Jobs’s Apple TV Vision Could Come Next Year

By Adam Satariano - Oct 25, 2011 8:55 PM GMT+0700
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Steve Jobs, chief executive officer of Apple Computer Inc., delivers his keynote address as an image of the Apple TV is projected behind him during MacWorld in San Francisco. Photographer: Eric Slomanson/Bloomberg

Apple Inc. (AAPL) is turning to the software engineer who built iTunes to help lead its development of a television set, according to three people with knowledge of the project.

Jeff Robbin, who helped create the iPod in addition to the iTunes media store, is now guiding Apple’s internal development of the new TV effort, said the people, who declined to be identified because his role isn’t public.

Robbin’s involvement is a sign of Apple’s commitment to extending its leadership in smartphones and tablets into the living room. Before his Oct. 5 death, Apple co-founder Steve Jobs told biographer Walter Isaacson that he had “finally cracked” how to build an integrated TV with a simple user interface that would wirelessly synchronize content with Apple’s other devices.

“It will have the simplest user interface you could imagine,” Jobs told Isaacson in the biography “Steve Jobs,” released yesterday by CBS Corp. (CBS)’s Simon & Schuster.

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment. Outside of Jobs’s remarks in the book, Apple hasn’t acknowledged that it’s developing a TV set. And according to one person, it’s not guaranteed that Apple will release a television.

Until now, the company’s TV efforts have been limited to Apple TV, a small $99 gadget that plugs in to a television and gives users access to content from iTunes, Netflix Inc. (NFLX)’s streaming service and YouTube. Jobs had called it Apple’s “hobby,” rather than something designed to be a serious moneymaker.

Prototype Model

That may be changing. Apple has a prototype TV in the works and may introduce a product for sale by late next year or 2013, according to Gene Munster, an analyst with Piper Jaffray Cos. He based that timing on meetings with contacts close to Apple’s suppliers in Asia, industry contacts and Apple’s patent portfolio. Munster said Apple also is investing in manufacturing facilities and securing supplies of LCD screens.

Apple’s introduction of the voice-command software Siri and Web-storage service iCloud also could be used for a future television, Munster said in a note to investors yesterday. Siri may help search for videos, while iCloud allows customers to store video, music, pictures and other content on the company’s servers instead of their own hard drives.

Searching for Shows

One of Apple’s goals for a new TV is to let users more seamlessly search for a show or movie, said one of the people. For example, instead of having to separately check to see if a movie or show is available through Netflix or a cable service, all the material could be integrated, this person said.

One challenge will be getting makers of movies and television shows to change how they make their content available. Apple has considered adopting new business models for delivering video, including a subscription TV service, media executives said last year. Those talks didn’t lead to a deal.

Building a full TV set would put Apple in closer competition with consumer-electronics companies such as Samsung Electronics Co. and Sony Corp. (SNE) Apple could sell 1.4 million TVs next year, out of about 220 million flat-panel sets for the total market, according to Munster. That could add $6 billion in revenue to the company’s top line by 2014, he said.

Google Inc. (GOOG), which competes with Apple in the smartphone market, also is attempting to attract customers to an operating system it has created for televisions. Unlike that approach, Apple would be building both the hardware and the software.

Apple fell 0.9 percent to $402.18 at 9:50 a.m. in New York. The shares have climbed 26 percent this year before today.

SoundJam Player

Robbin, the software engineer helping lead the TV effort, was hired in 2000 to develop iTunes after Apple bought the SoundJam digital music player he developed. ITunes, introduced in January 2001, became Apple’s digital hub for synchronizing music, video and applications across Apple’s devices, including the iPod, iPhone and iPad.

According to the biography, Jobs considered Robbin such a valuable employee that he wouldn’t let a Time magazine reporter meet him without agreeing not to print his last name, for fear that he would be poached by a competitor.

Robbin was among the Apple executives who helped persuade Jobs to allow computers running Microsoft Corp. (MSFT)’s Windows software to use iTunes, according to the biography, a move that helped the company add millions of new customers. The iTunes digital store, with more than 225 million registered users, generated almost $1.5 billion last quarter.

Robbin also was closely involved with the development of the iPod, including participating in a crucial 2001 meeting when Apple decided on the spin-wheel design of the digital music player and charted its expansion beyond personal computers to mobile computing, according to the book.

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

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

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Inflation Peaking in U.S. as Commodity Prices Tumble

By Whitney McFerron - Oct 25, 2011 10:17 PM GMT+0700

The biggest rout in commodities since the global recession may be a sign that the fastest U.S. inflation in three years is peaking.

The Standard & Poor’s GSCI Index of 24 commodities entered a bear market last month after sliding more than 20 percent from a two-year high in April, on concern that slower growth will cut demand. A slump in the gauge from a 2008 record preceded a drop in inflation, while a 2009 rebound caused the consumer price index to climb. Raw materials fell 12 percent in September as the CPI rose 3.9 percent from the same month a year earlier, the most since 2008.

“There is a sense that headline inflation is receding,” said Stephen Stanley, the chief economist at Pierpont Securities LLC, a government-bond broker in Stamford, Connecticut. “Things have been a little more tame the last few months than they were earlier in the year, when you had this relentless push higher, in energy prices especially.”

That’s good news for shoppers, manufacturers and Federal Reserve Chairman Ben S. Bernanke, whose efforts to revive the economy have been criticized for risking faster inflation. Lower commodity costs, accounting for 40 percent of the CPI, would give Bernanke even more flexibility to shore up growth. The benchmark measure for prices will slow to 2.1 percent in 2012 from 3.1 percent this year, according to the median estimate of 75 economists surveyed by Bloomberg News.

