Retail Sales Rise 1.1% in September, Beating Forecasts

By Timothy R. Homan - Oct 14, 2011 7:45 PM GMT+0700

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Oct. 14 (Bloomberg) -- Brian Sozzi, an analyst at Wall Street Strategies Inc., talks about today's Commerce Department report on retail sales in the U.S. Sales rose more than forecast in September, easing concern slumping confidence and scant hiring will derail the biggest part of the economy. The 1.1 percent advance, the biggest since February, followed a 0.3 percent gain for August, a stronger performance than previously estimated. Sozzi talks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Shoppers carry bags at the Westfield Garden State Plaza mall in Paramus, New Jersey, on Sept. 6, 2011. Photographer: Emile Wamsteker/Bloomberg

Retail sales in the U.S. rose more than forecast in September, easing concern slumping confidence and scant hiring will derail the biggest part of the economy.

The 1.1 percent advance, the biggest since February, followed a 0.3 percent gain for August, a stronger performance than previously estimated, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg News called for a 0.7 percent rise in purchases last month.

Macy’s Inc. (M) and Kohl’s Corp. (KSS) are among retailers planning to boost hiring heading into the year-end holidays, even as gains in payrolls are too small to reduce unemployment. President Barack Obama, lawmakers and the Federal Reserve face pressure to spur the jobs needed to support household spending, which accounts for about 70 percent of the world’s largest economy.

“It’s a strong performance,” said Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia, who projected a 1 percent increase. “Retailers are in good position to profit from the holiday season.”

Stock-index futures added to earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in December climbed 1.2 percent to 1,211.8 at 8:44 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10- year note up to 2.26 percent from 2.18 percent late yesterday.

Survey Results

Economists’ estimates in the Bloomberg survey ranged from gains of 0.2 percent to 1.6 percent. The Commerce Department revised the August figure from no change.

Ten of 13 major categories showed increases last month, led by auto dealers and clothing stores.

Purchases at automobile dealers climbed 3.6 percent, the most since March 2010, today’s report showed. The results are in line with industry figures. Cars and light trucks sold at a 13.1 million seasonally adjusted annual rate in September, according to Woodcliff Lake, New Jersey-based Autodata Corp. The rate was the highest since April’s 13.2 million, when lost output caused by Japan’s earthquake and tsunami began crimping supply of cars and parts.

Purchases excluding autos increased 0.6 percent, today’s report showed. They were projected to rise 0.3 percent, the survey median showed.

Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales also rose 0.6 percent, the most since March, after a 0.4 percent August increase.

Unemployment

Consumers, for now, are weathering a stagnant job market. Payrolls last month climbed by 103,000 workers, reflecting the end of a strike at Verizon Communications Inc. that brought 45,000 people back to work, Labor Department figures showed earlier this month. The unemployment rate was 9.1 percent in September for a third month.

“The U.S. has a long-term issue with unemployment that for the average consumer is going to remain challenging,” Blake Jorgensen, chief financial officer for Levi Strauss & Co., said in a telephone interview this week from San Francisco, where the closely held company is based. “We’re remaining cautious.”

Persistent joblessness, the real-estate slump and a volatile stock market will limit retail sales growth to 2.8 percent during the holiday season this year, according to the National Retail Federation.

Holiday Forecast

The gain compares with a 5.2 percent jump last year and a 10-year average of 2.6 percent, the Washington-based NRF said last week. Stores may hire 480,000 to 500,000 seasonal workers, in line with the 495,000 added last year, the group said.

Macy’s, the second-biggest U.S. department-store chain, is increasing hiring of mostly part-time workers by 4 percent for the holiday season to match sales growth in its stores and online. Kohl’s, the fourth-largest U.S. department-store chain, said last week it may hire more than 40,000 holiday workers, a 5 percent increase from 2010.

“Households have been very cautious in their spending decisions,” Fed Chairman Ben S. Bernanke said Oct. 4 in congressional testimony. “Probably the most significant factor depressing consumer confidence, however, has been the poor performance of the job market.”

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

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

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Stocks Gain on G-20 Meeting, Retail Data

By Daniel Tilles and Michael P. Regan - Oct 14, 2011 9:27 PM GMT+0700

Global stocks surged, extending the biggest weekly rally since July 2009, as the Group of 20 began talks to tame Europe’s debt crisis and U.S. retail sales and Google Inc.’s results beat estimates. Commodities rose and the euro headed for the best weekly gain since January.

The Standard & Poor’s 500 Index climbed 0.8 percent at 10:21 a.m. in New York as Google Inc. jumped 6.3 percent. The Dow Jones Industrial Average extended a third straight weekly advance, its longest streak since April. Copper added as much as 3.8 percent as the S&P GSCI Index of 24 commodities climbed 2.3 percent. Ten-year Treasury note yields rose five basis points to 2.24 percent. The euro was at $1.3880, up 3.8 percent this week.

The MSCI All-Country World Index extended its weekly advance to 5.2 percent as elements of the European rescue plan emerged with finance officials from the G-20 beginning talks in Paris. The bigger-than-forecast 1.1 percent increase in U.S. retail sales last month eased concern that slumping consumer confidence will hurt spending, while Google’s earnings showed growing demand for online advertising.

“The economy seems to be re-accelerating as the various threats to growth moderate,” David Goerz, the San Francisco- based chief investment officer at Highmark Capital Management Inc., which oversees $17.2 billion, said in an e- mail.

Debt Turmoil

Policy makers are discussing an expansion of the IMF’s role as part of a global G-20 agreement next month in Cannes, France, according to three officials, who declined to be identified because the discussions are not public. Talks are in preliminary stages as potential contributors wait to see what measures Europeans take to end the debt turmoil at an Oct. 23 summit, they said.

The S&P 500 was poised to complete its first back-to-back weekly gain since July. Apple Inc. rose 2 percent as analysts predicted it will sell as many as 4 million new iPhone 4S devices this weekend as customers around the world lined up.

The better-than-forecast growth in retail sales helped the Citigroup Econonomic Surprise Index for the U.S. turn positive for the first time since April 29, the day the S&P 500 peaked at an almost three-year high. The gauge measures the degree to which data is beating or trailing economists’ estimates.

U.S. equities maintained gains even after the Thomson Reuters/University of Michigan preliminary October index of consumer sentiment fell to 57.5 from 59.4 a month earlier, the group reported today.

The Stoxx Europe 600 Index headed for a third straight weekly gain, its longest stretch of weekly advances since April. Syngenta AG, the world’s biggest maker of agricultural chemicals, jumped 2.2 percent after reporting third-quarter sales that beat estimates. SAP AG gained 2.7 percent after the largest maker of business-management software said earnings and sales rose in the third quarter on rising demand for its services. SAP also reiterated its full-year forecast.

European Stocks

All 19 industry groups in the Stoxx 600 advanced. Banks rose as a group even after Fitch Ratings put more than a dozen lenders on watch negative as part of a global review. Unicredit SpA of Italy and Switzerland’s Julius Baer Group Ltd. rose more than 5 percent to lead gains, while BNP Paribas SA dropped 1.9 percent and Societe Generale SA slipped 0.6 percent.

Italy’s FTSE MIB Index rallied 3.1 percent to lead gains among European nations and the 10-year bond yield was little changed 5.83 percent. Prime Minister Silvio Berlusconi won a parliamentary confidence vote today to avert the collapse of his government, giving him more time to try and steer Italy out of Europe’s debt crisis.

Spain’s 10-year note yield climbed five basis points to 5.25 percent after. The extra yield investors demand to hold French 10-year bonds instead of benchmark German bunds widened eight basis points to 92 basis points, the most since the euro started in 1999. The Belgian two-year note yield increased nine basis points.

Default Swaps

The cost of insuring European sovereign debt rose after S&P said it was downgrading Spain because of slowing growth and concern rising defaults will undermine banks. The Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments gained 1.4 basis points to 335.25.

Copper rallied as much as 3.8 percent to $3.4315 a pound in New York, poised for a second weekly gain. Stockpiles in London Metal Exchange warehouses decreased for an eighth day to the lowest level since April 13. Copper imports by China climbed for a fourth month to the highest level in 16 months in September, according to customs data.

Oil for November delivery climbed as much as 3.6 percent to $87.28 a barrel on the New York Mercantile Exchange, reversing an early decline.

Emerging Markets

The MSCI Emerging Markets Index rose 0.5 percent, heading for its eighth consecutive gain, the longest streak since July 2010.

