Stocks Fall, French Bonds Retreat; Copper Drops on China Economy Slowdown

By Claudia Carpenter - Oct 18, 2011 6:14 PM GMT+0700

Stocks fell and France’s two-year notes declined after Moody’s Investors Service signaled the nation’s Aaa rating is at risk. Copper led commodities lower as China’s economy grew at the slowest pace in two years.

The MSCI All-Country World Index dropped 1 percent at 12:12 p.m. in London. Standard & Poor’s 500 Index futures slipped 0.3 percent. The yield on the French two-year note rose as much as 20 basis points, the biggest jump since May 20. The extra yield investors demand to hold French 10-year bonds instead of benchmark German bunds surpassed 100 basis points for the first time since the euro was introduced. The euro weakened 0.4 percent versus the dollar. Copper fell 2.9 percent.

The European debt crisis has left France with “less room for maneuver in terms of stretching its balance sheet than it had in 2008,” Moody’s said yesterday. China’s economy expanded 9.1 percent last quarter, trailing the 9.3 percent forecast in a Bloomberg News survey. Goldman Sachs Group Inc. and Coca Cola Co. are due to report earnings today.

“When the Far East slows, there are bigger knock-on effects on the western world,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “We’re looking at the deep, dark abyss down below because we don’t have the monetary or fiscal flexibility to stimulate growth.”

BHP, Rio

The Stoxx Europe 600 Index retreated 0.9 percent as four stocks fell for each one that gained. BHP Billiton Ltd. and Rio Tinto Group, the world’s largest mining companies, sank more than 2 percent. Air France-KLM Group slid 3.6 percent after Pierre-Henri Gourgeon was ousted as chief executive officer.

S&P 500 futures declined as much as 0.5 percent and climbed 0.2 percent. International Business Machines Corp. (IBM), the world’s fifth-largest company by market value, dropped 4.2 percent in German trading after third-quarter sales of $26.2 billion missed the average analyst prediction of $26.3 billion in a Bloomberg survey. Johnson & Johnson is also due to release quarterly earnings before trading starts in New York.

The yield on the French 10-year bond advanced five basis points, while the German bund yield fell six basis points, widening the spread between the two securities by as much as 106 basis points. The CAC 40 Index slid 1.7 percent as BNP Paribas SA and Societe Generale SA, France’s biggest banks, lost more than 5 percent.

The 10-year U.S. Treasury note yield slipped three basis points, falling for the second day.

U.S. ‘Shortfalls’

Federal Reserve Bank of Chicago President Charles Evans said yesterday that the U.S. faces “massive shortfalls” in output and job creation and called for policy steps to ensure the Fed meets its mandate to promote maximum employment while limiting inflation.

The 53-year-old regional bank chief reiterated his proposal to keep the target for the benchmark U.S. interest rate near zero until either unemployment falls below 7 percent or the medium-term inflation outlook rises above 3 percent. He said he would support more asset purchases if those objectives aren’t reached. Fed speakers today include Chairman Ben S. Bernanke and Boston Fed President Eric Rosengren.

The euro depreciated 0.7 percent versus the yen, after falling 1.5 percent yesterday, and weakened 0.3 percent against the pound. Sterling slipped 0.2 percent to $1.5711, falling for the second day. A report showed U.K. inflation accelerated to match a record high in September, a surge Bank of England policy makers set aside as they shifted their focus to combating the threat of another recession.

U.K. Prices

Consumer prices rose 5.2 percent from a year earlier, compared with 4.5 percent in August, the Office for National Statistics said in London today. That matched the record high reached in September 2008, which was the highest since comparable records began in 1997.

Credit-default swaps insuring French sovereign debt rose 11 basis points to 193, approaching a record-high 202.5 reached on Sept. 22. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments climbed four basis points to 338.

The yield on the Greek bond due in June 2020 jumped 25 basis points to 24.24 percent, with the price falling to less than 37 percent of face value. The similar-maturity Irish yield rose 10 basis points, increasing for the fourth consecutive day.

Portugal’s 10-year yield jumped five basis points, climbing for the eighth successive day, after the government forecast the economy will contract more than previously estimated next year as it implements more spending cuts to meet budget deficit targets. Spain’s two-year note yield increased 12 basis points, rising for the sixth day.

The MSCI Emerging Markets Index fell 2.2 percent, following a nine-day, 13 percent surge that was its longest-winning streak since June 2010. The Hang Seng China Enterprise Index of Chinese companies listed in Hong Kong tumbled 5.2 percent and the Shanghai Composite Index fell 2.3 percent, the most in almost a month. The Bombay Stock Exchange Sensitive Index, or Sensex, slid 1.6 percent in Mumbai.

Copper dropped for a second day, declining to $7,279 a metric ton and zinc fell 2.1 percent to $1,865.75 a ton. China is the world’s biggest user of industrial metals.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net

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U.S. Stock Futures Retreat Before Goldman

By Adria Cimino - Oct 18, 2011 6:12 PM GMT+0700

U.S. stock futures declined, indicating the Standard & Poor’s 500 Index will extend its biggest drop in two weeks, as investors awaited earnings reports from Goldman Sachs Group Inc. (GS)

International Business Machines Corp. (IBM), the biggest computer-services company, sank 4.1 percent in early New York trading after reporting sales that missed analyst estimates.

Contracts on the S&P 500 that expire in December slid 0.2 percent to 1,191 at 7:11 a.m. in New York. Dow Jones Industrial Average futures slipped 41, or 0.4 percent, to 11,260.

“Until we get good news from emerging markets and companies, the market won’t gain,” said Clemence Bounaix, who helps oversee about $3.4 billion at KBL Richelieu Gestion in Paris. “Earnings reports will be important.”

The S&P 500 last week posted its biggest weekly gain since 2009 amid optimism over corporate earnings and steps by European leaders to support the region’s banks. The benchmark measure surged 11 percent from Oct. 3, its lowest close in more than a year, through Oct. 14. The rebound brought the gauge close to the top of a price range between 1,074.77 and 1,230.71, where it has traded for more than two months.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

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

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European Stocks Fall on Debt Crisis, China

By Julie Cruz - Oct 18, 2011 5:31 PM GMT+0700

European stocks fell as concern that France may lose its top credit rating added pressure on the region’s leaders to find a solution to the debt crisis and as China’s economy grew at the slowest pace in two years. Asian shares and U.S. index futures dropped.

BHP Billiton Ltd. (BHP) and Rio Tinto Group led mining shares lower as metals declined. BNP Paribas (BNP) SA and Societe Generale (GLE) SA sank more than 5 percent as Moody’s Investors Service said France’s Aaa rating is under strain. Dexia SA (DEXB) tumbled 15 percent as the European Commission opened an in-depth probe into Belgium’s takeover of its local consumer-lending unit.

The benchmark Stoxx Europe 600 Index lost 0.8 percent to 234.28 at 11:30 a.m. in London. The gauge retreated 1 percent yesterday as a German government spokesman said that euro-area leaders will not provide a complete fix to the debt crisis at their next meeting. The measure has still rallied 9 percent from this year’s low on Sept. 22.

“The crisis is not over yet,” said Martin Huefner, chief economist at Assenagon GmbH in Munich, which manages more than $4.7 billion of client assets. “We had a very strong rally in the last couple of weeks, which was exaggerated. There was no fundamental reason behind it.”

The MSCI Asia Pacific Index retreated 2.4 percent today. Standard & Poor’s 500 Index futures fell 0.2 percent before companies from Johnson & Johnson to Bank of America Corp. and Goldman Sachs Group Inc. report earnings.

Plan Divisions

While Group of 20 finance ministers and central bankers are pressing European Union leaders to set out a strategy by the end of the week, divisions are flaring over an emerging plan to avoid a Greek default, bolster banks and curb contagion.

“As Sunday’s upcoming EU summit draws closer the hoped for consensus ‘Grand Plan’ still seems a long way off,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to investors today. “Views across the various EU stakeholders remain divided.”

In Greece, a parliamentary debate starts today on a fresh round of austerity measures amid public protests and labor-union unrest. Finance Ministry workers began a 10-day strike yesterday, complicating the government’s efforts to collect taxes and highlighting the mood in Europe’s most-indebted country as Greek lawmakers face another vote on fiscal measures due in two days. That’s a showdown Prime Minister George Papandreou needs to win to ease the way for more foreign financing and stave off default.