Retail Costs

While the commodity gauge doubled from its 2009 low as shortages emerged in energy, metals and grain markets, the cost of regular gasoline fell to $3.451 a gallon on Oct. 23 from $3.985 in May, American Automobile Association data show. The fuel accounts for 4.9 percent of CPI. Three years ago, a plunge to $1.616 from $4.114 helped reverse the year-over-year inflation rate of 5.6 percent in July 2008 to a contraction of 2.1 percent in the same month a year later.

The pace of food-cost gains will slow to 2.5 percent to 3.5 percent next year, compared with 3.5 percent to 4.5 percent in 2011, the U.S. Department of Agriculture said today. The commodities account for almost 14 percent of CPI.

The United Nations World Food Price Index has fallen 5.3 percent from a record in February as wheat plunged 30 percent from this year’s peak and corn and soybeans retreated. In August, Orrville, Ohio-based J.M. Smucker Co. lowered the price of Folgers coffee, the top-selling U.S. brand, as arabica-bean futures dropped as much as 24 percent from a peak in May. Cotton is 51 percent cheaper than the end of March, easing pressure on clothing manufacturers. Apparel accounts for 3.6 percent of CPI.

Slowing Inflation

Price growth will slow to 3.35 percent this quarter from 3.77 percent in the previous three months, according to the median of 68 economists’ estimates compiled by Bloomberg. CPI will cool to 2 percent by the third quarter of next year, the estimates show.

The government’s measure includes 60 percent services such as rent and medical care and 40 percent commodities, which the Bureau of Labor Statistics defines as food, beverages, apparel and other non-durable goods, as well as durable goods including cars and appliances. The cost of those items is determined by raw materials and other expenditures, including labor.

“We’ve already seen some declines in gasoline prices and at least for some foodstuffs,” said Randy Kroszner, a former Fed governor and an economics professor at the Booth School of Business at the University of Chicago. “That suggests that the outlook for inflation is relatively subdued.”

Investors’ Outlook

Investors are expecting a slower pace than they did in April, when the S&P GSCI gauge was at a 32-month high. The difference in yields on 10-year Treasury Inflation Protected Securities and 10-year bonds is 2.0309 percentage points, the average rate investors anticipate in CPI over the life of the securities, down from an almost five-year high of 2.6556 points on April 11.

Consumers also are changing their outlook. In a survey released by the University of Michigan on Oct. 14, they expected an inflation rate of 3.2 percent over the next 12 months. In the same survey in March, respondents forecast rates would reach 4.6 percent, the highest since August 2008.

While commodities are declining, they remain costly relative to past years, meaning inflation will stay near the highest levels since 2008. The median forecast of a 3.1 percent gain in the CPI this year compares with expectations for 1.5 percent in January, a Bloomberg survey of 75 economists shows.

Copper, Crude

Copper averaged $8,993 a metric ton in London in the third quarter, down for a second straight period. A typical U.S. home has 439 pounds (199 kilograms) of copper wire and plumbing, while a car has about 50 pounds. New and used vehicles account for 6.3 percent of the CPI. Shelter, a category that includes everything from rent to household insurance, makes up 32 percent.

Crude oil cost $89.54 a barrel on the New York Mercantile Exchange on average in the past quarter, 13 percent above its five-year trend. Heating oil was $2.9847 a gallon, 45 percent higher than a year earlier. Household energy makes up 4 percent of CPI. Crude oil climbed 3 percent to $94.02 today.

Cattle futures in Chicago reached a record $1.24475 a pound on Oct. 17, in part because corn-feed costs surged in the first half of 2011 and a drought led to depleted herds in Texas. Pork chops rose to a record $3.831 a pound at the end of September, and ground beef retailed at $2.868 a pound, also the highest ever, according to the Bureau of Labor Statistics. Sirloin steak is 8.5 percent more expensive than a year earlier, and bacon advanced 5.4 percent.

Expensive Cheese

Dairy is still appreciating, with cheddar cheese in supermarkets costing the most in at least a quarter century, government data show. Milk futures rose 35 percent this year in Chicago, driving ice cream to $4.805 for a half-gallon, up 11 percent from a year earlier. Dairy accounts for 0.8 percent of CPI, and meat, fish and eggs are 1.8 percent.

While the drop in commodities may be good for consumers, it may curb the boom in U.S. agriculture. The government anticipates record farm income of $103.6 billion this year. North Dakota, the biggest wheat grower in 2010, has the nation’s lowest jobless rate, at 3.5 percent. The second-lowest, at 4.2 percent, is Nebraska, the top corn producer after Iowa and Illinois.

Goldman Sachs Group Inc. predicted on Oct. 4 that the slump will give way to a 20 percent gain in the next 12 months, led by energy and industrial metals. Barclays expects shortages in copper and tin next year. The International Energy Agency anticipates record demand for crude oil. Macquarie Group Ltd. forecasts deficits in corn, wheat and soybeans.

‘Here to Stay’

“Input-price inflation is here to stay, and that’s demand and supply driven,” said Pete Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets.

Companies will be reluctant to cut prices because “they think any sell-off is short term in duration,” Sorrentino said. “They run up fast, and then they’re sticky on the downside.”

SuperValu Inc., the owner of Save-A-Lot grocery stores, has “taken a deliberate approach to passing on price increases as soon as practical,” Chief Financial Officer Sherry Smith said on an Oct. 19 conference call. The Eden Prairie, Minnesota-based company expects inflation of 3 percent to 4 percent this year, compared with 4.5 percent in the second quarter.

Higher-than-average unemployment and consumer confidence that weakened in October to the lowest level since March 2009 may make people reluctant to pay more for some products. Bentonville, Arkansas-based Wal-Mart Stores Inc., the world’s largest retailer, said Oct. 12 that it plans to lower prices as it cuts operating expenses as a percentage of sales over the next five years.

