EU Weighs New Fund to Attract Outside Money

By Tony Czuczka and Fred Pals - Oct 22, 2011 8:48 PM GMT+0700

European finance ministers are considering setting up a fund to entice outside investors to buy troubled euro-area government bonds, as they struggled over how to tame the Greece-fueled debt crisis, said a person familiar with the matter.

The investment vehicle was one of two options being weighed, along with using the European Financial Stability Facility to boost the rescue firepower from 440 billion euros ($611 billion) currently, the person said.

“The principle that we leverage the EFSF with private money is being subscribed by everyone, but the level of success is uncertain,” Dutch Finance Minister Jan Kees de Jager told reporters on the second day of crisis talks in Brussels. “How much can we raise, that is being looked at.”

Europe’s room for maneuver narrowed yesterday with a report that Greece’s economy is deteriorating, piling on pressure to build a stronger anti-crisis firewall by a self-imposed Oct. 26 deadline. Measures being considered include a boost in bailout funds to 940 billion euros, deeper writedowns on Greek debt, and a demand that banks increase Tier 1 capital to 9 percent by mid-2012.

Stocks and the euro rallied yesterday on signs that warnings from global leaders including President Barack Obama have jolted European policy makers into action.

European Union office buildings, luxury hotels and a suburban Brussels flower park were the scenes today for a crisis-management convention involving national and EU-level leaders, finance ministers, central and commercial bankers and their aides.

Bank Recapitalization

All 27 EU finance ministers discussed bank recapitalizations in the morning, followed by the second session in two days of the 17 ministers from euro countries. Neither session yielded a formal announcement.

German Chancellor Angela Merkel and French President Nicolas Sarkozy meet privately in early evening before a later sitdown with European Central Bank President Jean-Claude Trichet, EU President Herman Van Rompuy, European Commission President Jose Barroso and EU Economic and Monetary Affairs Commissioner Olli Rehn. International Monetary Fund Managing Director Christine Lagarde will also be there.

The special purpose investment vehicle, the newest option on the table, would buy bonds in the primary and secondary markets, the person said. The purpose would be to attract outside investors and sovereign wealth funds, tapping reserves built up by countries like China.

EFSF Guarantees

A special-purpose vehicle was also discussed at this month’s meeting of the Group of 20 finance ministers and central bankers to be run by the IMF as a way to channel loans from countries such as China and Brazil.

“To be able to do this we’d have to create a special purpose vehicle, which we have done in the past in other circumstances,” Antonio Borges, the IMF’s European department head, said Oct. 5. “It could be done, it’s not to be excluded.”

The other option also involves EFSF first-loss guarantees, yet without creating the special fund. It was backed by Germany and was the front-running option until this week, when France complained that it wouldn’t be enough and sought to turn the fund into a bank that could borrow from the ECB.

Aid of 256 billion euros for Greece, Ireland and Portugal has failed to stabilize markets or prevent the turmoil from spreading to France, co-anchor with Germany of the European economy. French bank shares have tumbled on concern they are vulnerable to losses around Europe’s periphery.

France’s climbdown was signaled late yesterday by Finance Minister Francois Baroin. Tapping the central bank “is not a definitive point of discussion for us,” he said. “What matters is what works.”

ECB Opposition

Yesterday’s start of the six-day summit marathon was overshadowed by the report by the EU Commission, ECB and IMF on Greece that highlighted the dilemmas of righting Greece’s finances without sending shockwaves through the banking system.

Divisions over the handling of Greece were thrown into relief by the report, which was obtained by Bloomberg News. It contained a footnote that the ECB, which has lobbied against writedowns, “does not agree” with the inclusion of the bond- loss scenarios.

Officials are considering five scenarios to update a July agreement that foresaw 21 percent losses on Greek debt for private bondholders, people familiar with the deliberations said. They range from sticking with a voluntary swap to a so- called hard restructuring that forces investors to exchange Greek bonds for new ones at 50 percent of their value, the people said.

A deepening recession and delays in enacting budget cuts have raised Greece’s financing needs by at least 20 billion euros since July, when euro leaders hammered out a 159 billion- euro package, the people said.

“We have to discuss with the private sector and see what is suitable,” Spanish Economy Minister Elena Salgado told reporters. Ministers discussed investor losses of “more than 21 percent,” she said.

The ministers yesterday signed off on the payout of its 5.8 billion-euro share of an 8 billion-euro loan to Greece. It’s the sixth installment of a 110 billion-euro package awarded in May 2010.

To contact the reporters on this story: Tony Czuczka in Brussels at aczuczka@bloomberg.net; Fred Pals in Brussels at fpals@bloomberg.net

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

Read more...

Saudi Arabia’s Sultan, Heir to Throne of Main World Oil Supplier, Has Died

By Vivian Salama and Glen Carey - Oct 22, 2011 12:52 PM GMT+0700

Crown Prince Sultan bin Abdulaziz Al Saud, Saudi Arabia’s deputy prime minister and minister of defense and aviation, has died. He was born in Riyadh in 1928, according to the Saudi embassy in Washington, and was heir apparent to the throne.

State television in Saudi Arabia, which holds the world’s largest oil reserves, announced the death and then began playing verses from the Koran, as is the custom.

The prince died “outside the kingdom after suffering an illness,” the Royal Court said in a statement posted on the state-run Saudi Press Agency website. “Prayer will be held at Imam Turki Bin Abdullah Mosque in Riyadh after Asr prayer on Tuesday.”

Prince Sultan spent much of the period between 2008 and 2011 out of the country to receive medical care for an undisclosed illness. He traveled to New York City in June 2011 for a “private holiday” that included medical tests although the Saudi government didn’t release details about his health, according to the SPA. Time magazine reported in 2005 that he had colon cancer.

Sultan was named crown prince in 2005 following the death of his brother, King Fahd. He is the half brother of the kingdom’s current ruler, King Abdullah.

During his five decades as defense minister, Saudi Arabia’s policy involved relying on the U.S. for military protection in return for stable oil supplies. The kingdom spent $11.2 billion on U.S. weapons between 2005 and 2008, making it the biggest foreign buyer of U.S. arms during the period, according to the Congressional Research Service in Washington.

Arms Sales

The U.S. Defense Department told Congress in October 2010 that it wants to sell as much as $60 billion in weapons to Saudi Arabia. U.S. policy makers want the proposed sale to include F-15 fighter jets, attack helicopters, and satellite-guided smart bombs to counter Iranian military ambitions in the Persian Gulf and regional extremists. The weapon sales, if approved, could occur during a 10-year period.

He was educated in religion, culture and statecraft at the royal court of his father, King Abdulaziz Al Saud. His career in public service began in 1947, when he was appointed governor of Riyadh, whose main task is resolving disputes among the 7,000 members of the royal family. Five years later, he became the kingdom’s first minister of agriculture.

In 1955, Sultan was named the transportation minister, and oversaw the construction of a railway system linking Dammam on the Persian Gulf coast to the capital, Riyadh. He was the chairman of Saudi Arabian Railways Organization.

Military Modernization

Sultan, who was appointed minister of defense and aviation in 1963, oversaw the expansion and modernization of the Saudi military into a force that participated in the U.S.-led war to oust Iraqi forces from Kuwait in 1991. Saudi troops also fought Houthi rebels along the nation’s southern border with Yemen in a three-month battle that ended in February 2010.

He is also known for more peaceful endeavors. In 1986 Sultan established the National Commission for Wildlife Conservation and Development. He also founded the Prince Sultan Bin Abdulaziz International Prize for Water, a group that recognizes advancements toward sustainable water conservation.

In 2003, Prince Sultan invited Christians to practice their faith in the kingdom, although he added that building churches would contradict Saudi Arabia’s role as the center of the Islamic faith. “We are not against religions,” the SPA reported, citing a speech he delivered. “This country is the cradle of prophecy and the true message and we will not contradict this.”

Kings Rule

Saudi Arabia is an absolute monarchy that has been ruled by six kings from the Al Saud family since the modern kingdom was formed in 1932.

King Abdullah, who was born in 1924, changed the kingdom’s succession rules in 2007 to give an appointed commission of princes, called the Allegiance Council, more power to select a new ruler. The council will be responsible for naming a crown prince, who will then be in line as the new king.

The new king must reveal his choice for crown prince to the commission within 10 days of taking the throne. The commission consists of appointed male descendants of the kingdom’s founder, Abdulaziz bin Saud, the SPA said.

The decree provided greater transparency of the royal family’s decision-making process, which in the past was done through consensus building among princes.

Interior Minister Prince Nayef bin Abdulaziz Al Saud is the next most senior member of the royal family after Sultan and the likely successor as crown prince, according to Hani Sabra, Middle East and Africa analyst at the New York-based Eurasia Group.

