professional Services Council, which lobbies on behalf of government contractors.

“Apple is emblematic of it, but certainly not the only example,” Soloway said. “Oracle, Cisco, what percentage of their work is public sector?”

Those companies “were pretty big long before they got into the government space,” Soloway said.

Steve Dowling, a spokesman for Apple, declined to comment yesterday on the company’s government sales.

Kettl says the distinction between Apple’s popularity with the consumer and federal markets, stems from a “fundamental mismatch” in orientation.

Tried to Sell

Apple revolutionized the computer, music and mobile-phone industries by designing products people “didn’t know they needed.” Government purchasing starts with U.S. agencies issuing detailed descriptions of products they want to buy, Kettl said.

Apple didn’t intentionally sidestep the federal market, said Regis McKenna, who first worked on marketing strategy with Jobs in 1977 and continued to assist the business through the mid 1990s. The Cupertino, California-based company tried to attract some government business early on, and didn’t have much luck, he said.

“Getting into the government generally requires a separate sales force,” McKenna said. “Someone who can run interference, deal with the complexities of going for federal contracts and dealing with the bid processes.”

Selling to the government can add costs as well if the government needs products tweaked to meet their specifications, McKenna said.

Something as basic as pricing may have been the reason the company hasn’t had much “traction” with the government, said Steve Kelman, who led the U.S. Office of Federal Procurement Policy under President Bill Clinton’s administration.

Too Costly?

“I know they were trying to get business,” Kelman said in an e-mail. “It is very possible that the simple answer was they were too expensive -- the government didn’t want to pay the price premium.”

In addition, the government may be slow to embrace Apple products because department office systems are based on other products that support workers have been trained to use, said Roger Waldron, the president of the Coalition for Government Procurement.

“The government is often a late adopter of technology,” said Waldron. “It’s different when you have consumers buying versus an entity. Obviously the commercial market is much more flexible, and can adopt to new technology much faster.”

For example, Research in Motion Ltd. (RIM), based in Waterloo, Ontario, is the only smartphone maker whose products have received Pentagon security certification. The federal government bought $90.2 million worth of RIM products in the fiscal year ending Sept. 30, 2010, according to data compiled by Bloomberg Government.

Seeking Certification

Apple is seeking a security certification from the National Institute of Standards and Technology, the agency that provides technology recommendations to the entire federal government. The institute certified RIM’s tablet computer, known as the PlayBook, on July 21, making it the first tablet device cleared by the agency. A decision on Apple’s iPad is pending.

This summer, the U.S. Defense Department postponed a decision on whether the iPhone and iPad can be made secure enough to gain access to the Pentagon’s networks. The Pentagon is still trying to determine whether Apple products can meet the department’s security needs, said Lt. Col. April Cunningham, a Navy spokeswoman.

“We are under a lot of pressure to leverage capabilities of Apple and other new technologies available today, including the BlackBerry PlayBook,” she said today in an e-mail.

The Air Force is testing iPads for pilots’ navigation charts and manuals. The Navy purchased some iPads to store aircrew documents, and was testing Android and Windows 7 operating systems, Navy spokeswoman Amanda Greenberg told Bloomberg in June.

There are signs that Apple’s federal fortunes are changing with civilian agencies.

The U.S. Veterans Affairs Department plans to purchase 1,000 iPads and iPhones in response to requests from some employees. Potential users will have to explain the need for the device and turn in their existing phones and computers, according to information provided by Jo Schuda, a VA spokeswoman.

“Government employees want to bring their iPhones to work,” said the University of Maryland’s Kettl. “There is increasing demand by individual employees to use Apple products with government work because they like them and want them.”

To contact the reporter on this story: Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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Second Mortgages May Cost U.S. Banks $23B: Nomura

By James Sterngold - Oct 8, 2011 3:29 AM GMT+0700

Losses on home-equity and other second mortgages may cost the four biggest U.S. banks $22.6 billion more than budgeted, with Wells Fargo & Co. (WFC) most at risk, according to Glenn Schorr, an analyst with Nomura Holdings Inc.

The tally for Wells Fargo, the largest U.S. home lender, may reach $8.79 billion after accounting for taxes and existing provisions, followed by Bank of America Corp. (BAC) at $6.2 billion, JPMorgan Chase & Co. (JPM) at $5.51 billion and Citigroup Inc. (C) at $2.12 billion, Schorr told clients in a report today. Before taxes and reserves, losses could total $73 billion, he wrote.

While the losses may be large, “we don’t see this as a ticking time bomb” for banks because of reserves and the damage will be spread over a long period, Schorr wrote. “They will be given time to address any shortfalls.”

Regulators are examining whether banks accurately valued home-equity and other second-lien mortgages and if they’ve put enough aside to cover losses, seven people with knowledge of the matter have said. Investors are skeptical about the true worth of assets held by U.S. lenders, pushing the KBW Bank Index (BKX) down about 32 percent this year to 65 percent of stated book value for the 24 companies represented.

Measured by gross losses, the tally for Charlotte, North Carolina-based Bank of America could exceed $24 billion, while Wells Fargo, based in San Francisco, may lose as much as $20 billion, Schorr estimated. New York-based JPMorgan’s liability could be $19.5 billion, while New York-based Citigroup could see as much as $8.96 billion, he said.