Tight Budgets

Shoppers have “concern about their income, and their family, and their budgets and how they’re going to get through,” Wal-Mart Chief Executive Officer Michael Duke said on a conference call Oct. 12. “That economic pressure our customers still feel today here in the U.S., and I can’t tell you that I’ve seen it get better.”

The data doesn’t support Bernanke’s critics, including Republican presidential candidate Rick Perry and Allan H. Meltzer, an economics professor at Carnegie Mellon University.

After the Fed purchased $2.3 trillion in housing and government debt during two rounds of so-called quantitative easing from December 2008 to June 2011, Perry, the governor of Texas, said in August that printing more money may be “treasonous.” Meltzer, who has written a two-volume history of the central bank, said in March that inflation was a growing threat and that the pace would quicken as soon as housing prices stop falling.

Employment Gains

According to estimates compiled by Bloomberg, economists anticipate the jobless rate falling to 8.7 percent in the fourth quarter of 2012, from 9.1 percent unemployment now, which is almost double the rate four years ago. U.S. growth will accelerate to 2 percent next year from 1.7 percent in 2011, the estimates show.

That may not mean faster inflation, which “appears to have moderated,” the Federal Open Market Committee said Sept. 21. Bernanke said in testimony to Congress on Oct. 4 that the higher prices haven’t become “ingrained” in the economy.

The central bank said in its Beige Book survey Oct. 19 that economic activity “continued to expand” last month while some areas of the country are reporting the pace of growth as “slight,” and companies see more doubt about the strength of the recovery. Prices paid by producers for raw materials were 6.9 percent higher in September than a year earlier, outpacing the gain in CPI and suggesting that some businesses may be reluctant to pass on higher costs.

Meat and Dairy

The USDA expects food inflation to retreat in all but four of 21 categories it monitors, including meat and dairy products. Futures traders anticipate gasoline dropping about 6.4 percent by the end of next year, and heating oil 4.9 percent. Motor fuel makes up 5.1 percent of CPI.

The Journal of Commerce Smoothed Price Index, which tracks the annual growth rate of 18 industrial materials from burlap to tallow, fell below zero in August, and reached minus 23.32 on Oct. 21, the lowest since June 2009. The last time it went from positive to negative was in August 2008, a month before the collapse of Lehman Brothers Holdings Inc.

“Commodities come off most when the winds of recession are blowing pretty strong,” said Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Inflation has “run up to the top because gasoline prices were so high this spring,” he said. “Now that gas peaked at around $4, there’s nowhere for headline CPI to go but down.”

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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U.S. Stocks Fall on Data; UPS Slumps

By Rita Nazareth - Oct 25, 2011 10:38 PM GMT+0700

U.S. stocks fell, halting a three- day gain in the Standard & Poor’s 500 Index, after United Parcel Service Inc. (UPS) sank and economic reports missed estimates as investors awaited tomorrow’s European summit.

All 10 groups in the S&P 500 retreated as a gauge of financial stocks slid 2 percent. UPS, the largest package- delivery company and a proxy for the economy, retreated 1.9 percent after international shipping growth began to cool while U.S. expansion stagnated. 3M Co. (MMM), the maker Scotch-Brite sponges, lost 5.2 percent after cutting its 2011 profit forecast. Netflix Inc. (NFLX), the DVD and video-streaming company, plunged 35 percent after projecting losses in 2012.

The S&P 500 lost 1.2 percent to 1,239.38 as of 11:37 a.m. New York time, after rallying 3.7 percent over the previous three days. The Dow Jones Industrial Average retreated 108.91 points, or 0.9 percent, to 11,804.71 today.

“It’s going to be a slow recovery,” Mark Bronzo, who helps manage $23 billion at Security Global Investors in Irvington, New York, said in a telephone interview. “The economic data points show that we’re in a bottoming process. UPS gave some cautious commentary concerning global economic growth. People feel that the market is a little overbought after the rally.”

The S&P 500 has risen 11 percent in October through yesterday, following a five-month decline. It climbed from the threshold of a bear market early in October on steps by European leaders to support banks and higher-than-estimated earnings. The rebound brought the index above a price range where it had traded since August.

Economic Reports

Stocks extended losses after consumer confidence unexpectedly slumped in October to the lowest level since March 2009, when the U.S. economy was in a recession, as Americans’ outlooks for employment and incomes soured. Separate data showed that home prices in 20 U.S. cities dropped more than forecast in August, highlighting one of the obstacles facing the economic recovery in its third year.

The Morgan Stanley Cyclical Index of companies most-tied to the economy dropped 1.8 percent. The Dow Jones Transportation Average, a proxy for the economy, declined 1.8 percent. A gauge of homebuilders in S&P indexes tumbled 3.2 percent.

Forty-three companies in the S&P 500 are scheduled to release earnings today, according to data compiled by Bloomberg. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ projections, the data showed. Profit for all companies in the index climbed 16 percent during the third quarter, and will increase 18 percent to a record $99.35 a share for all of 2011, according to analyst estimates compiled by Bloomberg.

UPS Slumps

UPS decreased 1.9 percent to $69.50. The company’s total U.S. volume was flat in the third quarter because of “the slow U.S. economy,” Atlanta-based UPS said today in a statement. A 4.6 percent increase in shipments outside the U.S. trailed the 6.2 percent gain in the previous three months.

Traders had boosted the price of bearish UPS options to the highest level since 2008 before the company’s quarterly report. The cost of puts to sell was 57 percent higher than calls to buy as of Oct. 21, according to data compiled by Bloomberg. The price relationship known as skew widened 20 percent since Oct. 4. For FedEx Corp., the company’s biggest competitor, the gap in option prices increased 8.6 percent during the period.