Sultan had four wives. One of his sons is Prince Bandar bin Sultan, Saudi Arabia’s ambassador to the U.S. from 1983 to 2005. Another son, Prince Khalid bin Sultan, is assistant minister of defense and aviation for military affairs.

To contact the reporters on this story: Vivian Salama in Abu Dhabi at vsalama@bloomberg.net; Glen Carey in Dubai at gcarey8@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

Read more...

France Retreats in Clash With Germany Over Expanding Bailout Fund’s Power

By Tony Czuczka and Fred Pals - Oct 22, 2011 3:36 PM GMT+0700

France retreated in a clash with Germany over how to expand the power of Europe’s bailout fund as finance ministers entered the second of a six-day marathon to stave off a Greek default and shield banks from the fallout.

The French proposal that the fund, the European Financial Stability Facility, should get a banking license enabling it to borrow from the European Central Bank, “is no longer an option” Dutch Finance Minister Jan Kees de Jager told reporters today in Brussels. He said two options were under consideration, declining to discuss them further. Still, there are “big differences” among countries, he said.

The French flexibility indicated progress toward easing the threat to the global economy stemming from Greece. As they began their consultations yesterday, the euro-area finance chiefs received an assessment from auditors that Greek finances have taken a “turn for the worse,” requiring more official aid and deeper investor writedowns.

Stocks and the euro rallied on signs that policy makers may heed prodding from global leaders including President Barack Obama to calm global markets. Officials are also considering unleashing as much as 940 billion euros ($1.3 trillion) to fight the debt crisis, almost double the current ceiling, by combining the 440 billion-euro EFSF and its planned successor, the European Stability Mechanism.

Bank Recapitalization

The 27 European Union finance ministers today are addressing the framework for bank recapitalizations, De Jager said. French President Nicolas Sarkozy and German Chancellor Angela Merkel were set to meet later before a summit tomorrow and a follow-up gathering on Oct. 26 to nail down what they have called a “comprehensive” plan.

Luxembourg’s Jean-Claude Juncker said today that no decisions were likely until then.

Aid of 256 billion euros for Greece, Ireland and Portugal has failed to stabilize markets or prevent the turmoil from spreading to France, co-anchor with Germany of the European economy. French bank shares have tumbled on concern they are vulnerable to losses around Europe’s periphery.

With French bond premiums against Germany at euro-era highs, France yielded to opposition from both the ECB and its neighbor and largest trading partner.

The Franco-German split centered on how to leverage the EFSF. While Germany endorsed enabling it to insure a portion of cash-strapped nations’ bond sales, France wanted to turn it into a bank that could tap the ECB.

‘Everyone Knows’

“Everyone knows the reticence of the central bank and everyone also knows of the reticence of the German position,” French Finance Minister Francois Baroin said on Oct. 19. “For us it is and will remain the most effective position. The Americans do it, the British do it.”

After the first round of talks yesterday, Baroin said that “is not a definitive point of discussion for us.”

“What matters is what works,” he said.

The start of yesterday’s meeting was overshadowed by the report by the European Commission, the ECB and the International Monetary Fund on Greece that highlighted the scope of fixing Greece’s finances without sending shockwaves through the banking system.

Officials are considering five scenarios to update a July agreement that foresaw 21 percent losses on Greek debt for private bondholders, people familiar with the deliberations said. They range from sticking with a voluntary swap to a so- called hard restructuring that forces investors to exchange Greek bonds for new ones at 50 percent of their value, the people said.

Bank Talks

“We have to discuss with the private sector and see what is suitable,” Spain’s Elena Salgado told reporters. Ministers discussed investor losses of “more than 21 percent,” she said.

Talks on investor losses in Greek holdings won’t be addressed by the 27 ministers today as they were a topic for the 17 euro countries.

Divisions over the handling of Greece were thrown into relief by the report, which was obtained by Bloomberg News. It contained a footnote that the ECB, which has lobbied against writedowns, “does not agree” with the inclusion of the bond- loss scenarios.

The ministers yesterday signed off on the payout of its 5.8 billion-euro share of an 8 billion-euro loan to Greece. It’s the sixth installment of a 110 billion-euro package awarded in May 2010.

A deepening recession and delays in enacting budget cuts have raised Greece’s financing needs by at least 20 billion euros since July, when euro leaders hammered out a 159 billion- euro package, the people said.

Greek Needs

“Given still-delayed market access, large-scale additional official financing requirements would remain, estimated at some 114 billion euros,” according to the auditors’ report, dated yesterday. “To get the debt down further would require a larger private-sector contribution” of at least 60 percent to reduce debt below 110 percent of gross domestic product by 2020.

The government in Athens forecasts the debt load next year at about 172 percent of GDP.

Greece has said it has the cash to operate until mid- November after a scheduled review of the country’s progress in meeting fiscal targets was suspended for about two weeks last month.

To contact the reporters on this story: Tony Czuczka in Brussels at aczuczka@bloomberg.net; Fred Pals in Brussels at fpals@bloomberg.net.

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

Read more...

Dreamliner’s Composite Repairs Questioned

By Susanna Ray - Oct 22, 2011 11:01 AM GMT+0700

Boeing Co. (BA)’s new 787 Dreamliner, set to fly its first paying passengers next week, faces four “safety-related concerns” about repairs to the composites used for the fuselage and wings, a U.S. agency said.

A review of the Dreamliner, the first airliner built with carbon-fiber reinforced composite plastics instead of metal, was released Oct. 20 by the U.S. Government Accountability Office. The GAO identified four concerns: limited information on the behavior of airplane composite structures; technical issues with the materials’ unique properties; standards for repairs; and training and awareness.

The U.S. Federal Aviation Administration certified the 787 in August following 20 months of flight tests, after requiring that Boeing take extra steps to demonstrate its safety. The GAO was asked by three members of Congress to review the FAA’s certification process and planned oversight once the model enters service, and consulted experts on repair and maintenance.

“None of the experts believed these concerns posed extraordinary safety risks or were insurmountable,” the GAO said in its report. Still, while the FAA is taking action to address the matters, “until these composite airplanes enter service, it is unclear if these actions will be sufficient,” the report said.

The 250-seat Dreamliner uses the lighter-weight composites, new engines and the first all-electric system to help it fly farther with less fuel.

Charter Flight

Chicago-based Boeing delivered the plane last month to its first customer, Tokyo-based All Nippon Airways Co., more than three years late after Boeing struggled with the new materials and manufacturing processes. The Dreamliner is scheduled for a charter flight from Tokyo to Hong Kong on Oct. 26 and will enter regular service the following week.

“Regardless of the materials we use, Boeing employs the same rigorous methods to deliver products that are safe for the flying public and efficient for airlines,” said Marc Birtel, a Boeing spokesman in Seattle. “Composite materials have been used in commercial airplanes for decades.

‘‘The concerns in the GAO report are limited to support activities,’’ which already are being addressed through an industrywide effort involving regulators, manufacturers, operators and maintenance and repair organizations, Birtel said.

Boeing has used composites for other airliners before, including the 777, though never for the whole fuselage and wings as in the 787.

Repairs Different

The Dreamliner’s fuselage is made of reinforced carbon fibers spun around a barrel mold and baked, so repairs will be handled differently than with traditional aircraft that are built of riveted aluminum panels.

‘‘The FAA conducts a rigorous certification process for every new airplane that ensures it meets the highest levels of safety, and the FAA has certified commercial aircraft that use composite materials for decades,’’ the agency said yesterday in a statement. ‘‘In addition to the extensive certification requirements, the FAA’s robust safety oversight system is designed to detect and correct any issues that may emerge during actual flight.’’

The GAO’s review was requested by Representative Eddie Bernice Johnson of Texas, Representative Donna Edwards of Maryland and Representative Jerry Costello of Illinois, all Democrats.

They wrote a letter to FAA Administrator Randy Babbitt on Oct. 20, asking that he explain what ‘‘practical and proactive’’ steps are being taken to ensure ‘‘robust oversight’’ of the 787’s maintenance and repair.

Training Personnel

As the model enters service, the FAA will need to train more personnel to deal with composites and certify more repair centers to handle work on the new planes, the GAO report said. Boeing has orders for about 800 of the 787s from carriers around the world, making it the company’s fastest-selling new plane ever.

‘‘Composite-built aircraft present opportunities as well as unique and complex challenges, and we need to make sure the FAA is addressing all of these challenges appropriately,” Johnson said yesterday in a statement.

All Nippon Airways’s first Dreamliner already suffered some slight surface damage to the engine cowling when it hit a passenger boarding bridge earlier this month, Flightglobal reported Oct. 19. The plane resumed regular flight tests with the carrier in Japan after the company did some checks, the trade publication said.