Thomas Kelly, a spokesman for JPMorgan, Natalie Brown at Wells Fargo, Dan Frahm at Bank of America and Citigroup’s Shannon Bell declined to comment.

Underwater Loans

The loss estimates depend on how much equity is left in the house. For Citigroup, 44 percent of its second mortgages show the homeowner’s overall debt including first mortgages is greater than the price of the home, “which would suggest little to no recovery of value if a default occurs,” according to Nomura.

Debt exceeds the home’s value in 40 percent of Wells Fargo’s second mortgages, 36 percent at Bank of America and 27 percent for JPMorgan, Nomura said.

Holders of second liens can see their investment wiped out when a homeowner defaults because a lender with a primary mortgage gets first claim on the house in a foreclosure sale. If the value drops too far, nothing is left to pay the second lien.

Schorr said losses may not be as severe as they appear at first glance because some home-equity lines of credit are first mortgages. Bankers have said borrowers tend to keep making payments as long as they’re able, even if the home’s value is “underwater,” because they want to keep access to their line of credit.

To contact the reporter on this story: James Sterngold in New York at jsterngold2@bloomberg.net.

To contact the editor responsible for this story: Rick Green in New York at rgreen18@bloomberg.net

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Demonstrations on Wall Street Risk Harm to City’s Economy, Bloomberg Says

By Henry Goldman - Oct 8, 2011 12:40 AM GMT+0700

Demonstrators protesting bank bailouts and calling for increased Wall Street regulation may harm New York City’s economy, Mayor Michael Bloomberg said.

“What they’re trying to do is take the jobs away from people working in this city,” Bloomberg said today during his weekly appearance on WOR radio. “They’re trying to take away the tax base we have. None of this is good for tourism.”

The mayor’s comments are his first addressing the economic impact of the protests, which began Sept. 17. The demonstrations have cost the city about $1.9 million in officers’ overtime, Police Commissioner Raymond Kelly said today.

Wall Street contributed about 7 percent of city tax revenue in fiscal 2010, according to a November report by state Comptroller Thomas DiNapoli. DiNapoli, who described the securities industry as the city’s “economic engine,” said one in seven jobs in the city, and one in 13 in the state, is associated with Wall Street.

The Occupy Wall Street movement that began in Lower Manhattan’s Zuccotti Park has spread to more than 45 U.S. states and to cities including Washington, Boston, Seattle, Chicago and Denver. U.S. labor unions support the demonstrations, AFL-CIO President Richard Trumka has said.

At least 723 demonstrators have been arrested in Manhattan. Police department spokesman Paul Browne has said officers used pepper spray and batons on some to keep order.

Under Investigation

Allegations of excessive force are being investigated, Kelly told reporters today at police headquarters in Manhattan.

“Complaints have been made and those complaints have been referred to the Civilian Complaint board,” he said.

Bloomberg’s remarks came in response to a woman who lives near the protest site. She telephoned the radio program to complain about noise from the demonstrators.

“I couldn’t agree with you more; you have a right, too,” the mayor told the woman. “We are trying to deal with this in a way that doesn’t make the problem grow and protects everybody’s rights.”

Some demonstrators have “legitimate complaints,” the mayor said. At the same time, he said, if financial jobs are jeopardized, “we’re not going to have any money to pay our municipal employees or clean the parks or anything else.”

The mayor is founder and majority owner of Bloomberg News parent Bloomberg News.

To contact the reporter on this story: Henry Goldman in New York City Hall at hgoldman@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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Morgan Stanley Credit Risk Plunges for Fourth Day, Swaps Show

By Shannon D. Harrington and Christine Harper - Oct 8, 2011 3:13 AM GMT+0700

The cost to protect Morgan Stanley (MS) bonds against losses dropped for the fourth day as concern eased that its balance sheet will be impaired by Europe’s sovereign debt crisis and Goldman Sachs Group Inc. (GS) analysts said investors should wager on the bank’s creditworthiness.

Credit-default swaps on Morgan Stanley fell 43 basis points to 431 basis points as of 3:49 p.m. in New York, according to prices from London-based data provider CMA. The five-year contracts have declined from 650 basis points on Oct. 4, the highest since October 2008, the month after Lehman Brothers Holdings Inc. filed for bankruptcy.

Creditor confidence in New York-based Morgan Stanley is rebounding after crumbling for two straight weeks amid speculation the firm faced losses tied to Europe’s fiscal imbalances that has sent borrowing costs on governments from Greece to Italy to records and triggered drops in the stocks of the region’s lenders, led by French banks.

“We believe concerns regarding its European swap and loan exposures appear overdone, as the firm signaled its net exposures to France and the periphery are modest if not immaterial,” Goldman Sachs analysts and strategists including John Marshall , Louise Pitt and Daniel Harris said in a note today.

The analysts recommended investors sell protection with one-year contracts tied to Morgan Stanley debt that were quoted at about 640 basis points. That’s equivalent to about $640,000 on a contract protecting $10 million of debt.

The surge in credit swaps doesn’t “reflect actual credit fundamentals” for a bank a with a $182 billion global liquidity pool at the end of the second quarter, they said.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

Cross-Border Exposure

Morgan Stanley had about $28 billion of cross-border exposure to French banks at the end of June before accounting for offsetting hedges and collateral, according to a 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.