China Economy

China’s economy grew 9.1 percent in the third quarter from a year earlier, the slowest pace since 2009. The gain was less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists and followed a 9.5 percent increase in the previous three months. The statistics bureau released the data in Beijing today.

“In China, I am concerned that growth could fall below 9 percent in the fourth quarter because they’re still rather restrictive in their monetary policy and inflation is still high,” Assenagon’s Huefner said.

German investor confidence fell to the lowest in almost three years in October. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 48.3 from minus 43.3 in September. Economists had expected a drop to minus 45, according to the median of 39 estimates in a Bloomberg News survey.

BHP, Rio Tinto

BHP Billiton, the world’s biggest mining company, lost 2.7 percent to 1,858.5 pence, while Rio Tinto, the second-largest, sank 4.9 percent to 3,141.5 pence. Copper slumped for a second day in London amid concern demand from China may slow as the economy cools. Lead, nickel, tin and zinc also fell.

Xstrata Plc (XTA) retreated 3.2 percent to 918.8 pence even after the largest exporter of power-station coal said total third- quarter production of the fuel rose 8.1 percent. Copper output fell 4 percent, the company said.

BNP Paribas, France’s biggest bank, declined 6.2 percent to 29.13 euros. Societe Generale sank 5.8 percent to 19.07 euros.

France’s Aaa credit rating is under pressure from deterioration in debt metrics and the potential for additional liabilities from Europe’s debt crisis, according to Moody’s. The nation’s financial strength has weakened because of the global economic crisis, making the nation’s debt measures the weakest among its Aaa-rated peers, the New York-based company said in a statement late yesterday that it called a markets update.

Dexia Declines

Dexia plunged 15 percent to 49.1 euro cents, the lowest level on record. The European Commission opened an in-depth probe into Belgium’s takeover of Dexia’s local consumer-lending unit while granting temporary approval for the rescue.

Air France-KLM (AF) Group slid 3.7 percent to 5.40 euros after the airline ousted Pierre-Henri Gourgeon as chief executive officer amid slumping earnings and questions regarding the role of pilots in a fatal crash.

Aixtron SE, a supplier to the semiconductor industry, posted the second-worst performance in the Stoxx 600, sinking 6.7 percent to 9.84 euros. The company’s third-quarter results are likely to be “disastrous,” CA Cheuvreux analyst Klaus Ringel wrote in a report.

Danone (BN), the owner of the Evian and Volvic bottled-water brands, rose 1.5 percent to 46.07 euros as three people familiar with the matter said the company is in talks to sell water assets to Japan’s Suntory Holdings Ltd. Danone also reported third-quarter revenue that beat estimates as it sold more baby food and medical nutrition products in China and Indonesia.

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

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

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France Risks Losing Top Grade on Bailout Fund

By John Glover - Oct 18, 2011 3:51 PM GMT+0700

Proposals to beef up Europe’s bailout fund by offering to guarantee portions of the debt owed by the region’s weaker governments threaten to trash France’s top credit rating.

The nation’s 10-year notes are the fourth-worst performers this quarter -- behind Greece, Belgium and Ireland -- as traders speculate the European Financial Stability Facility will be used to insure the first portion of losses in the event of a sovereign default. France’s rating is under pressure, Moody’s Investors Service said yesterday, and investors now demand a record 105 basis points more to hold its bonds rather than German notes, up from 29 basis points in April.

“France is the key factor here,” said Bob McKee, chief economist at Independent Strategy Ltd. in London. “Offering insurance increases France’s contingent liability and that puts pressure on its rating. If France loses its AAA status, that in turn increases the pressure on Germany.”

French bonds are being hurt as policy makers consider using the guarantee to ensure Italy, the world’s third-largest bond issuer, and Spain can continue to access markets as contagion spreads from Greece. A downgrade of France will also limit the EFSF’s ability to hold a top grade, according to Moody’s.

Default Swaps

The cost of insuring French bonds using credit-default swaps has soared to 193 basis points, from an average of about 84 in the first half of the year. They are the most expensive to protect among the top-rated nations in Europe and more costly than for nations rated AA- by Standard & Poor’s, including China, Estonia and the Czech Republic.

“Looking at the numbers, France is no longer a AAA credit,” said Nicola Marinelli, who oversees $153 million in funds at Glendevon King Asset Management in London. “They’re talking about guaranteeing trillions of euros of bonds but if France isn’t a AAA then even guaranteeing one more euro might not be sustainable.”

French bonds have lost 2.37 percent this quarter, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Belgian bond returns are down 4.19 percent in the period and Greek notes have lost 7.58 percent, the indexes show. Irish bonds fell yesterday, with yields rising 47 basis points to 8.2 percent, the most since Sept. 27.

Moody’s Warning

European leaders meet in Brussels on Oct. 23 to determine a recapitalization of the region’s banks as they face the prospect of higher losses on Greek debt, an increase in the effectiveness of the EFSF as well as ways to tighten economic and financial policy. The meeting won’t provide a complete fix for the crisis, German Chancellor Angela Merkel’s spokesman Steffen Seibert said yesterday, and the work will extend well into next year.

“The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government’s Aaa debt rating,” Moody’s said in a report late yesterday. “The French government now has less room for maneuver in terms of stretching its balance sheet than it had in 2008.”

Moody’s said it will monitor and assess its “stable” outlook on the nation’s debt over the next three months. In a separate statement dated today, Moody’s said that Europe’s central banks have “substantial capacity” to support lenders and sovereign debt markets.

The so-called Eurosystem, headed by the European Central Bank, will continue to meet the liquidity needs of solvent euro area banks, Moody’s said.

French 10-year borrowing costs increased to about 3.09 percent from 2.6 percent at the end of September. Italy’s 10- year borrowing costs, as low as 4.93 percent on Aug. 17 after the European Central Bank started buying its bonds, have soared to 5.81 percent.

Spain, Germany

Spain’s 10-year bond yields, currently 5.33 percent, were 5.14 percent at the end of September and as much as 6.32 percent on July 18. German 10-year yields also jumped this month, rising to 2.04 percent from 1.73 percent on Oct. 4.

The need to lever the EFSF stems from the size of the potential calls on its limited resources, said Sony Kapoor, managing director of London-based policy group Re-Define Europe. The facility is backed by so-called over-guarantees of about 780 billion euros from its member states, allowing it to claim a AAA rating, according to Bloomberg calculations.

The EFSF’s firepower drops to about 230 billion euros when over-guarantees are accounted for, the countries that have already received bailouts are excluded, Italy and Spain drop out of the tally, and the cost of a second Greek bailout is deducted.

‘Political Signal’

Italy and Spain alone must refinance more than 420 billion euros of bonds that come due next year, data according to Bloomberg show. By offering to take the first loss on some portion -- the part mooted is 20 percent -- of new issuance, the euro-region states can show they are standing behind the issuer and persuade private investors to step in.

“You’re sending a very strong political signal that all the member states believe that Spain and Italy are solvent and they are willing to demonstrate that by putting themselves in harm’s way,” said Kapoor at Re-Define. “They have a very narrow space for maneuver in terms of the leverage. They’re between the devil and the deep blue sea.”

French banks tumbled in the past four days with BNP Paribas (BNP) SA, the biggest of the nation’s lenders, dropping more than 17 percent and Societe Generale (GLE) SA down almost 16.9 percent amid concern they would be downgraded along with the government and that they need more capital.

“Given the sheer size the French banking system it may end up being singled out as the most vulnerable country to a rating agency downgrade,” said Marchel Alexandrovich, an economist at Jefferies International in London.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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China’s Economy Expands at Slowest Pace in Two Years on Drag From Europe

By Bloomberg News - Oct 18, 2011 4:25 PM GMT+0700
Enlarge image

A factory worker assembles lithium ion batteries at the China BAK Battery Inc. facility in Tianjin, China. Asia’s benchmark stock index fell as much as 2.4 percent after China’s growth was limited by tighter credit and weaker demand from Europe. Photographer: Keith Bedford/Bloomberg

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Oct. 18 (Bloomberg) -- Wang Tao, a China economist for UBS AG, talks about the nation's economy. China’s economy grew 9.1 percent in the third quarter from a year earlier, the slowest pace since 2009, on monetary tightening and weaker export demand. Wang speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Oct. 18 (Bloomberg) -- Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management Ltd., talks about China's economy. China’s economy grew 9.1 percent in the third quarter from a year earlier, the slowest pace since 2009, on monetary tightening and weaker export demand. Do also discusses Europe's sovereign debt crisis. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Do spoke before China announced third-quarter growth figures. Source: Bloomberg)

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Oct. 18 (Bloomberg) -- Donna Kwok, an economist at HSBC Holdings Plc, talks about China's economic growth in the third quarter and the outlook for monetary policy. She speaks from Hong Kong with Linzie Janis on Bloomberg Television's "First Look." (Source: Bloomberg)

China’s economy grew 9.1 percent in the third quarter from a year earlier, the slowest pace since 2009, driving stocks lower on concern that Europe’s debt crisis is dragging on the global recovery.