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

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

Read more...

AT&T Says Sprint Failed to Turn Over Subpoenaed Documents in U.S. Case

By Sara Forden - Oct 22, 2011 5:18 AM GMT+0700

AT&T Inc. (T) asked a federal judge to force Sprint Nextel Corp. to turn over documents it subpoenaed for its defense against the U.S. lawsuit seeking to block its purchase of T-Mobile USA Inc.

AT&T asked the judge in a filing today to compel Sprint to provide the documents “immediately,” saying that the Overland Park, Kansas-based company has yet to respond to its Sept. 26 subpoena seeking documents relevant to the Justice Department’s claims against AT&T. Sprint is a so-called non-party in the case.

“Sprint has not produced a single document,” AT&T said in the filing. “Instead Sprint contends it is not required to comply with the subpoena,” arguing it already turned documents over to the Justice Department during its review of the $39 billion merger announced March 20, AT&T said.

Sprint hasn’t shown that the documents it already turned over would respond to AT&T’s request, the phone company said. Dallas-based AT&T said in the filing it was also asking for material that wasn’t given to the Justice Department.

AT&T spokesman Michael Balmoris didn’t respond to an e-mail seeking comment on the filing. Sprint spokesman John Taylor declined to comment on the AT&T’s demand.

Transaction Documents

AT&T has asked Sprint for documents relating to transactions entered into since January 2004, including deals with Nextel Communications Inc., Virgin Mobile and Clearwire Corp. (CLWR), according to an Oct. 19th filing by Sprint, which has filed its own lawsuit to halt the T-Mobile deal.

Sprint said in that filing that AT&T’s document requests “go far beyond ordinary, non-party merger case discovery, which focuses on the current competitive landscape, not on the details of every transaction entered into by a competitor in the last eight years.”

Sprint has also asked U.S. District Judge Ellen Segal Huvelle to give it access to data AT&T turned over to the Justice Department.

The Justice Department sued AT&T and Bonn-based Deutsche Telekom AG (DTE)’s T-Mobile unit on Aug. 31, saying a combination of the two companies would “substantially” reduce competition. Seven states and Puerto Rico joined the effort to block the deal, which would make AT&T the biggest U.S. wireless carrier.

Threat to Competition

Sprint filed its antitrust lawsuit on Sept. 6, less than a week after the U.S. sued. Cellular South Inc. sued on Sept. 19, claiming the merger threatened to “substantially” cut competition.

Judge Huvelle, overseeing all the AT&T cases, froze document exchanges in the private lawsuits while she weighs a bid by AT&T to dismiss them. A hearing about AT&T’s motion to dismiss is scheduled for Oct. 24.

The government’s case is U.S. v. AT&T Inc., 11-01560; Sprint’s case is Sprint Nextel Corp. (S) v. AT&T Inc., 11-01600; and Cellular South’s case is Cellular South Inc. v. AT&T Inc., 11-01690, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net

To contact the editor responsible for this story: Fred Strasser at fstrasser@bloomberg.net

Read more...

Facebook Claimant’s Lawyer Hit With ‘Morphed’ Child Porn Images Judgment

By Bob Van Voris - Oct 22, 2011 8:02 AM GMT+0700

Dean Boland, the new lawyer for Facebook claimant Paul Ceglia, was hit with a $300,000 civil judgment yesterday in connection with explicit “morphed” images of children he created while defending people charged with possessing child pornography.

Boland, a Lakewood, Ohio, lawyer who specializes in technology cases, was ordered by a federal judge to pay the money to two unidentified minors whose stock photos Boland used to create the images of children engaged in sexual conduct. Boland used the images to aid his testimony as an expert witness in courts in Ohio and Oklahoma.

“The court concludes that a constitutionally effective defense to a child pornography charge does not include the right to victimize additional minors by creating new child pornography in the course of preparing and presenting a defense,” U.S. District Judge Dan Polster in Cleveland said in an opinion, rejecting Boland’s claim that his use of the images was constitutionally protected.

Boland used the morphed images to show how difficult it is for people possessing child pornography to determine whether the images depict real children or were created artificially, according to Polster’s opinion yesterday. Boland said he plans to appeal the judgment.

“This ruling has the potential to affect the ability of people to get fair trials across the country,” Boland said today in a phone interview.

Fourth Lead Lawyer

Ceglia, the New York man who claims a 2003 contract entitles him to half the holdings of Facebook Inc. founder Mark Zuckerberg, hired Boland as his new lawyer, his fourth lead counsel since filing the lawsuit in 2010. Boland said he has been working on the case for a few weeks. He filed papers today in federal court in Buffalo, New York, to represent Ceglia.

Boland, a former state prosecutor, said he isn’t troubled that several lawyers have left the case. He said he has experience litigating cases involving computer images, document authentication and other forensic issues that have been raised in the Ceglia case.

Boland said he has represented clients in technology- related cases throughout the country, including defendants wrongly charged with possessing child pornography.

“There are multiple people walking free today who were wrongly charged with a pretty heinous crime” because of his efforts, he said. According to Boland’s website, he has written and lectured extensively on technology and the law.

Contract, E-Mails

Ceglia, who is currently in Ireland, has produced a contract and e-mails that he said prove his claim to ownership in Facebook.

The social networking company, based in Palo Alto, California, has accused Ceglia of fabricating the documents and has called his suit a fraud.

Both sides agree that Zuckerberg signed a contract with Ceglia in 2003, when Zuckerberg was a freshman at Harvard University, to do computer coding for StreetFax.com, a company Ceglia was trying to start. Ceglia claims the contract included a provision giving him a partnership stake in Facebook, now the world’s biggest social networking site.

The company said its computer experts have found the genuine contract between Ceglia and Zuckerberg, which concerns only the StreetFax work, on one of Ceglia’s computers. The contract makes no mention of Facebook, according to the company.

‘Meat’ of Case

“My client is very anxious to get to the meat of the case,” Boland said.

According to the judge’s decision in the lawsuit over the altered photos, Boland used the images to aid his expert testimony in three criminal prosecutions for possession of child pornography. In one hearing, prosecutors questioned whether Boland’s use of the images violated the law against possession of child pornography.

In 2007, Boland entered into a deferred prosecution agreement with prosecutors in Cleveland, avoiding a criminal conviction. As part of the agreement, Boland apologized in a local legal publication and admitted the images violated federal law, according to an appeals court decision.

That same year, the guardians of the children whose photographs were used sued Boland for digitally altering the stock shots. Polster dismissed the claims, calling it a “difficult and troubling case.” That decision was reversed on appeal and the case was returned to Polster, who granted summary judgment for the two children yesterday, awarding $150,000 to each.

The civil case is Doe v. Boland, 07-CV-02787, U.S. District Court, Northern District of Ohio (Cleveland). The Ceglia case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

Read more...

Asia Stocks See Biggest Weekly Drop in Month Before Europe Meet

By Kana Nishizawa and Yoshiaki Nohara - Oct 22, 2011 6:39 AM GMT+0700

Asian stocks saw their biggest weekly decline in a month after Germany said there would be no quick fix to the European debt crisis ahead of a regional summit this weekend.

Esprit Holdings Ltd. (330), a clothier that gets most of its revenue in Europe, dropped 9.3 percent in Honk Kong this week. Rio Tinto Group, the world’s second-largest miner by sales, dropped 8.4 percent in Sydney as commodity prices tumbled. Olympus Corp. (7733), which is embroiled in a scandal over payments to advisers, plunged 40 percent, erasing $4.4 billion in market value for the maker of cameras and endoscopes.

The MSCI Asia Pacific Index fell 0.7 percent, its steepest weekly fall since the period ended Sept. 23, on concern European policy makers will struggle to reach a resolution at a summit this weekend. The Asian benchmark has tumbled about 16 percent this year amid concern Europe’s debt crisis will spread, cutting the value of shares on the index to about 11.8 times estimated earnings on average.

“There’s a lot of information and a lot of uncertainty whether this weekend’s meeting will come out with a definitive plan,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The market remains very vulnerable.”

Index Moves

Japan’s Nikkei 225 (NKY) Stock Average declined 0.8 percent, while South Korea’s Kospi Index rose 0.2 percent. Australia’s S&P/ASX 200 dropped 1.5 percent.

Hong Kong’s Hang Seng Index slid 2.6 percent this week after China’s economy grew last quarter at the slowest pace since 2009. The Shanghai Composite Index sank 4.7 percent. Bangkok’s SET Index lost 4.1 percent as the worst flooding in 50 years shut factories and disrupted supply chains.