The Hang Seng China Enterprises Index of Chinese shares traded in Hong Kong fell 2.2 percent. The National Bureau of Statistics said consumer prices rose 6.1 percent in September from a year earlier, the fourth consecutive month of inflation above 6 percent. China’s money supply grew at the slowest pace in almost a decade as inflation stayed above the government’s target, highlighting the risk that efforts to tame prices will trigger a slowdown.

The Micex Index jumped 2.9 percent in Moscow as oil rose. The ISE National 100 Index (XU100) rose 1.4 percent in Istanbul and the Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 1.2 percent.

The euro rose to 106.82 yen. The 17-nation currency’s 3.7 percent five-day gain versus the greenback left it on course for the biggest weekly advance since January. The Dollar Index, which tracks the U.S. currency against those of six trading partners, fell 0.6 percent.

To contact the reporters on this story: Daniel Tilles in London at dtilles@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

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

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Dow Average Is Poised for Longest Weekly Gain Since April on Retail Sales

By Rita Nazareth - Oct 14, 2011 9:10 PM GMT+0700

Royal Bank of Scotland Group Plc (RBS) is canceling Christmas for its investment bankers this year as the government-owned lender tries to reduce costs.

The bank will stop subsidizing holiday parties and has banned staff entertainment for the rest of the year, Chris Kyle, chief financial officer of RBS’s investment bank, wrote in an e- mail to employees obtained by Bloomberg News. A spokesman for the lender confirmed the contents of the memo.

RBS reduced its spending on holiday parties to 10 pounds ($16) a head, enough to buy two pints of lager and a packet of potato chips, in 2008 after receiving the biggest banking bailout in the world in the financial crisis. The lender announced 2,000 job cuts at the securities unit in August.

The bank is seeking to “further tighten and minimize the rate of spend on non-staff costs,” Kyle wrote. RBS has also frozen spending on computer hardware, new Blackberries and additional newspaper subscriptions, he said.

“International travel for internal purposes is to cease across all areas” and “travel under four hours duration will be in economy class without exception.”

Employees have also been stopped from organizing off-site meetings and from taking taxis home before 10 p.m., he said. All contractors will take a “mandatory” vacation from Dec. 19 to Dec. 30, Kyle wrote.

The lender may also have to raise capital as European Union regulators force banks to bolster themselves against losses from the region’s sovereign debt crisis.

RBS might need to raise as much as 19 billion euros ($26 billion) of new capital to pass a third round of stress tests, Credit Suisse Group AG analysts led by Carla Antunes-Silva wrote in a note to clients yesterday. Evolution Securities Ltd.’s Ian Gordon said in a note today that RBS has “absolutely no need” to raise more capital because the bank wrote down its holdings of Greek debt by 50 percent in the second quarter.

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

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

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European Rescue Plan Takes Shape

By Simon Kennedy and Victoria Ruan - Oct 14, 2011 9:32 PM GMT+0700

European officials are outlining a rescue plan that may include deeper investor losses on Greek bonds, higher bank capital levels and increased firepower for bailouts and the International Monetary Fund.

The plan’s elements emerged as finance ministers and central bankers from the Group of 20 began talks in Paris lobbying their European counterparts to end the two-year sovereign debt crisis. Underscoring the need for action, Standard & Poor’s yesterday cut Spain’s credit rating for the third time in three years and new data showed the eight largest U.S. money-market funds almost halved their lending to French banks last month.

“The sense of urgency is here,” Eric Chaney, chief economist for AXA SA (CS), Europe’s second-largest insurer, said in a Bloomberg Television interview with Maryam Nemazee in Paris today. “There will be a lot of pressure on Europeans to find a solution.”

European leaders may complete the plan at an Oct. 23 summit to present to a gathering of G-20 chiefs Nov. 3-4. The aim is to craft what French Finance Minister Francois Baroin today called a “durable, complete package” to fix the turmoil that has propelled Greece to the edge of default and is rattling global markets. Europe’s Stoxx 600 headed for a third week of gains amid optimism policy makers will contain woes.

Geithner’s View

“Europe is clearly moving,” U.S. Treasury Secretary Timothy F. Geithner said in an interview today with CNBC in Paris. “If you look at what they’ve been saying, they are talking about a much more comprehensive package of measures.”

Australian Treasurer Wayne Swan told reporters that “the first priority” for the Group of 20 “is for Europe to put their own house in order.”

Three months after banks and insurers agreed to a voluntary loss of about 21 percent on their Greek debt, they are being pushed to accept a larger so-called haircut as Greece’s economy deteriorates. German banks are preparing for losses of as much as 60 percent, said three people with knowledge of the matter.

“A Greek debt writedown, even if it takes place, should only be ventured after careful and conscientious preparation in order to prevent anything worse from happening and to pave the way for structural reforms,” German Chancellor Angela Merkel said in a speech in Karlsruhe, southwest Germany, today.

Greek Strikes

In Greece, a wave of strikes and walkouts protesting budget cuts sparked criticism from Finance Minister Evangelos Venizelos today. “The picture we have seen over recent days is one of lawlessness,” he told lawmakers. “Some believe that occupations, strikes, blackmail, pressure can lead to the satisfaction of vested interests to the detriment of the national interest.”

Concerned that banks lack the capital to absorb a shock in sovereign debt, European authorities are working on a plan that may force financial institutions to raise at least 100 billion euros ($138 billion) in additional capital, according to analysts’ estimates. That money would come either from existing investors -- who are signaling they may resist providing it --or state funding that may come with strings attached.

The European Banking Authority intends to complete an assessment of the region’s capital needs before a meeting of European Union finance ministers to precede the summit, said Jonathan Todd, a spokesman for the European Commission.

Capital Buffer

Banks may be required to maintain a 9 percent capital buffer to absorb sovereign risks, up from the 5 percent core capital level used in July’s stress tests, a person with knowledge of discussions at the authority, the EU’s top banking regulator said this week.

French Finance Minister Francois Baroin said on Europe 1 radio today that 9 percent may be a “good” level.

The 46-member Bloomberg Europe 500 Banks and Financial Services Index has dropped just under a third this year, paced by Dexia SA, the Franco-Belgian lender that’s being broken up. Today, the Stoxx 600 and the gauge of banks added 1 percent.

In one boost for Europe’s crisis-fighting abilities, Slovakian lawmakers yesterday approved a revamping of the region’s rescue fund, completing ratification across the 17 euro countries.

The European Financial Stability Facility will now have a war chest of 440 billion euros, be allowed to buy the debt of stressed euro-area nations, aid troubled banks and offer credit line to governments. Its original role was to sell bonds to finance rescue loans.

Spending Power

Its new spending power may still not be enough to contain the crisis, with Royal Bank of Scotland Group Plc economists saying a 2 trillion-euro capacity is required to persuade investors that Spain and Italy are safe. As taxpayers chafe at providing even more cash and AAA-rated governments worry about their own standing, policy makers are now looking to leverage the fund, perhaps by insuring a portion of new bonds issued by debt-ridden nations.

French 10-year government bonds fell today, increasing the extra yield investors demand to hold the securities instead of German bunds to as much as 91.3 basis points. That’s the most since the euro started in 1999.

European officials are working out how to scale up the financial clout without requiring another round of parliamentary approvals or tapping the European Central Bank’s balance sheet. That may involve providing a partial guarantee to new bond sales, a step endorsed by the ECB.

Permanent Fund

There may also be a consensus in the euro area to set up the permanent rescue fund, the 500 billion-euro European Stability Mechanism, by mid-2012, a year earlier than planned.

“The resources available in the IMF and the EFSF are not adequate,” South African Finance Minister Pravin Gordhan said in Paris. He said emerging market powers have indicated a readiness to offer more support for international institutions.

Countries from China to Brazil are considering increasing IMF lending resources to help stem Europe’s travails, G-20 and IMF officials said. Talks are still in the preliminary stages as potential contributors wait to see what fixes Europe delivers first. Managing Director Christine Lagarde said last month that her current $390 billion cash pile may not be large enough to meet all loan requests should the global economy worsen.

“Emerging markets, in particular China, may feel the pressure at this point to make some gestures to help the West,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “They do not want to invest too much given that the West’s problems are of its own making, and if they help, they want to do so in a way that brings them benefits and recognition.”

The G-20 meetings in Paris conclude tomorrow with a press conference scheduled for 4:15 p.m. Ministers meet for dinner tonight at about 7 p.m.

