Putin Courts China to Bridge Divide on Gas

By Bloomberg News - Oct 11, 2011 6:12 PM GMT+0700
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Vladimir Putin, Russia's prime minister, right, walks past an honour guard after arriving at Beijing International Airport. Photographer: Liu Jin/AFP/Getty Images

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Oct. 11 (Bloomberg) -- Alexander Morozov, chief economist for Russia at HSBC Holdings Plc, talks about Prime Minister Vladimir Putin's visit to China and efforts to bridge differences on gas exports. He speaks from Moscow with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

Prime Minister Vladimir Putin said Russia is nearing an agreement with China to supply natural gas to the world’s biggest energy consumer

“Those who sell always want to sell at a higher price, while those who buy want to buy at a lower price,” Putin said today at the start of a meeting with Chinese Prime Minister Wen Jiabao in Beijing. “We need to reach a compromise that will satisfy both sides.”

The Russian premier, who is making his first foreign trip since announcing plans to return to the presidency next year, is seeking to overcome a stalemate in talks on natural gas deliveries to China. Russia, the world’s largest energy exporter, has delayed plans to build gas pipelines to the Asian country for more than a decade because of wrangling over how much China will pay for the fuel.

Russian gas export monopoly OAO Gazprom plans to ship Siberian gas through two pipelines from as early as 2015, with total annual deliveries to reach 68 billion cubic meters, more than 60 percent of China’s 2010 consumption, according to BP Plc’s Statistical Review of World Energy.

China bypassed Germany as Russia’s biggest trade partner last year and annual turnover may exceed $70 billion in 2011 and reach $200 billion in 2020, from $59 billion in 2010, Putin said today.

‘Unprecedented Levels’

The Russian prime minister, who will also meet Chinese President Hu Jintao during his two-day trip to Beijing, said the nations have reached “unprecedented levels of cooperation” in the political sphere.

Russia shares a determination with its neighbor to counter U.S. global influence, signaled by them teaming up on Oct. 4 to veto a Western-backed United Nations resolution targeted at the crackdown on protests in Syria, a Soviet-era ally of Russia.

Putin, who will take full control of foreign policy again next May after four years marked by improving ties with the U.S. under outgoing President Dmitry Medvedev, may give Asia more weight in Russian foreign policy when he returns to the presidency.

“In the 1990s, Russia focused on the West while leaving Asia behind, which was a mistake,” said Dmitry Mosyakov, head of the Southeast Asia, Australia and Oceania Center of the Moscow-based Institute of Far East Studies. “Now we see Russia turning to the East for new markets, new partners and capital.”

Gas Deal

The gas deal has been held up because China has pushed for lower rates similar to those charged on its domestic energy market while Russia wants to get a price closer to that paid by European customers.

The countries made “progress” in their talks on gas shipments, Deputy Prime Minister Igor Sechin told reporters in Beijing today, declining to elaborate. China is a “very important partner” and potentially “one of the biggest consumers” of gas, he said.

Gazprom Deputy Chief Executive Officer Alexander Medvedev said last month that negotiations may be concluded by year-end.

“It’s a price issue. It’s just negotiations, I believe in the end we will see an agreement reached, since both parties are interested in a deal,” Alexander Morozov, chief economist for Russia at HSBC Holdings Plc, said in an interview with Bloomberg Television today.

Russia, which supplies 25 percent of the European Union’s gas, is under pressure to cut its European pricing formulas. Gazprom’s contracts are the focus of a European antitrust investigator’s raids across central and eastern Europe.

Negotiating Position

“If the China contract is soon agreed, then the Kremlin’s negotiating position in Europe will be improved, that is if you don’t want more of our gas, then we have a customer with a big appetite in the east,” said Chris Weafer, chief strategist at Troika Dialog, Russia’s oldest investment bank.

Russia, which is also seeking to diversify trade with China away from natural resources and weapons, reached an agreement today that the two countries will each invest $1 billion into a joint fund for seven years.

Russia wants to lure foreign capital with a fund to co- finance international investment and has targeted innovative industries to wean the economy off its dependence on energy exports. Energy accounts for more than half of its exports to China, Yury Ushakov, Putin’s deputy chief of staff, told reporters in Moscow yesterday.

‘Symbolic’

“China has become our first trade partner, bypassing Germany, and this is quite symbolic,” Ushakov said. “The task for the visit is not only to expand trade and economic contacts but also to diversify the structure of our relations as the structure itself does not satisfy us.”

In China, Putin was joined by Agriculture Minister Elena Skrynnik and Communications Minister Igor Shchegolev. Also attending are Sergei Kiriyenko, head of Russia’s state-owned nuclear energy holding company Rosatom Corp. and Vladimir Dmitriev, chairman of VEB, Russia’s state development bank.

A total of 17 agreements may be reached during Putin’s visit including the deal between state development bank VEB and the Russian Direct Investment Fund with China Investment Corp. to create a joint investment fund. ZAO Sibur Holding, eastern Europe’s biggest petrochemical producer, will sign a cooperation accord with China Petrochemical Corp., the nation’s biggest refiner, according to Ushakov.

Following the “reset” in relations with America spearheaded by President Barack Obama and Medvedev, Putin is now seeking to re-balance foreign policy, said Alexander Rahr, a Russia expert at the German Council on Foreign Relations.

“There is a huge neighbor and everyone is talking about China’s might,” Rahr said. “For Russia it is more important than for Europeans to understand where China is heading and how you can build relations.”

--Ilya Arkhipov, Henry Meyer and Lyubov Pronina, with assistance from Michael Forsythe in Beijing. Editors: Paul Abelsky, Balazs Penz, Hellmuth Tromm.

To contact the reporters on this story: Ilya Arkhipov in Beijing at iarkhipov@bloomberg.net Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net. Peter Hirschberg at phirschberg@bloomberg.net

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Facebook Introduces Application for Apple IPad After Year-and-a-Half Wait

By Brian Womack - Oct 11, 2011 4:06 AM GMT+0700
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The Facebook Inc. web page is seen on an Apple iPad. Photographer: Jason Alden/Bloomberg

Facebook Inc. unveiled a long- awaited application for the iPad, offering a tailored version of the world’s most popular social-networking service for Apple Inc. (AAPL)’s best-selling tablet computer.

The iPad app will let users chat with friends and play games on Facebook in full-screen mode, the company said today. Users have been clamoring for an iPad-friendly version of Facebook since the device went on sale in April 2010.

“Many of you have been asking about Facebook for iPad,” Leon Dubinsky, a mobile engineer at Palo Alto, California-based Facebook, said in a blog posting. “Today, it’s finally here. With the iPad app, you get the full Facebook experience, right at your fingertips. It’s a fun, colorful way to keep up with friends, share photos, chat and more.”

Facebook, which has more than 800 million users, is stepping up efforts in mobile technology, aiming to take advantage of the shift to smartphones and apps. The company is introducing the iPad app as part of a push to encourage software developers to work with its platform on a range of devices.

New tools that help users find Facebook-connected applications will work with Apple’s iPhone, iPad and iPod Touch -- both inside apps and Web browsers. With the features, users can more easily switch to a mobile app, such as a game or shopping service, while using a portable device. They simply click on a link, which might be in the News Feed, to find the software in the App Store or a mobile version that runs in the browser.

Reaching Out

“We are extending Facebook Platform on mobile, bringing all the social channels that have helped apps and games reach hundreds of millions of users on the Web to mobile apps and websites,” Luke Shepard, a Facebook software development engineer, said in a separate blog posting. “You can now easily reach the 350 million people who use Facebook every month on a mobile device.”

The company is encouraging developers to create both iOS and Web versions of their applications. Another new feature, called authenticated referrals, ensures that all referral traffic is coming from users connected to Facebook.

The company will add more mobile platforms in the future, including one for Google Inc. (GOOG)’s Android. Also, Facebook Credits, the social network’s payment service, will be used for mobile Web applications.

The iPad has maintained its dominance in the tablet market even amid mounting competition from Android devices and other products. Apple sold 28.7 million iPads as of the end of June, generating $18.4 billion in sales.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

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

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IPhone 4S Preorders Top Million in a Day: Apple

By Xu Wang and Adam Satariano - Oct 11, 2011 3:14 AM GMT+0700

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The iPhone 4S, announced this week, will feature an A5 dual-core CPU and dual-core graphics chip that work "7 times faster" than on the iPhone 4; features a new camera with advanced optics; 1080p HD resolution video recording; and Siri, an intelligent assistant. Photograph: Apple/MCT/Newscom

Apple Inc. (AAPL) received more than a million preorders for the iPhone 4S in a single day, putting the company on a record-setting sales pace ahead of the device’s Oct. 14 release.