Asian stocks declined after German Chancellor Angela Merkel said the planned Oct. 23 summit won’t provide a definitive solution to Europe’s crisis. Hurdles to a deal include resistance from bankers to a deeper restructuring of Greek debt as well as disagreements between Europe’s capitals over how to multiply the firepower of their bailout fund and recapitalize financial institutions.

‘Long-Term Work’

“These sovereign debts have built up over decades, so they won’t be ended with one summit,” Merkel told reporters in Berlin on Oct. 18. “This will require tough, long-term work.”

Esprit, which depends on Europe for 79 percent of its sales, slid 9.3 percent to HK$10.52 this week in Hong Kong. Billabong International Ltd. (BBG), a surfwear maker that gets about 70 percent of sales from the Americas and Europe, dropped 4.3 percent to A$3.54 in Sydney.

Stocks also fell this week amid signs the U.S. recovery is slowing. The Federal Reserve’s Beige Book survey showed companies reported more doubt about the economy.

“U.S. economic conditions don’t appear to be getting any better, and in fact there’s some risk it might get worse,” said Angus Gluskie, who manages more than $300 million at White Funds Management in Sydney. “That doesn’t give investors much comfort at all.”

Asian commodity producers dropped as the price of metals and oil plunged. Rio Tinto slumped 8.4 percent to 62.57 yen this week in Sydney. Jiangxi Copper Co., China’s No. 1 producer of the metal, declined 7.9 percent in Hong Kong. Mitsubishi Corp. (8058), Japan’s biggest trading company by market value, slid 5.3 percent in Tokyo.

Metals Tumble

The London Metal Exchange Index, a measure of six metals, tumbled 8.8 percent this week through Oct. 20, while crude oil for November delivery retreated 1.1 percent over the period.

Chinese developers dropped after a report the mainland recorded 9.1 percent growth last quarter, the slowest in two years.

Poly Real Estate Group Co., a mainland developer, tumbled 8.4 percent to 8.52 yuan, and Angang Steel Co., a mainland steel products maker, sank 6.6 percent in Shanghai. Anta Sports Products Ltd. (2020), China’s second-biggest footwear company, declined 21 percent to HK$6.42 in Hong Kong after saying sales growth may slow in the third quarter.

Olympus tumbled 40 percent to 1,231 yen this week in Tokyo, the worst performer on the MSCI Asia Pacific Index. Dismissed President Michael C. Woodford made public a PricewaterhouseCoopers report he commissioned that said the company had paid advisers $687 million in fees for its $2 billion acquisition of Gyrus Group. The fees were double the amount Chairman Tsuyoshi Kikukawa disclosed before admitting to the full sum.

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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

Read more...

Rupee Leads Declines as Asian Currencies Slide on Faltering Growth, Europe

By Andrea Wong, Jeanette Rodrigues and Yumi Teso - Oct 22, 2011 6:48 AM GMT+0700

Asian currencies completed the worst week in a month, led by India’s rupee, as concern the region’s economic growth is faltering prompted global funds to withdraw cash.

Data this week showed China’s gross domestic product rose at the slowest pace in two years. Bank of Thailand Governor Prasarn Trairatvorakul said Oct. 20 the Thai economy may contract this quarter as the worst floods in five decades disrupt production. The Bloomberg-JPMorgan Asia Dollar Index fell 0.4 percent, the first decline since the week ended Sept. 30, before Europe’s finance ministers meet in Brussels tomorrow. The rupee fell past 50 per dollar for the first time since 2009.

“Growth outlook has weakened and inflation remains stubbornly high” in the region, said Jonathan Cavenagh, a Singapore-based senior currency strategist at Westpac Banking Corp. “European investors had invested a lot of capital in Asia when the 2008 financial crisis eased and now there is concern they will pull this back to the continent.”

The rupee slumped 2 percent this week to 50.0250 per dollar in Mumbai and touched 50.3238 earlier, the weakest level since April 2009. Thailand’s baht retreated 0.7 percent to 31.01, and Malaysia’s ringgit lost 0.6 percent to 3.1498.

The MSCI Asia-Pacific Index of regional shares slipped 0.7 percent this week as foreign investors sold $319 million more Indonesian, South Korean, Taiwanese, and Thai stocks than they bought yesterday, according to exchange data.

China Slows

China’s economy, the world’s second-largest, expanded 9.1 percent from a year earlier last quarter, less than the 9.5 percent gain in the previous three months, according to government figures released Oct. 18. Food inflation in India accelerated to 10.6 percent in the week ended Oct. 8 from a year earlier, the fastest pace since April, government data showed Oct. 20.

European governments may release as much as 940 billion euros ($1.3 trillion) to fight the debt crisis, seeking to break a deadlock between Germany and France that is forcing leaders to hold two summits within four days. A summit for Oct. 26 was set on Oct. 21 after Germany and France said the EU needs more time to seal a “global and ambitious” accord.

Thailand may cut its growth estimate by more than 1 percentage point from a targeted 4.1 percent when policy makers meet next week, Governor Trairatvorakul said in Bangkok on Oct. 21.

Flood Impact

“There is concern that the impact from the floods on the economy will become much bigger as the waters are nearing the capital,” said Kozo Hasegawa, a trader at Sumitomo Mitsui Banking Corp. in Bangkok. “Sentiment for the baht may continue to be weak.”

The floods have affected 14,254 factories and businesses in 20 provinces, according to the Labor Ministry. Thailand’s central bank, which left the benchmark interest rate unchanged this week at 3.50 percent, signaled Oct. 21 it is willing to consider cutting rates as the disaster threatens to slow growth.

China’s yuan gained 0.1 percent during the five-day period to 6.3840 per dollar. The economy may continue to slow this quarter and in the first half of 2012, National Business Daily reported yesterday, citing Chen Dongqi, deputy director of the National Development and Reform Commission’s Chinese Academy of Macroeconomic Research.

“The yuan’s appreciation will likely slow modestly,” said Robert Minikin, a senior foreign-exchange strategist at Standard Chartered Plc in Hong Kong. “We expect to see more two-way variability and the moves will be less one-sided.”

Rupee Rebound Predicted

The rupee, the worst-performing currency in Asia this year, will rebound more than 3 percent from a 2 1/2-year low touched yesterday as India’s central bank raises interest rates, according to Skandinaviska Enskilda Banken AB.

Investors should buy the currency once it falls to 50.30 per dollar, targeting a “near-term” advance to 48.60, the Swedish lender said in a research note yesterday. The Reserve Bank of India will raise its benchmark rate to 8.50 percent from 8.25 percent at a meeting on Oct. 25, according to 13 of 19 economists in a Bloomberg survey. Six predicted no change.

The monetary authority lifted borrowing costs six times so far in 2011 to cool inflation, boosting the yield advantage on local assets. Rates on 10-year sovereign notes closed at 8.82 percent yesterday, widening the extra yield over Treasuries to 6.6 percentage points.

Elsewhere, Indonesia’s rupiah slipped 0.2 percent this week to 8,863 per dollar, Taiwan’s dollar was little changed at NT$30.299 and the Philippine peso retreated 0.2 percent to 43.44. South Korea’s won appreciated 0.8 percent to 1,147.50.

To contact the reporters on this story: Andrea Wong in Taipei at awong268@bloomberg.net; Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

Read more...

Verizon Profit Doubles on Smartphone Demand; Subscriber Gains Fall Short

By Scott Moritz - Oct 22, 2011 3:41 AM GMT+0700

Verizon Communications Inc. (VZ), the second-largest U.S. phone company, reported third-quarter profit doubled as consumers snapped up iPhones and Android devices.

Net income rose to $1.38 billion, or 49 cents a share, from $659 million, or 23 cents, a year earlier, New York-based Verizon said today. Earnings, excluding some items, rose to 56 cents a share in the quarter ended Sept. 30. Analysts predicted 55 cents, the average of estimates compiled by Bloomberg.

The popularity of Android smartphones running on Verizon’s new higher-speed long-term evolution, or LTE, network helped give Verizon an edge on subscriber growth over rival AT&T Inc. (T) Still, customer gains missed some analysts’ estimates as consumers waited for the latest version of the Apple Inc. (AAPL)’s iPhone, which became available this month.

“Subscribers dramatically slowed purchases of smartphones in September in anticipation of the new iPhone,” said John Hodulik, an analyst at UBS AG in New York.

Verizon Wireless, jointly owned by Verizon and Vodafone Group Plc (VOD), added 882,000 contract, or postpaid, subscribers in the quarter. The gain compared with the 584,000 new signups a year earlier and the 1.04 million average of six analysts’ estimates compiled by Bloomberg.

Verizon shares closed up 0.9 percent to $37.42 in New York. The stock has advanced 4.6 percent this year.

