Economic Calendar

Thursday, October 20, 2011

France and Germany Split on Crisis Solution

By Mark Deen - Oct 20, 2011 5:45 PM GMT+0700
Enlarge image Angela Merkel and Nicolas Sarkozy

Germany's chancellor Angela Merkel, left, speaks with France's president Nicolas Sarkozy. Photographer: Fabrice Dimier/Bloomberg

Oct. 20 (Bloomberg) -- A French-German split over Europe's rescue strategy emerged as finance ministers prepare to meet in Brussels tomorrow under pressure to craft a solution to the region's debt crisis. Owen Thomas and David Tweed report on Bloomberg Television's "Countdown." (Source: Bloomberg)

France and Germany wrangled over how to tackle Europe’s debt crisis a day before a finance ministers’ meeting in Brussels intended to set a common strategy on dealing with the turmoil.

With a summit of European leaders scheduled for two days later, a disagreement over the European Central Bank’s role in the rescue plan threatens to stymie progress on the banking and economic questions needed to deliver the comprehensive strategy demanded by global policy makers. Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt last night failed to resolve differences. “We are still meeting,” he said as he departed.

French President Nicolas Sarkozy, whose wife was reportedly giving birth to his first daughter, jetted into Frankfurt to meet with officials as they attended an event to honor outgoing ECB President Jean-Claude Trichet. Sarkozy, German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde left the event at the Frankfurt Opera House without commenting.

“Even with the current problems in the negotiations, we expect that there will be at the end a compromise,” economists including Juergen Michels at Citigroup Inc. in London said in an e-mailed note. “However, with the participants having still very divergent views, the outcome probably will not be a credible, comprehensive package.”

Euro Weakens

Stocks fell and Spanish and French bond yields rose on the split over Europe’s rescue strategy. The Stoxx Europe 600 Index fell 0.6 percent as of 12:14 p.m. in Paris, while the CAC 40 dropped 1 percent. The Spanish two-year note yield jumped six basis points, while the extra yield investors demand to hold French 10-year bonds instead of benchmark German bunds rose to a euro-era record.

French Prime Minister Francois Fillon stepped up calls for the 440 billion-euro ($608 billion) European Financial Stability Facility to be turned into a bank and given leverage by the ECB which, along with Germany, has rejected using its balance sheet to bolster the fund. Germany has endorsed enabling the EFSF to insure a portion of cash-strapped nations’ bond sales.

The EFSF “needs to be massive,” Fillon said in Paris.“The 440 billion euros need to be used with a leverage effect, a bit like a bank.”

French Finance Minister Francois Baroin also said the EFSF should be turned into a bank, though he noted the “reticence” of the ECB and the “German position.”

“For us it is and will remain the most effective position. The Americans do it, the British do it,” he said.

Primary-Market Purchases

Trichet has been a key part of Europe’s crisis-fighting effort, reluctantly pushing the ECB to buy bonds in the secondary market, a role it may be forced to keep under a revamped strategy.

Primary-market purchases by the enhanced EFSF generally should be limited to no more than 50 percent of the final issued amount, according to draft guidelines for the backstop from the European Commission, the European Central Bank and senior officials from the 17 euro-region nations, obtained by Bloomberg News. The EFSF should participate at the weighted average price of the auction, it said.

“That means that EFSF’s share is no larger than the share bought by the market,” the draft says. “It gives an incentive to the issuer to accept market bids, because for each million of accepted market bids the member state will receive an additional million from EFSF.”

‘Disconcerting’ Pace

Canadian Finance Minister Jim Flaherty said that European leaders’ slow pace toward a solution is “disconcerting,” while adding they have the “sense of urgency required.” The rescue fund isn’t sufficient to deal with the crisis and will need to be leveraged, he told reporters in Ottawa yesterday.

The disagreements among policy makers came as banks lobbied against forced recapitalization and deeper writedowns on Greek debt.

While Merkel this week sought to lower expectations that the crisis-fighting effort would climax at the Sunday summit in Brussels, Group of 20 finance chiefs last week set the meeting as a deadline. Failure risks a global economic slump, they said.

“Many expect to be underwhelmed at the weekend,” David Mackie, chief European economist at JPMorgan Chase & Co. (JPM), said in an interview. “If they haven’t settled the leverage issue, then the sense of being underwhelmed will be overwhelming.”


Policy makers are struggling to end a crisis that began in Greece two years ago this week. In Athens yesterday, protesters clashed with police outside Parliament before Prime Minister George Papandreou won a preliminary vote on a new austerity package. The final vote is scheduled for today.

The issues frustrating European authorities include how to write down of as much as 50 percent on Greek bonds, setting up a backstop for banks and finding a continued central bank role.

The world economy is facing the “threat of profound and traumatic disruption,” Norman Chan, chief executive of the Hong Kong Monetary Authority, said in a speech published on the de facto central bank’s website.

Also attending the event in Frankfurt last night were Mario Draghi, who replaces the retiring Trichet on Nov. 1, European Union President Herman van Rompuy and European Commission President Jose Barroso. Baroin and German finance minister Wolfgang Schaeuble were there as well. No statement was issued.

Van Rompuy praised Trichet for taking “unconventional” steps and not being beholden to dogma, while Barroso told reporters in Brussels that he was optimistic that an accord will be reached.

“Independence doesn’t mean detachment from political decision-making,” Van Rompuy said at the Trichet farewell ceremony. “Monetary policy cannot be conducted in a social and political void. The central bank’s independence is a right, but also entails duties.”

To contact the reporter on this story: Mark Deen in Paris at

To contact the editor responsible for this story: James Hertling at


Technical Signs Say Gold’s Fall May Continue

By Debarati Roy - Oct 20, 2011 6:00 AM GMT+0700
Enlarge image Gold Signaling Rebound From September Slump

Gold futures have more than doubled in the past three years. Photographer: Paul Taggart/Bloomberg

Gold prices, down 14 percent since touching a record in September, are poised for more losses, according to technical analysis by Steel Vine Investments LLC.

Bullion’s advance from the Sept. 26 low of $1,535 an ounce to a high of $1,696.80 on Oct. 17 created a so-called bear flag pattern where price movements resemble an inverted flag, according to Spencer Patton, the Chicago-based chief investment officer for Steel Vine.

The metal’s plunge from a record $1,923.70 on Sept. 6 to the low on Sept. 26 created the so-called flag pole. Losses in the past three sessions signal the completion of the pattern, and that prices will resume their decline, Patton said. Gold may drop to $1,550 by the first week of November, he said.

“The market has decisively broken out of this pattern,” Patton said in a telephone interview yesterday. “Gold looks weak in the near term.”

Yesterday, gold futures for December delivery fell 0.4 percent to settle at $1,647 on the Comex in New York. The precious metal has slumped 2.1 percent this week after retreating 11 percent last month, the most since October 2008.

The bear flag pattern is signaled after a break occurs below a rising trading range.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter for this story: Debarati Roy in New York at

To contact the editor responsible for this story: Steve Stroth at


European Stocks Drop as Leaders Split

By Corinne Gretler - Oct 20, 2011 6:00 PM GMT+0700

European stocks declined for the third time in four days as splits emerged among the region’s leaders on a plan to end the debt crisis. Asian shares fell while U.S. index futures advanced.

Actelion Ltd. (ATLN) sank the most in more than 18 months as Europe’s largest biotechnology company said it expects drug sales to decrease next year. Schneider Electric SA (SU), the world’s biggest maker of low- and medium-voltage equipment, slid 7.4 percent after trimming its 2011 profit target. Ericsson AB, the world’s largest maker of wireless network equipment, led technology shares higher as profit increased.

The benchmark Stoxx Europe 600 Index slid 0.3 percent to 235.98 at 11:59 a.m. in London. The measure has still rallied 9.8 percent from this year’s low on Sept. 22 amid speculation policy makers will find a resolution to Europe’s fiscal woes. The MSCI Asia Pacific Index tumbled 1.7 percent today, while Standard & Poor’s 500 Index futures climbed 0.6 percent.

“The markets demand a solution now,” said Ben Hauzenberger, a Zurich-based fund manager at Swisscanto Asset Management AG, which oversees $53 billion. “The current flight- to-quality behavior of investors shows just how little confidence they have.”

Crisis-Fighting Effort

Euro-area leaders are due to meet on Oct. 23, with disagreement over the European Central Bank’s role threatening to hinder progress on the banking and economic questions needed to deliver the comprehensive strategy demanded by policy makers. While German Chancellor Angela Merkel this week sought to lower expectations that the crisis-fighting effort would climax at the summit in Brussels, Group of 20 finance chiefs last week set the meeting as a deadline for action.

“Sunday will be a day of suspense,” Hauzenberger said. “Whether success will replace failure is unclear.”