To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net; Victoria Ruan in Beijing at vruan1@bloomberg.net

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

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Greece’s Bondholders Brace for Bigger Losses to Solve Crisis: Euro Credit

By Paul Dobson and Emma Charlton - Oct 14, 2011 2:58 PM GMT+0700

Greek bondholders are preparing to lose as much as 60 percent of their investments as European leaders try to impose a solution that reduces the nation’s debt burden by enough to end the debt crisis.

“Everyone is coming to the conclusion that a much deeper restructuring is needed to make Greece in any way sustainable,” said Emiel van den Heiligenberg, chief investment officer of global balanced solutions at BNP Investment Partners in London, which oversees about $742 billion. “If the stock of debt doesn’t diminish, then the problems are going to be bigger and bigger and Greece will require rescue package after rescue package.”

Greek 10-year bonds yielded 23.98 percent at 8:31 a.m. London time, with the price on the securities at 37.40 percent of face amount. The rate was 2,186 basis points, or 21.86 percentage points, more than benchmark German bunds and compares with a yield of 11.59 percent for similar-maturity Portuguese debt and 5.87 percent for Italian bonds.

Europe’s leaders are intensifying efforts to contain the crisis that broke out in Greece almost two years ago, drove up state borrowing costs from Ireland to Italy and triggered the collapse of Dexia SA (DEXB), Belgium’s biggest lender by assets. European Commission President Jose Barroso said two days ago the region needs a coordinated approach to backstop the region’s banks and “get ahead of the curve.”

Standard & Poor’s downgraded Spain yesterday, citing heightened risks to growth prospects. Fitch Ratings cut the long-term issuer default grades of UBS AG (UBSN), Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS), and put more than a dozen other lenders on watch negative.

Fresh Plan

German banks are preparing for losses of as much as 60 percent on their Greek holdings, three people with knowledge of the matter, who declined to be identified because the talks are private, said yesterday. The risk is that creditors balk at forgoing more than the 21 percent initially suggested in a plan crafted in July, forcing Greece to miss debt payments and sparking a chain-reaction across the euro area’s markets involving rating downgrades and payouts on credit-default swaps.

Hatching a fresh plan for Greece would mean rewriting the package agreed to in July, which included a 21 percent voluntary reduction in repayments on some bonds. With a deepening recession in Greece pushing the nation further away from the July accord’s debt-reduction targets, the price of two-year notes slid to as little as 36.79 percent of face value on Sept. 13, indicating dwindling faith in the nation’s ability to repay investors even after the so-called haircut.

Brussels Talks

“A reopening of the deal is very likely,” said Patrick Armstrong, managing partner at Armstrong Investment, which has about $345 million in assets under management. “In the past, they were trying to avoid Greece defaulting and avoid recapitalizing the banks and what’s going to happen now will probably be more sensible. It will allow the euro zone to move forward.”

The London-based fund manager owns a “small amount” of Greek 4.3 percent bonds due March 20, 2012, which it bought in July, Armstrong said.

Deutsche Bank AG Chief Executive Officer Josef Ackermann, who led talks on private sector involvement in Greece’s rescue package in July, said yesterday that he will go to Brussels next week to discuss the potential for investors to accept deeper losses. Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said separately yesterday that talks are under way with the Washington-based Institute of International Finance on the cost to investors of a second bailout package for Greece.

‘Larger Haircut’

“You need a significantly larger haircut because what’s being discussed now isn’t enough to put this country back on the path of fiscal sustainability,” Pacific Investment Management Co. Chief Executive Officer Mohamed A. El-Erian said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We’re going to see it soon because I think the politicians and policy makers understand that debt reduction is part of the solution.”

Since German Chancellor Angela Merkel and French President Nicolas Sarkozy put bank recapitalization at the top of the priority list in an Oct. 9 declaration, the Stoxx Europe 600 Index of shares has risen 1.7 percent. Yields on benchmark German bunds, perceived to be Europe’s safest government bonds, rose to a six-week high yesterday, the euro rallied 2.8 percent to $1.3751 and a measure of how much European banks pay to fund in dollars slid to a five-week low today.

Bank Capabilities

Ensuring banks in Greece and the euro area are capable of withstanding greater losses on Greek debt is “imperative,” said Spyros Politis, CEO of TT-ELTA AEDAK, a Greek manager of mutual funds with 262 million euros ($360 million) of assets.

“You need this society to function in order to, at the minimum, guarantee that whatever is left after the haircuts is repaid,” Politis said. “This in turn needs a functioning domestic banking system.” TT-ELTA AEDAK values the Greek bonds in its portfolio at 50 percent of face amount, he said. An eventual haircut of around 35 percent “appears to be a solution that keeps everyone less unhappy,” he said.

The drop in Greek bond prices already means investors are going to save Greece more money through the July debt-exchange plan than previously thought, because they save it from selling securities at today’s higher yields, Charles Dallara, managing director of the IIF, said on Oct. 4.

Greek CDS

Credit-default swaps on Greece signal a more than 90 percent chance the government will renege on its obligations within five years, assuming investors would recover 32 percent of their holdings in the event, according to CMA, which is owned by CME Group Inc. and compiles prices from dealers in the privately negotiated market. The swaps market is factoring in a 62 percent probability Portugal will default in that time, a 47 percent chance for Ireland and about 8 percent for Germany, all assuming a 40 percent recovery.

“A managed default in Greece may increase speculation of restructurings elsewhere, which would certainly put Portugal under pressure, also Ireland and we would see Italy and Spain under greater speculative pressure,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “It’s a very difficult balancing act.”

S&P cut Spain’s long-term sovereign credit rating to AA- from AA, the ratings company said in a statement late yesterday. The country faces high unemployment and public sector debt, tighter financial conditions and may be affected by the slowdown of trading partners, S&P said.

ECB Involvement

The European Central Bank will also need to be persuaded to allow a greater writedown on Greek bonds, potentially also including its own holdings, amassed under a previous plan to support the nation. The involvement of the private sector in euro-area bailouts through enforced investor losses is a risk to financial stability and would have “direct negative effects” on the banking sector, the central bank said yesterday in its monthly bulletin.

ECB President Jean-Claude Trichet said on June 30 that the central bank didn’t expect to participate in the voluntary rollover of Greece’s debt agreed to in July.

“Very likely the ECB will defend its position of taking no haircut up until the last moment but I think at the end of the day the ECB will stop being the blocking point,” said van den Heiligenberg. “If you recapitalize the banks first then you have more potential to do bigger haircuts on Greek bonds. If they mix up the order then the market would probably get very nervous.”

To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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

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UBS, RBS Ratings Lowered as Fitch Says More Than a Dozen Banks May Follow

By Michael J. Moore and Dakin Campbell - Oct 14, 2011 10:40 AM GMT+0700

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Oct. 14 (Bloomberg) -- Patrick Legland, the Paris-based head of research at Societe Generale SA, talks about Europe's sovereign debt crisis and its implications for Asian economies. Spain had its credit rating cut one level by Standard & Poor’s, which cited a likely deterioration of the nation’s bank assets and weaker economic growth prospects that will keep unemployment elevated. Legland speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

UBS AG (UBSN), Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS) had long-term issuer default grades cut by Fitch Ratings, which put more than a dozen other lenders on watch negative as part of a global review.

UBS’s long-term issuer default rating and its “support rating floor” were cut to A from A+ on a “view that the one- notch uplift for close affiliation with the Swiss state is no longer warranted,” the ratings firm said yesterday in a statement. Lloyds and RBS were lowered two steps to A from AA- as Fitch said the U.K. is less likely to provide future support.

Fitch also placed viability ratings, and in some cases credit grades, on negative watch for seven global banks including Goldman Sachs Group Inc. (GS) and Morgan Stanley because of new regulations and economic developments. It put European banks such as Credit Agricole SA (ACA) on watch, based on sovereign debt concerns and said it would review Bank of America Corp. (BAC)’s mortgage-litigation risks.

“Fitch systematically, like many of the rating agencies, seems to be working its way through the European banking community from the standpoint of raising awareness of potential capital inadequacies,” Adrian Miller, a New York-based fixed income strategist at Miller Tabak Roberts Securities LLC, said in a telephone interview. “This is more or less a macro call on the sector. It’s a continuation of a developing theme that’s been going on since July that, since that point, has intermittently sent shockwaves throughout the market.”

Spain Downgraded

The euro weakened against the dollar and yen after Standard & Poor’s cut Spain’s credit rating, highlighting concern that rising defaults will threaten efforts to stem Europe’s sovereign-debt crisis. Spain’s long-term sovereign debt was downgraded to AA- from AA, making it the third cut in three years by S&P.