The preorders topped the previous record of 600,000 set by the iPhone 4 last year, Cupertino, California-based Apple said today in a statement. Apple unveiled the iPhone 4S last week, pricing it at $199, $299 and $399, depending on the features.

The rush signals that there’s pent-up demand for the new model, which was released 16 months after the last one -- a longer wait than with previous iPhone releases. The preorders indicate Apple may sell nearly 3 million in the first weekend, almost double the number sold in the opening weekend last year, said Mike Abramsky, an analyst with RBC Capital Markets. The sales also suggest that customers were unfazed by Apple not updating the iPhone’s body design.

“The early momentum of the iPhone 4S reaffirms Apple’s leadership in smartphones,” said Mark Moskowitz, an analyst at JPMorgan & Chase Co. The strength of the orders should silence those who said the lack of a redesigned body on the iPhone 4S would deter buyers, he said.

Apple may sell more than 25 million iPhones in the quarter ending in December, making it the “strongest iPhone launch ever,” said Gene Munster, an analyst with Piper Jaffray Cos. The iPhone is Apple’s biggest source of revenue, accounting for about half of sales.

‘Intelligent Antenna’

The new model comes with voice-command features and a higher-resolution camera, and can run as long as 8 hours on one charge. 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.

Apple’s shares rose 5.1 percent to $388.81 today in New York trading. The stock has increased 21 percent this year.

The iPhone 4S will be Apple’s first major hardware release since the Oct. 5 death of co-founder Steve Jobs. It will be available at Apple retail stores in the U.S. beginning at 8 a.m. local time on Oct. 14, the Cupertino, California-based company said today in a statement.

Three Carriers

For the first time, the device is available from all three of the largest U.S. carriers. AT&T Inc. (T) said Oct. 7 that it received more than 200,000 preorders for the iPhone 4S in 12 hours, marking the company’s most successful debut yet for the Apple device. The other two, Verizon Wireless and Sprint Nextel Corp. (S), haven’t released sales figures. The phone works with both CDMA and GSM wireless standards, which are used in different parts of the world.

Adding Sprint as a carrier has helped boost preorders, said Jeffrey Fidacaro, an analyst at Susquehanna International Group. Sprint, the third-largest U.S. mobile-phone service, has an opportunity to add 6 million users a year, he said.

The record sales also may be a tribute to Jobs’s legacy, said William Choi, an analyst at Janney Montgomery Scott LLC.

“It’s the last phone developed with Steve Jobs at Apple,” Choi said. “There are definitely some sentiments at play here.”

To contact the reporters on this story: Lisa Rapaport in New York at lrapaport1@bloomberg.net; Xu Wang in New York at xwang206@bloomberg.net

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

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Goldman Sachs Earnings Collapse, Wells Fargo Thrives

By Christine Harper and Michael J. Moore - Oct 11, 2011 4:26 PM GMT+0700
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John Stumpf, chief executive officer of Wells Fargo & Co. Photographer: Brendan Smialowski/Bloomberg

Goldman Sachs Group Inc. (GS), whose shares have fallen 43 percent this year, may report its lowest quarterly profit since the 2008 financial crisis. Far from Wall Street, Wells Fargo & Co. (WFC) is headed for record earnings.

Third-quarter U.S. bank earnings, which kick off with JPMorgan Chase & Co. (JPM) on Oct. 13, will show that investment- banking businesses such as bond trading and merger advice declined, while retail operations like mortgage lending prospered, according to analysts including Richard Staite at Atlantic Equities LLP in London.

It’s a reversal from 2009 and early 2010, when rising markets and a perfect trading record propelled New York-based Goldman Sachs to its highest profits ever, as commercial lenders including SunTrust Banks Inc. (STI) in Atlanta charged off billions of dollars of delinquent mortgages.

“You’re going to see a big divergence between very poor earnings from pure capital-markets businesses and quite solid performance from the pure retail banks, particularly those that have a mortgage-origination business,” said Staite.

Slowing economic growth and heightened worries about European sovereign debt has weighed on bank stocks all year. None of the 24 members of the KBW Bank Index (BKX) has posted a gain in 2011, and the worst performer, Bank of America Corp. (BAC), is down 53 percent. A jump in borrowing costs at some banks, including New York-based Morgan Stanley (MS), began to subside last week as investors became more optimistic that European policy makers would solve the region’s sovereign debt and banking crisis.

Job Cuts

“I hope European governments manage to come to a solution that causes an end to the kind of fear that the markets have lived through for the last 90 days,” said David Hilder, a New York-based analyst at Susquehanna Financial Group LLP. “And if that happens, then I think you’ll see activity levels pick up, possibly in the fourth quarter and certainly in 2012.”

A decline in trading revenue over the past two quarters has led large investment banks to focus on cost reductions, including job cuts. Goldman Sachs, led by Chief Executive Officer Lloyd C. Blankfein, 57, said in July that it will cut about 1,000 jobs after its second-quarter drop in trading revenue was bigger than analysts estimated.

Bank of America, the largest U.S. lender by assets, announced plans last month to eliminate 30,000 jobs in the next few years. UBS AG (UBSN), Switzerland’s biggest bank, said in August it will cut about 3,500 positions, or 5.3 percent of its workforce, to reduce expenses. Morgan Stanley said it wants to bring down annual costs by $1 billion over the next three years.

Reduced Bonuses

The focus on expenses is likely to lead to lower compensation. Year-end bonuses for fixed-income traders and salespeople across Wall Street may fall 20 percent to 30 percent from last year, Johnson Associates Inc., a New York-based compensation-consulting firm, estimated on Aug. 12. Johnson said bonuses for equity traders will be flat to down 15 percent.

Executives at some Wall Street firms are planning more cuts to jobs and compensation after third-quarter results are released because they don’t expect the industry to recover soon from a slowdown that’s partly driven by regulatory changes, Richard Bove, an analyst at Rochdale Securities in Lutz, Florida, wrote in a note to investors on Oct. 6.

“The only action that they can take to deal with the expected environment is to cut costs,” Bove wrote. “Translated, this will mean lower bonuses and fewer jobs.”

New York’s securities industry may lose as many as 10,000 jobs by the end of next year, the Wall Street Journal reported today, citing a report by state comptroller Thomas DiNapoli.

Investors Spooked

Stock- and bond-market investors were spooked during the quarter by Standard & Poor’s decision to downgrade the U.S. government’s debt rating, a protracted Congressional debate over raising the government’s borrowing limit, and by the Federal Reserve’s decision to leave rates near zero until 2013 to combat stalling economic growth. Debate among European policy makers about how to solve deteriorating government finances and whether to add capital to banks also sparked fears that a misstep could lead to a new financial crisis.

The S&P 500 Index (SPX) dropped 14 percent during the quarter, the worst decline since the fourth quarter of 2008, and the Chicago Board Options Exchange Volatility Index, or VIX, which measures the cost of buying insurance against drops in the S&P 500 Index, surged 160 percent to its highest quarterly reading since the first three months of 2009.

Credit Markets

Credit markets and commodities were also shaken during the quarter. The Markit CDX North America Investment Grade Index, which measures the price of buying derivatives to protect against a default on the corporate debt of 125 borrowers, climbed the most in the quarter since 2008. The average yields demanded on U.S. commercial-mortgage bonds in excess of Treasuries soared 108 basis points, the most since the last quarter of 2008, to 3.51 percent, according to Barclays Capital Index data. A basis point is 0.01 percentage point.

Brent crude oil futures lost 8.6 percent in the third quarter, extending a 4.2 percent drop in the second, in its longest slump since the 2008 financial crisis.

“What I think was surprising when you got into September from August was how across-the-board the weakness was,” said Charles Peabody, an analyst at Portales Partners LLC in New York. “Very often you get weakness in fixed income, but equities do well. This was literally every product. Every capital markets event was negative.”