While Morgan Stanley hasn’t updated those figures, the total risk to France and the country’s lenders is less than $2 billion when collateral and hedges are included, Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York estimated in a Sept. 23 note to clients. The bank’s current exposure to the nation and its banks is zero after hedges and collateral, a person close to the firm said Sept. 30.

Relative to Peers

Disclosures by the company when it announces third-quarter earnings this month are likely to calm fears, causing credit swaps to narrow relative to peers, the Goldman Sachs strategists said.

Morgan Stanley’s credit swaps through yesterday were trading 164 basis points wider than the average of the six- biggest U.S. banks, according to prices from London-based data provider CMA. The gap reached 226 basis points at the close of trading on Oct. 3, the widest since October 2008.

Swaps on other banks also decreased today. Contracts on Citigroup Inc. (C) fell 10 basis points to a mid-price of 290 basis points, Bank of America Corp. (BAC) dropped 5 to 394 and swaps on Goldman Sachs declined 19 to 355, CMA prices show.

A benchmark gauge of U.S. company credit risk snapped three days of declines as Fitch Ratings downgraded Spain and Italy, overshadowing positive jobs data in the U.S.

The Markit CDX North America Investment Grade Index , which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 0.7 basis point to a mid- price of 139.6 basis points as of 3:58 p.m. in New York, according to index administrator Markit Group Ltd. The measure had earlier declined as much as 2.6.

Payrolls Data

The swaps index, which typically rises as investor confidence deteriorates and falls as it improves, has dropped from 150.1 on Oct. 3 as investor speculation grew that Europe’s leaders are progressing in stemming the debt crisis.

“September’s payrolls data is a light in the middle of the tunnel for the credit markets,” said Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia. “It’s not enough to ease investor anxiety permanently, but it should provide a catalyst for some relief to these wider spreads.”

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.

To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; David Scheer at dscheer@bloomberg.net

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Energy Official With Solyndra Links Pressed for Loan

By Jim Snyder - Oct 8, 2011 5:32 AM GMT+0700

A fundraiser for President Barack Obama who became an Energy Department official pressed colleagues to approve Solyndra LLC’s application for a $535 million U.S. loan guarantee after he was barred from participating in the decision, according to e-mails.

Steve Spinner, who advised the loan guarantee program, was recused from discussions about aiding Solyndra, the California maker of solar panels that filed for bankruptcy Sept. 6. Spinner’s wife worked at a law firm that represented the company.

Spinner raised at least $500,000 for Obama’s 2008 presidential campaign, according to the Center for Responsive Politics. E-mails obtained today show that Spinner was active in discussions related to the loan guarantee, which is the subject of a congressional investigation. The Justice Department is also investigating the company for possible fraud.

The White House and vice president’s office are “breathing down my neck on this ... just want to make sure we get their questions,” Spinner wrote in an Aug. 28, 2009, e-mail to another Energy Department official. “They’re getting itchy to get involved if needed. I don’t want that.”

In the e-mail, Spinner asked if officials in the Office of Management and Budget, which was responsible for helping to weigh the risks of the loan guarantee, had signed off on the project. “How ---- hard is this?” Spinner wrote.

Republican Questions

The e-mails were part of a new batch of documents the White House sent today to congressional investigators. Republicans have questioned whether politics played a role in the decision to give Solyndra the first and biggest loan guarantee to a solar manufacturer.

The documents don’t undermine the administration’s position that the decision on the loan was merit-based, an administration official who asked not be identified discussing the materials sent to Congress, said today.

In a Sept. 29 news release, the Energy Department said Spinner was barred from engaging in discussions affecting specific loan applications in which his spouse’s law firm was involved.

The firm, Wilson, Sonsini, Goodrick & Rosati, has said Allison Spinner didn’t do work for Solyndra, according to the department statement. Spinner joined the department at the end of April 2009 after it had given a conditional commitment for the award, according to the statement. Solyndra won final approval in September 2009.

Allowed to ‘Oversee’

Because Spinner’s wife didn’t participate in or benefit from her law firm’s work for Solyndra, he “was authorized to oversee and monitor the progress of applications, ensure that the program met its deadlines and milestones, and coordinate possible public announcements,” Damien LaVera, an Energy Department spokesman, said today in an e-mail.

“He was not allowed to make decisions on the terms or conditions of any particular loan guarantee or decide whether or not a particular transaction was approved.”

Spinner left the department at the end of September 2010, the Energy Department said. Spinner, who is now a fellow at the Center for American Progress, a Washington organization that advises Democrats, didn’t respond to phone and e-mail requests for comment.

In addition to raising more than $500,000 for Obama, Spinner and his family gave $15,150 to federal candidates in the 2008 campaign, according to the website of the Center for Responsive Politics in Washington, which tracks political fundraising.

Treasury Official’s Doubts

The e-mails sent to Congress today also show a Treasury Department official expressed concern that a restructuring of Solyndra’s loan guarantee approved by the administration in February may have violated the law and Department of Energy regulations because it gave taxpayer debt a back seat to $75 million in new investment in the case of liquidation.

“Our legal counsel believes that the statute and the DoE regulations both require that the guaranteed loan should not be subordinate to any loan or other debt obligation,” Mary J. Miller, assistant secretary for financial markets at the Treasury, wrote in an Aug. 17, 2011, e-mail to Office of Management and Budget deputy director Jeffrey Zients.