French President Nicolas Sarkozy flew to Frankfurt for an impromptu meeting last night with Merkel, the ECB’s President Jean-Claude Trichet and International Monetary Fund Director Christine Lagarde. Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated the gathering failed to resolve differences. “We are still meeting,” he said as he departed.

“It appears that we might still be some miles away from a general agreement on that plan,” said Jean-Paul Jeckelmann, chief investment officer at Banque Bonhote & Cie. in Neuchatel, Switzerland, who helps manage $1.4 billion in equities. “It seems that going into the weekend, the odds are investors are placed for disappointment.”

EFSF Changes

Changes to the euro region’s revamped bailout fund may open the door to “massive” credit lines for countries like Italy and Spain, draft guidelines show. The European Financial Stability Facility may be able to offer loans worth up to 10 percent of a member states’ gross domestic product in precautionary aid “before they face difficulties raising funds” in bond markets, the draft shows.

The Federal Reserve’s Beige Book survey released late yesterday showed companies reported more doubt about the recovery even as the economy maintained its expansion last month. Many Fed districts described the pace of growth as “modest” or “slight” in September.

U.S. Labor Department figures today may show initial jobless claims decreased to 400,000 in the week ended Oct. 15 from 404,000 the previous week, according to the median estimate of 46 economists surveyed by Bloomberg News. A separate report will probably show sales of existing U.S. homes declined 2.5 percent to a 4.91 million annual rate, according to the median of 77 economists in a Bloomberg survey.

Actelion, Schneider

Actelion plunged 12 percent to 30 Swiss francs, the biggest slump since March 2010, after it said product sales will fall in the low- to mid-single digit range next year in local currencies. The company cited increased pricing pressure and competition in the U.S.

Schneider Electric tumbled 7.4 percent to 41.33 euros. The company trimmed its 2011 profit target for the second time in four months on rising labor costs in emerging economies and said it may cut job. Earnings before interest, taxes and amortization will probably account for about 14 percent of revenue this year, down from a July forecast of about 15 percent, it said.

Rio Tinto Group, the world’s second-largest mining company, slipped 2.1 percent to 3,073 pence as copper dropped for a fourth day in London trading. Kenmare Resources Plc (KMR) fell 2.7 percent to 43.4 euro cents while Kazakhmys Plc (KAZ) lost 1.8 percent to 859 pence.

Nexans Downgrade

Nexans SA (NEX), the second-biggest maker of cables, sank 3.3 percent to 44.97 euros after Goldman Sachs Group Inc. cut the stock to “sell” from “neutral.”

Ericsson pushed a gauge of technology shares higher, rising 7.3 percent to 70.25 kronor. The company said third-quarter net income climbed to 3.82 billion kronor ($573 million) from 3.68 billion kronor a year earlier. That topped the 3.66 billion- krona estimate of 21 analysts in a Bloomberg survey.

Logitech International SA (LOGN), the world’s biggest maker of computer mice, rallied 6.7 percent to 7.59 Swiss francs and Alcatel-Lucent rose 3 percent to 2.02 euros.

Nokia Oyj (NOK1V) soared 9.6 percent to 4.91 euros, the biggest gain in two months. The Finnish maker of mobile phones reported a smaller-than-estimated loss and forecast a profitable quarter for the handset business.

Akzo Advances

Akzo Nobel NV (AKZA) gained 3.1 percent to 35.98 euros. The world’s largest paintmaker said it plans an overhaul of household coatings businesses in the U.S. and Europe and other units to help cut costs and boost earnings by 500 million euros by 2014. The maker of Dulux and Glidden paints also said it will reorganize wood finishes and adhesive operations to strengthen its competitiveness.

Petropavlovsk Plc (POG), a Russian gold mining company, rallied 6.7 percent to 720 pence, the highest price in almost a month, after it said third-quarter output rose 65 percent after production increased at its Pioneer site. So-called attributable gold output climbed 228,100 ounces from 138,300 ounces a year earlier, the London-based company said. Petropavlovsk also reaffirmed its 600,000-ounce full-year forecast.

To contact the reporter on this story: Corinne Gretler in Zurich at

To contact the editor responsible for this story: Andrew Rummer at


Merkel Risks Own Downfall to Save Greece

By Leon Mangasarian - Oct 20, 2011 5:00 AM GMT+0700

German Chancellor Angela Merkel may be risking her 2013 bid for a third term with a bet on expanding the effort to save the euro.

Merkel may endorse policies unpopular with her Christian Democratic voters at an Oct. 23 European summit, bowing to world leaders including President Barack Obama to do more to stem the debt crisis that began in Greece and is now rattling core economies such as Italy and France.

“Merkel’s next step is to convince voters,” Giles Merritt, head of the Friends of Europe research group in Brussels, said in a telephone interview. “The German media have been hammering away in a tabloid manner on the idle Greeks and this has gone deep into the German psyche.”

Failure to make her case to the electorate means Merkel may face the political hara-kiri of her predecessor, Gerhard Schroeder. The Social Democrat alienated core supporters with his “Agenda 2010” package of tax and benefits cuts that subsequently fueled the German economy and still led to his downfall. Germany’s next election will probably be held in September 2013.

“This is very much an Agenda 2010 moment for Merkel, but it’s much bigger than what Schroeder faced,” Jan Techau, director of the Brussels-based European center of the Carnegie Endowment for International Peace, said in an interview.

Techau said that while the sluggish economy Schroeder confronted was easier to explain to voters, “it’s far harder for Merkel” to demystify the Greek and European banking crises.

“Merkel’s the target of public anger about Greece and the bailouts even though all other major German parties, including the opposition, back her on this,” Techau said.

German ‘Nein’

A total of 80 percent of Germans oppose making a personal financial contribution to help Greece, according to a Sept. 21 Forsa poll for Stern magazine. An Allensbach survey for the Frankfurter Allgemeine newspaper on Oct. 19 showed only 17 percent of Germans saying they trust the euro with 75 percent saying they don’t trust it.

The popularity of Merkel’s Christian Democratic Union bloc is suffering with the Allensbach poll putting it at 31 percent, almost neck-and-neck with the opposition Social Democrats at 30.5 percent. Merkel’s party won almost 34 percent in the 2009 election, compared with 23 percent for the defeated SPD. The poll, which didn’t give a margin of error, surveyed 1,869 people Oct. 4-16.

“The crisis in the euro zone is increasingly determining the fate” of Merkel’s government, said Renate Koecher, head of the Allensbach polling company.

“The CDU stands for European integration in the eyes of citizens,” Koecher wrote in the Frankfurter Allgemeine. “This makes European developments into a question of fate for the CDU/CSU more so than for any other party.” The CSU is the CDU’s Bavarian sister party.

East German Bailout

Germans have been bailing out failed states for two decades. The so-called Solidarity Surcharge, imposed in 1991 as a temporary tax to cover costs of rebuilding the failed East German communist economy after reunification, is still being collected. Last year it brought in 11.7 billion euros ($16 billion) and there are no plans to abolish it.

Germany’s share of European bailouts so far totals 211 billion euros in guarantees.

That may help explain Merkel’s go-slow approach to bailouts, says Carl Graf von Hohenthal, a management adviser at the Brunswick Group in Berlin.

State Election Defeat

Last year, she held out for weeks before bending to fellow European leaders to back the first Europe-led Greek aid package. She blamed her party’s May 2010 defeat in North Rhine- Westphalia, the country’s most populous state, on voter anger over the first Greek bailout.

Merkel, 57, dragged her feet again this year in the runup to a second Greek aid package, saying on May 10 that “first we need to hear what the status is; only then can I decide what, if anything, needs to be done.”

Her message has only changed in recent months after Italy and Spain, the third- and fourth-biggest euro economies, succumbed to the turmoil and required European Central Bank support through bond purchases.

“Schroeder lost his own parliamentary faction but Merkel has so far managed to keep hers,” Hohenthal said in an interview. “Merkel’s trying to buy time,” he said, adding that if her base abandons her, “a Merkel defeat in 2013 could happen.”

In 2003, Schroeder lowered taxes, reduced unemployment benefits and cut health-care services after two years of stagnation. German growth, however, remained sluggish at 0.7 percent in 2004 and 0.9 percent in 2005. It sped up to 3.6 percent in 2006, the year after his defeat.

Revolt Against Schroeder

Schroeder’s policies enraged some members of his own Social Democrats and led to a parliamentary revolt, Schroeder, 67, wrote in his memoirs. A wave of SPD members quit the party, including 80,000 who left in 2003 and 2004 before Schroeder’s defeat by Merkel in September 2005, according to Handelsblatt newspaper. The SPD had 498,616 members at the end of April, the most recent date for which party figures are available.