Goldman Sachs

Goldman Sachs, which made more than 70 percent of its revenue in the first six months from investing its own money and trading, will likely be most affected by the market declines. The company’s earnings will collapse to breakeven in the third quarter from $2.98 per share a year earlier, according to the average of 24 analysts’ estimates compiled by Bloomberg. That would be the lowest since the fourth quarter of 2008, when the firm posted its only quarterly loss since going public in 1999.

Twelve of the analysts expect Goldman Sachs to report a loss for the three months on Oct. 18, driven by declines in its investments in companies such as Industrial & Commercial Bank of China (1398) Ltd., which fell 35 percent in the quarter in Hong Kong trading, and other assets such as real estate.

Analysts including Edward Najarian at International Strategy & Investments in New York also expect Morgan Stanley and Charlotte, North Carolina-based Bank of America to report quarterly losses once non-recurring items and debt-valuation adjustments are excluded. The adjustments are accounting gains taken when the price of a company’s bonds declines.

Bank of America

Five of the largest U.S. banks -- Bank of America, JPMorgan Chase, Citigroup Inc. (C), Goldman Sachs and Morgan Stanley -- will recognize $4.3 billion in such gains, according to estimates by Matthew Burnell, an analyst at Wells Fargo, the fourth-largest lender, which wasn’t included. Analysts’ estimates compiled by Bloomberg do not strip out debt-valuation adjustments.

Wells Fargo, based in San Francisco, and U.S. Bancorp in Minneapolis, which make most of their money from lending instead of investment banking, will probably report record earnings in the third quarter, according to an estimate by Richard Ramsden, a Goldman Sachs analyst in New York.

In an Oct. 9 report titled “Traditional Banking Is Doing Just Fine,” ISI’s Najarian noted that Fed data for the 25 largest banks showed total loans grew 1.2 percent in the third quarter from the prior three months and that core deposits surged 6.8 percent, helping to replace more expensive forms of funding such as bond issues.

Mortgage Refinancing

Average loans by banks will climb by a median 2 percent in the third quarter from the previous three months, the first increase after 10 consecutive quarterly declines, analysts at Evercore Partners Inc. (EVR) said in an Oct. 3 note to investors. The boost is being driven by more loans to businesses as well as by a “notable pick-up” in mortgage and consumer lending, the analysts wrote.

The Fed’s efforts to stimulate economic growth, most recently with the so-called Operation Twist plan to buy long- term Treasuries while selling shorter-term U.S. government debt, reduced the average rate on 30-year mortgages below 4 percent for the first time on record this month.

Banks including Wells Fargo and JPMorgan will benefit from a third-quarter increase in fees from homeowners refinancing their mortgages and from higher profits selling those mortgages to government-sponsored entities such as Fannie Mae and Freddie Mac, according to Ramsden’s Sept. 28 note. The Goldman Sachs analyst wrote that he expects mortgage-banking revenue to rise more than 40 percent from the prior quarter.

Wells Fargo

Wells Fargo, led by CEO John G. Stumpf, 58, will make 72 cents a share in the quarter, up 9 percent from a year earlier, according to the average estimate of 29 analysts surveyed by Bloomberg. The lender will earn a record $15.2 billion, or $2.82 per share, for the full year, according to the same analysts.

U.S. Bancorp, the largest bank in Minnesota, will earn 61 cents a share, up 36 percent from a year earlier, according to the average estimate of 29 analysts surveyed by Bloomberg.

Mary Eshet, a Wells Fargo spokeswoman, declined to comment, as did Stephen Cohen, a Goldman Sachs spokesman, and JPMorgan’s Jennifer Zuccarelli.

The split between Wall Street businesses and other types of banking will be demonstrated by JPMorgan, the second-biggest U.S. bank by assets. The New York-based company will report 95 cents of earnings per share for the quarter, just 6 percent lower than a year earlier, according to the average estimate of 30 analysts surveyed by Bloomberg.

Those earnings, the lowest in six quarters, may reflect gains in consumer lending and credit-card revenue as well as declines at the investment bank. James Staley, 54, who runs the investment bank, said at an investor presentation on Sept. 13 that “markets revenue” will decline about 30 percent from the second quarter and that fees from investment banking will be about $1 billion.

Lower Valuations

The last time fees at JPMorgan’s investment bank were below $1.2 billion was in the first quarter of 2006, company statements show. Revenue from fixed-income and equity trading totaled $5.5 billion in the second quarter and hasn’t been 30 percent lower than that since the fourth quarter of 2009, the statements show.

Staley said that the company’s revenue from asset management is “definitely correlated with the equity markets” and will probably decline as a result of the drop in stocks. He also said that the company’s private-equity business will probably report a loss of roughly $100 million.

Stocks Outlook

Analysts are split on the outlook for bank stocks, even though all of them agree that their valuations are much lower than they’ve been historically compared with their book values.

Peabody, at Portales Partners, is advising investors to stay out of banks until key decisions are made in November by a U.S. deficit-cutting committee and by the Group of 20 countries, which are meeting to discuss capital requirements for the world’s biggest banks.

Investors who typically seek to buy undervalued stocks, known as “value” investors, have only about 4 percent of their funds in bank stocks, less than the industry’s weighting in the iShares S&P 500 Value Index Fund (IVE), according to a Sept. 29 analysis by ISI’s Najarian. That means there’s “considerable buying power” that could rush into large bank stocks whenever the outlook improves, he concluded.

“Everybody who’s been negative on the banks has been right, and if you’re positive on the banks you’re taking a risk,” said Roy Smith, a finance professor at New York University’s Stern School of Business and a former Goldman Sachs partner. “The consensus is so negative at the moment that it’s probably wrong.”

Goldman Sachs shares fell to $94.70 in German trading today from their $96.14 close in New York yesterday. Wells Fargo stock was trading at $25.98 in Frankfurt trading today from its $26.13 close in New York yesterday.

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

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

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Currency Forecasters Say Best Over for Dollar

By Garth Theunissen and Allison Bennett - Oct 11, 2011 5:52 PM GMT+0700

The most accurate foreign-exchange forecasters say the dollar’s best quarterly rally since 2008 has no chance of continuing to year-end as a slow economy spurs the Federal Reserve to flood the world with more U.S. currency.

Led by JPMorgan Chase & Co., the five best strategists as measured by Bloomberg News in the six quarters through September see the currency averaging $1.34 per euro in the final three months of 2011, from $1.3387 on Sept. 30. They estimate it will average 76.6 yen, from 77.06.

Reports on everything from jobs to housing and incomes show the world’s largest economy may be in jeopardy of slipping back into recession, forcing the Fed to print more money for the third time in three years to inject into the financial system through bond purchases. Forecasters say the strategy would debase the dollar, which is down 22 percent since March 2009 even with last quarter’s gains.

“The Fed could start discussing the expansion of its balance sheet by the end of this year and begin with the asset purchases in early 2012,” John Normand, the London-based global head of foreign-exchange strategy at JPMorgan, said in an interview on Oct. 5. “The bias will be for a modest retracement in the dollar from current levels. Investors are already extraordinarily long of dollars.”

Global Turmoil

Normand, the top forecaster with a 4.37 percent margin of error, sees the 17-nation euro at $1.38 by year-end. The firm’s yen prediction is 75 per dollar.

The U.S. currency rose 0.3 percent to $1.3605 per euro and was little changed at 76.65 yen at 11:22 a.m. London time.

Turmoil in global financial markets last quarter as Europe’s sovereign-debt crisis deepened and Standard & Poor’s stripped the U.S. of its top AAA credit rating led investors to shun all but the safest assets, such as Treasuries. That helped spark a 7.14 percent gain in the dollar against a basket of nine developed-nation peers as measured by Bloomberg Correlation- Weighted indexes. That beat bonds, stocks and commodities.

While almost three years of near-zero interest rates from the Fed and $2.35 trillion of bond purchases helped pull the economy out of a recession, concern is rising that gross domestic product may soon start to shrink.

Jobs, Incomes

The U.S. unemployment rate has held at or above 9 percent every month except for two since May 2009, including a reading of 9.1 percent in September. Personal incomes fell for the first time in almost two years in August, declining 0.1 percent, the Commerce Department said Sept. 30. New home purchases declined to a six-month low in August.

The Organization for Economic Cooperation and Development cut its forecasts for the U.S. last month, saying the $15 trillion economy likely grew 1.1 percent in the third quarter and will expand just 0.4 percent in the fourth.