By the time Miller wrote the e-mail, the company was approaching bankruptcy and administration officials were discussing Solyndra’s request for a second loan restructuring. The Energy Department denied that request on Aug. 30, and the company closed its doors the next day.

House Energy Committee Chairman Fred Upton, a Michigan Republican, and Representative Cliff Stearns, a Florida Republican and chairman of the investigations panel, sent a letter to Treasury Secretary Timothy Geithner today demanding all documents relating to the loan guarantee.

Obama’s Interest

The e-mails also show White House interest in promoting Solyndra even after early indications the company was facing financial difficulties.

Aditya Kumar, an aide to White House Chief of Staff Rahm Emanuel, wrote in an Aug. 13, 2009, e-mail that Obama “definitely wants” to take part in an event announcing final approval of the loan guarantee.

Vice President Joe Biden ended up participating by video feed. Energy Secretary Steven Chu attended the groundbreaking for the new plant to be paid for in part with the U.S. loan on Sept. 4, 2009.

Kaiser’s Biography

In an Aug. 19, 2009, e-mail Kumar asked Spinner to respond to concerns in the White House’s Energy and Climate Change office about the Solyndra deal.

“It’s a great announcement that will be well received,” Spinner, who has described himself as an investor in clean- technology and Internet companies, wrote in an e-mail to Kumar.

In another e-mail to Kumar, Spinner listed Solyndra’s major investors and attached a biography of George Kaiser, an Oklahoma billionaire and Obama fundraiser whose family foundation invested in the solar panel company.

Republicans have cited Kaiser’s connection with Solyndra to suggest political considerations influenced the award. The White House and the foundation say Kaiser didn’t lobby for the guarantee.

The chief executive officer of a rival solar company wrote an Energy Department loan guarantee official on Feb. 25, 2009, citing Solyndra’s “well-publicized rapidly deteriorating financial state.”

“I would appreciate clarification from you about whether the DoE loan guarantee program is suitable as a ‘bail-out’ program for failing private manufacturers,” Martin Roscheisen, CEO of NanoSolar Inc., based in San Jose, California, said.

To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

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Princeton Investments Gained 22% in Past Year

By Gillian Wee - Oct 8, 2011 2:27 AM GMT+0700
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Pedestrians walk past a statue of former Princeton University president John Witherspoon near the East Pyne building on the school's campus. Photographer: Emile Wamsteker/Bloomberg

Princeton University’s investments returned 22 percent in the past fiscal year, matching the performance of Yale University, the top-performing Ivy League school so far this year.

The endowment was valued at $17.1 billion as of June 30, the Princeton, New Jersey, school said today on its website.

Endowments at the richest U.S. universities have risen for two consecutive years, following record losses in the aftermath of the September 2008 Lehman Brothers Holdings Inc. (LEHMQ) bankruptcy. The fund at Yale, in New Haven, Connecticut, gained 22 percent, while investments at Harvard University, the world’s richest school, increased 21 percent.

Over the past decade, Princeton’s investments generated an average annual gain of 9.8 percent, compared with the 10 percent increase of Yale, the 9.4 percent return of Harvard and the 9.3 percent increase of Stanford University near Palo Alto, California.

Yale and Princeton are leading the Ivy League schools that have reported results so far. The group consists of eight selective private schools in the northeastern U.S.

The University of Pennsylvania in Philadelphia said Sept. 15 its $6.58 billion fund gained 19 percent, helped by rising stock markets. Cornell University in Ithaca, New York, said Sept. 28 that its $5.35 billion fund climbed 20 percent.

Dartmouth College in Hanover, New Hampshire, is the worst performer so far in the Ivy League. The university said Sept. 28 that investments rose 18 percent for the year ended June 30, boosted by stocks and venture capital and gains across asset classes. Investment returns helped increase the endowment to $3.41 billion, after more than $40 million in new gifts and transfers, partly offset by distributions, Dartmouth said.

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net

To contact the editor responsible for this story: Larry Edelman at ledelman3@bloomberg.net

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BofA Hands Krawcheck $6 Million Severance After Her Ouster

By Hugh Son - Oct 8, 2011 4:43 AM GMT+0700
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Sallie Krawcheck, seen here as president of global wealth and investment management for Bank of America Corp. Photographer: Jin Lee/Bloomberg

Bank of America Corp. (BAC), the lender seeking to trim expenses by eliminating at least 30,000 jobs, will pay former wealth-management division head Sallie L. Krawcheck $6 million after her dismissal last month.

That sum includes one year of her former salary, or $850,000, and a one-time payment of $5.15 million to be awarded in 2012, the Charlotte, North Carolina-based bank said today in a filing. Joseph Price, whose position was also eliminated, gets a $5 million package, the bank said.

Chief Executive Officer Brian T. Moynihan ousted Krawcheck and Price in September as part of his effort to streamline the biggest U.S. bank amid mortgage-related losses and a 56 percent share decline this year. His target is to reduce annual costs at consumer banking units by $5 billion, mostly through job cuts.

“This is yet another story about a corporate executive getting significant amounts of money after they’ve left their employer,” said Richard Lipstein, a managing director for headhunter Boyden Global Executive Search. “She was part of a restructuring that eliminated a layer of management; at her level, there are certain obligations that have to be fulfilled if you leave for non-cause.”

Price, 50, ran consumer banking and credit cards. Just like Krawcheck, 46, he will get $850,000 in installment payments, and his one-time award of $4.15 million is contingent upon not breaching a contract with the lender.