3M lost 5.2 percent to $77.89. The maker of auto parts and Scotch-Brite sponges cut its 2011 profit forecast after reporting third-quarter profit that fell short of analysts’ estimates.

Netflix Plunges

Netflix plunged 35 percent to $77.74. The company faces rising content costs, a customer revolt over a price increase and startup costs as it expands into Latin America, followed by the U.K. and Ireland in early 2012. Other new markets will have to wait, Chief Executive Officer Reed Hastings said.

European leaders will hold a summit tomorrow as they seek to bolster the region’s rescue fund, recapitalize banks and provide debt relief to Greece. Boosting the effectiveness of the European Financial Stability Facility will require further talks with investors as German lawmakers prepare to vote on its new powers, a European Union document showed.

“It’s hard to get excited in this environment,” Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. “You have very anemic growth and you have a big a question mark about the debt situation in Europe.”

Moving Averages

The proportion of stocks above their 50-day moving averages rose to the highest level in a year, a sign that the S&P 500’s rally from its 2011 low will last, according to Bespoke Investment Group LLC. About 90 percent of the stocks in the benchmark index are trading above their average in the past 50 days, the most since Oct. 18, 2010, according to the research firm. That marked a reversal from the past year, when the ratio fell even as the S&P 500 reached new highs.

“We have been stressing how important it is for this market to see expansion in underlying breadth during market rallies,” Justin Walters, Bespoke’s co-founder, wrote in a note to clients yesterday. “With the current rally, we are finally getting it.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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

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Stocks in U.S. Decline on Earnings, Confusion Over European Rescue Effort

By Michael P. Regan and Rita Nazareth - Oct 25, 2011 10:31 PM GMT+0700

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Oct. 25 (Bloomberg) -- Markus Rosgen, Hong Kong-based chief Asian strategist at Citigroup Inc., talks about the outlook for Asian and U.S. equity markets. Rosgen also discusses the impact of Europe's debt crisis on global stocks. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

U.S. stocks slid, halting a three- day rally, as earnings and economic reports disappointed investors and the euro weakened amid confusion over how much progress European leaders are making in debt-crisis talks. Treasuries rallied and commodities trimmed gains.

The Standard & Poor’s 500 Index lost 1.4 percent to 1,237.2 at 11:28 a.m. in New York. The Stoxx Europe 600 Index dropped 0.9 percent and the euro fell 0.3 percent to $1.3887, declining from a six-week high. Ten-year Treasury yields fell eight basis points to 2.16 percent. The S&P GSCI Index of commodities was up 0.7 percent, paring a 1.4 percent gain. Oil rose to a 12-week high on signs of falling U.S. supplies.

The euro and stocks slid as the cancellation of tomorrow’s meeting of European Union finance ministers spurred concern that summits of the region’s leaders will fail to produce agreements on how to tame the debt crisis. 3M Co. (MMM) slid following lower- than-estimated earnings and United Parcel Service Inc. (UPS) slipped as international shipping growth began to cool, while a gauge of U.S. consumer confidence sank to the lowest since March 2009.

“It’s hard to get excited in this environment,” Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. “You have very anemic growth and you have a big a question mark about the debt situation in Europe.”

German Vote

European leaders will hold a summit tomorrow as they seek to bolster the region’s rescue fund, recapitalize banks and provide debt relief to Greece. Boosting the effectiveness of the European Financial Stability Facility will require further talks with investors as German lawmakers prepare to vote on its new powers, a European Union document showed.

The S&P 500 retreated after three straight gains lifted the benchmark index to the highest level since Aug. 3 and trimmed its year-to-date drop to 0.3 percent. 3M slid 5.2 percent for the biggest loss in the Dow Jones Industrial Average, followed by declines of at least 2.5 percent in Alcoa Inc., Pfizer Inc. and Hewlett-Packard Co.

MF Global Holdings Ltd. plunged 39 percent to $2.16, the lowest price on a closing basis since 2008, after the futures broker said its quarterly loss widened on charges tied to deferred tax assets and a restructuring.

About 74 percent of the 141 S&P 500 companies that have reported results since Oct. 11 have beaten analysts’ estimates, the data show.

Economic Data

The Conference Board’s sentiment index decreased to 39.8 from a revised 46.4 reading in September. The S&P/Case-Shiller index of property values in 20 cities fell 3.8 percent from August 2010, the group said today. The median forecast of 30 economists surveyed by Bloomberg was for a 3.5 percent decline.

The euro weakened against eight of 16 major peers, with the South Korean won and Japanese yen strengthening at least 0.6 percent to lead gains. The dollar strengthened against 13 of 16 major peers, while slipping as much as 0.5 percent against the Japanese currency to touch a post-World War II record of 75.74 yen.

The Stoxx 600 retreated from an 11-week high as construction companies and raw-materials producers led losses. STMicroelectronics NV, Europe’s largest semiconductor maker, fell 7.5 percent after predicting fourth-quarter sales short of analysts’ estimates.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

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

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Bigger Bailout Fund for Europe Needs Work as Germany Faces Parliament Vote

By Brian Parkin and Rainer Buergin - Oct 25, 2011 4:57 PM GMT+0700

Boosting the effectiveness of Europe’s bailout fund will require further talks with investors as German lawmakers prepare to vote on its new powers tomorrow, a European Union document showed.

While the European Financial Stability Facility can be bolstered under two models that may be combined and implemented “quickly,” the extent to which the fund is leveraged can only be ascertained after discussions with investors and rating companies, the document provided to German lawmakers said.