The Fed “will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability,” Chairman Ben S. Bernanke said Oct. 4 in testimony to Congress’s Joint Economic Committee in Washington.

To the most accurate forecasters, that may mean the Fed conducts a third round of quantitative easing, or QE. After cutting rates to a record low, the Fed twice bought bonds to inject cash into the economy.

Dollar Reaction

Bloomberg Correlation-Weighted Indexes show the dollar tumbled 13.6 percent after the Fed bought $1.75 trillion in Treasuries and mortgage debt from December 2008 through March 2010. It sank 6.3 percent between November 2010 and June 2011 as the Fed spent $600 billion buying bonds.

“Further QE will ultimately put a floor under euro- dollar,” Jonathan Cavenagh, a Singapore-based senior currency strategist at Westpac Banking Corp., the second most-accurate forecaster, said in a telephone interview Oct. 4.

While the U.S. currency may advance beyond $1.30 per euro during bouts of risk aversion, it will struggle to rally above that level and end the year at about $1.31, Cavenagh said. Westpac had a margin of error of 4.44 percent in the survey.

For all the headwinds facing the U.S. economy, it will likely hold up better than those of Europe and Japan. Growth in the three biggest euro economies will shrink 0.4 percent this quarter and will stall in Japan, the OECD said Sept. 8.

‘Haven Bid’

“In the short-term, the dollar will continue to strengthen on the safe-haven bid and over the medium-term it will benefit from the fact that the U.S. economy is still in better shape than most other major economies,” said Daragh Maher, London- based deputy head of global foreign-exchange strategy at Credit Agricole SA. “The recession fears in the U.S. are overblown. I don’t think we’ll get QE III.”

The company, ranked fifth in the survey with a margin of error of 4.83 percent, expects the dollar to finish this year at $1.33 per euro, and appreciate to $1.26 by the end of 2012. Credit Agricole forecasts the U.S. economy will grow 1.8 percent this year, compared with 1.2 percent in the U.K. and 1.1 percent in the euro-region, Maher said.

Hedge funds and other large speculators expect America’s currency to strengthen against a basket of the euro, yen, pound, Swiss franc, Mexican peso, and the Australian, Canadian and New Zealand dollars.

Net Wagers

The difference in the number of contracts betting on an advance in the dollar compared with those on a decline rose to 131,704 last week, according to Commodity Futures Trading Commission data released Oct. 7 and compiled by Bloomberg. That’s the most since June 2010. In March, there were a net 405,267 contracts outstanding betting on a decline, a record.

At its last policy meeting on Sept. 21, the Fed decided against another round of QE and instead said it would sell $400 billion of short-term debt holdings and invest the proceeds in longer-term Treasuries to reduce borrowing costs and counter rising risks of a recession.

After stripping out distortions caused by the Fed’s record low overnight lending rate, two-year Treasury notes yield just 0.2 percentage point less than five-year securities, suggesting the economy has a 60 percent chance of contracting within 12 months, according to Bank of America Corp.

Analysts are wary of further gains in the dollar and expect it to stay little changed against Group of 10 currencies this quarter, according to data compiled by Bloomberg. They forecast it will end next year at $1.40 per euro, based on the median estimate of 31 analysts surveyed by Bloomberg.

Fiscal ‘Challenges’

Last quarter’s survey of the top-ranked strategists showed that while they correctly forecast that a year-long slide in the dollar would end, they failed to predict its rally. The best estimates showed the greenback would end 2011 at $1.42 per euro, on average, from $1.43 on July 8, the last trading day before the poll’s publication.

“We were never particularly optimistic on the euro and always more optimistic on the dollar,” Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York, said by telephone Oct. 3. Fiscal “challenges appear more manageable for the U.S. than Europe,” where consensus among 17 nations is harder to reach, he said

Wells Fargo, ranked third in Bloomberg’s survey with a 4.58 percent margin of error, estimates the dollar will end the year at $1.32 per euro.

Deficits, Diversification

For Oversea-Chinese Banking Corp., the U.S.’s budget deficit of more than $1 trillion, the possibility of another round of QE by the Fed, an improvement in the euro-area debt crisis and foreign-exchange diversification by central banks may start to weigh on America’s currency.

“Going out into 2012, I think the weak dollar story may start to reassert itself,” Emmanuel Ng, a currency strategist at the fourth-ranked forecaster, said in a phone interview on Oct. 6. The firm sees the dollar ending this year at $1.32 euro, before falling to $1.35 by end of the first quarter and ending 2012 at about $1.43.

Strategists were ranked according to the accuracy of their estimates for 13 currency pairs in each of six quarters beginning with the three months ended June 2010. To test long- term accuracy, Bloomberg News added one annual forecast, which was made on Sept. 30, 2010, for Sept. 30, 2011.

Only firms with at least four forecasts for a particular currency pair were ranked, and only those that qualified in at least eight of 13 pairs were included in the ranking of best overall predictors. Thirty-six firms qualified.

To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net;

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net; Dave Liedtka at dliedtka@bloomberg.net

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Trichet Sees ‘Systemic’ Risk as Writedowns Divide EU

By Jana Randow and James G. Neuger - Oct 11, 2011 5:59 PM GMT+0700

European Central Bank President Jean-Claude Trichet warned of threats to the financial system as the conflict among political leaders intensified over how to extricate Europe from the debt crisis.

“The crisis has reached a systemic dimension,” Trichet told European lawmakers in Brussels today. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”

European officials are toiling to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the crisis, which has propelled Greece to the brink of default, shaken world markets and fueled speculation that the 17-nation currency might not survive in its current form.

Trichet’s message comes as Slovakian lawmakers vote on the euro region’s retooled bailout fund. The country is the only member of the 17-nation euro area that hasn’t ratified the measure agreed between leaders in July to fight turmoil that has spread from Greece to larger nations including Italy. Slovakia’s largest opposition party, which pledged to reject the motion today, said it will back the revamp in a second vote if it fails to pass the first time.

Stocks in Europe dropped for the first time in five days and the euro fell from a three-week high against the dollar. The Stoxx Europe 600 Index slid 0.8 percent as of 11:46 a.m. in London. The euro fell 0.4 percent to $1.3588.

Italy sold 9.5 billion euros ($12.9 billion) of Treasury bills today, the maximum set for the auction, as borrowing costs fell and demand rose.

Slovak Vote

Today’s crisis-management efforts range from a vote in Slovakia on upgrading the 440 billion-euro ($600 billion) rescue fund to the release of a report by European and International Monetary Fund experts on Greece’s economic prospects. Risks to the region’s economic outlook have increased as governments struggle to contain the crisis, the European Commission said in a separate assessment published today.

After Malta’s endorsement late yesterday, the Slovak parliament stands as the only barrier to reinforcing the fund with the power to buy bonds in the primary and secondary markets, offer precautionary credit lines and enable the bolstering of bank capital.

Ratification Vote

Slovak Prime Minister Iveta Radicova sought to sideline opponents in her coalition by tying the EFSF ratification to a no-confidence motion. The Freedom of Solidarity party, one of the members of Radicova’s four-way coalition, said it won’t support the EFSF.

Nevertheless, Slovakia’s opposition Smer party will back the bailout revamp in a second vote if the first one fails, its leader, Robert Fico, told reporters in the capital Bratislava. There is no date set for a repeated vote.

Political jousting in Slovakia, which sat out Greece’s original 110 billion-euro aid program last year, showed how Europe’s unanimous decision-making principle makes the emergency response hostage to local politics.

‘Comprehensive’

In postponing a summit of euro leaders by five days yesterday to Oct. 23, European Union President Herman Van Rompuy sought extra time to pursue a “comprehensive” package including a solution for Greece, aid for banks and a further strengthening of the rescue fund.

The summit, now slated for a Sunday when the U.S. and European markets are closed, will be preceded by a finance ministers’ meeting on a date to be determined. Weekends are Europe’s traditional time for market-sensitive decisions, as when the euro area created the rescue fund in May 2010.

“There’s no obvious solution,” Luxembourg Finance Minister Luc Frieden told reporters in Luxembourg today. “There are several options that must be examined from the technical and political points of view.”

Greek bondholders may face writedowns of more than the 21 percent envisioned in a July rescue plan, Luxembourg Prime Minister Jean-Claude Juncker said, setting the stage for high- stakes bargaining at the leaders’ summit.