The executives agreed to release Bank of America from claims, and to refrain from competing with the firm, soliciting employees or luring away customers for one year. They will receive health care benefits until the agreement expires in 2012, the bank said.

Krawcheck also stepped down from the Financial Industry Regulatory Authority’s board of governors, said Nancy Condon, a spokeswoman for the brokerage-industry watchdog, declining to elaborate.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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Sprint Falls After Saying It Needs Capital

By Scott Moritz and Sarah Frier - Oct 8, 2011 3:44 AM GMT+0700
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Pedestrians walk past a Sprint Nextel Corp. retail store in New York. Photographer: Andrew Harrer/Bloomberg

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Dan Hesse, chief executive officer of Sprint Nextel Corp., speaks at a strategy session for business and financial analysts in New York on Oct. 7, 2007. Photographer: Rick Maiman/Bloomberg

Sprint Nextel Corp. (S), the third- largest U.S. wireless carrier, slumped the most in almost three years in New York trading after saying it needs to raise more capital as it spends on a network upgrade and new handsets.

“Do we need to access the markets? Yes,” Chief Financial Officer Joseph Euteneuer said at a meeting with investors in New York today. “But we have flexibility on that timing,” he said, adding that Sprint has enough money to handle debt maturities through March 2012.

The unprofitable carrier is spending on a faster network and devices such as the iPhone to lure customers from larger rivals AT&T Inc. (T) and Verizon Wireless, which also offer the Apple Inc. phone. Sprint has $19.8 billion in outstanding debt, more than half of which is due in the next five years, according to data compiled by Bloomberg. Sprint said it has about $5.3 billion in cash and credit available.

In July, Sprint posted its 15th consecutive quarterly loss and reported more contract customers defected than some analysts had estimated. The carrier this week became the third U.S. operator offering the iPhone, the new version of which is available for pre-order online this morning.

Sprint, based in Overland Park, Kansas, fell 60 cents, or 20 percent, to $2.41 in New York trading today, the most since December 2008. The shares have lost 43 percent this year.

‘Un-investable’

Investors and analysts who went in to Sprint’s event with questions came away mostly without answers.

“For weeks, Sprint’s management team has been avoiding all questions about their future by telling people to wait for today’s investor meeting in which they promised that all questions would be answered,” Walter Piecyk, an analyst with BTIG LLC, wrote in a research note after the event.

Sprint executives didn’t address questions about the iPhone’s impact on sales and costs, and they didn’t give sales or earnings forecasts. They didn’t say whether relationship with network partner Clearwire Corp. (CLWR) will continue longer term.

“We believe Sprint is un-investable until they can provide better clarity on EBITDA, their 4G strategy and their capital structure,” Piecyk wrote.

No ‘Good View’

Euteneuer said Sprint plans to be “opportunistic” with the timing of raising capital.

“Sometime between now and 2013 we will need to raise funding,” Euteneuer said in an interview at the event.

Sprint said capital spending, including expenses for upgrading its network, will be $10 billion over 2012 and 2013, compared with the $3 billion company projected for this year. The company said its spending plans didn’t include the iPhone.

The spending plan and Sprint’s vague forecasts means that there are many financial and strategic issues left unresolved, said John Hodulik, an analyst with UBS AG.

“People wanted guidance and there was no guidance,” said Hodulik, who was attending the show. “They did not provide a good view of 2012.”

Analysts have estimated that the customer acquisition costs tied to the iPhone, which commands a higher subsidy than other smartphones, may cut Sprint’s wireless margins almost in half. The company has committed to buy at least 30.5 million iPhones over four years, which would cost $20 billion at current rates, the Wall Street Journal reported this week.

‘Negative Impact’

Both AT&T and Verizon’s profitability took a hit when they began offering the iPhone. Carriers are betting that the short- term expenses are justified in return for higher-spending customers signing on for two-year contracts.

“The iPhone subsidies will have a negative impact,” said Dave Novosel, a bond analyst with Gimme Credit LLC. Novosel predicts that the spending on network upgrades and the cost of iPhone sales will drag Sprint’s free cash flow down to about $1 billion in 2011 from more than $2 billion last year.

Sprint Chief Executive Officer Dan Hesse said the iPhone will be one of the company’s most profitable devices.

Hesse also said the company will begin operating its long- term evolution network in mid-2012. Sprint has pledged $5 billion to upgrade its network and add LTE, a standard used by AT&T and Verizon. Sprint’s investment will ensure that the company is able to support devices’ increasing data demands and run them on what will be a more common network technology.

The LTE upgrade -- Sprint’s biggest investment in three years, according to Wells Fargo & Co. analyst Jennifer Fritzsche -- also signals a move away from a rival high-speed technology called WiMax. Sprint currently uses Clearwire’s WiMax network to offer high-speed services.

Debt Obligations

Sprint has more debt coming due over the next two years than any other speculative-grade company, Moody’s Investors Service analysts led by Kevin Cassidy wrote in a Sept. 23 note to clients.

The company faces $2 billion of bonds and a $250 million term loan maturing in 2012 as well as $1.77 billion of notes and a $2.1 billion revolving credit line coming due in 2013, according to data compiled by Bloomberg. It had borrowed $1.2 billion against the credit facility as of June 30, it said a filing with the Securities and Exchange Commission.