Merkel’s Christian Democratic bloc and Free Democratic coalition partner in parliament passed her bill on Sept. 29 expanding the euro-area rescue fund’s firepower. Her party enforcers are brutal with those who deviate. Chancellery chief of staff Ronald Pofalla was quoted by Der Spiegel magazine on Oct. 10 as publicly telling a CDU bailout opponent, Wolfgang Bosbach, “Every night I see your mug on television. I’m fed up with your mug. You’re making everybody crazy.”

Angry Voters

Yet Merkel’s ultimate problem may not be in parliament; it’s with voters who have punished her CDU and the FDP over their handling of the debt crisis.

Merkel’s party was either defeated or saw its share of the vote decline in elections held in seven of Germany’s 16 states this year. Voters ejected the FDP from five state parliaments. The SPD, the opposition in Berlin, is now in government in each of the seven states it contested. Merkel’s FDP ally is polling as low as 3 percent nationally, down from the 14.6 percent it won in the 2009 federal elections when it played a crucial role in her victory.

Merkel’s bloc has seen its share of the vote erode in German elections over the past three decades. CDU Chancellor Helmut Kohl won his first election in 1983 with almost 49 percent and three subsequent elections with as much as 44 percent before he was defeated in 1998 by Schroeder after getting 35 percent. Merkel won 33.8 percent in 2009.

CDU Membership Falls

The number of members in her CDU fell to 495,192 in September, down from almost 617,000 in 2000, party spokesman Jochen Blind said in an interview.

National polls over the past year have shown Merkel’s coalition would fail to win a majority and is trailing the SPD and Greens, which governed Germany under Schroeder from 1998 to 2005.

Techau said that Merkel is desperate to avoid “Schroeder’s all-or-nothing bid with his reforms” and that her “cautious, step-by-step approach and declarations that the euro sovereign debt crisis won’t be solved with a big bang” are aimed at being an “anti-Schroeder” to ensure survival.

Gary Smith, director of the American Academy in Berlin, a trans-Atlantic research institute, said that Merkel’s cautious approach to dealing with the crisis is “because she saw what happened to Schroeder.”

Merkel is holding back and “building majorities for things she knows are inevitable and unpopular, namely that Germany will have to pay more and give more sovereignty to Brussels,” Smith said in an interview.

To be sure, Smith said that while Merkel supporters may be “furious” at some of her policy moves, they will still vote for her “because they don’t want anyone else in power.”

“Merkel is the whipping boy now, but she also understands brinkmanship,” Smith said. “Things that were unthinkable a year ago are now being demanded, and Merkel understands that when she finally makes the right decision people will say that she was right.”

To contact the reporter on this story: Leon Mangasarian in Berlin at

To contact the editor responsible for this story: James Hertling at


Stocks Drop, Metals Decline on Europe Divisions; U.S. Futures, Oil Climb

By Stephen Kirkland - Oct 20, 2011 6:02 PM GMT+0700

Oct. 20 (Bloomberg) -- Kirk Hartman, the Los Angeles-based chief investment officer for Wells Capital Management, talks about his investment strategy. Hartman also discusses Europe's sovereign debt crisis and the global economy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Stocks fell and metals declined as a split emerged among European leaders on a rescue plan and the Federal Reserve said companies grew more pessimistic about the U.S. economy. Standard & Poor’s 500 Index futures rose, while Spanish bonds retreated.

The MSCI All-Country World Index slipped 0.5 percent at 7 a.m. in New York. The Stoxx Europe 600 Index retreated 0.3 percent, after declining 1.5 percent. S&P 500 futures advanced 0.6 percent. The euro strengthened 0.4 percent, reversing earlier losses. The Spanish two-year note yield jumped nine basis points. Copper, zinc and tin slid more than 2 percent.

Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt yesterday failed to resolve differences ahead of a summit scheduled for this weekend. The Fed’s Beige Book survey released yesterday showed companies reported more doubt about the recovery even as the economy maintained its expansion last month.

“Time is running out,” Gary Jenkins, head of fixed income at Evolution Securities in London, said in a report. “I hate to think what the market will be like next week if there is a complete lack of clarity or agreement from the European Union this weekend.”

Paring Losses

Stocks pared losses and the euro rebounded after European Commission President Jose Barroso expressed optimism that euro- area leaders will reach agreement this weekend. Draft guidelines of an EU working paper obtained by Bloomberg indicated the European Financial Stability Facility would provide loans to national governments that in turn would inject the capital into lenders deemed to pose systemic risk.

Two shares declined for every one that gained on the Stoxx 600. Schneider Electric SA (SU), the world’s biggest maker of low-and medium-voltage equipment, plunged 7.4 percent after trimming its 2011 profit target for the second time in four months. Actelion Ltd. (ATLN) sank 12 percent as Europe’s largest biotechnology company said it expects drug sales to decrease next year.

Nokia Oyj climbed 11 percent after reporting a smaller- than-estimated loss and forecasting the handset business to be profitable this quarter.

The gain in S&P 500 futures indicated the U.S. gauge may pare yesterday’s drop. EBay Inc. fell 3.4 percent in German trading after the largest online marketplace forecast sales and profit that missed some analysts’ estimates.

Seventy percent of the 66 companies in the index that have reported earnings since Oct. 11 have beaten analysts’ profit estimates, Bloomberg data show. Microsoft Corp., the world’s largest software maker, and AT&T Inc. are among 32 members of the S&P 500 due to release results today.

‘Modest’ Growth

The Beige Book said many Fed districts described the pace of growth as “modest” or “slight” in September, even though overall economic activity continued to expand. Data today may show initial jobless claims eased to 400,000 in the week ended Oct. 15 from 404,000 previously, while a gauge of leading indicators grew at a slower pace.

The yield on the Spanish 10-year bond rose seven basis points as Spain sold 3.91 billion euros ($5.37 billion) of 10- year bonds and notes maturing in 2017 and 2019, compared with the Treasury’s maximum target for the sale of 4.25 billion euros, data from the Bank of Spain showed.

French Auction

The French two-year yield rose three basis points after the government auctioned 4.26 billion euros of two- and five-year notes. The yield on the Greek 6.25 percent bond maturing in June 2020 increased nine basis points.

The euro gained 0.4 percent against the yen. New Zealand’s dollar rose against all 16 major peers, advancing 0.6 percent versus the U.S. currency and 0.7 percent against the yen. The Dollar Index lost 0.4 percent.

Copper fell 3 percent, after sinking 4.4 percent in the previous three days. Zinc declined 2.8 percent and tin slipped 2.4 percent. Oil rose 0.5 percent to $86.50 a barrel.

The MSCI Emerging Markets Index retreated 1.9 percent, the biggest decline on a closing basis in more than two weeks. The Shanghai Composite Index slumped 1.9 percent to a 31-month low on concern China may persist with policies to rein in lending. Risks stemming from private lending must be “strictly controlled,” China’s banking regulator said.

China Southern Airlines Co. led losses for carriers after China Business News said the aviation regulator reduced its estimates for passenger volume growth.

Thailand’s SET Index lost 3.1 percent as the central bank said it will cut its economic growth forecast as the worst floods in 50 years threaten to keep factories closed for months. South Korea’s Kospi Index (KOSPI) declined 2.7 percent and benchmark gauges in Poland, Turkey, Thailand and Taiwan fell at least 1 percent.

To contact the reporter on this story: Stephen Kirkland in London at

To contact the editor responsible for this story: Stuart Wallace at


Apple’s IOS 5 More Catch-Up Than Forge-Ahead: Rich Jaroslovsky

By Rich Jaroslovsky - Oct 20, 2011 3:00 AM GMT+0700
Bloomberg Opinion
Enlarge image iPhone 4S

The Apple iPhone 4S. iOS 5 is the latest version of the operating system that runs every iPhone, iPad and iPod touch. Source: Apple via Bloomberg

Oct. 20 (Blooomberg) -- Bloomberg's Rich Jaroslovsky reviews Apple Inc.'s iOS 5, the latest version of the operating system that runs every iPhone, iPad and iPod touch. (Source: Bloomberg)

As impressive as it was for Apple Inc. (AAPL) to sell four million new iPhones last week, millions more users will be affected by another release: iOS 5, the latest version of the operating system that runs every iPhone, iPad and iPod touch.

I’ve been testing the software and a lot of its claimed 200 new features for a couple of weeks and find it generally impressive. But unlike the iPhone 4S, with its breakthrough Siri voice-based personal assistant, iOS 5 feels more catch-up than forge-ahead.

Many of the new features -- secure texting, tabbed Web browsing, pull-down notifications -- may already be familiar to users of devices running Google Inc. (GOOG)’s Android software, Microsoft Corp. (MSFT)’s Windows Phone 7 and Research In Motion Ltd. (RIM)’s BlackBerry. As usual, Apple’s contribution is to polish the concepts, making them seamless and painless.