Gaining Share

Sales climbed 5.4 percent to $27.9 billion, matching the average analyst projection. Revenue at the wireless business jumped 9.1 percent to $17.7 billion, while sales the fixed-line unit declined 1.3 percent to $10.1 billion.

“Verizon continues to take postpaid market share from everyone,” said Chris King, an analyst at Stifel Nicolaus in Baltimore, who recommends buying Verizon shares. “They are ahead on LTE and this was the first full quarter when they sold LTE phones.”

Verizon is expanding its LTE network after starting the service in some markets last year. AT&T, which is starting limited LTE service this year, yesterday reported it gained 319,000 postpaid subscribers last quarter.

Of the 5.6 million smartphones Verizon sold in the quarter, 1.4 million were LTE devices. Smartphones, which allow consumers to browse the Web and watch video, helped push average monthly revenue per contract subscriber to $54.89, up 2.4 percent from a year earlier.

Strike Impact

Verizon sold 2 million iPhones in the quarter, compared with the 2.7 million AT&T activated in the period. Verizon gained access to the top-selling device this year, ending AT&T’s exclusivity for the handset.

Verizon said 20 percent of its iPhone customers came from other carriers, and 80 percent were existing customers upgrading. The company sold out of the new iPhone 4S on the first day of sales on Oct. 14 and has been on allocation from Apple since then, filling backorders.

The wireless growth helped Verizon offset some of the costs caused by storms and a strike by about 45,000 employees at its fixed-line business. The storms, including Hurricane Irene, combined with the strike cost it $250 million last quarter.

Verizon added 131,000 FiOS TV subscribers, more than the 118,000 analysts estimated. The company gained 20,000 broadband customers. Analysts projected a gain of 4,000 on average.

To contact the reporters on this story: Scott Moritz at smoritz6@bloomberg.net

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

Read more...

Apple’s Cook Won Jobs’s Trust Early: Book

By Adam Satariano and Peter Burrows - Oct 22, 2011 6:48 AM GMT+0700
Enlarge image

Tim Cook, left, Chief Operating Officer, Apple CEO Steve Jobs and Phil Schiller, right, EVP Product Marketing, answers questions after Jobs introduced new versions of the iMac and iLife applications. Photographer: David Paul Morris/Getty Images

Play Video

Oct. 20 (Bloomberg) -- Bloomberg's Tom Giles talks about an authorized biography of Apple Inc. co-founder Steve Jobs to be released Oct. 24. Jobs, who died on Oct. 5, had secret treatments for pancreatic cancer while telling people he was cured, his biographer Walter Isaacson told CBS News's "60 Minutes," according to excerpts released today. Giles speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Video excerpts courtesy of CBS News. Source: Bloomberg)

Tim Cook, after joining Apple Inc. (AAPL) in 1998, quickly gained the trust of Steve Jobs, who had recently taken back control of the company, according to a biography of Jobs to be released on Oct. 24.

Jobs initially oversaw supply chain after he returned to Apple in 1997 following a 12-year hiatus. By turning that responsibility over to Cook, Jobs was able to focus on product vision and broader strategy, instead of the nitty-gritty of manufacturing and purchasing the parts needed to build a growing array of products.

“I trusted him to know exactly what to do,” Jobs told Walter Isaacson, author of “Steve Jobs,” published by CBS Corp. (CBS)’s Simon & Schuster. “He had the same vision I did, and we could interact at a high strategic level and I could just forget about a lot of things unless he came and pinged me.”

The authorized biography, based on more than 40 interviews with Jobs, gives fresh insight into the executive’s early interaction with Cook, who later succeeded him as CEO and is now running the world’s most valuable technology company. The book, purchased by Bloomberg, also highlights the central role played by Jonathan Ive, senior vice president of industrial design. Other details include the advice Jobs gave Larry Page soon after he was named CEO of Google Inc. (GOOG), one of Apple’s fiercest rivals.

Jobs considered Ive, who goes by Jony, his “spiritual partner” who was vital to product development, according to the book. Jobs said he set up Apple so that nobody could tell Ive what to do.

Collaborating With Ive

“He understands what we do at our core better than anyone,” Jobs said of Ive. “If I had a spiritual partner at Apple, it’s Jony.”

Jobs said he and Ive typically dreamed up Apple products, often having lunch together and collaborating on designs in Ive’s studio at Apple’s Cupertino, California, campus.

Cook, the son of a shipyard worker, oversaw Apple during Jobs’s three medical leaves as he battled a rare form of cancer that eventually claimed his life.

When Jobs came back from his first medical leave in 2004, he was “on a mission,” Cook told Isaacson.

“Even though he was now running a large company he kept making bold moves that I don’t think anybody else would have done,” Cook said.

When Jobs hired Cook away from Compaq Computer, Jobs was pressing the company to build so-called just-in-time factories, where products are built as orders come in, limiting the amount of inventory sits on shelves, which can hurt financial results.

Cook’s Overhaul

“I knew what I wanted and I met Tim, and he wanted the same thing,” Jobs said.

Cook sliced the number of key Apple suppliers to 24 from 100 and persuaded them to cut better financial deals or risk losing Apple’s business, according to the book. He also closed 10 of the company’s 19 warehouses to limit where inventory could build up. By September 1998, Cook had cut inventory down to six days, from about a month.

Cook, who majored in industrial engineering at Auburn University and earned a master’s of business administration from Duke University, said he knew within five minutes of meeting with Jobs that he wanted to work for Apple.

“My intuition told me that joining Apple would be a once- in-a-lifetime opportunity to work for a creative genius,” Cook said. “Engineers are taught to make a decision analytically, but there are times when relying on gut or intuition is most indispensable.”

‘Mow You Down’

The book paints a picture of Cook as someone who thrived under Jobs because he was calm and decisive, while shunning the limelight.

“Some people resent the fact that Steve gets credit for everything, but I’ve never given a rat’s ass about that,” Cook said. “Frankly speaking, I’d prefer my name never be in the paper.”

Another key to Cook’s success was learning when and how to disagree with Jobs.

“I realized very early on that if you didn’t express your opinion, he would mow you down,” Cook said. “He takes contrary positions to create more discussion, because it may lead to a better result. So if you don’t feel comfortable disagreeing, then you’ll never survive.”

While handling day-to-day operations while Jobs was away for a liver transplant in 2009, Cook said during a conference call that Apple would thrive whoever is at the helm.

Advice for Google’s Page

When he heard the remarks, Jobs didn’t know whether to be “proud or hurt that it might be true,” Isaacson wrote.

When Jobs returned from getting his transplant in Memphis that year, Ive and Cook met him at the airport.

While Jobs was a vigorous competitor, he also came to view himself as an elder statesman with a responsibility for giving advice to Google’s Page, Facebook Inc. CEO Mark Zuckerberg and other emerging technology executives, according to the book.

Soon after Google co-founder Page was named to replace Eric Schmidt, he sought advice from Jobs about being a better CEO.

“My first thought was, ‘F**k you,’” Jobs told Isaacson. Jobs was incensed over Google’s foray into smartphones. Jobs then reflected on how Hewlett-Packard Co. (HPQ) co-founder William Hewlett had helped him earlier in his career.

Jobs urged Page to sharpen Google’s focus and jettison products that put the company at risk of becoming like Microsoft Corp.

Giving Back

“I described the blocking and tackling he would have to do to keep the company from getting flabby or being larded with B players,” Jobs said of the meeting in his living room. “Figure out what Google wants to be when it grows up. It’s now all over the map. What are the five products you want to focus on? Get rid of the rest, because they’re dragging you down. They’re turning you into Microsoft.”

Jobs said he intended to advise other executives in the succeeding months.

“I will continue to do that with people like Mark Zuckerberg, too,” Jobs said. “That’s how I’m going to spend part of the time I have left. I can help the next generation remember the lineage of great companies here and how to continue the tradition. The Valley has been very supportive of me. I should do my best to repay.”

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net

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

Read more...

Groupon IPO May Value Stake Held by Chairman Lefkofsky’s at $2.3 Billion

By Lee Spears, Douglas MacMillan and Ari Levy - Oct 22, 2011 6:39 AM GMT+0700

Groupon Inc. founder and Chairman Eric Lefkofsky may parlay a $1 million check to co-founder Andrew Mason four years ago into a stake worth $2.3 billion when the daily-deal site sells shares to the public next month.

Lefkofsky owns 129.2 million common shares, according to the company’s prospectus, at least double the amount owned by Mason or fellow co-founder Bradley Keywell. New Enterprise Associates, the earliest venture backer, may see its $10 million investment grow more than 100-fold, to $1.57 billion.