The seven global banks placed on watch by Fitch include Deutsche Bank AG (DBK), Credit Suisse AG, BNP Paribas (BNP) SA, Societe Generale (GLE) SA and Barclays Plc. (BARC)

The move “reflects Fitch’s view that these institutions’ business models are particularly sensitive to the increased challenges the financial markets are facing,” Fitch analysts wrote in a statement. “These challenges result from both economic developments, particularly in the euro area, as well as a myriad of regulatory changes.”

Backstopping Banks

German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged on Oct. 9 to deliver a plan to recapitalize Europe’s banks and address Greece’s debt crisis. European Commission President Jose Barroso said two days ago the region needs a coordinated approach to backstop the region’s banks and “get ahead of the curve.”

UBS’s viability rating, which measures creditworthiness and is meant to be internationally comparable, was placed on negative watch last month and was unaffected by yesterday’s action, Fitch said. UBS’s short-term rating was downgraded to F1 from F1+.

“UBS’s capital, liquidity and funding positions are sound and continue to be a source of competitive advantage,” Torie von Alt, a spokeswoman for the Zurich-based bank, said in an e- mail. “Fitch’s decision is not based on a change in its assessment of UBS’s intrinsic creditworthiness. It comes as part of a broader review of sovereign support assumptions for banks in several countries.”

Broad View

The announcements reflect a broad view of the sector, “versus a specific statement about Bank of America,” said Jerry Dubrowski, a spokesman for the Charlotte, North Carolina- based lender. “As we have said before, we have significant reserves to cover potential mortgage repurchase claims.”

Spokesmen for Morgan Stanley (MS), Credit Suisse, Barclays, Deutsche Bank and BNP Paribas declined to comment. Spokesmen for Societe Generale and Credit Agricole didn’t immediately respond to phone calls or e-mails after hours.

Fitch reduced its support rating floors -- which measure the likelihood of government support -- for systemically important British banks to A from AA- and A+. The ratings firm follows Moody’s Investors Service, which downgraded 12 British lenders, including RBS and Lloyds on Oct. 7, and also cited a lessening of government support.

Making Progress

“We are pleased that Fitch has commented on the steady improvement in our stand-alone risk profile,” Michael Geller, an RBS spokesman, said in an e-mail. “RBS has already completed its wholesale funding requirements for 2011 and continues to make progress in strengthening key balance sheet measures in the second half.”

Sarah Swailes, a Lloyds spokeswoman, said the ratings firm left the lender’s stand-alone rating unchanged and assigned a stable outlook.

U.K. Chancellor of the Exchequer George Osborne said last week the government is trying to move away from guaranteeing the country’s biggest banks. Lenders are under pressure from regulators to raise capital that’s been depleted by writedowns of Greek and other European peripheral sovereign debt.

At least 66 of Europe’s biggest banks would fail a revised European Union stress test and need to raise about 220 billion euros ($302 billion) of additional capital, Credit Suisse analysts said yesterday. RBS would need the most at about 19 billion euros, analysts led by Carla Antunes-Silva wrote in a note to clients.

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

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

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EU Banks Face Investor Boycott

By Liam Vaughan, Kevin Crowley and Elisa Martinuzzi - Oct 14, 2011 2:41 PM GMT+0700

Shareholders in European banks are resisting calls to pump more capital into the industry, pressure that may leave taxpayers as the investors of last resort.

European Union leaders are working on a plan that may force banks to raise 100 billion euros ($137 billion) to more than 300 billion euros in additional capital, according to analysts’ estimates. That money would come either from existing investors or state funding that may come with strings attached. Schroders Plc (SDR) and Swisscanto Asset Management say they’re reluctant to invest, given a failure to resolve the region’s fiscal crisis may send financial stocks even lower.

“Banks need to regain investor confidence and show how they can perform before they can raise capital,” said Peter Braendle, who helps manage 52 billion Swiss francs ($58 billion) at Zurich-based Swisscanto, including Deutsche Bank AG (DBK) shares. “The market is waiting for a good solution to the sovereign- debt problems.”

Banks receiving national or EU aid may face restrictions on bonuses and dividends, according to Jose Barroso, president of the European Commission. Barroso this week joined German Chancellor Angela Merkel in urging lenders to boost capital by selling shares to private investors. Failing that, he called for banks to be bailed out by governments or, if the state can’t afford it, by the European Financial Stability Facility.

Plunging Stocks

The 46-member Bloomberg Europe 500 Banks and Financial Services Index has dropped 29 percent this year, paced by Dexia SA (DEXB), the Franco-Belgian lender that’s being broken up after concern over its holdings of Greek sovereign debt blocked its access to short-term funding.

The declines have left banks including UniCredit SpA (UCG), Italy’s biggest, with a market value that’s less than half of the lender’s tangible book value, according to data compiled by Bloomberg.

The Association of German Banks panned Barroso’s demands, saying dividend restrictions would cripple future fundraising. Some investors and analysts criticize the plan, too, saying that forcing banks to raise more capital doesn’t address the underlying issue of investor confidence in sovereign debt.

‘Not the Solution’

“Recapitalizing the banks is not the solution,” said Justin Bisseker, who helps manage 205 billion pounds ($323 billion) as a European bank analyst in London for Schroders, Britain’s largest independent money manager. “Sovereign risk is the principal concern. Once investors’ confidence in sovereigns returns, then confidence in the banks will follow.”

European leaders are expected to announce a plan to tackle the crisis at a meeting of Group of 20 nations on Nov. 3.

According to a person familiar with the situation, the European Banking Authority, the EU’s chief bank regulator, is considering forcing institutions to “temporarily” bolster their core Tier 1 capital ratios, a measure of financial strength, to 9 percent.

At least 66 of Europe’s biggest banks would fail a revised European Union stress test and need to raise an additional 220 billion euros, Credit Suisse analysts said yesterday.

Roger Francis, a bank analyst at Mizuho Securities in London, said that figure could rise to 338 billion euros if “strict haircuts” are applied on Greek bonds, meaning the debt writedowns reflect their full loss of market value.

A 7.8 billion-euro five-year bond issued by Greece in 2007 trades at 45.3 cents on the euro, according to Bloomberg prices.

Yields Rise

“I would find it very difficult to recommend investors participate in bank rights issues in these circumstances,” Francis said in a telephone interview.

Yields on 10-year Greek bonds have almost doubled to 24 percent this year. Yields on Italian 10-year bonds are approaching 6 percent, the level that prompted the European Central Bank to begin buying the securities in July.

Costs to insure European bank debt against default has risen 39 basis points in 2011, credit-default swap prices show.

“Even if you are deemed to be a good bank and not a basket case, it’s going to be very hard to raise money,” said Francis Dallaire, an analyst at Pareto Ohman in Stockholm. “It’s much better to start by making sure the sovereigns are in OK shape. Otherwise, it would take a huge amount of capital to ensure the bank against a large euro country going into difficulty.”

Unlimited Cash

Slovakian lawmakers yesterday approved an expansion of the EFSF to 440 billion euros. The EFSF, which was created last year, is authorized to buy stressed euro nations’ bonds and offer credit lines to governments, which can then aid banks. Politicians are considering whether to increase the fund’s firepower to 1 trillion euros using leverage.

The ECB last week reintroduced yearlong loans, giving banks unlimited access to cash through January 2013. Banks are increasingly tapping the ECB as short-term funding evaporates.

The case of Commerzbank AG may show how pumping in cash has not raised confidence, according to Nicolas Walewski, who manages 1.8 billion euros in European equities at Alken Asset Management LLP in London. Commerzbank shares have slid 41 percent since Germany’s second-biggest lender raised 5.3 billion euros in a May share sale, hurt by tumbling profit and writedowns of its Greek bond holdings.

“As long as they’re deleveraging, you want to stay out of banks,” said Walewski, whose only bank holding is Switzerland’s UBS AG. “There will be relief rallies along the way, but while economies aren’t growing and banks aren’t lending, earnings will suffer. Recapitalizing is irrelevant in this environment.”

To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net; Kevin Crowley in London at kcrowley1@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net.

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net.

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Stocks in Europe Climb, U.S. Futures Rise; Syngenta Gains, Banks Decline

By Sarah Jones - Oct 14, 2011 4:49 PM GMT+0700

European stocks climbed, extending the Stoxx Europe 600 Index’s longest stretch of weekly gains in six months, as Group of 20 finance ministers meet in Paris to discuss the euro area’s debt crisis. U.S. index futures gained, while Asian shares retreated.