The gain was less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists and followed a 9.5 percent increase in the previous three months. The statistics bureau released the data in Beijing today.

Asia’s benchmark stock index sank after China’s growth was limited by tighter credit and weaker demand from Europe, where Germany yesterday rejected speculation that any immediate resolution of the region’s crisis is possible. A slowdown in the pace of China’s expansion, which remains five times that of the U.S., may help Premier Wen Jiabao to tame inflation that is above the government’s target.

“The latest developments in the euro zone have unnerved investors and many are fearful we’re going to see a repeat of the slump we saw at the end of 2008,” said Tim Condon, Singapore-based head of Asian research at ING Groep NV (INGA) and a former World Bank economist. A “hard landing” for China would require a bigger “shock” to growth than is likely, he said.

The Shanghai Composite Index closed 2.3 percent lower, the biggest loss in almost a month. The MSCI Asia Pacific Index fell as much as 2.7 percent. The yuan weakened 0.2 percent to 6.3813 per dollar.

Faster Output Growth

Industrial production increased 13.8 percent in September from a year earlier, the statistics bureau said. That compared with the 13.4 percent median estimate in a Bloomberg survey and a gain of 13.5 percent the previous month.

Investors' concerns about China’s economy are focused on bad-debt risks for banks, funding for small businesses, and the ability of local governments to repay money borrowed for infrastructure projects. China Business News reported today that rail projects have been halted due to cash shortages and the People’s Daily reported that some road building has stalled for the same reason.

“The risk of a hard landing is a distant scenario,” said Liu Li-Gang, an economist at Australia & New Zealand Banking Group Ltd. (ANZ) in Hong Kong. HSBC Holdings Plc and Bank of America Merrill Lynch echoed that view. Barclays Capital said the nation’s full-year expansion should be about 9 percent, with growth to slow to below 8.5 percent this quarter.

Monetary Policy

Any “outright easing of monetary policy will have to wait until inflation expectations stabilize and external demand falls sharply,” said Liu, adding that “partial easing” could include reducing reserve requirements for small and medium-sized banks.

Fixed-asset investment excluding rural households climbed 24.9 percent in the first nine months, compared with the 24.8 percent estimated by economists and a 25 percent gain through August. Property investment for January-to-September rose 32 percent, from 33.2 percent through August.

Retail sales expanded 17.7 percent after a 17 percent increase in August.

Companies including BASF SE, the world’s largest chemicals company, are expanding in China as higher wages and consumption boost demand. The German company and China Petroleum & Chemical Corp (600028) this month completed an expansion of an ethylene plant in the eastern city of Nanjing.

China’s economy grew 2.3 percent in the third quarter from the previous three months, seasonally adjusted, the statistics bureau said today. That compared with a revised 2.4 percent gain for the second quarter.

Balancing Act

Asian policy makers face a “delicate balancing act” with inflation remaining elevated while Europe’s crisis threatens growth, the International Monetary Fund said last week. German Chancellor Angela Merkel’s office yesterday curbed expectations for a breakthrough at a summit in Brussels this weekend.

China’s Xinhua News Agency reported today that Chinese Vice Premier Wang Qishan and U.S. Treasury Secretary Timothy Geithner discussed the global economic and financial situation and bilateral economic relations by phone. It didn’t elaborate.

China has raised interest rates five times over the past year, curbed lending and imposed limits on home purchases to rein in property and consumer prices and limit the risk of asset bubbles. Home prices gained in fewer than half of 70 cities monitored by the government in September from August as sales eased, statistics bureau data showed today.

While inflation was more than 6 percent for a fourth month in September, Deutsche Bank AG forecasts the rate will drop to 4 percent -- the government’s full-year target -- in December.

Lending Slows

China’s money supply expanded at the slowest pace in almost a decade last month and new lending was the smallest since December 2009, central bank data showed last week. A credit crunch in some parts of China prompted the State Council to this month unveil tax breaks and financial support for small businesses.

A property slump and slowing export growth are among the biggest risks, according to economists at UBS AG, Nomura Holdings Inc. (8604) and Societe Generale.

A drop in land prices in cities including Beijing and Guangzhou and falling land sales presage a slowdown in property investment, according to Nomura’s Hong Kong-based economist Zhang Zhiwei. Vincent Lo, chairman of Shanghai-based Shui On Land Ltd. (272), said last month one bank withdrew loan approvals for his company and other developers.

UBS economist Wang Taosees a “global downturn or recession” as the main danger facing the world’s largest exporter in the next 12 months. GDP growth may drop to as low as 7.7 percent in the first quarter of 2012 as “a sharp deceleration” in foreign demand adds to weaker domestic production, according to Wang.

Export Slowdown

Overseas sales rose less than expected in September as shipment growth to Europe halved and the customs bureau warned of “severe challenges” as the global outlook dims.

That may weigh on China’s currency, which gained 18 percent against the dollar in the past four years, the most among 25 emerging-market currencies. Premier Wen pledged to maintain a “basically stable” exchange rate to protect exporters, the Xinhua news agency reported Oct. 15, citing remarks he made in the southern city of Guangzhou.

China’s economy expanded 10.4 percent last year. Growth will slow to 9.5 percent this year, six times the pace of the U.S. and euro area, according to International Monetary Fund estimates released last month.

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

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Euro Leaders’ Crash Crisis Campaign Bogs Down

By James G. Neuger and Tony Czuczka - Oct 18, 2011 3:28 PM GMT+0700

Europe’s options for overcoming the debt crisis narrowed as Germany doused expectations of a breakthrough at this weekend’s summit and central bankers balked at extended bond purchases.

European stocks fell for a second day after German Chancellor Angela Merkel’s office knocked down what it called “dreams” that the Oct. 23 summit will be the last word in taming the crisis. Christian Noyer, head of France’s central bank, ruled out a ramping up of the European Central Bank’s bond-buying program as part of a multi-pronged strategy to shield countries like Italy.

While Group of 20 finance ministers and central bankers pressed European Union leaders to set out a strategy by the end of the week, divisions flared over an emerging plan to avoid a Greek default, bolster banks and curb contagion.

“We’re really in a bind here,” Carl Weinberg, founder and chief economist at High Frequency Economics, said in an interview with Betty Liu on Bloomberg Television’s “In the Loop.” “We have a lot of egos, a lot of national interests, a lot of political considerations, and that’s just hampering us from getting to a solution.”

The ECB said yesterday it bought 2.2 billion euros ($3 billion) of bonds last week, the least since it restarted the market support program in August over the objections of Germans on its council. While looking to exit the bond-buying business, the ECB also opposes the use of its balance sheet to boost the government-financed 440 billion-euro rescue fund with enough firepower to do that job.

French Finances

Underscoring the stress on Europe’s finances, Moody’s Investors Service said in a release overnight that France’s top credit rating is under pressure as the debt crisis has led to a “deterioration” of its government finances.

Moody’s cited “the possible need to provide additional support to other European sovereigns or to its own banking system” as stresses on French finances.

France will do “everything” to maintain its top debt ratings, Finance Minister Francois Baroin said today on France 2 television. “We have the highest public spending in the G8,” Baroin said. “We have room for maneuver.”

The Euro Stoxx 50 Index slid 0.8 percent to 2297.28 at 10:20 a.m., led by BNP Paribas SA and Societe Generale SA. The euro traded at $1.3718, down from $1.3738 in New York yesterday, when it slid 1 percent.

‘Dampen Expectations’

“It is far from clear that the summit will deliver a package that is viewed as broad and deep enough,” David Mackie, chief European economist at JPMorgan Chase & Co (JPM), said in a note today. “Indeed, comments out of Germany appear to be trying to dampen expectations of what the summit will deliver.”

Merkel’s spokesmen Steffen Seibert stoked the disagreement by saying that EU leaders won’t provide the complete fix that global policy makers are pushing for at their Brussels summit.

Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Seibert told reporters in Berlin. The search for an end to the crisis “surely extends well into next year.”

Group of 20 finance ministers and central bankers concluded weekend talks in Paris endorsing parts of Europe’s emerging crisis plan. Providing a week to act, they set the Oct. 23 meeting of European leaders as the deadline.

‘Disappointing’ Response

“Quite frankly, Europe’s response over the past year has been disappointing,” Canadian Finance Minister Jim Flaherty said in a speech yesterday in Dublin. “This is the world’s most immediate and pressing problem,” Flaherty said, according to a prepared copy of the speech, and “is threatening to bring the world to the verge of another recession.”

On the summit agenda is how any recapitalization of Europe’s banks “might be carried out in a coordinated way” and how to make the European Financial Stability Facility, the EU’s rescue fund for indebted states, as effective as possible, Seibert said. The leaders will also discuss aid for Greece and ways to tighten economic and financial policy, he said.

In Greece, parliamentary debate is due to begin today on a fresh round of austerity measures amid public protests and labor-union unrest. Finance Ministry workers began a 10-day strike yesterday, complicating the government’s efforts to collect taxes and highlighting the mood in Europe’s most- indebted country as Greek lawmakers face another vote on fiscal measures due in two days. That’s a showdown Prime Minister George Papandreou needs to win to ease the way for more foreign financing and stave off default.

Obstacles

Across Europe, obstacles to an accord include resistance by bankers to a deeper restructuring of Greek debt and discord among Europe’s capitals over how to multiply the firepower of their bailout fund and recapitalize financial institutions. At stake is confidence in the 17-nation currency union that Merkel stresses she wants to preserve.

In the works for the summit is a five-point plan foreseeing a solution for Greece, bolstering of the firepower of the EFSF, fresh capital for banks, a new push to boost competitiveness and consideration of European treaty changes to tighten economic management.

Forcing lenders to boost capital would be counterproductive, and getting investors to accept larger losses on Greek holdings difficult, Deutsche Bank Chief Executive Officer Josef Ackermann said on Oct. 13. Ackermann, who chairs the Washington-based Institute of International Finance and spearheaded the July accord, was scheduled to hold talks in Brussels today with policy makers.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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Obama Criticizes Republicans for Blocking His Jobs Proposal

By Julianna Goldman and Roger Runningen - Oct 18, 2011 4:45 AM GMT+0700

President Barack Obama called on Congress to pass elements of his jobs proposal and attacked Republican alternatives, saying his plan is the “real Americans Jobs Act.”

After Republicans blocked his $447 billion package of tax cuts and spending in the Senate, Obama is seeking to tap into populist anger in his campaign to get lawmakers to pass individual provisions of the proposal.

The Republicans “want to gut regulations” and “let Wall Street do whatever it wants,” Obama said today in Fletcher, North Carolina, where he started a three-day, 560-mile bus tour that also will take him to Virginia. Obama won both Republican- leaning states in 2008 and seeks to hold both in next year’s election.

“I need you to give Congress a piece of your mind,” he said. “Tell your elected leaders to do the right thing.”

Six weeks after Obama unveiled his plan and with voters increasingly anxious about the direction of the country, the president is using his bus tour to blame Republicans for Congress’s failure to enact his package of tax cuts and spending measures that the White House says would spur growth and lower the 9.1 percent unemployment rate.

Aid to States

Senate Majority Leader Harry Reid is demanding a vote on the first piece of the broken-up a jobs package, providing $35 billion in aid to cash-strapped state governments. The Nevada Democrat said it would help save the jobs of teachers, firefighters and other public-sector workers. Reid would pay for it with a half-percent surtax on individuals with annual incomes of $1 million or more.

The legislation is unlikely to pass the Senate; Republicans, who have a majority in the House and enough votes in the Senate to block legislation, have rejected raising taxes to pay for the plan. They also object to additional spending when the nation is struggling with a budget deficit that was $1.3 trillion in the fiscal year that ended Sept. 30. It was the third consecutive year that the shortfall has exceeded $1 trillion.

Republicans said the president, in hitting states he seeks to win in 2012, is focused more on politics than economy.

More Cooperation

“It’s disappointing the president would rather give more partisan speeches than work with Republicans to find common ground,” said Brendan Buck, a spokesman for House Speaker John Boehner of Ohio. “There are things we can do right now to help struggling American families, but it will require more cooperation and less campaigning from the White House.”

The North Carolina Republican Party responded to Obama’s visit with a “Towbama” campaign that features a tow truck as a prop and an offer to “tow that bus back” to Washington so Obama can work on economic policy, Robin Hayes, the state party chairman, said on a conference call.

Of the $35 billion to states and communities, more than $900 million would help teachers and first responders in North Carolina and would support 13,400 jobs across the state, where the unemployment rate is above the national average at 10.4 percent, according to the administration.

Obama cited the state’s need for federal help with infrastructure projects that would put construction workers back on the job, including runways and taxiways at Asheville Regional Airport, where he spoke. The airport authority is seeking $60 million for renovations. The jobs bill includes $2 billion for airport infrastructure projects.

Compromise

The president sought to cast himself as so willing to compromise that he angered members of his own party.

“I want to work with Republicans in any way possible to create jobs right now,” Obama said at his last stop, West Wilkes High School in Millers Creek, North Carolina, about 112 miles (180 kilometers) from the Asheville area where he began the trip. “I have bent over backwards, I have shown myself to be willing.”

Obama will spend the night in Greensboro with another stop in North Carolina scheduled for tomorrow before he heads into neighboring Virginia.

Obama narrowly won North Carolina in 2008, by 0.3 percent of the vote, making him the first Democratic presidential nominee to win the state in 32 years. An Oct. 6 Public Policy Polling survey shows Obama’s job approval rating in North Carolina virtually unchanged since September with 44 percent approving and 53 percent disapproving.

To contact the reporters on this story: Julianna Goldman in Fletcher, North Carolina, at jgoldman6@bloomberg.net; Roger Runningen in Washington at rrunningen@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Oil Drops For a Second Day After China’s Economy Grows Slowest Since 2009

By Ben Sharples and Christian Schmollinger - Oct 18, 2011 1:56 PM GMT+0700

Oil fell for a second day in New York after China said its economy grew at the slowest pace in two years and U.S. crude stockpiles were forecast to increase.

Futures dropped as much as 0.5 percent, extending yesterday’s 0.5 percent decline, after China’s statistics bureau said the economy grew at 9.1 percent in the third quarter, less than predicted. An Energy Department report tomorrow may show U.S. crude inventories climbed for a second week, according to a Bloomberg News survey. Technical indicators indicate prices may have advanced too fast to be sustainable.

“The number from China is getting a bit worse than before,” said Ken Hasegawa, an energy trading manager at broker Newedge Group in Tokyo, who forecasts prices will decline $5 a barrel. “If the recovery of the economies in Europe and the U.S. is getting worse, then the economies of China and Asia will show some damage.”

Crude for November delivery fell as much as 40 cents to $85.98 a barrel in electronic trading on the New York Mercantile Exchange. It was at $86.10 at 2:45 p.m. Singapore time. Yesterday, the contract lost 42 cents to $86.38, the lowest settlement since Oct. 13. Prices are down 5.8 percent this year.

Brent oil for December settlement on the London-based ICE Futures Europe exchange dropped as much as 45 cents, or 0.4 percent, to $109.71 a barrel. The European benchmark contract was at a premium of $24 to U.S. futures. The difference narrowed 16 percent yesterday, the most since June 16.

Stochastic Oscillators

Crude is extending losses in New York as the five-day stochastic oscillators have risen above 70, signaling prices may have climbed too quickly to be sustained, according to data compiled by Bloomberg. Investors tend to sell contracts when the market is considered “overbought”.

U.S. crude stockpiles probably rose by 2 million barrels in the week ended Oct. 14, according to the median estimate of nine analysts surveyed by Bloomberg News before a weekly Energy Department report tomorrow. All the respondents forecast an increase from 337.6 million.

Gasoline supplies are expected to have decreased 1 million barrels, the survey showed. Distillate-fuel inventories, a category that includes heating oil and diesel, likely fell 1.5 million barrels.

China’s gross domestic product increased less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists. The country consumes more crude than any nation except the U.S.