Sprint is rated B1 by Moody’s and BB-, one step lower, by Standard & Poor’s. High-yield, high-risk, or speculative-grade, debt is ranked below Baa3 by Moody’s and less than BBB- by S&P.

Contracts protecting against the company’s default for five years increased 4.5 percentage points to 15 percent upfront, according to data provider CMA. That’s in addition to 5 percent a year, meaning it would cost $1.5 million initially and $500,000 annually to protect $10 million of Sprint’s debt.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. The contracts, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decline as investor confidence improves and rise as it deteriorates.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Cracks on 767 Spur FAA to Expand Checks

By Mary Jane Credeur - Oct 8, 2011 3:41 AM GMT+0700

United Continental Holdings Inc. (UAL), Delta Air Lines Inc. (DAL), American Airlines and other U.S. carriers may need to inspect their Boeing Co. (BA) 767s twice as often after one operator found “significant crack sizes” had developed sooner than expected.

Airlines should inspect the twin-engine jets after 2,000 flight cycles or 6,000 flight hours, double the current requirement, the Federal Aviation Administration said in a proposal to be published in the Federal Register next week. The rule may affect 417 planes in the U.S., the agency estimated.

The FAA is proposing heightened scrutiny of the wing skin after cracks as large as a half-inch (1.3 centimeters) were found on either side of a fastener hole on a plane that had 18,900 flight cycles and 89,500 total flight hours. The 767 is a wide-body plane typically used on international flights.

“We support the rule proposed by FAA,” Julie O’Donnell, a spokeswoman for Chicago-based Boeing, wrote in an e-mailed message. The change “essentially would mandate the recommendations that Boeing first made to operators in a service bulletin in 2009 and revised in March 2011.”

Delta is one of the biggest operators of 767s, with 92 of the jets, some of which are an average of 19.7 years old, according to the Atlanta-based carrier’s most recent annual report. Fort Worth, Texas-based American has 73 of the planes, some of them 24 years old; Chicago-based United has 61 of the planes, some 18.3 years old.

Delta, United Continental

Delta wasn’t the unnamed airline whose 767 had the cracks, spokeswoman Ashley Black wrote in an e-mail. The company is in compliance with current FAA inspection requirements and will follow any changes that the agency makes, she said.

United Continental also complies with FAA directives and will continue to do so, said Megan McCarthy, a spokeswoman for the carrier.

“We’re watching it closely,” she said.

Spokesmen for the other carriers didn’t immediately comment on the proposed regulation.

Earlier this year, Boeing called for more inspections on older 737 narrow-body jets after a Southwest Airlines Co. (LUV) plane split open midflight, prompting an emergency landing. Two people were injured.

Metal fatigue cracks on the so-called 737 Classic weren’t forecast to occur until “much later,” after 60,000 cycles of takeoffs and landings, Boeing said in April. The Southwest jet that ripped open on an April 1 flight had flown 39,781 cycles.

Investigators said the Southwest plane’s fissure was caused by weakened fasteners in joints along the crown of the jet, and Dallas-based Southwest later found cracks on five more 737s. Boeing developed repair plans for the aircraft.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.

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Disney’s Iger to Cede CEO Role in 2015

By Ronald Grover - Oct 8, 2011 3:23 AM GMT+0700

Walt Disney Co. (DIS) said Chief Executive Officer Robert Iger will take on the added role of chairman next year at the theme-park and entertainment company, part of a plan to appoint a new CEO in 2015.

Iger, 60, will succeed John E. Pepper at the annual meeting in March, Burbank, California-based Disney said today in a statement. Pepper, 73, a former chairman and CEO of Procter & Gamble Co., has led the board since 2007.

Disney didn’t name a successor for Iger, who oversaw the acquisitions of Pixar and Marvel in the past five years and will become executive chairman in 2015. The company will combine the top roles for the first time since 2004, when CEO Michael Eisner was stripped of the chairmanship after a failed proxy fight waged by Roy Disney, Walt’s nephew. The company wanted to keep Iger and have a smooth transition, Pepper said.

“I’m totally surprised that they would do this again,” said Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance. “Why stick your head in a blender? An executive just shouldn’t be in charge of the board that monitors him.”

Two of Disney’s top executives, Tom Staggs and Jay Rasulo, swapped roles at the end of 2009, with Chief Financial Officer Staggs assuming the job of parks chief and Rasulo becoming CFO, in a move designed to bolster the experience of both men.

Race to the Top?

Iger “set up a race between the two by having them switch jobs that ought to help him make that decision,” said David Joyce, a Miller Tabak & Co. analyst in New York who recommends buying Disney shares. “They are both 20-year veterans at the company and have strong operational backgrounds.”

Disney’s largest business is media networks, led by Anne Sweeney and George Bodenheimer, co-chairmen. The division, which includes ESPN, ABC and the Disney Channel, had $17.2 billion in fiscal 2010 sales and contributed two-thirds of Disney’s $7.6 billion in operating income.

Disney fell 33 cents to $31.70 at the close in New York and has declined 15 percent this year.

The company also extended Iger’s contract through 2016 and is increasing his salary to $2.5 million annually from $2 million now. The new agreement includes a $12 million annual cash bonus target, as well as options and restricted stock valued at $15.5 million, Disney said. His current agreement ends in 2013.