The draft underscores the gaps remaining in European Union efforts to address the debt crisis as Chancellor Angela Merkel and fellow leaders prepare to return to Brussels tomorrow for a second summit in four days. EU leaders are still jousting with banks over the size of losses they take on Greek bonds while deliberating over leveraging the fund after ruling out tapping the European Central Bank’s balance sheet.

“A lot of people will wait to see the detail” of how the EFSF capacity is increased, Kit Juckes, head of foreign-exchange research at Societe Generale SA in London, said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “It’s hard to see that the ECB isn’t going to have to print some of this.”

The euro gained 0.2 percent to $1.3945 as of 11:33 a.m. in Berlin. European stocks fluctuated near an 11-week high, with the benchmark Stoxx Europe 600 Index little changed at 242.05 in London.

Leverage Models

German budget lawmakers are due to convene in private in Berlin today to begin scrutiny of the two leveraging models. The first would raise the EFSF’s capacity by insuring a fraction of countries’ funding requirements, and the second combines capital from European and non-European public and private investors, the draft said. The two are not “mutually exclusive,” Steffen Seibert, Merkel’s spokesman, told reporters yesterday.

“The capacity of the extended EFSF can be enlarged without extending the guarantees underpinning” it, the draft said. Even so, “the leverage which can be achieved can only be determined after dialog with investors and rating agencies around the new instrument, and in the light of prevailing investor appetite over time for the sovereign bonds of particular member states.”

German Party Conditions

Merkel’s Free Democratic coalition partner, which has flirted with bailout skepticism, indicated support for the revamped fund that should allow it to pass in tomorrow’s German parliamentary vote. Merkel has a majority in the lower house.

“The instruments are acceptable because the ECB won’t be turned into a money-printing machine, the EFSF won’t be given a bank license and the guarantees will remain capped at 211 billion euros,” Christian Lindner, FDP general secretary, said in Berlin today, according to an e-mailed transcript.

Two years after the sovereign debt crisis came to light in Greece, Europe’s response to the market turmoil once more hangs on German willingness to remain the biggest contributor to euro- area bailouts.

Europe’s highest-rated countries aren’t ready to provide “considerably” more “fresh capital” than agreed at a July EU summit, Austria’s Finance Minister Maria Fekter said.

“The AAA countries Germany, the Netherlands, Austria and Finland have signaled that they won’t consider putting up very much in fresh cash,” Fekter told reporters in Vienna today. “We’re committed to our contribution, but the measures can’t cost much more than that because we’ve got to look after our AAA ratings.”

Australian ‘Uncertainty’

Australian Prime Minister Julia Gillard became the latest world leader to urge European officials to act swiftly in resolving the crisis.

“Our deepest uncertainty comes from Europe,” Gillard told a Commonwealth Business Forum in Perth today. “We acknowledge the steps Europe has taken and how painful they have been. But more needs to be done and needs to be done fast.”

The yield on Greek two-year notes jumped 199 basis points to 80.30 percent, while German two-year yields fell two basis points, or 0.02 percentage point, to 0.63 percent at 9:34 a.m. London time.

Merkel is pushing for investors to accept losses on Greek debt of as much as 60 percent and for bank recapitalizations of about 100 billion euros, Greens party co-leader Juergen Trittin told reporters after talks with the chancellor. He said the EFSF might be leveraged to “more than 1 trillion” euros.

Greek Writedowns

Financial companies, represented by the Institute of International Finance, proposed a loss of 40 percent on Greek debt, said a person with knowledge of the discussions, who declined to be identified because talks are confidential. The EU is calling on investors to forfeit as much as 60 percent, making a compromise at 50 percent possible, the person said.

“There are limits, however, to what could be considered as voluntary to the investor base and to broader market participants,” Charles Dallara, the IIF’s managing director, said in an e-mailed statement. “Any approach that is not based on cooperative discussions and involves unilateral actions would be tantamount to default.”

Greece’s deteriorating finances have narrowed Europe’s room for maneuver in battling the contagion, which threatens to pitch the country into default, rattle the banking system, infect Spain and Italy and tip the world economy into recession.

Berlusconi’s Defense

“Nobody has anything to fear about Europe’s third-largest economy,” Prime Minister Silvio Berlusconi said in an e-mailed statement, defending his government’s commitment to fiscal rigor after the EU urged Italy to pass “comprehensive” measures to fight the debt crisis. The government is preparing to push through “important decisions” on structural changes, he said.

According to the document, Option 1 calls for the EFSF to lend a distressed state the money to buy EFSF bonds with detachable “partial protection certificates” that can be traded separately from the EFSF bonds themselves, which would be used to collateralize the certificates in the event of a default.

What would constitute a default still has to be decided, the paper says. If a state failed to meet its obligations, the owners of the certificates would be paid off with the EFSF bonds held in a separate trust, the document states.

Using the option would risk triggering so-called negative pledge clauses in the documents governing some of the bonds, according to the draft. A negative pledge forbids an issuer selling new debt senior to existing bonds. The option would also risk increasing the beneficiary country’s tally of debt as reckoned by Eurostat, the EU’s statistical office in Luxembourg.