Apparent oil demand in China, or the amount of processing volume plus net imports, increased 2.8 percent to 8.949 million barrels a day in September compared with a year ago. That’s down from 7.97 percent year-on-year growth in August, based on Bloomberg data.

Libya Output

Libya’s largest oil refinery at Ras Lanuf will be ready to start operations next month, acting Chief Executive Officer Abdo A. Ahmed at Libyan Emirates Refining Co. said yesterday. The plant, which can process 220,000 barrels a day of crude, was shut in March because of fighting between forces loyal to Muammar Qaddafi and rebels seeking the former leader’s ouster.

Fighting has reduced the availability of light, sweet crude, or oil with low density and sulfur content, from Libya, a member of the Organization of Petroleum Exporting Countries. The country’s output fell to 45,000 barrels a day in August, according to Bloomberg estimates. The North African nation pumped 100,000 barrels a day last month.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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Billionaire Dethrones Kings in Beer and Burgers

By Fabiola Moura - Oct 18, 2011 11:01 AM GMT+0700
Bloomberg Markets Magazine

The Burger King hamburger chain made a dramatic decision in August. It dethroned the King -- the mascot who had danced through its advertising in various guises for more than 50 years. The marketing move was made by the struggling company’s new management, appointed after it was taken private in 2010 by 3G Capital Inc., a New York-based investment firm with roots in Brazil.

The takeover of Burger King Holdings Inc. by 3G Capital means the chain has a new monarch: Jorge Paulo Lemann, the founder of 3G. Lemann, 72, is an iconic figure in Brazilian finance. In 1971, when Brazil was under military rule, he founded the country’s first modern investment bank, Banco de Investimentos Garantia SA, Bloomberg Markets magazine reports in its November issue. In subsequent decades, he emerged as one of Brazil’s most prolific dealmakers.

Lemann’s biggest transaction: the $52 billion 2008 takeover of Anheuser-Busch Cos. by InBev NV.

InBev was itself formed from Belgium’s Interbrew SA and Brazil’s Cia. de Bebidas das Americas, or AmBev -- the biggest beer maker in South America and the source of much of Lemann’s fortune. His stake in Anheuser-Busch InBev NV (ABI) alone was valued at $8.9 billion as of mid-September, according to data compiled by Bloomberg. Burger King and his other holdings add several billion more.

AB InBev is the world’s largest beer maker, with more than 200 brands, including Budweiser, the best-selling beer in the U.S.; Brahma and Skol, the leading beers in Brazil; Beck’s; and Stella Artois. When he founded Anheuser Busch in the 19th Century, Adolphus Busch labeled his brew the King of Beers, a slogan that still appears on some Budweiser packaging.

New Management Culture

One of Lemann’s admirers is oil-and-mining magnate Eike Batista, who’s the richest man in Brazil, according to Bloomberg data.

“Jorge Paulo created a whole management culture in Brazil that is extraordinary,” Batista, 54, says. “He motivated employees by letting them share the profits -- aggressive, but that leads to results.”

Lemann is reclusive. He gave his last media interview in 2008 and declined to be interviewed for this story, as did his two longtime business partners, Marcel Herrmann Telles and Carlos Alberto da Veiga Sicupira.

Together, the three men run 3G and Stichting AK, a Netherlands-based firm that has a controlling stake in Anheuser- Busch InBev. Through 3G and other private companies, they also own stakes in Rio de Janeiro-based retailer Lojas Americanas SA (LAME4); Sao Paulo-based Sao Carlos Empreendimentos e Participacoes SA (SCAR3), a real-estate company; and Jacksonville, Florida-based CSX Corp. (CSX), one of the biggest U.S. freight-rail companies.

Billionaire Trio

Telles’s AB InBev stake alone was worth $3.95 billion as of mid-September, and Sicupira’s stake was valued at $3.2 billion, according to Bloomberg data.

“They are not about beer,” says Tom Pirko, founder and president of Bevmark LLC, an adviser to the food and beverage industries. “And they are not about hamburgers. They are about money. They know how to cut costs. They know how to very aggressively push something.”

Lemann and his partners are known for their tough management style. That was felt right away at Burger King, which they bought for $24 a share from Texas-based private-equity firm TPG Capital Inc. and other investors and took private in October 2010.

At the time it was acquired, the company was a distant third in revenues and profits behind competitors McDonald’s Corp. (MCD) and Wendy’s Co. -- and losing ground. Bernardo Hees, a former chief operating officer of All America Latina Logistica SA (ALLL3), a firm Lemann and his partners once controlled, was named chief executive officer and quickly cut hundreds of jobs.

Cross-Selling

Most of the board members resigned, and the new management ended the company’s relationship with ad agency Crispin Porter & Bogusky LLC -- and then deposed the King mascot.

Pirko doesn’t think it’s a coincidence that Lemann and his partners first took control of a beverage company and then a restaurant chain. They’ve already moved to begin cross-selling between the two businesses. In April, Burger King signed up PepsiCo Inc. as the exclusive soft-drink provider for its restaurants in Latin America and the Caribbean. AmBev is the producer and distributor of Pepsi products in Brazil.

Hees has told investors and analysts that his plan is to make Burger King a top brand in Latin America during the next five years. He wants to open 1,000 restaurants in Brazil alone, up from 108 in mid-September.

Swiss Father

Lemann, the son of a Swiss businessman who emigrated to Brazil, was a tennis pro before he moved into finance. He was Brazil’s top-ranked player five times from 1960 to 1972, according to the Brazilian Tennis Federation. He competed in the Davis Cup in 1962 for Switzerland -- he holds dual citizenship -- and for Brazil in 1973.

While pursuing his tennis career, Lemann attended Harvard University, receiving a degree in economics in 1961. For a few months after graduating, he worked as a financial columnist for the newspaper Jornal do Brasil. He left that post because he was pursuing a job as a broker at the same time, which his managing editor, Alberto Dines, saw as a conflict.

“If he had continued being a journalist, he was going to be a Joe Schmo,” says Dines, 79, who today runs Observatorio da Imprensa, a TV program and website. “I helped him become a billionaire.”

After 10 years at various financial firms, Lemann founded investment bank Garantia in 1971. The military was running the government at the time, and markets were volatile. Weeks after Lemann, then 32, founded his firm, the Brazilian stock market fell 60 percent -- and Lemann’s bank lost almost all of its capital.

Modeled on Goldman

The bank survived, with Lemann trying to fashion it after big Wall Street firms such as Goldman Sachs Group Inc. (GS), says Jose Olympio Pereira, who started his career at Garantia in 1985 as an investment analyst and left in 1998 as head of corporate finance. He’s now chief of investment banking for Credit Suisse Group AG (CSGN) in Brazil.

“Garantia was a paradise for ambitious, entrepreneurial people,” Pereira says. “This ‘virus’ of the Garantia culture infected the Brazilian corporate world. It is amazing the number of businessmen I work with who admire the Garantia model.”

Pereira is one of a dozen top business leaders and government officials who started their careers at Garantia. Another is Andre Lara Resende, who ran Brazil’s national development bank until 1998 and helped design the Plano Real, the 1994 economic scheme that broke the cycle of high inflation in Brazil.

Fraga an Admirer

Another is Arminio Fraga, who was chief economist at Garantia from 1985 to 1988 and went on to become head of Brazil’s central bank from 1999 to 2002. Fraga is now chairman of Sao Paulo-based BM&FBovespa SA (BVMF3), the operator of Latin America’s biggest stock exchange.

Fraga says Lemann made Garantia home to Brazil’s best and brightest.

“He always led by example,” Fraga says. “It was clearly a meritocracy, capable of attracting and keeping people with great talent and energy.”

Garantia landed assignments helping multinationals such as Colgate-Palmolive Co. and Philip Morris International Inc. (PM), both based in New York, make acquisitions in Brazil. In 1998, Garantia was acquired by Credit Suisse for almost $1 billion.

Interbrew and Ambev

Lemann, Sicupira and Telles went on to found an investment firm called GP Investimentos, which they sold in 2004 so they could concentrate their energies on the $11 billion merger of Belgium’s Interbrew and Brazil’s AmBev.

Though the new company was based in Leuven, Belgium, the Brazilians took control of what was then the world’s second- largest brewer. They quickly imposed cost controls. The productivity of InBev employees, who were afraid of losing their jobs, improved substantially, says a person who was an Interbrew executive at the time of the merger.