‘Strong Performer’

“Iger has made some forward thinking moves that have made the company a strong performer,” Joyce said in an interview. “He was the first to embrace digital technology and positioned the company well with the Pixar and Marvel acquisitions.”

The bonus is based on performance yardsticks that include operating income, return on capital, after-tax free cash flow and earnings per share, the company said. The stock awards will be based on total shareholder return and earnings per share, relative to the S&P 500.

In the announcement, Disney said total shareholder return under Iger is five times higher than the S&P 500 index since he took over as CEO.

“The board is delighted that the company has been able to secure the longer-term continuation of Bob’s unique blend of experience and leadership skills,” Pepper said. Iger “will continue to serve the long-term interests of shareholders.”

As part of the transition, Disney will appoint an independent lead director when Iger becomes chairman, according to the statement.

Iger was named president of Disney in 2000 and succeeded Eisner as CEO in October 2005. He led the $8.06 billion purchase of the Pixar animation studio in 2006 and the $4.2 billion acquisition of Marvel Entertainment in 2010. He previously headed Disney’s ABC television unit.

To contact the reporter on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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Payrolls Beat Forecast as Concerns Ease

By Bob Willis - Oct 8, 2011 3:04 AM GMT+0700

American employers added more workers in September than forecast and figures for the prior two months were revised higher, easing concern the economy is tipping into another recession.

Payrolls rose by 103,000 after a 57,000 gain in August, the Labor Department said today in Washington. The median forecast in a Bloomberg News survey of economists called for an increase of 60,000. The figures reflected the end of a strike at Verizon Communications Inc. (VZ) that brought 45,000 people back to work. The jobless rate held at 9.1 percent.

Treasuries fell as the report added to evidence the world’s largest economy is maintaining its expansion. The pace of job growth is still too slow to push down the unemployment rate as companies hold back on hiring amid the debt crisis in Europe, political gridlock in the U.S. and a decline in stock prices.

“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.”

The yield on the 10-year Treasury note rose to 2.07 percent at 4 p.m. in New York from 1.99 percent late yesterday. The Standard & Poor’s 500 Index fell 0.8 percent to 1,155.46 at the close in New York.

Hours and earnings both increased, the report showed, and revisions to previous reports added a total of 99,000 jobs to payrolls in July and August.

Week of Data

The report capped a week of data indicating the economy is gaining strength after growing at the slowest pace in two years in the first half of 2011.

Manufacturing unexpectedly accelerated in September, propelled by gains in exports and production, according to figures from the Institute for Supply Management. Construction spending expanded in August, and orders for capital equipment increased by the most in three months, government data showed.

“The economy is certainly not as weak as it was thought to be over the last couple of months,” said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Labor Secretary Hilda Solis used the report to push President Barack Obama’s $447 billion jobs plan consisting of tax cuts and infrastructure projects.

“We need to do more,” Solis said in a Bloomberg Television interview. Obama’s plan, proposed last month, will create between 1 million to 1.9 million jobs, she said.

Ford Motor

Ford Motor Co. (F) is among companies planning to boost payrolls, saying 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.

Other companies are more cautious. Citigroup Inc. (C), the third-biggest U.S. bank, 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.

Sustained increases of around 200,000 jobs a month are needed to reduce the jobless rate by about a percentage point over a year, according to Eric Green, chief market economist at TD Securities Inc. in New York.

Bringing Down Unemployment

“This is not the kind of job growth that brings unemployment down,” James Glassman, senior economist at JP Morgan Chase & Co. in New York, said in an interview on “Bloomberg Surveillance” with Tom Keene.

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.

More Americans who would like a full-time job are settling for part-time work instead. They are counted in the underemployment rate, which increased to 16.5 percent, the highest this year, from 16.2 percent. The number of people working part-time for “economic reasons” jumped 444,000 to 9.3 million.

Unemployment has exceeded 8 percent since February 2009, the longest stretch of such elevated joblessness since monthly records began in 1948. Through September, the economy had recovered about 2.09 million of the 8.75 million jobs lost as a result of the 18-month recession that ended in June 2009.

Federal Reserve

“Economic growth remains slow,” Federal Reserve 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.”

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

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, the biggest gain since February and led by a jump in non- residential building.

Hourly Earnings

Average hourly earnings rose 0.2 percent to $23.12. The average work week for all workers climbed six minutes to 34.3 hours.

Government payrolls decreased by 34,000 last month. Employment rose by 2,000 at state governments and slumped 35,000 at the local level.

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.

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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Stocks Retreat as Financial Stocks Decline

By Rita Nazareth - Oct 8, 2011 3:00 AM GMT+0700

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Oct. 7 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks retreated, trimming a weekly advance for the Standard & Poor’s 500 Index, as concern Europe’s debt crisis will worsen overshadowed faster-than-forecast growth in American employment. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

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Oct. 7 (Bloomberg) -- Don Yacktman, president of Yacktman Asset Management Co., talks about the performance of the U.S. stock market, his investment strategy and his holdings in News Corp., PepsiCo Inc. and Research In Motion Ltd. Yacktman and Lincoln Ellis, managing director at Linn Group and chief investment officer at Strategic Financial Group, speak with Adam Johnson and Lisa Murphy on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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Oct. 7 (Bloomberg) -- Lincoln Ellis, chief investment officer at Strategic Financial Group, talks about his investment strategy for commodities. Ellis speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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Oct. 7 (Bloomberg) -- Scott Redler, chief strategic officer at T3 Capital, talks about his investment strategy and the outlook for the Standard & Poor's 500 Index. Redler speaks with Scarlet Fu on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

U.S. stocks fell, trimming a weekly advance for the Standard & Poor’s 500 Index, as concern Europe’s debt crisis will worsen overshadowed faster-than forecast growth in American employment.