Groupon’s market value would be about $11.4 billion following the IPO, less than half the size the company reportedly discussed with bankers earlier this year. Still, a decision to reject a buyout bid in 2010 from Google Inc. that would have valued the Chicago-based company at $6 billion may have paid off. At the high end of the price range, the founders’ combined 34 percent stake would be worth $3.9 billion on paper.

“We’re not where we were a few months ago, but we’re still talking about double what Google offered to pay,” said Anupam Palit, senior equity analyst at New York-based GreenCrest Capital Management LLC, which researches private companies.

Mason’s stake in Groupon may be valued at as much as $845 million, while Keywell’s share may reach $742 million, according to a regulatory filing today. Investors that have put money into Groupon since its inception have paid an average of 31 cents a share for their stakes, the filing shows. The high end of the $16 to $18 offering price range implies an average 58-fold gain for current holders.

Venture Backing

Venture capitalists have led more than $1.12 billion in investments in Groupon since 2008. New Enterprise Associates, which owns 87.5 million shares, paid $4.8 million in 2008. That investment valued the startup at about $30 million, filings show. The firm, which has offices in Chevy Chase, Maryland, and Menlo Park, California, invested another $10 million in November 2009, and received a $4.9 million dividend from the company the same month, according to the prospectus.

Accel Partners, with 33.2 million shares, may see its stake valued at as much as $598 million, according to the prospectus. Palo Alto, California-based Accel led a $30 million round in December 2009, in which New Enterprise Associates also bought shares, Groupon said in a statement at the time. Accel was the first venture investor in Facebook Inc.

Groupon’s implied market value, in addition to being almost twice as much as Google sought to pay for the company in December 2010, is more than double the implied valuation in the latest round of financing.

Voting Power

In January, Groupon raised $950 million from investors including Andreessen Horowitz, Battery Ventures, Greylock Partners, Kleiner Perkins Caufield & Byers and private-equity investor Silver Lake. That valued Groupon at about $4.75 billion, people with knowledge of the matter said at the time.

Bloomberg LP, the parent company of Bloomberg News, is an investor in Andreessen Horowitz.

While the three co-founders will collectively own more than a third of Groupon’s common stock, they will also share more than 58 percent of the voting power by virtue of the Class B shares they own, which carry 150 votes apiece. Class A stockholders get a single vote per share.

Groupon traces its roots back to a $1 million check Lefkofsky gave to Mason in 2007 to convince him to drop out of graduate school and found a company called The Point, a site that helps people raise funds and build petition lists for activism. That inspired Mason to try another site, Groupon, based around the idea of collective buying.

While Internet companies have seen their shares surge following U.S. IPOs this year, and LinkedIn Corp.’s stock is almost double its offering price, they have not all held their value. Online music provider Pandora Media Inc.’s stock has dropped 5.4 percent since its IPO, while Yandex NV, the owner of Russia’s most popular search engine, has trimmed its gains to 6 percent. At one point, Yandex had climbed as much as 55 percent.

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Douglas Macmillan in New York at dmacmillan3@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net.

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

Read more...

DirecTV Threatens to Pull Fox Channels

By Alex Sherman - Oct 22, 2011 3:14 AM GMT+0700

DirecTV (DTV), the largest U.S. satellite- TV provider, is threatening to pull more than 25 channels owned by News Corp.’s Fox Networks to “mitigate the madness” of programming price increases by content providers, a company executive said.

Fox is asking DirecTV to pay 40 percent more for channels including FX, National Geographic and several regional sports networks, according to DirecTV Executive Vice President Derek Chang. DirecTV will remove the channels from its package offerings by Nov. 1 if Fox doesn’t lower its asking price, Chang said in an interview today.

DirecTV is the latest company to spar with content providers about programming price increases. Cablevision Systems Corp. (CVC) and Verizon Communications Inc.’s FiOS pulled the Tennis Channel last month after the network asked for “significantly higher” fees. In October 2010, Cablevision paid Fox what it called “an unfair price” for World Series games after a two- week blackout.

“We continue to talk to Fox and we’re not opposed to paying reasonable increases, but 40 percent is certainly out there,” Chang said. “These are challenging economic times. We’re trying to protect our customers.”

Chang said the El Segundo, California-based company “applauds” other pay-TV operators that have taken similar public stands against content providers.

‘Bad Faith Tactics’

Fox released a statement last night citing DirecTV’s use of “bad faith tactics” in going public with threats to remove the stations. Chang said a statement posted last night on a DirecTV website about the fee increase was intended to alert customers that the channels may disappear.

“The stakes are high since DirecTV has about 19 million subscriber homes, a little under 20 percent of News Corp. (NWSA)’s market that it would lose audience and advertising dollars for,” said David Joyce, an analyst at Miller Tabak & Co. in New York.

Fox said it has proposed keeping its stations on DirecTV as negotiations continue. Chang says talks are ongoing.

“Our hope is to continue to negotiate with Fox to come to a deal to keep these channels up. That’s the best thing for all our customers. That being said, the gap is significant and if we can’t close it, we have to deal with reality,” Chang said.

News Corp.’s chief operating officer, Chase Carey, was DirecTV’s chief executive officer from 2004 to 2009.

DirecTV rose 1 percent to $46.42 at the close in New York. The shares have risen 16 percent this year. New York-based News Corp. rose 2.1 percent to $17.20 and has gained 18 percent this year.

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net.

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

Read more...

EU Confronts Deteriorating Greek Economy as Six-Day Crisis Marathon Starts

By James G. Neuger and Stephanie Bodoni - Oct 22, 2011 1:01 AM GMT+0700

Play Video

Oct. 21 (Bloomberg) -- Christina Romer, former head of President Barack Obama's Council of Economic Advisers and a Bloomberg contributing editor, Arnab Banerji, chief investment officer at Collabrium Capital, Dan Wiener, chief executive officer at Adviser Investments, and Daron Acemoglu, professor of economics at the Massachusetts Institute of Technology, talk about the European sovereign debt crisis. They speak with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

European finance ministers grappled with an assessment that Greece’s economy is deteriorating as they began a six-day battle to stave off a default and shield banks from the fallout.

A review by European and International Monetary Fund experts showed Greek bond writedowns of 60 percent and more official aid would still leave the country with a debt load bigger than its annual economic output by 2020.

Finance ministers braced for “tough” talks at a crisis- management marathon running until Oct. 26, as pressure mounted to stamp out debt woes that threaten to infect the global economy. Aid of 256 billion euros ($354 billion) for Greece, Ireland and Portugal have failed to stabilize markets or prevent the turmoil spreading to France, co-anchor with Germany of the European economy.

Europe’s international image is “disastrous,” Luxembourg Prime Minister Jean-Claude Juncker told reporters before the Brussels meeting. “We’re not really giving a great example of a high standing of state governance.”

Juncker, chairing today’s talks, cancelled the normal post- meeting press conference. Finance ministers from all 27 European Union countries meet tomorrow. EU and euro-area leaders gather on Oct. 23, to be capped by another euro summit on Oct. 26.

The negotiations “will be tough and the situation is serious,” Dutch Finance Minister Jan Kees de Jager said. “We really need to step up efforts, make extra reforms, extra cuts and strict agreements on budgets.”

Stocks, Euro

European and U.S. stocks, the euro, and bonds of struggling countries rose today on speculation that European leaders will find a cure. The Stoxx Europe 600 Index advanced 2.5 percent. The euro added 0.7 percent to $1.3877.

With President Barack Obama stressing the “urgency” of a fix, the search for solutions was snagged by a falling-out between Germany and France, the tandem at the heart of the crisis response ever since the new Greek government discovered a wider-than-expected budget hole in October 2009.

With French bond premiums at euro-era highs, French President Nicolas Sarkozy is campaigning for a European Central Bank role in boosting the firepower of the 440 billion-euro rescue fund, a measure opposed by Germany.

German Finance Minister Wolfgang Schaeuble denied a Berlin- Paris rift, saying Germany pushed back decisions originally slated for Oct. 23 to give the government time to consult lawmakers.

‘Not Stuck’

“France and Germany are not at all stuck in their positions,” Schaeuble said.

Seven options are on the table for leveraging the fund, known as the European Financial Stability Facility. Germany and the ECB have ruled out granting it a banking license, the most potent option.

“New ones are coming into the process because smart people are looking for creative options,” Austrian Finance Minister Maria Fekter said in an interview. “None of the models are amazingly better than the others.”

One way under consideration to break the deadlock is by keeping the EFSF going instead of replacing it with a planned permanent fund, two people familiar with the discussions said yesterday.