Syngenta AG (SYNN) led chemical makers higher, jumping 3.5 percent after reporting third-quarter sales that beat analysts’ estimates. MAN SE rallied more than 2 percent after U.S. haulier J.B. Hunt Transport Services Inc. posted earnings that topped forecasts. Banks limited gains in Europe after Fitch Ratings downgraded UBS AG (UBSN) and put more than a dozen other lenders on watch negative as part of a global review.

The Stoxx 600 rose 0.9 percent to 238.7 at 10:47 a.m. in London, extending its weekly advance to 2.9 percent. Standard & Poor’s 500 Index futures expiring in December gained 0.9 percent, while the MSCI Asia Pacific Index fell 0.7 percent.

“There is a better feel to the market,” said Paul Coffin, a fund manager at Fieldings Investment Management Ltd. in London. “Stock valuations are quite low and bonds are looking a tad expensive. We’ve seen a good rally, but if Europe doesn’t show a big enough gun, it could turn out to be a case of better to travel than arrive.”

G-20 finance ministers and central bankers meet in Paris today and tomorrow, while European leaders will meet at a debt- crisis summit in Brussels on Oct. 23.

Europe’s Stoxx 600 is headed for a third week of gains amid optimism euro-area policy makers will contain the region’s debt crisis. From Oct. 4 through Oct. 12 the measure rallied 10 percent for its biggest advance over six days since January 2009. The benchmark gauge has still fallen 19 percent from its high on Feb. 17.

Spain Credit Downgrade

Stocks climbed today even after Standard & Poor’s downgraded Spain’s credit rating for the third time in three years as slowing growth and rising defaults threaten banks.

The rating company reduced Spain’s ranking by one level to AA-, S&P’s fourth-highest investment grade, with the outlook remaining negative, in a statement late yesterday.

Elsewhere, nations from China to Brazil are considering increasing the International Monetary Fund’s lending resources to help stem the euro area’s debt crisis, G-20 and IMF officials said.

Policy makers have discussed expanding the IMF’s firepower as part of a global G-20 agreement next month in Cannes, France, according to three officials, who declined to be named because the discussions are not public. The talks are in preliminary stages as potential contributors wait to see what measures the Europeans take to end the debt turmoil at their Oct. 23 summit, the officials said.

Syngenta, Wacker Chemie

Syngenta paced advancing shares, jumping 2.6 percent to 271.60 francs after the world’s largest maker of agricultural chemicals reported third-quarter sales of $2.7 billion. That beat the average of six analysts’ estimates of $2.5 billion. The company also said momentum in sales volume continued into the fourth quarter with no drop-off in orders.

Wacker Chemie AG rallied 8.3 percent to 79.72 euros. Clariant AG, which said it raised 365 million euros ($503 million) by issuing three-year certificates, climbed 3.1 percent to 9.70 euros. Yara International ASA increased 2.5 percent to 249.20 kroner.

MAN, the German truckmaker that Volkswagen AG is seeking to control, gained 2.1 percent to 59.84 euros and Sweden’s Scania AB rose 1.4 percent to 102.90 kronor. J.B. Hunt reported third- quarter earnings of 57 cents a share, beating the average analyst estimate of 56 cents.

Lenders on Watch

Banks limited gains on the Stoxx 600 after Fitch late yesterday cut its long-term issuer default rating for UBS, Switzerland’s largest lender, to A from A+.

The rating company downgraded Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc during European trading yesterday.

Fitch also placed viability ratings, and in some cases credit grades, on negative watch for seven global banks, including Goldman Sachs Group Inc. and Morgan Stanley, because of new regulations and economic developments. It placed European lenders including Credit Agricole SA (ACA), Deutsche Bank AG (DBK), Credit Suisse AG, BNP Paribas (BNP) SA, Societe Generale (GLE) SA and Barclays Plc (BARC) on watch.

UBS slipped 0.5 percent to 10.87 francs. BNP Paribas slid 2.6 percent to 32.49 euros, while Societe Generale dropped 2.6 percent to 21.04 euros.

Sulzer, Finmeccanica

Sulzer AG plunged 6.1 percent to 96.90 francs after the Swiss maker of pumps predicted a slowdown in order growth for the full year as customers hesitate to invest amid rising economic uncertainty.

Finmeccanica SpA (FNC) lost 2.2 percent to 5.28 euros after HSBC Holdings Plc lowered its recommendation for Italy’s biggest military contractor to “underweight” from “neutral” and cited the company as a “risky investment.”

BowLeven Plc (BLVN) soared 41 percent to 106 pence after the U.K.- listed oil explorer focused on Africa said it discovered oil from an exploration well. The Sapele-3 well in the Douala Basin at the Etinde permit encountered 11 meters of net pay and the reservoir appears to be of “good quality,” the company said.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

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

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EU Banks Face Boycott in Search for Capital

By Liam Vaughan, Kevin Crowley and Elisa Martinuzzi - Oct 14, 2011 2:41 PM GMT+0700

Shareholders in European banks are resisting calls to pump more capital into the industry, pressure that may leave taxpayers as the investors of last resort.

European Union leaders are working on a plan that may force banks to raise 100 billion euros ($137 billion) to more than 300 billion euros in additional capital, according to analysts’ estimates. That money would come either from existing investors or state funding that may come with strings attached. Schroders Plc (SDR) and Swisscanto Asset Management say they’re reluctant to invest, given a failure to resolve the region’s fiscal crisis may send financial stocks even lower.

“Banks need to regain investor confidence and show how they can perform before they can raise capital,” said Peter Braendle, who helps manage 52 billion Swiss francs ($58 billion) at Zurich-based Swisscanto, including Deutsche Bank AG (DBK) shares. “The market is waiting for a good solution to the sovereign- debt problems.”

Banks receiving national or EU aid may face restrictions on bonuses and dividends, according to Jose Barroso, president of the European Commission. Barroso this week joined German Chancellor Angela Merkel in urging lenders to boost capital by selling shares to private investors. Failing that, he called for banks to be bailed out by governments or, if the state can’t afford it, by the European Financial Stability Facility.

Plunging Stocks

The 46-member Bloomberg Europe 500 Banks and Financial Services Index has dropped 29 percent this year, paced by Dexia SA (DEXB), the Franco-Belgian lender that’s being broken up after concern over its holdings of Greek sovereign debt blocked its access to short-term funding.

The declines have left banks including UniCredit SpA (UCG), Italy’s biggest, with a market value that’s less than half of the lender’s tangible book value, according to data compiled by Bloomberg.

The Association of German Banks panned Barroso’s demands, saying dividend restrictions would cripple future fundraising. Some investors and analysts criticize the plan, too, saying that forcing banks to raise more capital doesn’t address the underlying issue of investor confidence in sovereign debt.

‘Not the Solution’

“Recapitalizing the banks is not the solution,” said Justin Bisseker, who helps manage 205 billion pounds ($323 billion) as a European bank analyst in London for Schroders, Britain’s largest independent money manager. “Sovereign risk is the principal concern. Once investors’ confidence in sovereigns returns, then confidence in the banks will follow.”

European leaders are expected to announce a plan to tackle the crisis at a meeting of Group of 20 nations on Nov. 3.

According to a person familiar with the situation, the European Banking Authority, the EU’s chief bank regulator, is considering forcing institutions to “temporarily” bolster their core Tier 1 capital ratios, a measure of financial strength, to 9 percent.

At least 66 of Europe’s biggest banks would fail a revised European Union stress test and need to raise an additional 220 billion euros, Credit Suisse analysts said yesterday.

Roger Francis, a bank analyst at Mizuho Securities in London, said that figure could rise to 338 billion euros if “strict haircuts” are applied on Greek bonds, meaning the debt writedowns reflect their full loss of market value.

A 7.8 billion-euro five-year bond issued by Greece in 2007 trades at 45.3 cents on the euro, according to Bloomberg prices.

Yields Rise

“I would find it very difficult to recommend investors participate in bank rights issues in these circumstances,” Francis said in a telephone interview.

Yields on 10-year Greek bonds have almost doubled to 24 percent this year. Yields on Italian 10-year bonds are approaching 6 percent, the level that prompted the European Central Bank to begin buying the securities in July.

Costs to insure European bank debt against default has risen 39 basis points in 2011, credit-default swap prices show.

“Even if you are deemed to be a good bank and not a basket case, it’s going to be very hard to raise money,” said Francis Dallaire, an analyst at Pareto Ohman in Stockholm. “It’s much better to start by making sure the sovereigns are in OK shape. Otherwise, it would take a huge amount of capital to ensure the bank against a large euro country going into difficulty.”