The S&P 500 retreated 0.8 percent to 1,155.53 at 4 p.m. New York time, according to preliminary closing data. The index fell as much as 1.3 percent and rose 0.6 percent.

“Investors are understandably nervous,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a telephone interview. His firm oversees $3.66 trillion as the world’s largest asset manager. “You don’t know what’s going to happen in Europe. The U.S. economy is growing sufficiently slowly that it’s unlikely to bring the unemployment rate down, but it doesn’t appear to be sliding back into a recession. If Europe can stabilize, chances are we’ve made a bottom in stocks.”

The S&P 500 this week came within 1 percent of extending its decline from its April peak to 20 percent, the common definition of a bear market. The gauge rallied 8.4 percent from its Oct. 4 intraday low through yesterday, and is up 2.1 percent for the week.

Jobs Data

Stocks initially rose today as Labor Department data showed employers added more payrolls than forecast in September, job gains were revised up in the prior two months and hours and earnings increased. The jobless rate held at 9.1 percent.

The rate by which data on the economy has been trailing forecasts has been decreasing since June, according to the Citigroup Economic Surprise Index. The U.S. gauge, which fell below zero on April 29 as the S&P 500 was peaking, has climbed from a low of minus-117.2 on June 3 to minus-7.5.

“We’re not in recession, but the jobs report is not a robust number,” said Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp., which has $1.65 trillion in client assets. “Unemployment is still 9.1 percent and these numbers aren’t enough to bring it down to any great degree. Slow growth is probably the most likely path over the next three to six months.”

Pacific Investment Management Co.’s Bill Gross said job gains in September aren’t enough to sustain growth in the U.S. economy and that neither political party understands what’s needed to boost employment. The economy needs 200,000 to 250,000 new jobs per month to expand, Gross, manager of the world’s biggest bond fund, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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U.S. Consumer Credit Decreased $9.5B in August

By Vincent Del Giudice - Oct 8, 2011 2:38 AM GMT+0700

Consumer credit in the U.S. unexpectedly dropped in August by the most in over a year.

The $9.5 billion decrease followed an $11.9 billion increase the previous month, the Federal Reserve said today in Washington. Non-revolving credit, which includes student loans and financing for automobile purchases, slumped by the most in three years.

Decreasing credit shows American households are either continuing to pay down debt or lack the confidence to boost spending on non-essential goods. A thawing of credit and a faster pace of purchases may require bigger gains in income and payrolls.

“Consumers were cautious over taking on additional debt at the end of the summer after the volatility in the stock markets and the uncertainty caused by the failure of Congress to work together to bring down these trillion-dollar deficits,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before today’s report.

The median forecast of 33 economists surveyed by Bloomberg News called for an $8 billion increase in consumer credit in August. Estimates ranged from gains of $2 billion to $10.9 billion.

Employers added more jobs than forecast in September, another report today showed. Payrolls climbed by 103,000 workers after a revised 57,000 gain the prior month that was more than initially estimated, the Labor Department said.

Shares Drop

U.S. stocks rose, weathering a midday selloff triggered by credit downgrades of Italy and Spain, as stronger-than-forecast jobs growth tempered concerns that the world’s largest economy will relapse into a recession. The Standard & Poor’s 500 Index climbed 0.3 percent to 1,167.87 at 3:37 p.m. in New York.

Non-revolving debt, including educational loans and loans for autos and mobile homes, dropped by $7.23 billion in August, the biggest decrease since Aug. 2008. Revolving debt, which includes credit cards, fell by $2.27 billion. The report doesn’t track debt secured by real estate, such as home equity lines of credit and home mortgages.

The drop in lending may not have been repeated last month. Auto purchases ran at a 13.04 million annual rate in September, up from a 12.1 million pace the prior month, according to industry statistics. August was down from a 12.2 million pace a month earlier.

Auto Sales

General Motors Co., Chrysler Group LLC and Nissan Motor Co. increased sales. GM deliveries rose 18 percent from a year earlier to 218,479 cars and light trucks, Detroit-based GM said Sept. 1. Chrysler sales advanced 31 percent and Nissan increased 19 percent.

“Weak economy or not, non-revolving credit is going to bounce back in September,” said Rupkey.

Consumer spending rose at a slower pace in August as income dropped for the first time in almost two years, according to Commerce Department statistics issued Sept. 30. Purchases climbed 0.2 percent after a 0.7 percent increase the prior month. A 0.2 percent advance in prices wiped out the gain in so- called nominal, or unadjusted, spending.

Americans are making progress mending their balance sheets.

David Nelms, chairman and chief executive officer at Discover Financial Services, said on a Sept. 22 conference call that there is “continuing improvement in credit, as our delinquency rate in card reached a 25-year low at 2.43 percent. And for the first time since 2007, our card net charge-off rate dropped below 4 percent.”

The credit-card issuer and payments network reported its third-quarter profit advanced as loan-loss provisions declined.

To contact the reporter on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net

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

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