That doesn’t necessarily extend to setting up iOS 5, which wasn’t as smooth as it should have been. When I updated my iPad 2, my Mac continued to display a “Restoring iPad apps” message long after the iPad itself was telling me that everything had already been installed.

At the end of the process, I was presented on my Mac with an obscure, Windows-worthy error message. The new software finally appeared on the iPad, more than an hour from when I started. After that, things got a lot better.

Demoting the Computer

The importance of iOS 5 is the way it reduces the personal computer’s role as hub for all your digital devices, the vital middleman for transferring and synchronizing information. Now, it’s just one more spoke on the wheel, while the hub becomes iOS 5’s new iCloud feature.

ICloud automatically stores your content and data on Apple’s remote servers, where they are accessible by all your enrolled devices. Take pictures with your iPhone and a new feature called Photo Stream will automatically push them up to the cloud, then down to your iPad, where they will pop up almost immediately. Documents, apps, media and contacts work the same way.

The iCloud service is free and replaces Apple’s paid, problematic MobileMe. You get five gigabytes of online storage free, and can buy more; photos as well as content purchased from Apple’s iTunes Store and App Store don’t count against your storage limit.


In my testing, iCloud generally performed well, and it was liberating to be cut loose from the computer. When I took a photo I liked, I no longer had to e-mail it to myself or rush back to sync devices and ensure that I had a fail-safe copy.

About the only downer was the difficulty I had migrating my existing MobileMe account to iCloud; even days after the launch of iOS 5, I continued to run into a “please try again later” message, blaming the volume of requests. I didn’t think MobileMe was that popular.

Among the other new features of iOS 5, a couple stand out. One is iMessage, which allows you to directly text other iOS 5 users. For those using an iPhone, the service is fully integrated with the device’s existing text app. And iMessages don’t count against any message limits in your wireless-phone plan. In addition, iPad and iPod touch users also can use those devices to text iPhones and each other.

Integrated Tweeting

Then there’s the Notification Center: Swipe your finger down from the top of any screen, and a windowshade-like overlay displays your alerts and reminders. And Twitter users will appreciate the ability to tweet directly from within Safari as well as the camera, photo, YouTube and map apps.

One thing I couldn’t try was iTunes Match, which the company says will launch later this month. For $25 a year, Apple will scan your entire music library, looking for tunes you might have ripped yourself from a CD or downloaded from some source other than iTunes. If Apple has the same song, you’ll get access to it on all your devices via iCloud; if not, it will upload your copy of the tune and give you full access to it.

Though it isn’t being billed this way, the service is essentially offering absolution -- at a nominal cost -- to people who have illegally downloaded music. And they’ll get access to Apple’s high-quality versions even if their originals were of lower quality. It’s a way to gain a benefit and assuage a guilty conscience at the same time.

(Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Rich Jaroslovsky in San Francisco at

To contact the editor responsible for this story: Manuela Hoelterhoff at


Japan Fund to Handle Yen’s Advance to Rise to $130 Billion, Document Says

By Takashi Hirokawa and Sachiko Sakamaki - Oct 20, 2011 12:16 PM GMT+0700

Japan will increase a fund to help companies cope with a surging yen by about 25 percent to 10 trillion yen ($130 billion), according to a document obtained from a ruling Democratic Party of Japan official.

The government will increase from 8 trillion yen the foreign-exchange reserves being shifted to the state-run Japan Bank for International Cooperation to aid exporters and spur acquisitions overseas. The cabinet is scheduled to agree on the plan at a meeting tomorrow, according to the document.

The yen’s rise to a record high of 75.95 to the dollar on Aug. 19 prompted the government to adopt a two-pronged approach to currency policy. In addition to continuing to threaten intervention, Japanese authorities have been highlighting the benefits of the strong yen. Cheaper overseas acquisitions aid a nation that imports about 80 percent of its energy needs.

The plan could be “very effective” in encouraging overseas investments, said Minori Uchida, a senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. “Japan’s companies are struggling under the most severe environment ever at the moment.”

The yen strengthened 0.1 percent to 76.76 against the dollar at 1:28 p.m. in Tokyo. The Japanese currency has risen 5.8 percent versus the dollar year to date.

‘Bold’ Management

In addition to the increase in reserves, which was agreed upon by the ruling DPJ today, the document also calls for the Bank of Japan to use “appropriate and bold monetary policy management” of the yen in close coordination with the government.

The government will continue to fight to prevent what it perceives to be the recent one-way rise in the yen, according to the document. “Excessive fluctuations in the currency market can have an adverse impact on the economy and financial markets, so we will continue to monitor the situation closely and rule nothing out, taking bold steps as needed,” the document said.

Former Japanese Finance Ministry official Eisuke Sakakibara said yesterday at a conference in Tokyo that Japan’s currency may gain past 100 per euro and strengthen to the low 70s versus the greenback. Japan may intervene to weaken the yen, though such efforts will only be successful if coordinated with other nations, he said.

‘Mr. Yen’

Sakakibara became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance for his efforts to influence the yen rate through verbal and actual intervention in the currency markets.

“The Japanese economy is still suffering from deflation and it’s important to prevent a vicious cycle of a strong yen intensifying deflation and deflation strengthening the yen,” according to the 13-page document. Japan should make the “most of the merits” of the strong yen by pursuing oil and natural gas as well as rare-earth assets overseas, it said.

The document said the government will also establish five special economic zones, where companies will get special benefits and tax breaks to help them compete internationally, by the end of the year. The cabinet tomorrow will also detail a fund to help encourage the use of alternative-energy sources such as solar energy and fuel cells, the document said.

To contact the reporters on this story: Takashi Hirokawa in Tokyo at; Sachiko Sakamaki in Tokyo at

To contact the editor responsible for this story: Peter Hirschberg at


Ericsson Beats Estimates on China, Latin America

By Diana ben-Aaron - Oct 20, 2011 12:58 PM GMT+0700

Oct. 20 (Bloomberg) -- Sandy Shen, an analyst at research firm Gartner Inc., talks about the outlook for China Mobile Ltd. and the nation's telecommunications industry. Shen speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Ericsson AB, the world’s largest maker of wireless networks, reported third-quarter profit that beat analyst estimates as phone companies in Latin America and China increased spending.

Net income climbed to 3.82 billion kronor ($573 million) from 3.68 billion kronor a year earlier, Stockholm-based Ericsson said today in a statement. Analysts had predicted profit of 3.66 billion kronor, the average of 21 estimates compiled by Bloomberg. Sales rose 17 percent, also topping estimates.

North American carriers such as AT&T Inc. and Verizon Communications Inc. spent less than before to fortify their networks for increasing numbers of smartphone and tablet users, while those in other regions stepped up their additions of capacity. Ericsson increased its proportion of network modernization projects in Europe, which have smaller margins than new buildout.

“Our performance year-to-date reaffirms our indications of a strengthened global market share,” Chief Executive Officer Hans Vestberg said in the statement. Sales were driven by services as well as demand for mobile broadband, he said.

Third-quarter revenue reached 55.5 billion kronor, beating the 52.6 billion-kronor average estimate of 30 analysts.

Global sales of wireless infrastructure equipment are expected to reach $41.3 billion this year, rising to $48 billion in 2015, market researcher Gartner Inc. said. Ericsson was the market leader in the second quarter with a share of about 40 percent, according to researcher Dell’Oro Group.

Nokia Siemens Networks and Huawei Technologies Co. compete with Ericsson for sales and maintenance of stations used by third-generation, or 3G, mobile-broadband networks and contracts for newer fourth-generation networks.

Ericsson’s contract wins in the quarter included a five- year managed services agreement with Bharti Airtel in Africa. The company also announced it will open a fourth global network operations center in China, where it has taken over field maintenance for China Mobile in one local province.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at

To contact the editor responsible for this story: Kenneth Wong at


Crude Declines a Second Day on Europe Debt Outlook; Brent Premium Widens

By Ben Sharples - Oct 20, 2011 1:34 PM GMT+0700

Oil dropped a second day as Europe struggled to tame its debt crisis and the Federal Reserve said companies were increasingly pessimistic about the U.S. economy, stoking speculation commodities demand may falter. Brent’s premium to New York prices widened.

December futures fell as much as 1 percent, extending yesterday’s 2.5 percent slump. U.S. fuel use declined 2.2 percent to the lowest since May last week while crude stockpiles shrank, the Energy Department said. A French-German split over Europe’s rescue strategy emerged as finance ministers prepare to meet and the Fed said yesterday that U.S. companies reported more doubt about the strength of the nation’s recovery.