Unlimited Cash

Slovakian lawmakers yesterday approved an expansion of the EFSF to 440 billion euros. The EFSF, which was created last year, is authorized to buy stressed euro nations’ bonds and offer credit lines to governments, which can then aid banks. Politicians are considering whether to increase the fund’s firepower to 1 trillion euros using leverage.

The ECB last week reintroduced yearlong loans, giving banks unlimited access to cash through January 2013. Banks are increasingly tapping the ECB as short-term funding evaporates.

The case of Commerzbank AG may show how pumping in cash has not raised confidence, according to Nicolas Walewski, who manages 1.8 billion euros in European equities at Alken Asset Management LLP in London. Commerzbank shares have slid 41 percent since Germany’s second-biggest lender raised 5.3 billion euros in a May share sale, hurt by tumbling profit and writedowns of its Greek bond holdings.

“As long as they’re deleveraging, you want to stay out of banks,” said Walewski, whose only bank holding is Switzerland’s UBS AG. “There will be relief rallies along the way, but while economies aren’t growing and banks aren’t lending, earnings will suffer. Recapitalizing is irrelevant in this environment.”

To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net; Kevin Crowley in London at kcrowley1@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net.

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net.

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European Stocks, U.S. Futures Rally on G-20

By Daniel Tilles and Shiyin Chen - Oct 14, 2011 6:01 PM GMT+0700

European stocks, U.S. equity futures and commodities rallied as Group of 20 finance ministers began discussions on the debt crisis. French, Belgian and Spanish bonds declined after downgrades.

The Stoxx Europe 600 Index gained 0.8 percent at 11:56 a.m. in London. Standard & Poor’s 500 Index futures rose 0.9 percent and Google Inc. jumped 6.6 percent in early New York trading. Copper added 3.2 percent and United Nations carbon futures slid to a record low. The euro strengthened 0.4 percent versus the yen. The yield on French 10-year bonds jumped to a euro-era record relative to German bunds, Belgian 10-year yields added 10 basis points and Spanish two-year yields seven basis points.

The elements of the European rescue plan emerged as finance ministers and central bankers from the G-20 began talks in Paris, seeking ways to end the sovereign debt crisis. That helped counter concern Europe’s sovereign-debt crisis will worsen, after S&P cut Spain’s credit ranking and Fitch Ratings downgraded UBS AG, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc. U.S. data may show consumer confidence rose while retail sales increased at the fastest pace in six months.

“The G-20 finance ministers meeting today is likely to produce euro-supportive headlines,” Hans Redeker, head of foreign-exchange strategy at Morgan Stanley in London, wrote in a note today. “Increased firepower” for the International Monetary Fund “could be used to finance new IMF credit lines to prevent contagion from the Greek crisis from spreading to Italy and Spain, or to recapitalize European banks,” he said.

Debt Turmoil

Policy makers are discussing an expansion of the IMF’s firepower as part of a global G-20 agreement next month in Cannes, France, according to three officials, who declined to be identified because the discussions are not public. Talks are in preliminary stages as potential contributors wait to see what measures Europeans take to end the debt turmoil at an Oct. 23 summit, they said.

The Stoxx 600 headed for a third straight weekly gain, its longest stretch of weekly advances since April. Syngenta AG, the world’s biggest maker of agricultural chemicals, jumped 3.2 percent after reporting third-quarter sales that beat estimates. A gauge of basic resource companies posted the biggest rally of the 19 industry groups in the Stoxx 600. SAP AG gained 2 percent after the largest maker of business-management software said earnings and sales rose in the third quarter on rising demand for its services. SAP also reiterated its full-year forecast.

Google Beats Forecasts

Banks retreated after Fitch Ratings put more than a dozen lenders on watch negative as part of a global review. BNP Paribas SA dropped 3.5 percent and Societe Generale SA slipped 2.7 percent.

Google, the world’s most popular search engine, reported third-quarter revenue that beat estimates after the close of U.S. trading yesterday. A report due at 8:30 a.m. in Washington may show retail sales in the U.S. increased in September at the fastest pace in six months, boosted by vehicle purchases, economists said. A separate report at 9:55 a.m. New York time may show that consumer confidence climbed in October from the previous month, according to a survey of economists.

The extra yield investors demand to hold French 10-year bonds instead of benchmark German bunds widened eight basis points to 93 basis points, the most since the euro started in 1999. The Belgian two-year note yield increased 10 basis points, with the yield on Spain’s 10-year security eight basis points higher.

Copper, Oil

The cost of insuring European sovereign debt rose after S&P said it was downgrading Spain for the third time in three years because of slowing growth and concern rising defaults will undermine banks. The Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments gained three basis points to 337, after rising to the highest in more than a week.

Copper in London rallied as much as 3.5 percent to $7,566 a metric ton, poised for a second weekly gain. Stockpiles in London Metal Exchange warehouses decreased for an eighth day to the lowest level since April 13. Copper imports by China climbed for a fourth month to the highest level in 16 months in September, according to customs data.

Oil for November delivery climbed as much as 1.9 percent to $85.84 a barrel on the New York Mercantile Exchange, reversing an early decline.

UN Certified Emission Reduction credits for December next year sank to a record low of 7.27 euros a metric ton in intraday trading and were last at 7.43 euros on London’s ICE Future Europe exchange. The contracts can be used for compliance in Europe’s carbon emissions market.

Emerging Markets Gain

The MSCI Emerging Markets Index rose 0.2 percent, heading for its eight consecutive gain, the longest winning streak since July 2010.

The Hang Seng China Enterprises Index of Chinese shares traded in Hong Kong fell 2.2 percent. The National Bureau of Statistics said consumer prices rose 6.1 percent in September from a year earlier, the fourth consecutive month of inflation above 6 percent. China’s money supply grew at the slowest pace in almost a decade as inflation stayed above the government’s target, highlighting the risk that efforts to tame prices will trigger a slowdown.

The Micex Index jumped 2.4 percent in Moscow as oil rose. The ISE National 100 Index (XU100) rose 0.6 percent in Istanbul and the Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 1.2 percent.

The euro rose 0.2 percent to $1.3801 and climbed to 106.26 yen. The 17-nation currency’s 3.2 percent five-day gain versus the greenback left it on course for the biggest weekly advance since January. The Dollar Index, which tracks the U.S. currency against those of six trading partners, fell 0.2 percent.

To contact the reporters on this story: Daniel Tilles in London at dtilles@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net;

To contact the editor responsible for this story: Mark Gilbert at magilbert@bloomberg.net

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Greek Investors Brace for Bigger Loss to Stop Rot

By Paul Dobson and Emma Charlton - Oct 14, 2011 2:58 PM GMT+0700

Play Video

Oct. 14 (Bloomberg) -- Tobias Blattner, a European economist at Daiwa Capital Markets, discusses the sovereign debt crisis and Greek bondholder losses. He talks with Owen Thomas and Francine Lacqua on Bloomberg Television's "Countdown." (Source: Bloomberg)

Play Video

Oct. 14 (Bloomberg) -- Bob Parker, senior adviser at Credit Suisse Asset Management, talks about the European Central Bank's role in the region's debt crisis, Greek bonds and equity market volatility. He speaks with Owen Thomas and Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

Greek bondholders are preparing to lose as much as 60 percent of their investments as European leaders try to impose a solution that reduces the nation’s debt burden by enough to end the debt crisis.

“Everyone is coming to the conclusion that a much deeper restructuring is needed to make Greece in any way sustainable,” said Emiel van den Heiligenberg, chief investment officer of global balanced solutions at BNP Investment Partners in London, which oversees about $742 billion. “If the stock of debt doesn’t diminish, then the problems are going to be bigger and bigger and Greece will require rescue package after rescue package.”

Greek 10-year bonds yielded 23.98 percent at 8:31 a.m. London time, with the price on the securities at 37.40 percent of face amount. The rate was 2,186 basis points, or 21.86 percentage points, more than benchmark German bunds and compares with a yield of 11.59 percent for similar-maturity Portuguese debt and 5.87 percent for Italian bonds.

Europe’s leaders are intensifying efforts to contain the crisis that broke out in Greece almost two years ago, drove up state borrowing costs from Ireland to Italy and triggered the collapse of Dexia SA (DEXB), Belgium’s biggest lender by assets. European Commission President Jose Barroso said two days ago the region needs a coordinated approach to backstop the region’s banks and “get ahead of the curve.”

Standard & Poor’s downgraded Spain yesterday, citing heightened risks to growth prospects. Fitch Ratings cut the long-term issuer default grades of UBS AG (UBSN), Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS), and put more than a dozen other lenders on watch negative.