The resulting combination of the EFSF and 500 billion-euro European Stability Mechanism would deliver 940 billion euros to impress the markets, the people said. A consensus is emerging to start the ESM in mid-2012, a year ahead of schedule, they added.

‘Turn for the Worse’

The meeting’s start was overshadowed by the report by the European Commission, ECB and IMF that pointed to “a turn for the worse” in Greece.

Divisions over the handling of Greece were thrown into relief by the report, which was obtained by Bloomberg News. It contained a footnote that the ECB, which has lobbied against writedowns, “does not agree” with the inclusion of the bond- loss scenarios.

Officials are considering five scenarios to update a July agreement that foresaw 21 percent losses on Greek debt for private bondholders, people familiar with the deliberations said. They range from sticking with a voluntary swap to a so- called hard restructuring that forces investors to exchange Greek bonds for new ones at 50 percent of their value, the people said.

Greek Needs

A deepening recession and delays in enacting budget cuts have raised Greece’s financing needs by at least 20 billion euros since July, when euro leaders hammered out a 159 billion- euro package, the people said.

“Given still-delayed market access, large scale additional official financing requirements would remain, estimated at some 114 billion euros,” according to the auditors’ report, dated today. “To get the debt down further would require a larger private sector contribution” of at least 60 percent to reduce debt below 110 percent of gross domestic product by 2020.

The government in Athens forecasts the debt load next year at about 172 percent of GDP.

“The situation in Europe is very difficult,” Finnish Finance Minister Jutta Urpilainen said. “Our meeting tonight will be also difficult.”

The ministers signed off on on the payout of its 5.8 billion-euro share of an 8 billion-euro loan to Greece. It’s the sixth installment of a 110 billion-euro package awarded in May 2010.

Greek lawmakers clinched that payment by passing fresh austerity measures yesterday, as hooded protesters threw rocks and battled riot police outside the parliament in Athens.

The skepticism outside Europe of a soft landing for Greece was captured by Brazilian Finance Minister Guido Mantega. Speaking in Campinas, Brazil, today, Mantega said “the numbers still won’t add up. A restructuring of Greek debt is inevitable. The debt is very big to be sustainable.”

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net Stephanie Bodoni in Brussels at sbodoni@bloomberg.net

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

Read more...

Dollar Drops to Post WWII Low Against Yen

By Catarina Saraiva - Oct 22, 2011 4:14 AM GMT+0700

The dollar dropped to a post-World War II low against the yen and fell versus most major currencies on speculation Europe is moving closer to resolving its debt crisis and the Federal Reserve may seek further monetary easing.

The euro advanced for a fourth day against the dollar, in the longest stretch of gains since July, before two European summits over the next five days. South Africa’s rand and Australia’s dollar rallied as stocks and commodities increased, boosting demand for higher-yielding assets. The dollar remained lower versus the yen as Fed Vice Chairman Janet Yellen said new purchases of securities may be appropriate.

“Clearly the dollar is weaker against the euro on speculation that there is going to be a happy ending to the debt crisis,” said Greg Salvaggio, senior vice president of capital markets at the currency trader Tempus Consulting Inc. in Washington. “There’s a risk-on feeling in the market.”

The yen appreciated 0.7 percent to 76.29 versus the dollar at 5 p.m. in New York after touching a record high 75.82. The euro rose 0.8 percent to $1.3896, extending its weekly gain to 0.1 percent. The euro rose 0.1 percent to 105.97 yen.

The dollar dropped before meetings in Europe this weekend as bets that the U.S. currency would rally dropped from the highest level in more than a year.

“There’s broad-based dollar selling,” said Robert Sinche, global head of currency strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “It could just be a market that’s long of dollars and short of risk and other currencies. It’s Friday, and people are uncomfortable going into the weekend with those positions.”

Dollar Bets

Hedge funds and other large speculators pared their net long dollar positions to 126,628 in the week ended Oct. 18 after reaching 132,835 in the prior week, the most since June 2010, according to Commodity Futures Trading Commission data released today. The figures measure futures contracts on dollar bets against the euro, yen, Australian, Canadian and New Zealand dollars, pound, Swiss franc and Mexican peso.

Canada’s dollar rose for a second straight day, advancing 0.9 percent to C$1.0066 versus the greenback as the nation’s annual inflation rate rose more than forecast last month.

The consumer price index increased 3.2 percent in September from a year earlier, Statistics Canada said. The median forecast of economists was for another 3.1 percent rise.

South Africa’s rand was the best performer among the 16 most-traded currencies tracked by Bloomberg, rising 1.8 percent to 8.0408 versus the dollar as stocks and commodities gained. Australia’s currency appreciated 1.4 percent to $1.0376.

Rally in Stocks

The Standard & Poor’s 500 Index increased 1.9 percent, and the Thomson Reuters/Jefferies CRB Index of raw materials added 1.1 percent.

Yellen said in a Denver speech that a third round of large- scale securities purchases might be warranted if necessary to boost a U.S. economy challenged by unemployment and financial turmoil, boosting speculation the central bank will start a third round of asset buying aimed at reviving U.S. growth. The comments followed Fed Governor Daniel Tarullo’s call yesterday for a resumption of large-scale purchases of mortgage bonds.

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

Germany’s Stance

The euro rose against the dollar today as German officials said there are several possible ways of involving the International Monetary Fund to boost the firepower of the European Financial Stability Facility, the region’s rescue fund, to fight the euro-region debt crisis.

Germany favors using an insurance model to leverage EFSF funds or deepening cooperation with the IMF to expand EFSF resources, a German government official said in Berlin today, speaking on condition of anonymity.

France retreated in a clash with Germany over how to expand the power of Europe’s bailout fund. France’s view that the fund should get a banking license enabling it to borrow from the European Central Bank, “is not a definitive point of discussion for us,” French Finance Minister Francois Baroin told reporters.

Euro finance ministers meet today, followed by ministers from all 27 European Union countries tomorrow. EU and euro-area leaders gather on Oct. 23, to be capped by another euro summit Oct. 26.

The yen’s surge today came after it set a record on Aug. 19, which followed a 4.51 trillion-yen ($59 billion) intervention earlier in the month by Japan. The nation has intervened in the foreign-exchange markets three times in the past 13 months to weaken the yen. The currency is up 6.5 percent against the dollar in 2011.

‘Any Sneeze’

“People are just so flat that any sneeze like one macro fund coming in and putting a position on can move the market,” said Andrew Cox, a strategist at Citigroup Inc. in New York. “Currencies were hitting stop losses to the topside with the risk relief including the yen. It’s not a yen-specific move.”

Japan’s government will add 2 trillion yen to the 8 trillion yen in foreign-exchange reserves being shifted to the state-run Japan Bank for International Cooperation to aid exporters and spur acquisitions overseas, a document shows.

A further 2 trillion yen will be allocated to encourage investment in domestic plants and to hire workers, according to another document obtained from two government officials who declined to be identified because the plan isn’t public.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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

Read more...

Obama: U.S. Troops Will Exit Iraq This Year

By Margaret Talev and Roger Runningen - Oct 22, 2011 3:55 AM GMT+0700

President Barack Obama announced that all U.S. troops will be out of Iraq by the end of the year, fulfilling a campaign promise and ending one of the longest conflicts in U.S. history.

“After nearly nine years, America’s war in Iraq will be over,” Obama said at the White House today. American soldiers “will cross the border out of Iraq with their heads held high, proud of their success, and knowing that the American people stand united in our support for our troops.”

The president spoke after conducting a video conference with Iraqi Prime Minister Nouri al-Maliki. Obama said both governments agreed on the next stage in the relationship as the U.S. withdraws its remaining 41,000 troops in Iraq.

Obama’s opposition to the war was a central element in his rise to national prominence, and his vow to bring U.S. troops home was a building block of his 2008 campaign for president.

The U.S. had been negotiating on the terms of an accord with the government of Iraq on whether to keep some U.S. forces there past the end of 2012. The current U.S. agreement with Iraq for keeping troops in the country, negotiated in 2008 under President George W. Bush, expires at the end of this year.

Both governments have said that Iraq needs help with external security and with the continued training and development of its security forces. A sticking point has been U.S. insistence that its troops have immunity from prosecution in Iraqi courts.

Training and Equipment

Obama said discussions will continue on how the U.S. might help train and equip Iraqi forces.

Brian Katulis, a senior fellow at the Center for American Progress, a policy research organization in Washington, said “a large U.S. footprint” in Iraq will remain, given the staffing level at the U.S. embassy and the number of private security contractors.

“I would be surprised if they’re doing anything that would diminish their plans for ongoing security assistance and police training, which will be run under the State Department,” Katulis said.

Denis McDonough, deputy White House national security adviser, said the U.S. got “exactly what we needed to protect our security interests” in negotiating with Iraq.