The paper says Option 2 involves setting up a special purpose investment vehicle, or SPIV, to buy the bonds of the country in question in both primary and secondary markets. The purchases would be funded by the SPIV issuing senior bonds, which would be rated and targeted at traditional fixed income investors. A more junior portion aimed at higher risk investors could also be issued, would rank ahead of the EFSF investment, and share any gains with the EFSF, the draft says.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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

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European Stocks Decline as Tomorrows’ Finance-Minister Meeting Is Canceled

By Adam Haigh - Oct 25, 2011 11:04 PM GMT+0700
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UBS AG advanced 2.2 percent after the biggest bank in Switzerland reported earnings that topped projections. Photographer: Chris Ratcliffe/Bloomberg

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Oct. 25 (Bloomberg) -- John Ricciardi, head of investment at Kestrel Partners LLP, discusses the European sovereign-debt crisis and bank leverage ratios. Ricciardi, speaking with Linzie Janis on Bloomberg Television's "Countdown," also talks about Federal Reserve monetary policy and the U.S. housing market. (Source: Bloomberg)

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Oct. 25 (Bloomberg) -- Simon Maughan, head of sales and distribution at MF Global Ltd., discusses European banks' exposure to Greek debt and third-quarter earnings at UBS AG and Deutsche Bank AG. He talks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

European stocks slid from an 11-week high as U.S. consumer confidence fell and a canceled finance ministers’ meeting fueled concern that the region’s leaders may struggle to resolve the debt crisis at a summit tomorrow.

STMicroelectronics NV sank 7.4 percent as Europe’s largest semiconductor maker forecast sales that trailed estimates. Meyer Burger Technology AG lost 13 percent as the maker of solar-panel equipment said it will halt output at a Swiss unit amid “high uncertainties” within the industry. BP Plc and BG Group Plc led energy companies higher after reporting earnings.

The Stoxx Europe 600 Index declined 0.7 percent to 240.29 at the close of trading, having earlier climbed 0.4 percent. German Chancellor Angela Merkel and fellow leaders return to Brussels tomorrow for a second summit in four days to discuss Europe’s bailout fund. Policy makers are jousting with banks over the size of losses they take on Greek bonds while deliberating over leveraging the fund after ruling out tapping the European Central Bank’s balance sheet.

“The market very much discounts that there will be some kind of result out of the meeting tomorrow,” said Espen Furnes, an Oslo-based fund manager at Storebrand Asset Management, which oversees $74 billion. “Any delays or noise that suggests otherwise is a clear negative.”

Canceled Meeting

Stocks extended losses after the U.K. government said a meeting of EU finance ministers scheduled for tomorrow to decide on bank recapitalization was canceled. They pared some of their decline as it was confirmed that summits of the 27 EU leaders and 17 euro-area heads of government will take place in Brussels as planned.

The gathering of finance ministers was canceled because the bank-recapitalization issue cannot be decided before other elements of the rescue package, a person familiar with the matter said on condition of anonymity.

The Stoxx 600 has rallied for four straight weeks, its longest stretch of gains since December, amid speculation euro- region policy makers will find a solution to the crisis that has Greece on the edge of a default. The measure has still plunged 18 percent from this year’s highest level on Feb. 17.

“We have a very difficult task for the politicians,” John Ricciardi, the head of investment at Kestrel Partners LLP in London, said in a Bloomberg Television interview with Linzie Janis. “All of us in the investing world are concerned by the continued high leverage in the European banking system.”

U.S. Consumer Confidence

In the U.S., consumer confidence unexpectedly slumped in October to the lowest level since March 2009. The Conference Board’s sentiment index decreased to 39.8 from a revised 46.4 reading in September, figures from the New York-based private research group showed today. This month’s reading was less than the most pessimistic forecast in a Bloomberg News survey in which the median projection was 46.

National benchmark indexes fell in 15 of the 18 western European markets today. The U.K.’s FTSE 100 declined 0.4 percent and France’s CAC 40 retreated 1.4 percent. Germany’s DAX Index slipped 0.1 percent.

STMicroelectronics tumbled 7.4 percent to 5.06 euros in Milan after saying net revenue will range from $2.15 billion to $2.3 billion. That compared with an average analyst estimate of $2.52 billion, according to Bloomberg data. Forecasts for gross margin, the percentage of sales remaining after costs of production, were also below projections.

Meyer Burger lost 13 percent to 20.55 Swiss francs as Europe’s biggest solar-panel equipment maker said it will temporarily halt output at its MB Wafertec unit in Switzerland amid “high uncertainties” in the solar industry.

Reckitt, Novartis

Reckitt Benckiser Group Plc retreated 3.4 percent to 3,330 pence, the biggest drop in a month. The maker of Lysol cleaners forecast lower sales and profit at its pharmaceutical division in the fourth quarter because of U.S. health-care reforms and a price increase for Suboxone tablets.

Novartis AG, Europe’s second-biggest pharmaceutical company, lost 3.3 percent to 50.10 francs after saying it plans to eliminate 2,000 jobs in Switzerland and the U.S. and add employees in China and India to offset the effect of drug-price reductions.

BP, the operator of the Macondo well in the Gulf of Mexico that caused the worst accidental U.S. oil spill last year, climbed 4.4 percent to 457.2 pence as profit beat analysts’ estimates. Earnings adjusted for one-time items and changes in inventory were $5.3 billion, down from $5.5 billion a year earlier. The average estimate of 12 analysts surveyed by Bloomberg was for income of $5 billion on that basis.

‘No Nasty Surprises’

“BP is now out of the danger zone,” said Timothy Guinness, chief executive officer of Guinness Atkinson Asset Management in London, which has $850 million in client assets and owns BP shares. “There are no nasty surprises. It’s cheap. I was buying yesterday and I’ll be buying today.” He spoke in a Bloomberg Television interview.

BG Group rose 3.8 percent to 1,378 pence. The U.K.’s third- largest natural-gas producer said third-quarter earnings rose 25 percent as energy-price gains countered output constraints.

Neste Oil Oyj surged 13 percent to 9.06 euros, the biggest gain since 2008. Finland’s only oil refiner was boosted by the improving outlook for its renewable fuels unit.