Fresh Plan

German banks are preparing for losses of as much as 60 percent on their Greek holdings, three people with knowledge of the matter, who declined to be identified because the talks are private, said yesterday. The risk is that creditors balk at forgoing more than the 21 percent initially suggested in a plan crafted in July, forcing Greece to miss debt payments and sparking a chain-reaction across the euro area’s markets involving rating downgrades and payouts on credit-default swaps.

Hatching a fresh plan for Greece would mean rewriting the package agreed to in July, which included a 21 percent voluntary reduction in repayments on some bonds. With a deepening recession in Greece pushing the nation further away from the July accord’s debt-reduction targets, the price of two-year notes slid to as little as 36.79 percent of face value on Sept. 13, indicating dwindling faith in the nation’s ability to repay investors even after the so-called haircut.

Brussels Talks

“A reopening of the deal is very likely,” said Patrick Armstrong, managing partner at Armstrong Investment, which has about $345 million in assets under management. “In the past, they were trying to avoid Greece defaulting and avoid recapitalizing the banks and what’s going to happen now will probably be more sensible. It will allow the euro zone to move forward.”

The London-based fund manager owns a “small amount” of Greek 4.3 percent bonds due March 20, 2012, which it bought in July, Armstrong said.

Deutsche Bank AG Chief Executive Officer Josef Ackermann, who led talks on private sector involvement in Greece’s rescue package in July, said yesterday that he will go to Brussels next week to discuss the potential for investors to accept deeper losses. Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said separately yesterday that talks are under way with the Washington-based Institute of International Finance on the cost to investors of a second bailout package for Greece.

‘Larger Haircut’

“You need a significantly larger haircut because what’s being discussed now isn’t enough to put this country back on the path of fiscal sustainability,” Pacific Investment Management Co. Chief Executive Officer Mohamed A. El-Erian said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We’re going to see it soon because I think the politicians and policy makers understand that debt reduction is part of the solution.”

Since German Chancellor Angela Merkel and French President Nicolas Sarkozy put bank recapitalization at the top of the priority list in an Oct. 9 declaration, the Stoxx Europe 600 Index of shares has risen 1.7 percent. Yields on benchmark German bunds, perceived to be Europe’s safest government bonds, rose to a six-week high yesterday, the euro rallied 2.8 percent to $1.3751 and a measure of how much European banks pay to fund in dollars slid to a five-week low today.

Bank Capabilities

Ensuring banks in Greece and the euro area are capable of withstanding greater losses on Greek debt is “imperative,” said Spyros Politis, CEO of TT-ELTA AEDAK, a Greek manager of mutual funds with 262 million euros ($360 million) of assets.

“You need this society to function in order to, at the minimum, guarantee that whatever is left after the haircuts is repaid,” Politis said. “This in turn needs a functioning domestic banking system.” TT-ELTA AEDAK values the Greek bonds in its portfolio at 50 percent of face amount, he said. An eventual haircut of around 35 percent “appears to be a solution that keeps everyone less unhappy,” he said.

The drop in Greek bond prices already means investors are going to save Greece more money through the July debt-exchange plan than previously thought, because they save it from selling securities at today’s higher yields, Charles Dallara, managing director of the IIF, said on Oct. 4.

Greek CDS

Credit-default swaps on Greece signal a more than 90 percent chance the government will renege on its obligations within five years, assuming investors would recover 32 percent of their holdings in the event, according to CMA, which is owned by CME Group Inc. and compiles prices from dealers in the privately negotiated market. The swaps market is factoring in a 62 percent probability Portugal will default in that time, a 47 percent chance for Ireland and about 8 percent for Germany, all assuming a 40 percent recovery.

“A managed default in Greece may increase speculation of restructurings elsewhere, which would certainly put Portugal under pressure, also Ireland and we would see Italy and Spain under greater speculative pressure,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. “It’s a very difficult balancing act.”

S&P cut Spain’s long-term sovereign credit rating to AA- from AA, the ratings company said in a statement late yesterday. The country faces high unemployment and public sector debt, tighter financial conditions and may be affected by the slowdown of trading partners, S&P said.

ECB Involvement

The European Central Bank will also need to be persuaded to allow a greater writedown on Greek bonds, potentially also including its own holdings, amassed under a previous plan to support the nation. The involvement of the private sector in euro-area bailouts through enforced investor losses is a risk to financial stability and would have “direct negative effects” on the banking sector, the central bank said yesterday in its monthly bulletin.

ECB President Jean-Claude Trichet said on June 30 that the central bank didn’t expect to participate in the voluntary rollover of Greece’s debt agreed to in July.

“Very likely the ECB will defend its position of taking no haircut up until the last moment but I think at the end of the day the ECB will stop being the blocking point,” said van den Heiligenberg. “If you recapitalize the banks first then you have more potential to do bigger haircuts on Greek bonds. If they mix up the order then the market would probably get very nervous.”

To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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

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G-20 Mulls Boosting IMF Lending Power

By Sandrine Rastello - Oct 14, 2011 3:31 PM GMT+0700

Nations from China to Brazil are considering increasing the International Monetary Fund’s lending resources to help stem the European debt crisis, Group of 20 and IMF officials said.

Policy makers are discussing an expansion of the IMF’s firepower as part of a global G-20 agreement next month in Cannes, France, according to three officials, who declined to be named because the discussions are not public. Talks are in preliminary stages as potential contributors wait to see what measures Europeans take to end the debt turmoil at an Oct. 23 summit, they said.

IMF Managing Director Christine Lagarde told member countries last month that her current $390 billion war chest may not suffice to meet all loan requests should the global economy worsen. Additional funds could be used to help shelter Italy and Spain with precautionary lending, the people said. Standard & Poor’s cut Spain’s credit rating by one level to AA- yesterday.

“Emerging markets, in particular China, may feel the pressure at this point to make some gestures to help the West,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “They do not want to invest too much given that the West’s problems are of its own making, and if they help, they want to do so in a way that brings them benefits and recognition.”

Spain Downgraded

The euro was little changed at $1.3777 as of 9 a.m. in London. The Stoxx Europe 600 Index rose 0.5 percent and U.S. index futures swung between gains and losses. Overnight, the MSCI Asia Pacific Index lost 1 percent after S&P downgraded Spain’s credit rating for the third time in three years as slowing growth and rising defaults threaten banks.

A move to bolster the IMF’s firepower would be similar to a G-20 decision in April 2009 to triple the fund’s resources as part of plan to pull the world out of recession. Emerging markets such as China and Brazil are among potential contributors, along with developed economies such as Japan, two of the people said.

Chinese deputy finance minister Zhu Guangyao, meeting with G-20 counterparts and central bankers in Paris today, confirmed a proposal to increase global lending to Europe via the IMF is on the table. China “supports stability in Europe and holds an open attitude toward all discussions,” he said.

IMF spokesman William Murray declined to comment. The Financial Times reported earlier that emerging-market nations were considering ways to boost the IMF’s lending resources.

Explanation Needed

In Japan, the finance minister indicated a cautious stance on supplying funds. Asked at a Tokyo news conference today whether Japan would consider boosting its contribution to the IMF, Jun Azumi said, “at the present moment, is there a need for that?”

Azumi said Japan would want an explanation on what role the the IMF will play in dealing with the European crisis and why the extra money is needed, before considering further funding.

Officials at China’s central bank and finance ministry declined to comment when contacted by telephone today.

“This reminds me of the 1980s when Japan increased shares in IMF and World Bank and emerged as a powerhouse,” said Tomo Kinoshita, a Hong Kong-based economist at Nomura Holdings Inc., Japan’s largest brokerage. “It’s a delicate issue,” because emerging nations don’t want a slump among major economies that may erode export growth, while they are also reluctant to spend more money to bail out Europe, he said.

‘Action Plan’

As in 2009, additional resources may come through bilateral loans or by purchasing IMF notes rather than by an increase in its permanent resources, the officials said. One solution being considered is the creation of an IMF-run special purpose vehicle, two of them said.

“The fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios,” Lagarde said in an “action plan” distributed to the IMF steering committee Sept. 24. The current lending capacity “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders.”

The IMF can work “alongside” the European bailout fund to help restore confidence in Spain and Italy, Antonio Borges, the IMF’s European department aid, told reporters in Brussels this month.

BRIC Backing

Officials from Brazil, Russia, India, China and South Africa -- the so-called BRICS -- said in a Sept. 22 statement they are “open” to contributing to global financial stability through the IMF or other international financial institutions.