Juncker’s Comments

Asked by Austrian television last night whether Europe is considering writedowns of 50 percent to 60 percent, Juncker, who chairs euro-area finance meetings, said: “We’re talking about more.” A spokesman for Juncker, Guy Schuller, said today Juncker meant euro-area officials were discussing investor losses on their Greek holdings exceeding 21 percent. Both the ECB and banks oppose such a revision.

The ECB gave its blessing to one method of bolstering the fund, saying it could be used to insure a portion of new bonds sold by debt-strapped nations, automatically extending the fund’s coverage.

EFSF resources “should be dedicated to enhance sovereign debt new issuance of securities, thus multiplying their effect,” ECB Vice President Vitor Constancio said in Milan yesterday.

Officials are working out how to scale up the EFSF’s firepower without requiring another round of parliamentary approvals or dipping into the balance sheet of the ECB. The central bank has ruled out granting the EFSF a banking license.

For Greece, the endgame drew nearer with an announcement that EU, ECB and IMF experts are likely to complete their economic-review mission today.

The report will put Greece’s 2011 budget deficit at 9.1 percent of gross domestic product, missing the original target of 7.5 percent and a revised target of 8.5 percent, Kathimerini newspaper reported, without citing anyone.

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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European Stocks Decline Before Slovakia Vote

By Peter Levring - Oct 11, 2011 5:20 PM GMT+0700

European stocks fell, snapping a four-day rally, as investors awaited a Slovak vote on the euro- area bailout fund and the start of the American earnings season. Asian shares advanced while U.S. index futures declined.

Antofagasta Plc (ANTO), the copper miner controlled by Chile’s Luksic family, slid 1.9 percent as the base metal retreated for the first time in five days in London amid muted buying in the Chinese physical market. ASML Holding NV (ASML) and STMicroelectronics NV (STM) led semiconductor shares lower after analyst downgrades. Rockhopper Exploration Plc (RKH) jumped 6.3 percent after raising oil- reserve estimates.

The benchmark Stoxx Europe 600 Index lost 0.8 percent to 234.03 at 11:19 a.m. in London. The gauge had advanced 8.5 percent over the previous four days for the biggest rally since November 2008. The measure has still fallen 20 percent from this year’s peak on Feb. 17.

“Slovakia is causing some uncertainty, but if the vote is passed later today there’s a good chance the rise in euro- related stocks will continue,” said Witold Bahrke, a Copenhagen-based senior strategist at PFA Pension A/S, which manages $45 billion. “It seems the market is pricing in both a recapitalization of banks as well as Germany and France having agreed on a larger haircut on Greek debt.”

The MSCI Asia Pacific Index rose 1.7 percent today for the biggest four-day rally since March 2009. Standard & Poor’s 500 Index futures declined 0.5 percent.

Slovak Vote

A planned reinforcement of the European bailout fund, known as the EFSF, faces a vote today in Slovakia’s parliament, with one party in the governing coalition holding out against approval. Slovak Prime Minister Iveta Radicova’s party is seeking to pressure rebel lawmakers by tying the EFSF ratification to a no-confidence motion, two government officials said under condition of anonymity.

“Some traders are alarmed that certain parts of the Slovak coalition are outright refusing to back the bill and the fact that it’s success or failure now resides in their hands,” Jonathan Sudaria, a trader at London Capital Group, wrote in e- mailed comments.

European Central Bank President Jean-Claude Trichet said the debt crisis threatens the region’s financial system as officials race to put together a new plan to end the turmoil.

“The crisis has reached a systemic dimension,” Trichet told lawmakers in Brussels today in his capacity as head of the European Systemic Risk Board. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”

July 21 Accord

The ECB is against any backsliding from a July 21 accord on a second Greek bailout, a central bank official said yesterday. An appeal to “fully implement all aspects” of the road map was inserted into last week’s monthly policy statement as a warning to Germany, the official said under condition of anonymity.

Luxembourg’s Jean-Claude Juncker said last night, when asked on Austria’s ORF television to comment on speculation investors may lose 50 percent to 60 percent of the value of their holdings of Greek bonds, that haircuts may exceed the 21 percent agreed upon by euro-region leaders in July.

Alcoa Inc., the largest U.S. aluminum producer, is due to become the first company in the Dow Jones Industrial Average to issue third-quarter earnings after the U.S. market closes today. Net income will be 23 cents a share, compared with 9 cents a year earlier, according the average estimate of 15 analysts surveyed by Bloomberg.

Mining Companies Fall

Antofagasta dropped 1.7 percent to 1,075 pence and Kazakhmys Plc (KAZ) retreated 2 percent to 869 pence. Copper declined for the first time in five days in London trading on concern muted buying in the Chinese physical market signals a slowdown in demand from the biggest consumer.

ASML Holding NV declined 2.5 percent to 26.60 euros as ING Groep NV cut shares of Europe’s biggest semiconductor-equipment maker to “hold” from “buy,” citing recent outperformance ahead of tomorrow’s earnings report.

STMicroelectronics declined 2.8 percent to 5.27 euros in Milan as Citigroup Inc. downgraded the shares to “sell”

Rockhopper rose 6.3 percent to 180.5 pence. The U.K. explorer focused on the Falkland Islands raised its estimate of oil resources at the Sea Lion field after reviewing data.

Porsche SE, the maker of the 911 sports car, slid 2.5 percent to 36.83 euros and Renault SA slid 1.3 percent to 26.50 euros. Automakers had the third-worst performance among 19 industry groups in the Stoxx 600.

Greek Banks

The four biggest Greek lenders fell more than 4 percent. National Bank of Greece SA slipped 6.3 percent to 1.78 euros and EFG Eurobank Ergasias SA retreated 7.4 percent to 64.8 euro cents. Piraeus Bank SA (TPEIR) sank 7 percent to 29.1 euro cents while Alpha Bank SA dropped 5.3 percent to 98 euro cents.

Givaudan SA (GIVN) gained 1.2 percent to 754 Swiss francs even after the maker of the fragrances for Marc Jacobs’s Lola and Paco Rabanne’s 1 Million reported third-quarter sales that missed analysts’ estimates.

The company stuck to a mid-term forecast to expand at about double the pace of the 2 percent to 3 percent growth expected for the wider market. Price increases will mitigate half the impact of more expensive raw materials this year and fully alleviate them next year, Givaudan said.

Debenhams Plc (DEB), the second-largest U.K. department-store owner, advanced 3.2 percent to 66.35 pence as Morgan Stanley upgraded the shares to “overweight” from “equal weight.”

To contact the reporter on this story: Peter Levring in Copenhagen at Plevring1@bloomberg.net or

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

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Europe Divided on Greek Writedowns That Juncker Says May Top 60%

By Jana Randow and Simone Meier - Oct 11, 2011 3:12 PM GMT+0700
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Luxembourg's prime minister Jean-Claude Juncker center. Photographer: Bartek Sadowski/Bloomberg

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Oct. 11 (Bloomberg) -- Marchel Alexandrovich, an economist at Jefferies International Ltd., discusses the possibility that investors may be faced with losses of as much as 60 percent on Greek bond holdings. He speaks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

European Central Bank President Jean-Claude Trichet said Europe’s debt crisis now threatens the region’s financial system as officials race to put together a new plan to end the turmoil.

“The crisis has reached a systemic dimension,” Trichet told lawmakers in Brussels today in his capacity as head of the European Systemic Risk Board. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”

European leaders are trying to shore up the region’s banks as they debate how best to manage the fallout from any Greek default. Governments yesterday pushed back a summit amid opposition to Germany’s drive for deeper-than-planned Greek bond writedowns that Luxembourg’s Jean-Claude Juncker says may exceed 60 percent.

Germany and France, Europe’s dominant tandem, this week pledged a crisis-management breakthrough by early November.

“Time is always of the essence when you have to be in a mode of crisis management,” said Trichet.

Officials are also debating how to magnify the firepower of the euro region’s bailout plan, with ECB Vice President Vitor Constancio signalling yesterday that it should be done using government guarantees rather than the central bank’s market operations.

“We don’t consider it appropriate for us to leverage the EFSF,” said Trichet today, stressing that the comment was in his capacity as ECB president.