In the next and final move that created the world’s largest brewer, InBev bought St. Louis-based Anheuser-Busch in 2008. Some 1,400 people quickly lost their jobs. Perks ranging from business-class flights and BlackBerrys to free cases of beer were eliminated, according to a person familiar with the business who said he wasn’t authorized to speak publicly.

Even CEO Carlos Alves de Brito, a former AmBev chief executive who has run the bigger company since the merger, was asked to fly economy class.

Prizes Simplicity

Former colleagues say Lemann is a frugal executive who prizes simplicity. He doesn’t drive sports cars or collect expensive art, friends say.

“All that was not part of the Garantia culture -- the showing off, being high profile,” Pereira says.

The austere lifestyle paid off on one particular day in the mid-1980s. Lemann was driving his Volkswagen to a beach in Rio and stopped for gas, according to Claudio Haddad, president of Insper Institute of Education and Research in Sao Paulo and a former CEO of Garantia. As Lemann was pumping gas, bandits rolled up to rob the place, completely overlooking the billionaire in their midst.

“Since he was dressed casually and had an old Passat, they thought he was a nobody,” Haddad says.

Lemann’s three children by his current wife had a closer call. In 1999, a chauffeur was driving them to school in an armored car when kidnappers waylaid them on a Sao Paulo street. Eight gunshots at close range penetrated the window, wounding the chauffeur in the arm. He sped off, and the children escaped.

Few Public Appearances

Since then, Lemann and his wife, Susanna, have divided their time between Switzerland and Brazil, and Lemann has made few public appearances save for charity events. On those occasions, the still tennis-slim billionaire eats and drinks little.

The beer and burgers his companies sell are strictly for customers.

With assistance from Francisco Marcelino in Sao Paulo and Matthew G. Miller in New York. Editors: Michael Serrill, Robert Dieterich.

To contact the reporter on this story: Fabiola Moura in New York at fdemoura@bloomberg.net.

To contact the editor responsible for this story: Michael Serrill at mserrill@bloomberg.net.

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Occupy Wall Street’s Arrested Protesters May Demand Trials, Lawyer Says

By Tiffany Kary and Chris Dometsch - Oct 18, 2011 5:06 AM GMT+0700

Hundreds of Occupy Wall Street protesters arrested for demonstrating Oct. 1 on the Brooklyn Bridge may demand trials if charges against them aren’t dropped and some demonstrators are seeking the arrest of police officers, a month into the New York protest against economic inequality.

Manhattan District Attorney Cyrus Vance Jr.’s office is considering a request to drop charges, National Lawyers Guild attorney Martin Stolar said today outside the DA’s office after a meeting. Stolar said he hopes for a response in a few days.

“We are prepared to try every single case,” said Stolar, whose organization has offered to represent the protesters. ‘For any clients who want to take the option of, ‘I’m innocent -- I’m not pleading guilty,’ we’re prepared to provide them with pro bono counsel to exercise their right to go to trial.”

If the cases all are tried, they will tie up resources of New York’s courts, Stolar said. He said 765 people were arrested at the bridge. The DA’s office said it was 267 and all but 17 got desk appearance tickets.

“Every arrest that comes into the DA’s office is assessed individually, and charging decisions are based on the evidence and circumstances unique to each case and defendant,” Erin Duggan, a spokeswoman for the office, said in an e-mailed statement. The office regularly handles more than 100,000 arrests a year, according to its statistics. It has counted 499 since the protest started a month ago.

Two Investigations

Separately, at least two protesters’ complaints against the police are being investigated, according to their lawyer, Ronald L. Kuby, who is asking for the arrest of two police deputy inspectors.

The district attorney’s official corruption unit is investigating assault accusations against Deputy Inspector Anthony Bologna and Deputy Inspector Johnny Cardona, Kuby said. Bologna was involved in a pepper spray incident, and Cardona was involved in an incident on Oct. 14.

“There’s not much to investigate,” Kuby said today outside the DA’s office shortly after a meeting. “The videotape on its face makes out a case for third-degree assault. Had this been anyone other than a deputy police inspector, that person would have been arrested,”

“It’s your garden variety assault, it’s a Class A misdemeanor,” Kuby said of incident, in which his client Kaylee Dedrick, a 24-year old teacher’s aide from Albany, was pepper sprayed by Bologna.

Oct. 14 Incident

His other client, Felix Rivera Pitre, was struck by Cardona on Oct. 14, Kuby said.

“Deputy inspectors are there to make sure that patrol officers, who are younger and less experienced, don’t act like this,” Kuby said.

A police spokesman, Paul Browne, didn’t immediately reply to a message seeking comment on Stolar’s comments. Police Commissioner Ray Kelly said Oct. 7 that allegations against the police are under investigation by the department.

Five of the bridge protesters filed a civil rights complaint claiming police officers lured them onto the bridge’s roadway to trap and arrest them.

The protests have included an occupation of New York’s Zucotti Park and marches on the homes of individuals including JPMorgan Chase & Co. Chairman Jamie Dimon and News Corp.’s Rupert Murdoch.

Other Cities

On Oct. 15, a Saturday-night gathering in Times Square drew at least 6,000 people. The protests have been echoed in other U.S. cities as well as London, Tokyo, Hong Kong, Sydney and Toronto.

Protesters arrested have been accused of standing or sitting in the streets, overturning trash baskets and throwing bottles. At least one was detained after he allegedly knocked over a police scooter.

The Lawyers Guild is an organization of attorneys, legal workers, law students and “jailhouse lawyers,” it says on its website. “We represent progressive political movements, using the law to protect human rights above property interests and to attain social justice,” it says.

To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net; Chris Dolmetsch in New York at cdolmetsch@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.

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Citigroup Closing Proprietary-Trading Unit

By Donal Griffin - Oct 18, 2011 6:17 AM GMT+0700

Citigroup Inc. (C), the third-biggest U.S. lender, said it’s closing a proprietary-trading unit that incurred losses in the third quarter, as regulators prepare to restrict banks from making bets with shareholder cash.

The company is almost “two-thirds done” winding down the Equity Principal Strategies unit, Chief Financial Officer John Gerspach said yesterday in a conference call with analysts. Market turmoil caused a revenue decline for the unit, which suffered losses as it exited trading positions, Gerspach said.

Chief Executive Officer Vikram Pandit, 54, is shutting the business as lawmakers draft the so-called Volcker rule, which aims to restrict banks from making bets with shareholder money. Other firms including Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) already have exited similar businesses. New York-based Citigroup partly blamed Equity Principal Strategies for a 73 percent slump in third-quarter revenue from equities-trading.

“Equity Principal Strategies is a de minimis part of Citi’s overall trading operation,” Danielle Romero-Apsilos, a spokeswoman, said in an e-mailed statement. “As it does not fit with Citi’s business model under the impending Volcker rule, it is in the process of being wound down.”

The proprietary-trading unit is headed by Sutesh Sharma, who’s based in London and previously worked for New York-based Morgan Stanley and Old Lane Partners LP, a hedge fund that Pandit part-owned before selling it to Citigroup in 2007. Sharma intends to leave the bank and start his own hedge fund, two people familiar with the matter said in August. The team manages about $2 billion, one of the people said. Sharma didn’t comment.

Revenue Tumbles

Sharma’s team is part of Citigroup’s equities-trading business, run by Derek Bandeen. The division’s revenue, excluding an accounting gain, tumbled to $289 million in the third quarter, from about $1.04 billion in the same period a year earlier. Moshe Orenbuch, an analyst with Credit Suisse Group AG, had estimated revenue of $825 million for the three months ended Sept. 30.

Equity-trading revenue at JPMorgan Chase & Co. (JPM), the second- biggest U.S. bank by assets as of midyear, fell 15 percent for the same period, excluding a similar accounting benefit, the New York-based firm said in an Oct. 13 statement.

Citigroup’s proprietary-trading and equity-derivatives units were “largely responsible” for the slump and “difficult market conditions” drove the decline, the company said yesterday in a statement.

Regulators published the Volcker rule last week for public comment. Named for former Federal Reserve Chairman Paul Volcker, the rule would ban banks from trading for their own accounts. The firms would be allowed to make short-term trades for hedging and market-making. Pandit said last week that the rule may have struck “the right balance” between the two.

“It’s a volatile business they’re getting out of,” Gerard Cassidy, an analyst with Royal Bank of Canada who has an “outperform” rating on Citigroup shares, said in a phone interview. “If you’ve got a holding company that’s being regulated by U.S. bank regulators, being involved in higher-risk businesses may not be the best use of the bank’s capital.”