Brazilian Finance Minister Guido Mantega told reporters yesterday that strengthening the IMF is “the second most important issue we have to discuss” at a meeting with his G-20 counterparts in Paris this week.

“We are having bilateral discussions to see what is the best proposal,” he said. “There is no homogeneous position, but we are trying to reach a common proposal.”

The U.S. this week downplayed the IMF’s needs, with the Treasury Department’s top international official, Lael Brainard, calling its resources “ample.” The IMF is already playing an important role in Europe, she told reporters in Washington.

S&P reduced Spain’s rating to AA-, the fourth highest investment grade, saying there are “heightened risks” to the nation’s growth prospects and that its banking system may weaken further. It was the third cut in three years.

French President Nicolas Sarkozy and German Chancellor Angela Merkel promised on Oct. 9 to recapitalize banks to resolve the debt crisis.

To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net

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

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Asian Stocks Snap Six-Day Rally

By Shiyin Chen - Oct 14, 2011 1:30 PM GMT+0700
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Taiwan’s Taiex Index retreated 0.7 percent. Photographer: Maurice Tsai/Bloomberg

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Oct. 14 (Bloomberg) -- Gao Ting, chief China strategist at UBS Securities in Shanghai, talks about China's economy. The nation's inflation exceeded 6 percent for a fourth month as officials across Asia struggle to cool prices even as growth slows. Gao speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

European and U.S. stock futures rallied before Group of 20 finance ministers meet to discuss the debt crisis and data forecast to show retail sales and consumer sentiment improved in the world’s largest economy. Copper gained, driving an index of commodities toward a second weekly advance.

Euro Stoxx 50 Index futures jumped 1 percent at 7:20 a.m. in London. Those on the Standard & Poor’s 500 Index added 0.3 percent, while Nasdaq-100 Index contracts rose 0.5 percent after Google Inc.’s sales beat estimates. The MSCI Asia Pacific Index sank 0.7 percent, halting the biggest six-day rally since 2009. The euro strengthened 0.2 percent versus the yen and dollar, erasing earlier losses. Copper climbed 2.3 percent, leading the S&P GSCI Index higher. Oil increased 0.7 percent in New York.

U.S. data may show consumer confidence rose while retail sales increased at the fastest pace in six months. Nations from China to Brazil are considering increasing the International Monetary Fund’s lending resources to help stem the European debt crisis, G-20 and IMF officials said. That helped counter concern Europe’s sovereign-debt crisis will worsen, after S&P cut Spain’s credit ranking and Fitch Ratings downgraded UBS AG, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net;

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

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Singapore Cuts Growth Forecast, Eases Policy

By Shamim Adam - Oct 14, 2011 1:12 PM GMT+0700

Singapore cut its growth forecast and said it will slow currency gains, the first monetary policy easing since 2009, as a weakening global economy undermines demand for electronics exports and financial services.

Gross domestic product may increase 5 percent this year, compared with an earlier forecast range of 5 percent to 6 percent, the trade ministry said in a statement today. The central bank, which uses the island’s dollar to manage inflation, said it will reduce the pace at which the currency strengthens and continue with a modest and gradual appreciation.

Singapore’s dollar rose the most in Asia today after the central bank refrained from halting currency gains in an economy where inflation has reached the fastest since 2008. Electronics exports by companies such as Venture Corp. slumped 19.4 percent in August from a year earlier as the European debt crisis and a faltering U.S. recovery hurt demand, and the government said this week said it would increase spending in the next five years as the island’s expansion slows.

“They are concerned about the growth outlook going into next year, but at the same time inflation remains an issue so the central bank wants to be prudent about keeping the Singapore dollar on an appreciating trend,” said Kun Lung Wu, a Singapore-based economist at Credit Suisse Group AG. “This will help contain inflation pressures.”

Singapore Dollar

Elevated inflation is limiting the scope for monetary easing in Asian nations including China and India even as policy makers face growing pressure to protect growth. China’s consumer prices increased 6.1 percent in September from a year earlier, led by a jump in food costs, the National Bureau of Statistics said today.

The Singapore dollar, the fourth-worst performing Asian currency in the past month, rose 0.7 percent to S$1.2699 against its U.S. counterpart at 1:55 p.m. local time today. It had reached unprecedented levels since the central bank said in April it would allow further appreciation to tame price gains, trading below S$1.20 in July.

The risk of another global recession erased $10 trillion of equities worldwide last quarter and prompted officials from China to Indonesia to boost fiscal measures or cut interest rates. With a potential Greek default threatening to disrupt world financial markets, Singapore is trying to stimulate growth just six months after its last monetary tightening.

The island’s export-dependent economy may expand “more slowly” in 2012 and growth may be below its potential rate of 3 percent to 5 percent, the Monetary Authority of Singapore said.

‘Dry Gunpowder’

“There won’t be an easy solution or a quick rebound for Asia this time around because the European crisis may be long drawn, the U.S. economy is struggling and there are trepidations about China’s economy,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. “Many in the region have tightened quite a bit and they now have dry gunpowder. The shift will unequivocally be towards loosening policy.”

Singapore’s GDP increased an annualized 1.3 percent last quarter from the previous three months, when it shrank a revised 6.3 percent, the trade ministry said. The $223 billion economy expanded 5.9 percent from a year earlier, after rising 1 percent the previous quarter. The expansions exceeded the median forecasts in a Bloomberg News survey of economists.

Retail sales grew 3.3 percent from a year earlier in August, the least in five months, as motor vehicle purchases dropped and spending at department stores and supermarkets climbed at a slower pace, a report showed today.

The Singapore monetary authority guides the local dollar against a basket of currencies within an undisclosed band. It adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band. The central bank, which releases a policy statement every six months, tightened monetary conditions at each of its last three reviews.

Deteriorating Outlook

The island, located at the southern end of the 600-mile (965-kilometer) Malacca Strait, is among the first countries in the region to report third-quarter data. Asia’s growth has slowed since the second quarter, the International Monetary Fund said yesterday as it reduced forecasts for regional expansion this year and next.

“The outlook for the global economy has deteriorated sharply against the backdrop of increased uncertainty in financial markets,” the Singapore central bank said today. “Given the stresses and fragility in the advanced economies, the prospects for growth in Singapore’s major trading partners have deteriorated.”

Spain had its credit rating cut one level by Standard & Poor’s as rising default risks threaten efforts to stem Europe’s sovereign-debt crisis. The ranking slid to AA-, with a negative outlook, in the third reduction by S&P in three years.

Regional Moves

The global slowdown has prompted some Asian central banks to start cutting interest rates or refrain from increasing borrowing costs. Pakistan and Indonesia have lowered rates this month while the Bank of Korea left borrowing costs unchanged yesterday for a fourth straight month.

The MSCI Asia Pacific Index of stocks has slumped about 15 percent this year. Singapore’s benchmark Straits Times Index (FSSTI) has dropped about 14.4 percent in the same period, led by Neptune Orient Lines Ltd., Southeast Asia’s biggest container carrier, and CapitaMalls Asia Ltd. (CMA), an owner of shopping malls across the region.

Singapore’s economy will probably expand at a slower pace in the next few years and the central bank will continue “judicious management” of its currency to curb inflation and support growth, Finance Minister Tharman Shanmugaratnam said Oct. 11. The monetary authority will remain “vigilant” against a resurgence in inflationary pressures and price gains are expected to moderate toward the end of 2011, he said.

Inflation Forecast

Inflation will average about 5 percent this year and 2.5 percent to 3.5 percent in 2012, the central bank said today. Inflation in August accelerated to the fastest pace since 2008 as consumer prices rose 5.7 percent from a year earlier.

Core inflation, which excludes private road transport and accommodation costs, will ease to a range of 1.5 percent to 2 percent in 2012, from an average of about 2.1 percent this year, the monetary authority predicts.

“The ongoing slowdown in domestic economic activity will reduce tightness in the labor market and alleviate price pressures,” the central bank said. “Inflationary pressures emanating from abroad should also subside.”

Manufacturing Growth

Manufacturing rose 13.2 percent from a year earlier in the three months ended Sept. 30, after declining a revised 5.8 percent in the second quarter.

Singapore’s services industry grew 3.6 percent last quarter from a year earlier, after climbing a revised 4 percent in the previous three months. The construction industry expanded 0.4 percent, compared with a 1.5 percent increase in the quarter ended June.

“For the rest of the year, growth could be weighed down by the softening global economic conditions,” the trade ministry said today. “The electronics cluster is expected to remain weak due to the easing of global electronics demand. Sentiment sensitive activities within the financial services sector could also be dampened by heightened economic and financial uncertainties.”

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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