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Simone Meier in Zurich at smeier@bloomberg.net

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

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Perry, Cain, Romney to Vie for Lead in Debate

By Julie Hirschfeld Davis - Oct 11, 2011 11:01 AM GMT+0700

Herman Cain’s newly energized candidacy is reshaping the Republican presidential primary race and creating a new hurdle for Texas Governor Rick Perry as he tries to catch frontrunner Mitt Romney.

Those dynamics will be on display tonight in a debate focused exclusively on the economy and jobs and to be held in New Hampshire, the first presidential primary election state.

A pre-debate poll of Republicans and Republican-leaning independent by Bloomberg News and the Washington Post, the debate sponsors, found that Cain, the former Godfather’s Pizza chief executive, has pulled almost even with former Massachusetts Governor Romney in appeal as an economic leader.

Twenty-two percent of the party’s supporters picked Romney, a former venture capitalist, 20 percent Cain and 12 percent Perry as the candidates who could do the most to improve the economy.

With fewer than 100 days before New Hampshire’s primary is due to occur, eight Republican candidates are gathering today on the Hanover campus of Dartmouth College. The debate will be broadcast on Bloomberg Television, Bloomberg Radio, WBIN-TV in New Hampshire and on Bloomberg.com and WashingtonPost.com.

“The mega-question is will Rick Perry screw up again?” said John J. Pitney, a political scientist at Claremont McKenna College in Claremont, California. “Everyone knows that Romney handles himself well in these debates. He’s smooth if you like him, slick if you don’t. People want to know whether Perry can reassure some of the people who were disappointed by his stumbles last time.”

Eyes on Cain

Many eyes will be on Cain as well, said Pitney, a former Republican Party aide, “to see if he can stand up to the tough questions and the tight scrutiny” he is likely to draw as a newcomer to the top tier of candidates.

The candidates fanned out across the autumn-hued highways of New Hampshire to court the state’s independent-minded residents. Each seeks to persuade voters who hold early sway in the party’s nominating contest that her or she is best- positioned to oust President Barack Obama and address the issue dominating the campaign: jobs and reinvigorating the economy.

Romney, at a Veterans of Foreign Wars post in Milford, New Hampshire, said yesterday Obama’s stewardship has created a “Where’s Waldo economy,” referring to the children’s books in which the challenge is to hunt for a small, hard-to-find man on a crowded page. In Romney’s analogy, the jobs are Waldo.

Class Warfare

He also accused Obama of fostering class-warfare that Romney said demonized groups of people unfairly. “I’ve been really disappointed -- and, in some respects, a little frightened -- by the president’s rhetoric -- this class warfare, trying to find someone to blame,” Romney said.

Earlier, commenting on the Occupy Wall Street protests that began in Lower Manhattan and have spread to cities across the country, Romney said, “Dividing our nation at a time of crisis is the wrong way to go. All the streets are connected. Wall Street’s connected to Main Street, and so finding a scapegoat, finding someone to blame, in my opinion, isn’t the right way to go.”

Asked by an undecided voter at a town hall meeting in Hopkinton whether he or Cain has better private sector experience, Romney said Cain “is a terrific guy and give him a good look. Both Herman and I spent our careers in the private sector so I think that’s one of the reasons both of us are doing pretty well.”

Political Experience

Romney also pointed out his experience as an elected official, a credential Cain lacks. “You don’t want to necessarily learn that for the first time as president of the United States,” he said.

Perry, absent from public view as tries to bounce back from weak debate performances and criticism of his position on illegal immigration, released a campaign video criticizing Romney for his support of a Massachusetts health-care law that bears similarities to the national measure Obama enacted.

The video portrays Romney as a mirror image of Obama, juxtaposing images of the president signing the law its opponents derisively call Obamacare with images of Romney signing the Massachusetts measure. Both laws require that all residents purchase health insurance, a mandate that has proved unpopular. It includes TV clips of Romney defending his legislation and concludes with a phrase he uttered during the last debate: “There are a lot of reasons not to elect me.” That is followed by a quote from Obama: “He’s right.”

Perry Implosion

Perry, who shot to the front of the Republican pack following his Aug. 13 entrance into the race, has fallen from favor, according to public polls, largely because of his decision as governor to let children of illegal immigrants attend college at discounted tuition. He announced last week that he raised more than $17 million in scarcely more than a month, an indication that he could have staying power in the Republican contest.

Cain also stayed largely out of the public eye preparing for his first debate performance since winning a non-binding straw poll in Florida on Sept. 24, bringing him greater name recognition, a boost in public polls and new attention for his 9-9-9 tax plan. It would replace the current tax system with 9 percent corporate and individual taxes and a 9 percent sales tax.

Recent public polls reveal a bump for Cain, even as they underscore Romney’s status as party favorite. The Bloomberg-Post national poll of 1,000 people conducted Oct. 6-9 showed Romney maintained his overall advantage as the candidate Republican supporters most want to see as the nominee, at 24 percent, with Cain second at 16 percent.

New Hampshire Edge

Romney also leads among likely voters in New Hampshire, according to a poll jointly sponsored by the Institute of Politics at Harvard University in Cambridge, Massachusetts, and the New Hampshire Institute of Politics at Saint Anselm College in Manchester, New Hampshire. That poll found Romney is backed by 38 percent of likely New Hampshire primary voters, followed by Cain with 20 percent and Texas Representative Ron Paul with 13 percent. The other candidates got support of 5 percent or less.

“There’s nobody who’s been able to solidify a No. 2 slot,” said Andrew Smith, a University of New Hampshire polling expert and political scientist whose latest survey found similar results. “Over the last couple of years, and certainly recent months, we’ve seen multiple candidates bump up to No. 2, but nobody’s been able to stay there for more than one or two polls. The race is still largely Romney’s to lose.”

Bachmann Comeback

Minnesota Representative Michele Bachmann, a social conservative who threatened Romney with an early burst of momentum that was squelched by Perry, said she is looking for a chance to distinguish herself at the debate.

“Hopefully, we’ll get plenty of questions and be able to stand out,” she told reporters after a town hall meeting in Henniker. While public polls have shown a drop in her popularity, Bachmann said she has the money to stay in the race. “We do have the resources to be viable,” she said. “We’re still in business, so we’re grateful.”

Former Utah Governor Jon Huntsman Jr., looking to gain traction on his signature issue of foreign policy in a race so far defined almost entirely by the economy, called for scaling back the U.S. role in international military engagements, including Afghanistan, and cutting defense spending.

“We must right-size our current foreign entanglements,” he said.

Huntsman, who served as Obama’s ambassador to China, said he continues to pin his hopes on success in New Hampshire.

“If you do what needs to be done in New Hampshire, you create that wave effect in physics; you get it rolling forward, and so long as that wave effect starts, it doesn’t stop and it continues to take you forward,” he told reporters in Tilton.

To contact the reporter on this story: Julie Hirschfeld Davis in Hanover, New Hampshire at 1890 or Jdavis159@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva@bloomberg.net

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Worst of China Lending Panic May Be Over: UBS

By Bloomberg News - Oct 11, 2011 12:00 PM GMT+0700

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Oct. 11 (Bloomberg) -- Jim Antos, an analyst at Mizuho Securities Co. in Hong Kong, talks about China's banking industry and investment strategy. Antos speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

The worst of the “panic and hysteria” over informal lending in China may be over as the city of Wenzhou works with businesses and the central government to stabilize credit, UBS AG said.

“The size of informal lending is relatively small and the concerns about the direct impact on the formal banking sector and the economy are exaggerated,” Hong Kong-based economist Wang Tao said in a note today. The “bigger risks are credit withdrawal in both the formal and informal lending market and contagion,” she said.

Media “hype” surrounding reports of Wenzhou factory owners fleeing after failing to pay their debts have unnerved investors concerned about Chinese banks’ asset quality and a slowdown in the property market, according to Wang. Lenders rallied today after state-run Central Huijin Investment Ltd. began buying shares of the biggest four banks to boost valuations that have fallen below levels reached during the global financial crisis.

Agricultural Bank of China Ltd. (601288) climbed 15 percent as of the noon break in trading in Hong Kong.

“Restructuring of businesses and debts will likely occur in the next few months in Wenzhou, with the help of bank liquidity and government involvement,” Wang said.

Wen’s Visit

Premier Wen Jiabao visited Wenzhou in Zhejiang province during a public holiday this month, urging greater support for small and medium-sized companies. The city is known for a “vibrant private sector,” non-bank lending, and speculative investment in property, Wang said.