To contact the reporters on this story: Donal Griffin in New York at Dgriffin10@bloomberg.net

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

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China Economy Grows at Slowest Pace in 2 Years

By Bloomberg News - Oct 18, 2011 12:21 PM GMT+0700

China’s economy grew 9.1 percent in the third quarter from a year earlier, the slowest pace since 2009, driving stocks lower on concern that Europe’s debt crisis is dragging on the global recovery.

The gain was less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists and followed a 9.5 percent increase in the previous three months. The statistics bureau released the data in Beijing today.

Asia’s benchmark stock index fell as much as 2.3 percent after China’s growth was limited by tighter credit and weaker demand from Europe, where Germany yesterday rejected speculation that any immediate resolution of the region’s crisis is possible. A slowdown in the pace of China’s expansion, which remains five times that of the U.S., may help Premier Wen Jiabao to tame inflation that is above the government’s target.

“The latest developments in the euro zone have unnerved investors and many are fearful we’re going to see a repeat of the slump we saw at the end of 2008,” said Tim Condon, Singapore-based head of Asian ressearch at ING Groep NV (INGA) and a former World Bank economist. A “hard landing” for China would require a bigger “shock” to growth than is likely, he said.

The Shanghai Composite Index fell 1.7 percent as of the 11:30 a.m. local time break in trading, the biggest loss in almost a month. The MSCI Asia Pacific Index sank 2.2 percent as of 1:06 p.m. in Tokyo. The yuan weakened 0.1 percent to 6.3780 per dollar.

Industrial production increased 13.8 percent in September from a year earlier, the statistics bureau said. That compared with the 13.4 percent median estimate in a Bloomberg survey and a gain of 13.5 percent the previous month.

Rail Projects

Concerns about China’s economy are focused on bad-debt risks for banks, funding for small businesses, and the ability of local governments to repay money borrowed for infrastructure projects. China Business News reported today that rail projects have been halted due to cash shortages and the People’s Daily reported that some road building stalled for the same reason.

“The risk of a hard landing is a distant scenario,” said Liu Li-Gang, an economist at Australia & New Zealand Banking Group Ltd. (ANZ) in Hong Kong. HSBC Holdings Plc and Bank of America Merrill Lynch echoed that view. Barclays Capital said the nation’s full-year expansion should be about 9 percent, with growth to slow to below 8.5 percent this quarter.

Fixed-asset investment excluding rural households climbed 24.9 percent in the first nine months, compared with the 24.8 percent estimated by economists and a 25 percent gain through August. Retail sales expanded 17.7 percent after a 17 percent increase in August.

Quarterly Expansion

Companies including BASF SE, the world’s largest chemicals company, are expanding in China as higher wages and consumption boost demand. The German company and China Petroleum & Chemical Corp (600028) this month completed an expansion of an ethylene plant in the eastern city of Nanjing.

China’s economy grew 2.3 percent in the third quarter from the previous three months, seasonally adjusted, the statistics bureau said today. That compared with a revised 2.4 percent gain for the second quarter.

Asian policy makers face a “delicate balancing act” with inflation remaining elevated while Europe’s crisis threatens growth, the International Monetary Fund said last week. German Chancellor Angela Merkel’s office yesterday curbed expectations for a breakthrough at a summit in Brussels this weekend.

China’s Xinhua News Agency reported today that Chinese Vice Premier Wang Qishan and U.S. Treasury Secretary Timothy Geithner discussed the global economic and financial situation and bilateral economic relations by phone. It didn’t elaborate.

Taming Inflation

China has raised interest rates five times over the past year, curbed lending and imposed limits on home purchases to rein in property and consumer prices and limit the risk of asset bubbles. Home prices gained in fewer than half of 70 cities monitored by the government in September from August as sales eased, statistics bureau data showed today.

While inflation was 6 percent for a fourth month in September, Deutsche Bank AG forecasts the rate will drop to 4 percent -- the government’s full-year target -- in December.

China’s money supply expanded at the slowest pace in almost a decade last month and new yuan lending was the smallest since December 2009, central bank data last week showed. A credit crunch in some parts of China prompted the State Council to this month unveil tax breaks and financial support for small businesses.

A property slump and slowing export growth are among the biggest risks, according to economists at UBS AG, Nomura Holdings Inc. (8604) and Societe Generale.

Beijing, Guangzhou

A drop in land prices in cities including Beijing and Guangzhou and falling land sales presage a slowdown in property investment, according to Nomura’s Hong Kong-based economist Zhang Zhiwei. Vincent Lo, chairman of Shanghai-based Shui On Land Ltd. (272), said last month one bank withdrew loan approvals for his company and other developers.

UBS economist Wang Tao sees a “global downturn or recession” as the main danger facing the world’s largest exporter in the next 12 months. GDP growth may drop to as low as 7.7 percent in the first quarter of 2012 as “a sharp deceleration” in foreign demand adds to weaker domestic production, according to Wang.

Overseas sales rose less than expected in September as shipment growth to Europe halved and the customs bureau warned of “severe challenges” as the global outlook dims.

That may weigh on China’s currency, which gained 18 percent against the dollar in the past four years, the most among 25 emerging-market currencies. Premier Wen pledged to maintain a “basically stable” exchange rate to protect exporters, the Xinhua news agency reported Oct. 15, citing remarks he made in the southern city of Guangzhou.

China’s economy expanded 10.4 percent last year. Growth will slow to 9.5 percent this year, six times the pace of the U.S. and euro area, according to International Monetary Fund estimates released last month.

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

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VMware Braces for ‘Difficult’ 2012 as Corporations Cut Technology Spending

By Dina Bass - Oct 18, 2011 5:16 AM GMT+0700

VMware Inc. (VMW), the biggest maker of programs that let computers run multiple operating systems, said it’s bracing for a “difficult” 2012 because corporations may slow spending on technology, including the company’s software.

On a conference call today to discuss quarterly earnings, Chief Financial Officer Mark Peek said next year will be “challenging.” Net income in the third quarter more than doubled to $177.5 million, or 41 cents a share, from $84.6 million, or 20 cents, VMware said. Excluding some costs, profit was 53 cents, compared with the 49-cent average estimate of analysts surveyed by Bloomberg.

VMware, based in Palo Alto, California, has benefited as companies invest in data centers to run software in the so- called cloud, or stored on the Internet instead of their own server computers. Still, Peek said information technology spending is likely to weaken next year, and VMware’s results will be compared against strong numbers from 2011. The company also plans to invest heavily.

“It will be a year of challenging revenue comparables and considerable investments,” Peek said on the conference call.

Sales in the first quarter will be $1 billion to $1.03 billion, the company said on the call. Analysts had expected sales of $1.03 billion.

VMware, majority-owned by EMC Corp., slipped in extended trading after the report. Earlier, the stock declined 3.8 percent to $89.52 at the close in New York. The shares are little changed this year.

Unearned Revenue

Sales in the recent period rose 32 percent to $941.9 million, while unearned revenue, a measure of future business, was $2.2 billion -- almost $100 million above the estimate of Robert Breza, an analyst at RBC Capital Markets.

“The overall numbers were good,” said Breza, who is based in Minneapolis and rates VMware shares “outperform.” “The most impressive number is when you add in the total unearned revenue. It’s a pretty strong showing that should give people confidence going forward.”

The company signed large contracts, renewed existing ones and saw greater interest in new products such as vSphere 5, which improves server performance, Adam Holt, an analyst at Morgan Stanley, wrote in a note today.

Fourth-quarter sales will be $1.03 billion to $1.06 billion, VMware said. Breza said some shareholders may be concerned that the company is being too conservative with its forecast. Though the range is in line with or above the average analyst estimate of about $1.03 billion, some investors may have wanted the company to issue a higher projection, he said.

Breza said the forecast aptly reflects slow economic growth.

“Right now, put a number out there you are going to beat,” he said. “Don’t put out any stretch goals.”

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

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

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Losing $13.5 Billion to Piracy Spurs Microsoft-Led Europe Legal Push: Tech

By Katie Linsell - Oct 18, 2011 6:01 AM GMT+0700

Microsoft Corp. (MSFT) and Adobe Systems Inc. (ADBE) are among software companies that lost $13.5 billion to program pirates and counterfeiters in Europe last year. Their message to lawmakers: Learn from the U.S. and punish the thieves.