Iran Issue

He said the withdrawal by the U.S. won’t embolden Iran, which borders Iraq, to seek to expand its influence in the region. The U.S. sees “an Iran that is weaker and is more isolated,” he said.

Obama said the final stage of withdrawals marks a larger transition as the U.S. also draws down troop levels in Afghanistan.

“The tide of war is receding,” he said. That will allow a stronger focus on the U.S. economy, he said.

“After a decade of war the nation that we need to build and the nation that we will build is our own, an America that sees its economic strength restored just as we’ve restored our leadership around the globe,” Obama said.

There have been 3,525 U.S. personnel killed in action in Iraq; an additional 957 died of other causes. More than 32,000 have been wounded. The war has cost at least $752 billion, including training for Iraqis and related diplomatic missions, the nonpartisan Congressional Budget Office said in January.

U.S. military units have been steadily pulling out of Iraq since reaching a peak of almost 170,000 in 2007.

Policy Critics

The troop-withdrawal announcement came under fire from critics of Obama’s policies in the region.

Republican presidential candidate Mitt Romney said in a statement that the withdrawal represents an “astonishing failure to secure an orderly transition in Iraq,” and said it could put U.S. gains in the war at risk.

“The unavoidable question is whether this decision is the result of a naked political calculation or simply sheer ineptitude in negotiations with the Iraqi government,” he said.

Arizona Senator John McCain, Obama’s opponent in the 2008 election, said the withdrawal “marks a harmful and sad setback for the United States in the world.”

McCain, a prominent voice in his party on defense matters, said military commanders have told him the Iraqi military still needs assistance from U.S. forces.

Democratic Base

Among members of the Democratic Party’s base, who have been disappointed by compromises such as the removal of a government- run “public option” from his health-care overhaul and budget deals with congressional Republicans, the withdrawal from Iraq is an achievement the Obama campaign can point to in seeking to raise enthusiasm for his re-election bid.

For Democrats “it’s a significant moment because it delivers on a core promise of the campaign,” said Chris Lehane, who was press secretary to former Vice President Al Gore’s 2000 presidential campaign.

Obama, as a state senator in Illinois, opposed the 2002 congressional resolution authorizing the U.S. invasion, calling it a “dumb war” in a speech to a rally in Chicago. That later became a highlight of the political biography that fueled enthusiasm for him as public sentiment turned against the war.

Today’s announcement bolsters Obama’s ability to draw distinctions with Republican challengers on a national security record that also includes the killing of Osama bin Laden and a military intervention that helped rid the world of Muammar Qaddafi, Lehane said.

Still, the impact on Obama’s re-election campaign is likely to be minimal, Lehane said.

“At the end of the day, there’s one omnipresent, overhanging issue: the economy,” he said.

To contact the reporters on this story: Margaret Talev in Washington at mtalev@bloomberg.net; Roger Runningen in Washington at rrunningen@bloomberg.net

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

Read more...

Fed’s Yellen: QE3 May Be Warranted

By Scott Lanman and Jennifer Oldham - Oct 22, 2011 2:56 AM GMT+0700
Enlarge image

Job seekers wait in line to meet with recruiters at a job fair hosted by Illinois State Senator Dan Kotowski and the Illinois Department of Employment Security on September 15, 2011 in Park Ridge, Illinois. Photographer: Scott Olson/Getty Images

Enlarge image

Janet Yellen, vice chairman of the U.S. Federal Reserve. Photographer: Joshua Roberts/Bloomberg

Federal Reserve Vice Chairman Janet Yellen said a third round of large-scale securities purchases might become warranted if necessary to boost a U.S. economy challenged by unemployment and financial turmoil.

The central bank should also give “careful consideration” to Chicago Fed President Charles Evans’s proposal to tie the near-zero interest-rate pledge to specific levels of unemployment and inflation, Yellen said today in a speech in Denver.

The remarks signal Fed officials may be prepared to delve further into unprecedented monetary territory and take criticism inside and outside the central bank for expanding the balance sheet. Fed policy makers are struggling to lower unemployment that’s been stuck near 9 percent or higher for 30 months without boosting inflation that’s already close to the central bank’s long-run goal.

“Securities purchases across a wide spectrum of maturities might become appropriate if evolving economic conditions called for significantly greater monetary accommodation,” Yellen said in prepared comments to the annual meeting of the Financial Management Association International.

The U.S. recovery is “disappointingly slow,” which leaves the economy “vulnerable to downside shocks,” Yellen said. Job growth is likely to remain “tepid in the coming months,” and the chance that Europe’s sovereign-debt crisis may pressure U.S. financial companies is “particularly worrisome,” Yellen said.

Adverse Developments

“The potential for such adverse financial developments to derail the recovery creates, in my view, significant downside risks to the outlook,” said Yellen, 65, an economist who has been Chairman Ben S. Bernanke’s top lieutenant in Washington for one year. She previously served as president of the San Francisco Fed.

Stocks remained higher after the speech, with the Standard & Poor’s 500 Index up 1.4 percent to 1,232.48 at 3:48 p.m. in New York. Yields on 10-year Treasuries were up 2 basis points, or 0.02 percent, to 2.21 percent from yesterday.

Fed officials are divided over whether and how to ease policy further after two decisions to lower borrowing costs with unconventional tools. Options include a third round of securities purchases and making the near-zero interest-rate pledge more specific. Dissenters including Philadelphia Fed Chief Charles Plosser say loosening policy harms the central bank’s credibility.

Fed Pledge

In August, the Fed pledged to hold interest rates near zero until at least mid-2013, and last month the central bank said it would swap $400 billion of short-term debt in its portfolio for longer-term securities in order to bring down interest rates, a strategy dubbed Operation Twist by economists and the “maturity extension program” by the Fed.

Yellen said the scale of Operation Twist “is necessarily limited by the amount of our holdings of shorter-term securities” and that buying such a large portion of long-term Treasuries “could potentially have adverse effects on market functioning.”

As a result, buying securities with varying maturities may eventually be warranted, she said without giving a timeframe or specifying the type of asset.

Yesterday, Fed Governor Daniel Tarullo, who’s backed all of Bernanke’s policy decisions for almost three years, said the central bank should consider resuming large-scale purchases of mortgage bonds to boost economic growth and help combat a “crisis” in employment.

Record Stimulus

Evans and Eric Rosengren of Boston have also urged the policy-setting Federal Open Market Committee to increase its record stimulus. Evans is calling for the Fed 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.

Evans’s plan is “potentially promising” and “could be helpful in facilitating public understanding of how various possible shifts in the economic outlook would be likely to affect the anticipated timing of policy firming,” Yellen said today.

At the same time, the approach has “potential pitfalls,” including the chance that “such thresholds could potentially be misunderstood as conveying the committee’s longer-run objectives rather than the conditions surrounding the likely onset of policy firming,” Yellen said.

More Asset Purchases

Rosengren said in an Oct. 19 interview with CNBC that “if the economy were to be weaker than most people are forecasting, that would certainly be cause for doing additional monetary policy,” and more asset purchases are “certainly a possibility.”

The August and September FOMC decisions provoked dissents from three policy makers, the most disagreement during Bernanke’s almost six years as chairman. One of those policy makers, Minneapolis Fed President Narayana Kocherlakota, said today that the Fed’s decision-making this year “has introduced a lack of clarity about its monetary policy mission.”

Additional asset purchases would constitute a third round of so-called quantitative easing after the Fed bought $2.3 trillion in housing and government debt in two rounds from December 2008 to June 2011.

Any decision to expand the Fed’s $2.86 trillion balance sheet may also spark a fresh wave of political criticism from Republicans. Most of the party’s presidential candidates have found fault with Bernanke or the Fed; Texas Governor Rick Perry said printing more money may be “treasonous.” Republican lawmakers, including House Speaker John Boehner of Ohio, sent a letter to Fed officials last month urging them to forgo additional easing.

Economic Outlook

The economy expanded at a 1.3 percent annual pace in the second quarter after a 0.4 percent rate in the first three months of the year, according to the Commerce Department. Analysts surveyed by Bloomberg this month projected a 2 percent rate of growth in the third quarter, based on the median estimate; the government will release its first estimate on Oct. 27.

Economic growth, after an annual pace of less than 1 percent in the first half of 2011, is likely to be “noticeably stronger” in the second half, with inflation “more moderate,” Yellen said, citing lower commodity prices and increased auto production and sales.

“Unfortunately, however, a range of other, more persistent factors also appear to be restraining the recovery,” Yellen said. “Moreover, financial market conditions have deteriorated, on net, in recent months, intensifying some of the headwinds facing the economy.”

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

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

Read more...