Chinese media published conflicting reports today on recent developments.

China’s banking regulator has increased a loan quota for the city by 100 billion yuan ($15.7 billion), the 21st Century Business Herald reported, citing an unidentified person. It didn’t specify the time period concerned. The same person said that amount did not include 60 billion yuan in one-year bailout loans that the Zhejiang provincial government is seeking from the People’s Bank of China, the business newspaper said.

Separately, Guangzhou Daily said “rumors” of a 60 billion yuan facility were untrue, citing Zhang Yourong, director of the Wenzhou branch of the China Banking Regulatory Commission. No comment was immediately available from central bank press officials in Beijing.

Problems with non-bank lending may surface in other parts of Zhejiang and in Shanxi, Inner Mongolia, Fujian, and Guangdong, Wang said.

Wenzhou set an upper limit on the interest rates that private non-bank lenders can charge, the local government said Sept. 28. Those institutions can only lend at an interest rate that doesn’t exceed four times the country’s benchmark, according to the statement. The official one-year rate is 6.56 percent.

To contact the reporter on this story: Paul Panckhurst in Beijing at ppanckhurst@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Asian Stocks Rise, Led by Chinese Lenders; Japan Stocks Climb

By Shani Raja - Oct 11, 2011 2:46 PM GMT+0700

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Oct. 11 (Bloomberg) -- Kwok Chern Yeh, the Tokyo-based head of Japan equities at Aberdeen Asset Management Plc, talks about Japan stocks and the nation's economy. Japan’s current-account surplus narrowed for a sixth consecutive month in August, as waning growth in overseas economies and a stronger yen damped export demand. Kwok speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Oct. 11 (Bloomberg) -- Jagannadham Thunuguntla, chief strategist at New Delhi-based SMC Wealth Management Services, talks on about India's information-technology industry. Infosys Ltd., India's second-biggest software maker, reports financial results tomorrow. Thunuguntla speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Asian stocks rose, sending a regional index toward its biggest four-day advance since March 2009, as Chinese lenders surged after a state-owned investment company bought bank shares and Japanese equities climbed on resuming trade from a holiday.

Bank of China Ltd. (3988) climbed 8.9 percent in Hong Kong after Central Huijin Investment Ltd. said it began buying shares of the four biggest national banks. Cnooc Ltd. (883), China’s No. 1 offshore oil explorer, added 5 percent as a pledge by Germany and France to support Europe’s banks spurred commodity prices. Rio Tinto Group, the world’s second-biggest mining company by sales, rose 0.9 percent in Sydney and Korea Zinc Co. surged 4.4 percent in Seoul. Sony Corp. (6758), Japan’s largest exporter of consumer electronics, jumped 5.7 percent in Tokyo.

The MSCI Asia Pacific Index gained 1.9 percent to 115.82 as of 4:45 p.m. in Tokyo as commodity prices also advanced after German Chancellor Angela Merkel and French President Nicholas Sarkozy pledged at the weekend to deliver a plan to recapitalize the Europe’s banks and address Greece’s debt crisis by Nov. 3. More than five stocks rose for each that fell on the gauge.

“There is hope that if a comprehensive European bank package is announced, the damage to the real economy will be less than currently expected,” said Belinda Allen, a senior investment analyst at Colonial First State Global Asset Management in Sydney, which oversees about $145 billion. “That would be better news for global growth and commodity demand.”

Book Value

The MSCI Asia Pacific Index dropped 17 percent this year through yesterday, compared with a 5 percent loss for the S&P 500 and a 14 percent decline for the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 11.6 times estimated earnings on average, compared with 12 times for the S&P 500 and 10 times for the Stoxx 600.

Companies in the MSCI Asia Pacific Index trade at about 1.3 times book value, compared with 2 times for the S&P 500 and 1.4 times for the Stoxx 600.

Japan’s Nikkei 225 Stock Average advanced 2 percent today as the nation’s markets resumed trading following a public holiday. Hong Kong’s Hang Seng Index surged 2.5 percent, while Australia’s S&P/ASX 200 Index gained 0.6 percent and South Korea’s Kospi Index climbed 1.6 percent.

Futures on the Standard & Poor’s 500 Index slid 0.2 percent today. In New York yesterday, the gauge rose 3.4 percent, its biggest rally since August, with all 10 industry groups advancing. The S&P 500 last week rebounded from the threshold of a bear market on optimism Europe will tame its debt crisis and after U.S. economic data improved.

The Stoxx Europe 600 Index completed its biggest four-day gain since 2008 yesterday.

China Buying Banks

Bank of China climbed 8.9 percent to HK$2.68 in Hong Kong after Central Huijin began buying shares in the nation’s four biggest banks following a drop in valuations to below levels reached during the global financial crisis.

Agricultural Bank of China Ltd. (601288) jumped 14 percent to HK$3.01. Industrial and Commercial Bank of China Ltd. rose 7.4 percent to HK$4.34 and China Construction Bank Corp. (939) rallied 6.2 percent to HK$5.13.

Commodity producers rallied after copper futures for December delivery climbed 2.9 percent on the Comex in New York yesterday, while crude oil for November delivery gained 2.9 percent. The London Metal Exchange Index of prices for six industrial metals, including copper and aluminum, added 1.7 percent for its third straight daily increase. Crude and copper both declined today.

Rio, Cnooc

Rio Tinto rose 0.9 percent to A$68. Mitsubishi Corp. (8058), which gets 43 percent of its revenue from commodities trading, gained 1.8 percent to 1,508 yen in Tokyo. Korea Zinc surged 4.4 percent to 296,500 won in Seoul and Cnooc added 5 percent to HK$13.86 in Hong Kong.

“Commodity prices and stocks fell sharply over the last few months on worries Europe would blow up, causing a collapse in global growth,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “The pledges from Merkel and Sarkozy help provide confidence that this won’t happen.”

Sony jumped 5.7 percent to 1,496 yen in Tokyo. Daewoo Shipbuilding & Marine Engineering Co., a South Korean shipbuilder that gets 98 percent of its revenue overseas, advanced 2.9 percent to 24,750 won in Seoul.

Esprit Holdings Ltd. (330), a Hong Kong-listed global clothing retailer, advanced 12 percent to HK$10.96 after hedge fund Lone Pine Capital LLC increased its stake to become the company’s second-biggest shareholder.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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Europe Delays Summit as Greek Writedowns May Top 60%

By James G. Neuger and Gabi Thesing - Oct 11, 2011 1:55 PM GMT+0700

European leaders pushed back a debt- crisis summit amid opposition to Germany’s drive for deeper- than-planned Greek bond writedowns that Luxembourg’s Jean-Claude Juncker says may exceed 60 percent.

When asked on Austrian television late yesterday to comment on speculation investors may lose between 50 percent and 60 percent of the value of their holdings, Luxembourg’s prime minister said “we’re talking about even more.” He didn’t comment further.

The Oct. 18 meeting was postponed to Oct. 23 as Europe gropes toward a master plan for dealing with Greece’s oversized debt, insulating the Spanish and Italian markets, and shielding banks from the fallout.

Europe needs a strategy for shoring up banks before unstitching a July accord to cut Greek bond values by an average of 21 percent, Belgian Prime Minister Yves Leterme said.

“It is a very sensitive item,” Leterme said in a Bloomberg Television interview at his Brussels residence yesterday. “You can’t at every European Council change the percentages and bring supplementary problems to banks.”

Germany and France, Europe’s dominant tandem, this week pledged a crisis-management breakthrough in time for a Nov. 3 meeting of Group of 20 leaders, the informal steering committee for the world economy.

Opposition to bigger Greek debt writedowns is coming from the European Central Bank, which is against any backsliding from the July 21 accord on a second Greek bailout, a central bank official said yesterday. An appeal to “fully implement all aspects” of the July roadmap was inserted into last week’s monthly policy statement as a warning to Germany, the official said under condition of anonymity.

Economic-Review Mission

For Greece, the endgame drew nearer with an announcement that European Union, International Monetary Fund and ECB experts are likely to complete their economic-review mission today. Some “technical issues” remain to be sorted, Greek Finance Minister Evangelos Venizelos said in a statement yesterday.