“The market rejected the sizable draw in inventories and decided to focus on what’s happening with Germany and France,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney. “The disagreement put the cat among the pigeons. Economic growth will be hurt even further because there’s no resolution out of Europe.”

Crude oil for December delivery, the most actively traded contract, slipped as much 88 cents to $85.41 a barrel and was at $85.93, in electronic trading on the New York Mercantile Exchange at 2:25 p.m. Singapore time. The contract yesterday fell $2.24 to $86.29, the lowest since Oct. 13. November futures, which expire today, were at $85.65.

Brent oil for December settlement was at $108.13 a barrel, down 26 cents, on the London-based ICE Futures Europe exchange. That pushed the spread between the December Brent and Nymex crude contracts to $22.29, compared with $22.10 yesterday and a record high of $27.88 on Oct. 14.

Fuel Demand

U.S. fuel use fell 2.2 percent to 18.3 million barrels a day last week, the least since May, the Energy Department said yesterday in its weekly report. Crude stockpiles dropped 4.73 million barrels to 332.9 million. They were forecast to rise 2 million, according to the median of 13 analyst estimates in a Bloomberg News survey.

Gasoline inventories declined 3.32 million to 206.3 million. They were forecast to slide 1.5 million, according to the survey. Supplies of distillate fuel, a category that includes oil and diesel, decreased 4.27 million barrels compared with an estimate for a 1.5 million decline.

Oil prices have dropped 6.2 percent in New York this year amid concern that the faltering U.S. economy and Europe’s debt crisis will curb raw material demand. Luxembourg Prime Minister Jean-Claude Juncker, who chairs a group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt last night failed to resolve differences over the region’s rescue plan.

To contact the reporter on this story: Ben Sharples in Melbourne at

To contact the editor responsible for this story: Alexander Kwiatkowski at


Longest Bonds Sold Since 1984 Reap Record A$3.25 Billion: Australia Credit

By Candice Zachariahs - Oct 20, 2011 1:38 PM GMT+0700

Australia sold its longest-maturity government bond since 1984 with investors purchasing more than twice as much as in any previous offering and the government locked in yields at about a 2 1/2-year low.

The A$3.25 billion ($3.3 billion) of bonds sold was the largest amount on record, data from the Australian Office of Financial Management showed and excluded A$10 million taken up by the Reserve Bank. The 4.75 percent note maturing April 21, 2027, was priced to yield 4.88 percent, the AOFM said today in a statement. Similar U.S. Treasuries yield 2.7 percent.

“In our experience, when bonds get above A$3 billion they no longer have an issue premium where they stay cheap for a little while,” said Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney. “Clearly there’s been good demand for the issue.”

While Australian 10-year yields have risen about half a percentage point since Oct. 4, they are still more than a percentage point below the past decade’s average of 5.52 percent, as investors including life insurers seek longer- maturity debt to match investments to future obligations. Investors are demanding higher payments as Australia’s economy shows signs of strengthening.

Syndicated Sale

The 2027 bond is the first non-indexed security to be sold through a group of banks rather than at auction, the Canberra- based AOFM said yesterday. There will be no further issuance of the bond until at least February 2012, it said.

Citigroup Inc., Deutsche Bank AG and UBS AG managed the offering, while Australia and New Zealand Banking Group Ltd., Commonwealth Bank and Westpac assisted them, the AOFM said.

“The sale received some very strong support, predominantly from domestic accounts, with a good mix of investor type,” said James Arnold, Sydney-based director of capital markets origination at Citigroup.

The 2027 note is the only sovereign security to yield more than the Reserve Bank of Australia’s 4.75 percent benchmark rate, the developed world’s highest. All securities out to the 2023 note, which was yielding 4.57 percent today, have had rates less than the benchmark since Aug. 9.

Australian government debt lost 0.8 percent this month, paring the gains that made the securities the best performers among advanced economies in the 12 months ended Sept. 30. The bonds returned 9.6 percent over the past four quarters, surpassing all 25 other markets tracked by Bloomberg/EFFAS indexes.

Foreign Demand

“Yields in the Australian market have risen quite a lot in October and the cheapening up in price is something that will make it easier to attract foreign demand,” Adam Donaldson, head of debt research at Commonwealth Bank of Australia, the nation’s largest lender, said yesterday. “The challenge for an issuer at the moment is that the investor base is wary of bonds being too expensive.”

Investors including life insurance companies, both in Australia and overseas, will have an “appetite” for bonds of longer maturities, Donaldson said. The debt may also lure money managers seeking alternatives to U.S. Treasuries, he said. Australian 10-year notes yield 2.28 percentage points more than U.S. government notes of similar maturity, up from the low this year of 1.92 percentage points in August.

Offshore investors held 75 percent of Australia’s bonds as of June 30, data from the central bank and statistics bureau show. Turnover in government bonds from overseas central banks rose to more than A$56 billion in the 12 months ended June 30, from A$5.8 billion two years earlier, the 2011 Australian Financial Markets Report showed Oct. 5.

Long-Term Investors

“Long-term investors will welcome” the Australian bond, said Hideo Shimomura, who helps oversee the equivalent of $78.2 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s biggest publicly traded bank. “It offers investors a chance to lock in a longer-term investment and will help the government compete with the U.S., Germany and Japan for funds.”

Shimomura, who spoke before the sale, said he would consider buying the security once it starts trading in the secondary market.

The U.S.’s longest bond matures in August 2041, while Germany has a July 2042 security and Japan has a March 2051 issue.

Corporate Benchmark

The new bond will help to create a long-term pricing benchmark for the corporate bond market and groups looking to issue long-term infrastructure bonds, Australia’s Treasury said in a statement yesterday. It will also provide a safe investment for annuities, according to the statement.

Corporate bond risk rose today as a Franco-German split on the role of the European Central Bank in leveraging the euro bailout fund emerged yesterday. Luxembourg Prime Minister Jean- Claude Juncker, who chairs the group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt last night failed to resolve differences.

The Markit iTraxx Australia index increased 4.5 basis points to 187.5 basis points as of 11:55 a.m. in Sydney, according to Deutsche Bank AG. That’s on course for the biggest daily gain since Oct. 4, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

1984 Sale

The December 1984 sale of A$251 million of 13 percent securities that matured Dec. 15, 2000, had a weighted average yield of 13.59 percent at issue, AOFM data show. Investors on average bid for 2.37 times the amount of bonds offered.

The so-called bid-to-cover ratio declined to 2.79 at the most-recent sale of 2023 bonds on Aug. 3, from 3.44 at the previous auction on July 13, according to the AOFM.

Benchmark 10-year government bond yields were at 4.43 percent after falling below 4 percent on Oct. 4, the least since January 2009. The rate has risen 21 basis points since Sept. 30, threatening to snap a record stretch of monthly declines.

Yields have fallen for nine straight months, the longest stretch since at least 1978, amid signs Australia’s economy can withstand turmoil in Europe as China continues to demand its commodities including iron ore and coal.

The Australian dollar, the world’s fifth-most traded currency, traded at $1.0174 at 5:30 p.m. in Sydney and reached $1.1081 on July 27, the strongest since it was freely floated in 1983.

Trade, Unemployment

The nation’s exports surged to A$28.4 billion in August on coal shipments, and the A$3.1 billion trade surplus was the second-widest on record, the Bureau of Statistics said Oct. 4. The unemployment rate declined last month for the first time since March as employers added double the workers economists forecast, a report showed Oct. 13.

Futures contracts showed bets the cash rate will be at 4.32 percent by December in trading today, after they indicated 4.35 percent on Oct. 17, the highest expectation since Aug. 2. They signaled rates as low as 3.47 percent on Aug. 9.

The gap between yields on Australian government bonds and inflation-indexed notes shows investors estimate consumer prices will rise an average of 2.48 percent for the next five years. The lowest estimate this year was 2.37 percent on Oct. 4.

“Longer-dated bonds would be particularly attractive to overseas investors both for outright yield and the fact that these bonds would line up with other developed markets such as the U.S. and U.K. for people with longer-dated liabilities,” Tony Morriss, head of interest-rates research in Sydney at ANZ Bank, said yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at

To contact the editor responsible for this story: Rocky Swift at


Papandreou Faces Austerity Vote Amid Unrest

By Paul Tugwell and Marcus Bensasson - Oct 20, 2011 4:00 AM GMT+0700

Greek Prime Minister George Papandreou is set to risk further social unrest over a new round of austerity measures that he needs to convince euro-area leaders that Greece will hold to its bailout program.

Papandreou secured the support of all 154 of his lawmakers in the 300-seat parliament in a preliminary vote in Athens late yesterday, setting up a final vote on the bill today that tests his party’s unity for a second time in 24 hours. The package comprises tax rises, cuts to pensions and wages and plans to dismiss 30,000 state workers, plus provisions to break the collective pay-bargaining power of Greek unions.