Swedbank AB, the largest lender in the Baltic states, rose 3.7 percent to 90.05 kronor as it reported a 34 percent jump in third-quarter profit and said costs will decline in 2012 as it adjusts to the European economic slowdown.

Svenska Cellulosa AB rallied 6.4 percent to 93.80 kronor. Europe’s largest tissue maker said it will reduce its staff by 2,000 employees with the aim of saving about 700 million kronor ($107 million).

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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

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Home Prices in U.S. Cities Fall More-Than-Forecast 3.8%, Case-Shiller Says

By Shobhana Chandra - Oct 25, 2011 9:02 PM GMT+0700
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A sold sign is displayed outside of a Toll Brothers Inc. home under construction in Raleigh. Photographer: Jim R. Bounds/Bloomberg

Home prices in 20 U.S. cities dropped more than forecast in August, highlighting one of the obstacles facing the economic recovery in its third year.

The S&P/Case-Shiller index of property values in 20 cities fell 3.8 percent from August 2010, the group said today in New York. The median forecast of 30 economists surveyed by Bloomberg News was for a 3.5 percent decline.

Recovering the 31 percent plunge in home prices from their 2006 peak will probably be years in the making as foreclosures throw more properties on the market and sales flag. Federal Reserve policy makers like William Dudley are among those that believe bolstering housing is among the “most pressing issues” facing the central bank.

“There is still a big imbalance between demand and supply,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who projected a 3.9 percent decline. “Prices will keep declining into 2012.”

Consumer confidence unexpectedly slumped in October to the lowest level since March 2009 as Americans’ outlooks for employment and incomes soured, another report today showed. The Conference Board’s sentiment index decreased to 39.8 from a revised 46.4 reading in September. Economists projected the October gauge would climb to 46, according to the median forecast in a Bloomberg survey.

Shares Fall

Stocks dropped on the reports. The Standard & Poor’s 500 Index fell 1.2 percent to 1,239.67 at 10:02 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10- year note down to 2.19 percent from 2.23 percent late yesterday.

Estimates in the Bloomberg survey of economists ranged from declines of 3 percent to 4.3 percent. Year-over-year records began in 2001. The group revised the 12-month drop in July to 4.2 percent from a previously estimated 4.1 percent.

Prices were little changed in August from the prior month after adjusting for seasonal variations, following a 0.1 percent decrease in July from June. The July reading was previously reported as a gain. Unadjusted prices rose 0.2 percent from the prior month after a 0.9 percent July advance.

The year-over-year gauge provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

Moving Average

The Case-Shiller gauge is based on a three-month average, which means the August data was influenced by transactions in July and June.

Sixteen of the 20 cities in the index showed a year-over- year improvement in prices before adjusting for seasonal variations as 10 showed a gain in the month of August, the report showed.

“We see a modest glimmer of hope with these data,” David Blitzer, chairman of the S&P index committee, said in a statement. “The Midwest is one region that really stands out in terms of recent relative strength,” he said, as Chicago, Detroit and Minneapolis were among cities showing an August gain before seasonal adjustment.

Nonetheless, prices were down in 18 cities in the 12 months ended in August, led by an 8.5 percent decrease in Minneapolis. Home prices in Las Vegas made a new post-slump low. Detroit and Washington were the only cities showing year-over-year increases in property values.

‘Serious Impediment’

Falling home prices pose “a serious impediment to a stronger economic recovery,” Dudley, president of the Federal Reserve Bank of New York, said in remarks at Fordham University in the Bronx yesterday. He predicted “continued modest growth” for the U.S.

“Continued house price declines could lead to even more defaults, foreclosures and distress sales, undermining wealth, confidence and spending,” Dudley said. “Breaking this vicious cycle is one of the most pressing issues facing policy makers.”

The housing market is yet to gain speed more than two years after the recession ended in June 2009. Sales of previously owned homes fell 3 percent in September from the prior month, according to the National Association of Realtors.

While Commerce Department data showed builders began work on more new houses last month, the gain was led by a surge in building of apartments and other multifamily dwellings as more Americans became renters.

Underwater Mortgages

The drop in home values has pushed almost a quarter of U.S. mortgage borrowers underwater, meaning their debt is more than their homes are worth, according to CoreLogic Inc., a real estate data company in Santa Ana, California.

Builders FirstSource Inc. (BLDR), a Dallas-based maker of building products such as lumber, doors and windows sold to construction companies, is among businesses noting uneven progress in the industry.

“Housing demand remains weak due to the struggling economy, high unemployment and the limited availability of mortgage financing,” Floyd Sherman, chairman and chief executive officer, said on an Oct. 21 conference call with analysts. “We’re really seeing a mixed bag of improvements” across markets.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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Netflix Drops Most Since 2004; 800K Customers Lost

By Cliff Edwards - Oct 25, 2011 8:54 PM GMT+0700

Netflix Inc. (NFLX) dropped the most in seven years after the video-rental service said it lost 800,000 U.S. subscribers in the third quarter, more than expected, and predicted more cancellations over a price increase.

Netflix plunged 37 percent to $75.28 at 9:39 a.m. New York time, for the biggest intraday decline since October 2004. The stock closed at an all-time high of $298.73 on July 13, according to Bloomberg data.

The outlook suggests Netflix has been unable to contain a subscriber revolt over a price increase and aborted plan to force subscribers into separate streaming and DVD services. The company now forecasts losses in 2012 because of costs to offer content in the U.K. and Ireland, and will delay further expansion until profitability is restored.

“Pausing is a good thing from an investor standpoint,” Chief Executive Officer Reed Hasting said in an interview. “We are going to pause and restore our global profitability.”

Hastings, responding to questions, said he has no plans to step down and declined to comment on discussions with Netflix directors.