As the European Union considers changes to its intellectual property rules, it needs to make sure that higher damage payments deter pirates, who often benefit because of insufficient fines, said Warren Weertman, manager of legal affairs for Washington- based Business Software Alliance. The group’s members include Microsoft, Adobe, Apple Inc. (AAPL) and Siemens AG. (SIE)

“Lump sum damages would act more as a deterrent than having two actuaries fight it out in a costly court case,” Weertman said in a phone interview from London. “It’s a vicious circle where the damages aren’t deterrent enough.”

In Europe, about 35 percent of software deployed on personal computers was pirated every year since 2007, compared with 20 percent in the U.S., according a May study by BSA and researcher IDC. Ben Allgrove, a partner at law firm Baker & McKenzie LLP in London, said the gap is a result of the legal challenges for copyright owners.

“Most EU countries do not have statutory damages and right holders are forced to prove actual loss,” Allgrove said in an interview. “There is a material difference between monetary awards in the U.S. and many other markets,” he said.

France Tops List

Last year, France lost $2.6 billion in pirated software, while Germany lost $2.1 billion, Italy $1.9 billion and the U.K. $1.8 billion. The four nations were among the 10 most pirated worldwide. Across the EU, Bulgaria recorded the highest rate of software piracy in 2010 at 65 percent, while Luxembourg had the lowest at 20 percent, according to BSA.

Globally, the value of pirated software rose 14 percent to $58.8 billion last year, almost double the total in 2003. In China, almost four out of five programs in use are pirated, and 65 percent in Russia is stolen, according to BSA.

The European Commission, the 27-nation EU’s executive arm, last year published a report showing that some provisions of the current law, which was introduced in 2004, need “further clarification and have resulted in diverging interpretations at national level,” said Chantal Hughes, a spokeswoman for EU Internal Markets Commissioner Michel Barnier. The commission is also examining how to deal with the surge in online piracy.

Lobbying Efforts

Microsoft, the world’s biggest software company, isn’t aiming to export the U.S. system around the world, said Chris Oldknow, the company’s enforcement policy counsel. The risk for pirates is “greater that they’ll wind up having to pay a substantial amount in America,” Oldknow said in an interview. “And lo and behold, America has the lowest rate of software piracy in the world.”

Microsoft told the commission in March as part of a consultation that lump sum or multiple damages, only available to some extent in 10 smaller EU member states such as Belgium, Austria and Malta, should be extended to the other 17 countries.

Fair damages should include lost profits and costs of enforcement, additional damages in the amount of economic benefit of the infringer, and fixed-sum or multiple damages, Redmond, Washington-based Microsoft said. Corporate end users may see an “economic benefit” in copying rather than buying software if they are only made to buy the legitimate product once caught or pay damages equal to the publisher’s lost profit, the company said.

Under Licensing

Software firms such as engineering and design software company Autodesk Inc. (ADSK) say they also suffer from so-called under licensing, where clients only pay for some of the programs used.

“It’s a significant issue that does affect our bottom line and we take it very seriously,” said spokesman Noah Cole. Autodesk, based in San Rafael, California, uses internal technology to detect unauthorized use of its software.

The commission may make proposals on how to change the current law in the first half of 2012, spokeswoman Hughes said.

“Some claim that damages awards do not currently appear to effectively dissuade potential infringers from engaging in illegal activities,” she said. “The commission services will examine if changes are necessary.”

In Germany, Europe’s biggest economy, there are neither statutory nor punitive damages but it is up to the discretion of the court whether to fine, with no fixed amount, Weertman said. The highest total settlement in an “end-user case” was 1.5 million euros, he said. In the U.K.’s criminal courts, the maximum statutory fine is 10,000 pounds ($15,800) and punitive damages are not recognized, he said.

Punitive Damages

In the U.S., punitive damages are often awarded in piracy cases, with a maximum rate per infringement of $150,000 if it is found to be willful, according to the BSA.

The low rate of piracy in Belgium, one of the EU countries where lump-sum or multiple damages are possible, backs up the software companies’ claim. About 25 percent of software deployed on PCs in the country was pirated in 2010, below the EU average of 35 percent.

“Belgium courts have been rather severe with software pirates by condemning them to pay damages which are double of the license fees,” Stijn Debaene, a lawyer at Field Fisher Waterhouse LLP in Brussels, said in an interview.

In the U.S., “counterfeiters can be subject to crippling, bankrupting sorts of penalties,” Scott Bain, the litigation counsel for the Software Information Industry Association, said in a phone interview from Washington D.C. The body’s members include Google Inc. (GOOG), Oracle Corp. (ORCL) and International Business Machines Corp. (IBM) “The position of virtually any copyright owner in the U.S. is that they wish the European institutions would have even better damages laws.”

To contact the reporter on this story: Katie Linsell in London at Klinsell@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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Wall St. Protesters May Demand Trials: Lawyer

By Tiffany Kary and Chris Dometsch - Oct 18, 2011 5:06 AM GMT+0700

Hundreds of Occupy Wall Street protesters arrested for demonstrating Oct. 1 on the Brooklyn Bridge may demand trials if charges against them aren’t dropped and some demonstrators are seeking the arrest of police officers, a month into the New York protest against economic inequality.

Manhattan District Attorney Cyrus Vance Jr.’s office is considering a request to drop charges, National Lawyers Guild attorney Martin Stolar said today outside the DA’s office after a meeting. Stolar said he hopes for a response in a few days.

“We are prepared to try every single case,” said Stolar, whose organization has offered to represent the protesters. ‘For any clients who want to take the option of, ‘I’m innocent -- I’m not pleading guilty,’ we’re prepared to provide them with pro bono counsel to exercise their right to go to trial.”

If the cases all are tried, they will tie up resources of New York’s courts, Stolar said. He said 765 people were arrested at the bridge. The DA’s office said it was 267 and all but 17 got desk appearance tickets.

“Every arrest that comes into the DA’s office is assessed individually, and charging decisions are based on the evidence and circumstances unique to each case and defendant,” Erin Duggan, a spokeswoman for the office, said in an e-mailed statement. The office regularly handles more than 100,000 arrests a year, according to its statistics. It has counted 499 since the protest started a month ago.

Two Investigations

Separately, at least two protesters’ complaints against the police are being investigated, according to their lawyer, Ronald L. Kuby, who is asking for the arrest of two police deputy inspectors.

The district attorney’s official corruption unit is investigating assault accusations against Deputy Inspector Anthony Bologna and Deputy Inspector Johnny Cardona, Kuby said. Bologna was involved in a pepper spray incident, and Cardona was involved in an incident on Oct. 14.

“There’s not much to investigate,” Kuby said today outside the DA’s office shortly after a meeting. “The videotape on its face makes out a case for third-degree assault. Had this been anyone other than a deputy police inspector, that person would have been arrested,”

“It’s your garden variety assault, it’s a Class A misdemeanor,” Kuby said of incident, in which his client Kaylee Dedrick, a 24-year old teacher’s aide from Albany, was pepper sprayed by Bologna.

Oct. 14 Incident

His other client, Felix Rivera Pitre, was struck by Cardona on Oct. 14, Kuby said.

“Deputy inspectors are there to make sure that patrol officers, who are younger and less experienced, don’t act like this,” Kuby said.

A police spokesman, Paul Browne, didn’t immediately reply to a message seeking comment on Stolar’s comments. Police Commissioner Ray Kelly said Oct. 7 that allegations against the police are under investigation by the department.

Five of the bridge protesters filed a civil rights complaint claiming police officers lured them onto the bridge’s roadway to trap and arrest them.

The protests have included an occupation of New York’s Zucotti Park and marches on the homes of individuals including JPMorgan Chase & Co. Chairman Jamie Dimon and News Corp.’s Rupert Murdoch.

Other Cities

On Oct. 15, a Saturday-night gathering in Times Square drew at least 6,000 people. The protests have been echoed in other U.S. cities as well as London, Tokyo, Hong Kong, Sydney and Toronto.

Protesters arrested have been accused of standing or sitting in the streets, overturning trash baskets and throwing bottles. At least one was detained after he allegedly knocked over a police scooter.

The Lawyers Guild is an organization of attorneys, legal workers, law students and “jailhouse lawyers,” it says on its website. “We represent progressive political movements, using the law to protect human rights above property interests and to attain social justice,” it says.

To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net; Chris Dolmetsch in New York at cdolmetsch@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.

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