“The issue is how to avoid default and in my view it is absolutely doable,” Stefanos Manos, a former Greek finance minister, said in an interview with Bloomberg Television. “But it requires some very tough decisions right away.”

The measures, the second in four months, are needed to help Papandreou’s government meet budget targets that are a precondition for more outside aid and any reduction in Greece’s debt load to be discussed by European leaders at an Oct. 23 summit. Passage of the package risks further enraging workers and unions preparing for a second day of protests that have closed government offices, hospitals and schools and led to clashes with police in central Athens.

Parliament’s show of support for the package means “there will be even more people in the streets,” Kostas Ziogas, an official for the Communist Party of Greece-backed PAME union, said in an interview with private Alter television. “Workers shouldn’t fear the threats made by the government and the troika over what will happen if the measures aren’t passed.”

Cabinet Talks

Papandreou will chair a meeting of his Cabinet at midday today Athens time to brief his ministers on “current economic developments” ahead of the European Union summit that aims to announce a wider plan to stamp out the debt crisis.

The voting took place as Chancellor Angela Merkel, President Nicolas Sarkozy and other euro-area leaders took advantage of an event in Frankfurt yesterday marking the conclusion of Jean-Claude Trichet’s term as head of the European Central Bank to try to narrow their divisions before the summit.

EU leaders are due to receive the latest report on Greece’s finances by the troika of inspectors from the ECB, the European Commission and International Monetary Fund.

“Without the measures, the 2011 budget won’t be met, neither will the budget in 2012,” Greek Finance Minister Evangelos Venizelos told lawmakers before the vote in comments broadcast live, as groups of hooded protesters in gas masks lobbed Molotov cocktails at the riot police outside. “We are giving the battle of battles up to Sunday evening.”

Running Battles

The vote capped a day of protests against the government cuts across Greece yesterday that descended into running battles outside parliament on the capital’s Syntagma Square between police firing tear gas and demonstrators hurling marble rocks ripped from surrounding walls and buildings.

About 70,000 people gathered in Athens for the first day of a 48-hour strike in one of the biggest protests yet against Papandreou’s program of cost-cutting and tax rises, according to police. They said 50 officers were injured in the square and they had reports of 3 civilians hospitalized in the clashes. Twenty-eight people were detained for attacks on police and another five arrested.

Public-Sector Anger

Two years after the debt crisis came to light in Greece, Papandreou is courting social unrest that risks boiling over as he pushes through additional austerity. The steps, which are needed to continue receiving outside support under a 110 billion-euro ($152 billion) bailout agreed last year, have provoked a wave of strikes by public-sector employees who constitute about 17 percent of Greece’s total workforce.

Drawing particular fire from unions and some members of Papandreou’s own party is an aspect of the legislation known as Article 37, which suspends the power of unions to impose wages and work rules through collective labor agreements. One Pasok deputy has said she’ll vote against the article if it isn’t changed.

GSEE, Greece’s biggest private-sector union, said that strike participation was 100 percent at refiners, shipyards, on transport, ships and at ports, and 90 percent in the construction industry, commerce, banks, the power company, phone company, postal service and water companies. Municipal garbage collection workers were ordered back to work two days ago by an executive decree to clear more than a week’s worth of refuse piled up in the streets.

‘Held Hostage’

Introducing the bill, Papandreou said that Greece was being “held hostage by strikes and protests.” With a four-seat parliament majority, he is banking on his Pasok party to face down the public anger and pass the bill in today’s vote.

Successive rounds of tax increases and cuts to wages and pensions have deepened a recession now in its fourth year, with the economy set to contract 5.5 percent this year and 2.5 percent next, according to the 2012 budget. The unemployment rate reached 16.5 percent in July, data released Oct. 18 by the Hellenic Statistical Authority showed.

“If Greece can dramatically reduce its debt burden and interest payments, that may well mean that it needs to implement slightly less austerity in the near term,” Ben May, an economist at Capital Economics Ltd. in London, said in a Bloomberg Television interview. “It certainly won’t solve all of Greece’s problems and it will have to continue to reduce its deficit over time, but it might make that process a bit more manageable and less painful.”

To contact the reporters on this story: Marcus Bensasson in Athens at; Paul Tugwell in Athens at

To contact the editor responsible for this story: Tim Quinson at


Yahoo Not Necessarily for Sale: Yang

By Mark Lee and Tim Culpan - Oct 20, 2011 9:12 AM GMT+0700

Yahoo! Inc., the U.S. Web portal exploring strategic options after firing Chief Executive Officer Carol Bartz last month, isn’t necessarily up for sale, co- founder Jerry Yang said.

“The intent going in is not to put ourselves up for sale,” Yang said at the All Things Digital Asia conference in Hong Kong today. “The intent is to look at all options. There’s plenty of options for the board, and plenty of options for our shareholders to realize value.”

The comments come after Jack Ma, chief executive officer of Alibaba Group Holding Ltd., China’s biggest e-commerce company, said last month he is “very interested” in Yahoo and has held discussions with the company. Yahoo ousted Bartz after the Web portal failed to keep pace with growth at Google Inc. (GOOG) and Facebook Inc. Since then “multiple parties” have expressed interest in the company, according to a memo last month by Yang.

When Yang was chief executive officer of the Sunnyvale, California-based company in 2008, Yahoo spurned a $47.5 billion offer by Microsoft Corp. (MSFT) Yahoo now has a market capitalization of $20 billion.

The U.S. Internet company has “plenty of options” and its board is “excited” about the ongoing review, Yang said today.

Crowded Field

Yahoo has drawn an increasingly crowded field of potential bidders for the company. KKR & Co. and Blackstone Group LP are among the private-equity firms considering possible bids for Yahoo, according to people with knowledge of the matter.

In addition, Alibaba Group, whose biggest shareholder is Yahoo, has discussed a plan with Silver Lake and Russia’s Digital Sky Technologies to make a joint bid, people familiar with the matter have said. Another group that is interested in a possible offer includes Providence Equity Partners Inc. and former News Corp. executive Peter Chernin, people said.

Yahoo’s collaboration with Alibaba is continuing and that remains unaffected by the strategic review, Yahoo Asia Managing Director Rose Tsou said at the same event in Hong Kong.

“The board is actively looking at the full range of options available to return the company to a path of robust growth and industry-leading innovation,” interim CEO Tim Morse said on a conference call earlier this week.

Yahoo recently agreed to extend a revenue-per-search agreement with Microsoft in the U.S. and Canada through 2013. The accord had been set to run out in the first quarter of next year.

Microsoft may have concerns about its search-engine partnership, Yang said today. The alliance “may not have gone the way they wanted,” Yang said without elaborating.

To contact the reporters on this story: Mark Lee in Hong Kong at; Tim Culpan in Taipei at


Battered Olympus Seen Luring Bidders

By Naoko Fujimura and Mariko Yasu - Oct 20, 2011 9:41 AM GMT+0700

Olympus Corp. (7733) is so battered after ousting its first non-Japanese president that potential acquirers could snap up the entire company for 37 percent less than the value of its medical-equipment business alone.

The Tokyo-based maker of endoscopes and cameras plunged 44 percent, the biggest drop in at least 37 years, since President Michael C. Woodford was fired by the board last week after calling for a probe of company payments made to advisers. The slump left Olympus with a market capitalization of $4.9 billion yesterday, $2.9 billion less than the value of its medical unit, according to data compiled by Bloomberg and BGC Partners Inc.

While Olympus owes more money than 98 percent of Japan’s biggest companies versus common equity and camera revenue tumbled in the past three years, it still sells three times as many endoscopes as all its competitors combined, data compiled by Bloomberg show. Further declines in the stock may now attract medical-product rivals from Hoya Corp. (7741) to Johnson & Johnson (JNJ), BGC Partners and Atlantis Investment Research Corp. said.

“The endoscope business is the jewel for Olympus,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which manages about $28 billion in assets. “The company is attractive to many companies who want to start or expand their medical-equipment business.”

Yoshiaki Yamada, a spokesman for Olympus, declined to comment on whether it has been approached by potential bidders or is considering spinning off its medical devices unit.


Founded in 1919 as a microscope and thermometer business, Olympus produced its first camera in 1936 and its first “gastrocamera,” a predecessor to the modern-day endoscope, in 1950, according to the company’s website.

Worth about $12 billion four years ago, Olympus lost almost $4 billion of its market value in the past four days after Woodford was fired and a PricewaterhouseCoopers report that he commissioned said the company may face regulatory and legal scrutiny because of payments made to advisers in the acquisition of Gyrus Group Plc in 2008.