“It is looking as if the July 21 agreement just isn’t sufficient and that’s been increasingly recognized in Greece and the rest of Europe,” Julian Callow, chief European economist at Barclays Capital in London, said yesterday on Bloomberg Television’s On the Move with Francine Lacqua.

German Chancellor Angela Merkel and French President Nicolas Sarkozy put bank recapitalization at the top of the priority list in an Oct. 9 declaration in Berlin that triggered a flurry of consultations in European capitals.

The German and French leaders each called for a “lasting” solution to the 19-month crisis, echoing language the EU used in March when it unwrapped what it labeled a “comprehensive” package to restore economic order.

Upgraded Strategy

The upgraded strategy hinges on finding a way to get more out of the 440 billion-euro ($602 billion) rescue fund.

“Further elements are needed to address the situation in Greece, the bank recapitalization and the enhanced efficiency of stabilization tools,” EU President Herman Van Rompuy said in setting the new summit date yesterday.

The summit, now slated for a Sunday when the U.S. and European markets are closed, will be preceded by a meeting of finance ministers on a date to be determined. Europe has traditionally chosen weekends for market-sensitive crisis management, as when the euro area created the rescue fund in May 2010.

A planned reinforcement of the fund, known as the European Financial Stability Facility, faces its final test today with a vote in Slovakia’s parliament. One party in the governing coalition is holding out against approval.

Political jousting in Slovakia, a euro user since 2009, showed how Europe’s unanimous decision-making principle makes the emergency response hostage to local politics.

Slovak Ratification

Slovak Prime Minister Iveta Radicova’s party is seeking to pressure rebel lawmakers by tying the EFSF ratification to a no- confidence motion, two government officials said under condition of anonymity yesterday.

Belgium’s Leterme said a veto shouldn’t derail the fund. He called on the remaining 16 euro governments “to take over the burden and we’ll have to defend the euro” in case Slovakia balks at ratification.

The strengthened fund will gain the power to buy bonds in the primary and secondary markets, offer IMF-style precautionary credit lines and enable the bolstering of bank capital.

EFSF Firepower

Officials are working out how to scale up the EFSF’s firepower without requiring another round of parliamentary approvals or dipping into the balance sheet of the ECB. The central bank has ruled out granting the EFSF a banking license.

Under a workaround floated yesterday, the governments could use the EFSF to insure a portion of new bonds sold by debt- strapped nations, automatically extending the fund’s coverage.

EFSF resources “should be dedicated to enhance sovereign debt new issuance of securities, thus multiplying their effect,” ECB Vice President Vitor Constancio said in Milan yesterday.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Ralph Nader Asks Cisco CEO John Chambers to More Than Double Dividend Size

By Peter Burrows - Oct 11, 2011 7:51 AM GMT+0700

Cisco Systems Inc. (CSCO) shareholder Ralph Nader, a former presidential candidate and consumer advocate, reiterated a call for Chief Executive Officer John Chambers to issue a special dividend and increase the existing one.

“My sense is that you really do not resonate with your shareholders who trusted you and relied on you,” Nader said in a statement. “Give them the dividend respect their continuity with you deserves.”

Nader is putting pressure on Chambers to use part of Cisco’s $38.9 billion in cash and short-term investments to more than double its dividend, now at 24 cents a year. He also urged the company to issue a one-time dividend of $1 a share. Cisco’s stock has come under pressure as the company scales back sales- growth projections amid price competition and slow demand.

“We engage with our shareholders consistently and value their input,” said Karen Tillman, a spokeswoman for San Jose, California-based Cisco. “We have moved aggressively and decisively with our action plan to deliver profitable growth and we continue to evaluate optimal use of capital, with a clear focus on providing consistent, meaningful return to shareholders.”

Nader initially made the dividend demands, including a request for 50 cents a year, in June. He said in an interview that the company’s responses indicate it’s not taking his request seriously.

Watchdog Needed?

If the company doesn’t announce the one-time dividend and an increase by the end of the month, Nader plans to ask Cisco shareholders to pledge a penny for each share they own, to pay the costs of assigning a “watchdog” to monitor the company’s behavior. The watchdog could be a public interest lawyer or an “out-of-work investigative journalist,” Nader said in an interview. “I hear there are some of those around.”

Nader said investors would not need to send any money until enough had been raised to pay the advocate.

Cisco said in November it was adding $10 billion to a stock repurchase program. The company’s board had previously given a green light to as much as $72 billion in repurchases.

Cisco rose 43 cents to $17.09 today in New York.

The company said on Sept. 13 that it expects sales growth of 5 percent to 7 percent by 2014, ditching an earlier forecast for growth of 12 percent 17 percent.

To contact the reporter on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net

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

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Venizelos Says Greece to Keep Promises as Deeper Debt Cut Looms

By Marcus Bensasson and Maria Petrakis - Oct 11, 2011 5:33 AM GMT+0700
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Evangelos Venizelos, Greece's finance minister. Photographer: Kostas Tsironis/Bloomberg

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Oct. 10 (Bloomberg) -- Belgian Prime Minister Yves Leterme talks about the need for European leaders to develop a strategy for shoring up banks before reopening an accord on Greek bond values. Leterme speaks with Bloomberg's James G. Neuger in Brussels. (Source: Bloomberg)

Greek Finance Minister Evangelos Venizelos said the government will push through with commitments to international creditors to deepen pension and wage cuts as European leaders move to reopen talks on a support package that may mean deeper writedowns on Greek debt.

“What needs to be done on our side is to do what we said we will do by the end of October,” Venizelos told Athens-based Mega TV in an interview today. He said the government would secure parliamentary approval for the draft 2012 budget, which was passed at the finance committee level yesterday, and budget measures including a new wage scale and eventual lay-offs for 30,000 state workers.

Germany, Europe’s dominant economy, is pushing for a bigger reduction in Greece’s debt burden to forge a lasting solution to the debt crisis that has roiled markets and shaken confidence in the euro. European leaders are struggling to develop a strategy to shore up banks amid talk of deeper-than-planned writedowns on Greek debt.

German Chancellor Angela Merkel said on Oct. 9 after meeting with French President Nicolas Sarkozy that a report from the team of inspectors later this month will help determine the next steps. Belgian Prime Minister Yves Leterme said yesterday a crisis summit now scheduled for Oct. 23 should focus on boosting the 440 billion-euro ($600 billion) rescue fund instead of reopening the July accord to cut Greek bond values by an average of 21 percent.

Germany’s Push

The European Central Bank also opposes Germany’s push to rewrite the euro area’s 12 week-old-rescue plan as leaders prepare the ground for a potential Greek default, a central bank official said.

Venizelos said talks with the heads of the mission of inspectors from the European Union, European Central Bank and International Monetary Fund, backers of the original 110 billion-euro bailout, had effectively ended. The so-called troika of creditors will need about 10 days to prepare its report, Venizelos said.

A positive recommendation will aid the payment of 8 billion euros under the EU-led bailout. Venizelos has said the country has cash to operate till mid-November.

The search for a comprehensive fix led European leaders to push back the crisis summit by five days. Prime Minister George Papandreou plans to meet European Union President Herman Van Rompuy in Brussels on Oct. 13.

Greece’s Debt

Greece’s debt load will climb to 172.7 percent of gross domestic product in 2012, about double Germany’s, as the economy contracts for a fifth year. Greek bank stocks yesterday slumped amid talk of a deeper writedown of their holdings of government bonds. National Bank of Greece SA (ETE), the largest, lost 13 percent to 1.90 euros.

Venizelos told lawmakers yesterday that the government expected an overall second financing package that’s better than originally agreed in July, which provided for private sector involvement, or PSI, entailing losses for bondholders.

“We expect a PSI-plus, a vehicle of participation with the private sector, a total package which will be better than the one originally designed,” Venizelos said.

Papandreou risks a replay of social and political unrest that almost brought down his government in June when he was forced to push through a 78 billion-euro package of budget cuts and state asset sales before receiving a fifth loan payment under the May 2010 bailout.

Garbage is piling up on city streets as local government workers strike. Air traffic controllers staged a “go slow” for the second day running yesterday while subway workers also struck in opposition to the austerity measures. Public Power Corp. SA workers blocked production at a southern Greek plant today to protest plans to reduce wages, the state-run Athens News Agency reported.

Greece’s biggest union groups will hold a 48-hour strike from Oct. 18, state-run NET Radio reported.

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