Potential offenses may include false accounting, financial assistance and breaches of duties by the board, according to an Oct. 11 report that Woodford provided to Bloomberg News.

Olympus, which said the report included “assumptions” and “speculation” and is misleading, dismissed the 51-year-old British citizen because he bypassed unit managers to give orders directly to employees and “wouldn’t listen,” according to 70- year-old Chairman Tsuyoshi Kikukawa.

Endoscope Demand

Olympus said yesterday it paid $687 million in fees to advisers for its $2 billion purchase of Gyrus, almost double the 30 billion yen ($391 million) Kikukawa disclosed a day earlier.

Shares of Olympus, valued at 2,482 yen before Woodford was fired, ended yesterday at 1,389 yen. The shares dropped another 3.5 percent to 1,340 yen as of 11:00 a.m. local time today. The swoon is creating an opportunity for companies that may have already been interested in pursuing Olympus for its medical business, according to Yukihiro Goto, a Tokyo-based analyst for Macquarie Group Ltd.

While sales at Olympus’s camera unit have fallen by almost 50 percent in the last five fiscal years, revenue from medical equipment has climbed almost a third in the same span, according to data compiled by Bloomberg.

The medical unit is now Olympus’s biggest business with 75 percent of the global endoscope market. Endoscopes are instruments that doctors use to look inside the body cavity and can help detect diseases such as colorectal cancer.

“Olympus is the company that practically started the endoscope market,” Macquarie’s Goto said. “It’s not a market where a user would switch between products just because something is cheaper or just because someone else has a brand power in another product category.”

Relative Value

The division, more profitable than any other unit with an operating margin of 19.5 percent, may be worth $7.8 billion, according to Amir Anvarzadeh, Singapore-based manager for Asian equity sales at BGC Partners.

Applying the price-sales ratio of 1.8 times for Hoya, the world’s second-largest endoscope maker, would value Olympus’s medical unit at $8.3 billion, data compiled by Bloomberg show.

A group of five companies that Macquarie’s Goto identifies as “global medical device makers with a focus on endoscope,” including Covidien Plc (COV), Boston Scientific Corp. (BSX), and Smith & Nephew Plc (SN/), trade at a median of 2.01 times sales, according to Bloomberg data. At that valuation the medical equipment business would be worth $9.3 billion.

While there is a chance Olympus will be delisted, “the more likely scenario is for Olympus to be bought out by another firm,” Anvarzadeh wrote in an e-mail to clients yesterday.

Yuuki Sakurai, Tokyo-based president at Fukoku Capital Management, says bidders may be reluctant to approach Olympus because of its dispute with its former president and potential accounting irregularities.


“I don’t think anyone dares to touch the company for the moment,” he said. “You cannot invest carelessly in a company where corporate governance seems dysfunctional. Yes, the stock has tumbled, but is it really cheap?”

Any buyer would have to absorb Olympus’s $5.7 billion in net debt. A takeover would then cost at least $10.6 billion, equal to about 7 times analysts’ estimates for next year’s earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg.

A deal that values Olympus’s equity at $7.8 billion, or what BGC Partners says the medical-equipment unit is worth, would then amount to 9.1 times Ebitda, the data show.

Still, that’s lower than the 15.4 times multiple that Tokyo-based Hoya agreed to spend on Pentax Corp., another Tokyo- based camera maker that produced endoscopes, in December 2006.

Bidders for Olympus may include Canon Inc. (7751), Hoya, which has 14 percent of the endoscope market, Fujifilm Holdings Corp. (4901), the third-biggest maker of the medical instruments, and Terumo Corp. (4543), which already owns 2.5 percent of Olympus, according to Anvarzadeh.

Potential Buyers

Representatives for the Tokyo-based companies declined to comment on whether they would consider acquiring Olympus.

J&J, the world’s second-largest seller of health-care products, could also emerge as an acquirer, according to Edwin Merner, Tokyo-based president of Atlantis Investment, which oversees $3 billion.

Carol Goodrich, a spokeswoman for New Brunswick, New Jersey-based J&J, declined to comment on takeover speculation.

“The problems with the company are not connected with its endoscopes,” Merner said. “It makes very good sense for somebody who wants to get into the business. If the price comes down enough, somebody may try to buy the company.”

To contact the reporters on this story: Naoko Fujimura in Tokyo at; Mariko Yasu in Tokyo at

To contact the editors responsible for this story: Daniel Hauck at; Katherine Snyder at; Philip Lagerkranser at


EBay Forecasts Miss Some Analysts’ Estimates as Marketing Costs Increase

By Danielle Kucera - Oct 20, 2011 7:11 AM GMT+0700

EBay Inc. (EBAY), the largest online marketplace, forecast fourth-quarter sales and profit that missed some analysts’ estimates as the company’s efforts to woo developers and strengthen payment services erode profitability.

Revenue will be $3.2 billion to $3.35 billion, EBay said today in a statement. Excluding some costs, profit will be 55 cents to 58 cents a share. Analysts on average had projected sales of $3.3 billion and profit of 58 cents, according to data compiled by Bloomberg. EBay shares dropped 4.2 percent.

Chief Executive Officer John Donahoe is leading a turnaround of the e-commerce company, whose stock had plummeted 83 percent in five years to a low of $10.27 in 2009. EBay is spending to roll out new platforms and products and integrating acquisitions made in the past year to increase the use of its services across the Web, moves that may weigh on earnings in coming quarters.

“Some of the acquisitions they made probably depressed margins a bit,” said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. “It’s a seasonally big holiday period, and given the macro backdrop, investors may have been expecting a little more upside in the quarter.”

EBay shares fell to $31.80 in extended trading after the report. The stock declined 2 percent to $33.18 at the close in New York. Shares of the San Jose, California-based company have climbed 19 percent this year.

Third-Quarter Earnings

Third-quarter net income was $490.5 million, or 37 cents a share, compared with $431.9 million, or 33 cents, a year earlier. Sales climbed 32 percent to $2.97 billion, while analysts predicted $2.91 billion. Before certain costs, profit was 48 cents, matching the average estimate.

The company’s PayPal online-payment unit led growth in the third quarter, with 103 million active registered accounts, a 14 percent increase from the previous year. PayPal revenue jumped 32 percent to $1.11 billion.

EBay’s operating margin, excluding some items, narrowed to 25.3 percent in the third quarter, compared with 28.7 percent in the same period last year.

Sales and marketing expenses rose 29 percent to $623.3 million, EBay said. Spending on marketing new products may also have weighed on the company’s forecast, an investment that should pay off later, Sebastian said.

“We’re seeing the TV ads fairly widespread in front of the holidays,” said Sebastian, who rates the stock “outperform.” “They’re probably taking a cautious approach. I think EBay’s progress continues. It’s not an overnight progression.”

‘Solid’ Holiday Season

EBay’s marketing campaign that began in September, which includes television advertisements, will last through the fourth quarter, Chief Financial Officer Bob Swan said on a conference call today. The company anticipates a “solid” holiday season, Donahoe said.

“In the last 18 months, our user experience got to a place where we’re proud of,” Donahoe said in an interview. “Our investors have asked, ‘When are you going to start marketing? You guys have improved this so much.’ The marketing campaign is more focused on introducing people to today’s EBay than it is about driving short-term revenue.”

Aiming to attract more retailers in a market dominated by Seattle-based Inc., Donahoe unveiled EBay’s new X.commerce system last week at the company’s Innovate developer conference in San Francisco.

The platform lets any developer create products and connect with retailers, without requiring them to use EBay. It incorporates technologies from the company’s purchases of Magento, an e-commerce platform; Milo, which keeps track of store inventory; and RedLaser, a company it bought in June 2010 that lets mobile users scan bar codes.

Mobile Payments

EBay also added to its stable of mobile-payment services with the $240 million purchase of Zong Inc. in August, as it seeks to help customers make purchases in stores over their mobile phones. In addition, the company is building relationships with big retailers through its June acquisition of GSI Commerce Inc.

EBay expanded its relationship with social network Facebook Inc. last week, saying developers for both the company’s GSI and Magento platforms will work on creating social commerce functions, such as clickable tabs for e-commerce that mirror Facebook’s “like” button.

The online retailer will have to show that this suite of new offerings and its acquisitions will work in harmony and compete with Amazon before investors will trust it can move beyond past mistakes, said Herman Leung, an analyst at Susquehanna International Group in San Francisco.

“For me, it’s sort of a show-me story,” he said in an interview. “These are all interesting concepts, but I would like to see results before being committed. These are new areas, offline payments -- there’s a lot of consumer education that’s involved.”

To contact the reporter on this story: Danielle Kucera in San Francisco at

To contact the editor responsible for this story: Tom Giles at


Sony Bulls Highest Since 2008 Bet on Stock

By Jeff Kearns and Nikolaj Gammeltoft - Oct 20, 2011 7:38 AM GMT+0700

Sony Corp. (SNE) options traders are placing more bullish bets than any time in three years, speculating Japan’s largest electronics exporter will rebound after $8 billion was erased from the stock since July.

Calls to buy Sony outnumber puts to sell by 2.1-to-1 on U.S. exchanges, the most since October 2008, data compiled by Bloomberg show. The ratio has surged in the past two months from 0.97-to-1. Sony has lost 26 percent in American trading since July 7 on concern the rising yen will hurt overseas sales.

The retreat was larger than all but one of the 26 Japanese American depositary receipts valued above $20 billion, according to data compiled by Bloomberg. Only Canon Inc. has a higher call-to-put ratio among that group, and it has 99 percent fewer contracts in existence than Sony, which sank to the lowest level since 1987 in Japanese trading this month. Sony has introduced a tablet computer to compete with Apple Inc. (AAPL)’s iPad and is forecast to double earnings this year.

“After such poor performance for so long, maybe they’re due,” Carlo Panaccione, co-founder of Navigation Group Inc., which oversees $350 million in Redwood Shores, California, said in a telephone interview yesterday. “Tablets in general are obviously a growing area and that could be prompting some of this action.”

Sony has slumped after the yen strengthened almost 6 percent against the U.S. dollar since July 7. The company introduced a tablet computer on Sept. 1 and will report 117 percent growth in earnings excluding some items in fiscal 2012, according to the average analyst estimate in a Bloomberg survey.

Music, Video

Tablets from Sony, which has posted three straight annual net losses, run on Google Inc.’s Android system and integrate the company’s music, video, gaming and digital book offerings. Worldwide sales of tablets are set to triple to $30.6 billion this year, according to Strategy Analytics estimates. Apple will probably capture 73 percent of the market, compared with 88 percent in 2010.

Global equities entered their first bear market since 2009 at the end of September after concern Europe’s debt crisis is intensifying drove investors out of stocks. Japan’s Nikkei 225 Stock Average slumped 14 percent in 2011 through yesterday following the nation’s record earthquake and resulting tsunami. Shares have rebounded in October, driving the MSCI All-Country World Index up the most over eight days since May 2009, amid optimism European leaders will contain credit losses.

“Sony’s gotten beat up on that slowing developed market growth dynamic, and now you’ve got some people coming into the market to do some bottom-feeding via the calls,” Max Breier, a senior equity derivatives trader at BMO Capital Markets Corp. in New York, said in a telephone interview on Oct. 18. “People are looking toward a recovery from the Japan earthquake and a rebound in GDP growth in Europe and North America.”

Overseeing a Slump

Sandy Genelius, Sony’s spokeswoman in New York, declined to comment on the options trading in the company’s stock.

Howard Stringer has overseen a 59 percent decline in Sony’s stock price since becoming its first non-Japanese chief executive officer in 2005. Apple surged more than 950 percent during the same period as Steve Jobs transformed the Cupertino, California-based company into the world’s largest technology company by market value.

Stringer may cost shareholders a gain of about 70 percent by clinging to its television business, according to a Bloomberg analysis in August. Sony said in July that its TV division will lose money for an eighth straight year.

“The stock is cheap, but management has a history of disappointing the market,” Chad Deakins, an Atlanta-based manager of an international equity fund for RidgeWorth Capital Management, said in an e-mail yesterday. His firm, which owns Sony shares, oversees $45 billion. “The TV business is currently a crowded and difficult space,” he said.

Nikkei Volatility

The Nikkei Stock Average Volatility Index, a gauge of options prices for Nikkei 225 (NKY) stocks, lost 5.5 percent to 27.57 yesterday, bringing its decline since Oct. 3 to 30 percent. The Chicago Board Options Exchange Volatility Index or VIX, a measure of options prices on the Standard & Poor’s 500 Index, rose 9.1 percent to 34.44.

Sony’s Japanese shares lost 46 percent this year through yesterday for the ninth-worst performance in the Nikkei 225. The stock closed at $20.24 yesterday in the U.S., where January $21 calls are the fastest-growing options bet this month. Open interest climbed by 9,664 contracts to 9,993 contracts. October $23 calls have the highest open interest at 11,204 contracts.

“Sometimes a company that is left for dead can recover,” Scott Tapley, who helps oversee $2.5 billion at 1st Source Investment Advisors Inc. in South Bend, Indiana, said in a phone interview. “But they’ll have to find their own Steve Jobs.”

To contact the reporters on this story: Jeff Kearns in New York at; Nikolaj Gammeltoft in New York at

To contact the editor responsible for this story: Nick Baker at


Asia Stocks Fall on Europe Divisions

By Shiyin Chen - Oct 20, 2011 10:03 AM GMT+0700

Asian stocks fell, wiping out this week’s gains, and the won weakened from a one-month high, as a split emerged among European leaders on a rescue plan and the Federal Reserve said companies grew more pessimistic about the U.S. economy. Industrial metals sank for a fourth day.

The MSCI Asia Pacific Index dropped 1.4 percent as of 12:01 p.m. in Tokyo. Standard & Poor’s 500 Index futures retreated 0.1 percent, erasing an earlier gain of 0.3 percent. The won slipped 0.6 percent against the dollar and the euro depreciated 0.2 percent to $1.3732. The cost of insuring Asia-Pacific debt from default increased. Copper and zinc fell more than 3 percent in London, while oil declined a second day in New York.

Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt yesterday failed to resolve differences ahead of a summit scheduled for this weekend. The Fed’s Beige Book survey released yesterday showed companies reported more doubt about the recovery even as the economy maintained its expansion last month.

“All eyes are on Europe,” Kirk Hartman, who oversees $355 billion as the Los Angeles-based chief investment officer of Wells Capital Management, said in a Bloomberg Television interview. “The market would like to see overwhelming force in terms of a resolution but unfortunately I don’t think you’re going to see that.”

U.S. Earnings

About four shares declined for every one that gained in the MSCI Asia Pacific Index. Japan’s Nikkei 225 Stock Average slid 0.9 percent, Australia’s S&P/ASX Index retreated 1.6 percent and Hong Kong’s Hang Seng Index slumped 1.8 percent. BHP Billiton Ltd. (BHP), the world’s largest mining company, sank 2.3 percent in Sydney, tracking declines in raw material prices.

The S&P 500 lost 1.3 percent yesterday, led by Apple Inc. (AAPL), after the maker of iPhones and iPads posted profit that missed analyst estimates. About two-thirds of the 66 companies in the index that reported earnings since Oct. 11 have beaten analysts’ profit estimates. Microsoft Corp., the world’s fourth-largest company by market value, will release quarterly results after the close of U.S. trading today.

The Beige Book said many Fed districts described the pace of growth as ‘modest’ or ‘slight’ in September, even though overall economic activity continued to expand. Data today may show initial jobless claims eased to 400,000 in the week ended Oct. 15 from 404,000 previously, while a gauge of leading indicators grew at a slower pace. Treasury 10-year yields were little changed at 2.17 percent before the economic reports.

Stabilization Fund

“U.S. economic conditions don’t appear to be getting any better, and in fact there’s some risk it might get worse, so that doesn’t give investors much comfort at all,” said Angus Gluskie, who manages more than $300 million at White Funds Management in Sydney. “There appears to be growing concern about whether or not European leaders meeting on the weekend will be able to come up with a credible plan.”

The euro traded at 105.40 yen from 105.69. French President Nicolas Sarkozy flew to Frankfurt yesterday for a meeting with German Chancellor Angela Merkel, the European Central Bank’s President Jean-Claude Trichet and International Monetary Fund Managing Director Christine Lagarde.

Europe’s leaders are looking for ways to maximize the firepower of the 440 billion-euro ($605.5 billion) European Financial Stability Facility as the region’s debt crisis threatens to engulf Italy and Spain. Boosting the fund “would be extremely difficult,” Kimmo Sasi, who heads Finland’s parliament finance committee and advises lawmakers how to vote on European rescue policy, said in an interview.

Won, Ringgit

The won weakened to 1,138.80 per dollar after reaching 1,128.52 yesterday, the strongest level since Sept. 19, while Malaysia’s ringgit declined 0.6 percent to 3.1256.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan advanced seven basis points to 206 basis points, Credit Agricole CIB prices show. That will be the biggest increase since Oct. 4, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Copper for three-month delivery dropped 3.3 percent to $6,969 a metric ton on the London Metal Exchange, extending a three-day, 4.4 percent decline. Zinc futures slipped 3.2 percent to $1,780, also bound for a fourth day of losses, and tin sank 3.1 percent.

To contact the reporter on this story: Shiyin Chen in Singapore at

To contact the editor responsible for this story: Darren Boey at