Domestic subscribers fell to 23.8 million as of Sept. 30 from 24.6 million three months earlier, a bigger decline than the company projected in September, according to a website statement yesterday. This quarter, U.S. customers will fall short of the 24.9 million analysts were predicting.

Subscriber Fallout

Investors are trying to gauge the extent of the fallout from the price increase and aborted plan to put DVD customers on a new service called Qwikster.

“To show even modest U.S. subscriber growth in the fourth quarter will require significant ramp-up in Netflix’s marketing spending,” said Paul T. Sweeney, director of research for Bloomberg Industries.

Hastings downplayed the likelihood of a big increase in marketing efforts.

“Our streaming marketing has been very effective in the past two years,” Hastings said. “We are going to work on improving the user interface, expanding to more platforms and delivering more content. There’s no grand gestures, there’s just a lot of steady and intense efforts.”

Domestic streaming subscriptions are forecast to decline this month, level off in November and rebound in December to end at 20 million to 21.5 million, Netflix said. DVD subscriptions will fall “sharply” to 10.3 million to 11.3 million customers.

Fourth-Quarter Outlook

Fourth-quarter profit will be $19 million to $37 million, or 36 cents to 70 cents a share, on revenue of as much as $875 million, the company said. Analysts were projecting profit of $1.10 a share on sales of $919 million, according to Bloomberg data. The company earned $47.1 million, or 87 cents a share, on sales of $595.9 million, a year earlier.

Domestic subscriber growth is particularly important because Netflix has used its wide lead over U.S. rivals to finance growth in its streaming business and expand overseas.

Netflix had projected a loss of 600,000 users on Sept. 15 to end the third quarter at 24 million. The actual results were in line with the average loss of 780,000 customers seen by 10 analysts in a Bloomberg survey.

Domestic churn, a measure of subscriber turnover, jumped to 6.3 percent in the third quarter from 4.2 percent in the prior three months. The company’s total subscriber count, including service in Canada and Latin America, fell to 25.3 million from 25.6 million

For the third quarter, Netflix reported net income rose 65 percent to $62.5 million, or $1.16 a share. Analysts projected 95 cents, the average of 25 estimates. Sales rose 49 percent to $821.8 million, beating expectations of $812.8 million.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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Apple TV Effort Said to Be Led By ITunes Creator

By Adam Satariano - Oct 25, 2011 11:01 AM GMT+0700
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Steve Jobs, chief executive officer of Apple Inc., speaks to members of the media during an Apple product unveiling event in San Francisco, California, U.S. Photographer: David Paul Morris/Bloomberg

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Oct. 24 (Bloomberg) -- Brian Marshall, an analyst at ISI Group., and Paul Kedrosky, author of the Infectious Greed blog and a Bloomberg contributing editor, talk about Apple Inc.'s business strategy and Steve Jobs's legacy. Apple is turning to the software engineer who built iTunes to help lead its development of a television set, according to three people with knowledge of the project. Marshall and Kedrosky speak with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Apple Inc. (AAPL) is turning to the software engineer who built iTunes to help lead its development of a television set, according to three people with knowledge of the project.

Jeff Robbin, who helped create the iPod in addition to the iTunes media store, is now guiding Apple’s internal development of the new TV effort, said the people, who declined to be identified because his role isn’t public.

Robbin’s involvement is a sign of Apple’s commitment to extending its leadership in smartphones and tablets into the living room. Before his Oct. 5 death, Apple co-founder Steve Jobs told biographer Walter Isaacson that he had “finally cracked” how to build an integrated TV with a simple user interface that would wirelessly synchronize content with Apple’s other devices.

“It will have the simplest user interface you could imagine,” Jobs told Isaacson in the biography “Steve Jobs,” released yesterday by CBS Corp. (CBS)’s Simon & Schuster.

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment. Outside of Jobs’s remarks in the book, Apple hasn’t acknowledged that it’s developing a TV set. And according to one person, it’s not guaranteed that Apple will release a television.

Until now, the company’s TV efforts have been limited to Apple TV, a small $99 gadget that plugs in to a television and gives users access to content from iTunes, Netflix Inc. (NFLX)’s streaming service and YouTube. Jobs had called it Apple’s “hobby,” rather than something designed to be a serious moneymaker.

Prototype Model

That may be changing. Apple has a prototype TV in the works and may introduce a product for sale by late next year or 2013, according to Gene Munster, an analyst with Piper Jaffray Cos. He based that timing on meetings with contacts close to Apple’s suppliers in Asia, industry contacts and Apple’s patent portfolio. Munster said Apple also is investing in manufacturing facilities and securing supplies of LCD screens.

Apple’s introduction of the voice-command software Siri and Web-storage service iCloud also could be used for a future television, Munster said in a note to investors yesterday. Siri may help search for videos, while iCloud allows customers to store video, music, pictures and other content on the company’s servers instead of their own hard drives.

Searching for Shows

One of Apple’s goals for a new TV is to let users more seamlessly search for a show or movie, said one of the people. For example, instead of having to separately check to see if a movie or show is available through Netflix or a cable service, all the material could be integrated, this person said.

One challenge will be getting makers of movies and television shows to change how they make their content available. Apple has considered adopting new business models for delivering video, including a subscription TV service, media executives said last year. Those talks didn’t lead to a deal.

Building a full TV set would put Apple in closer competition with consumer-electronics companies such as Samsung Electronics Co. and Sony Corp. (SNE) Apple could sell 1.4 million TVs next year, out of about 220 million flat-panel sets for the total market, according to Munster. That could add $6 billion in revenue to the company’s top line by 2014, he said.

Google Inc. (GOOG), which competes with Apple in the smartphone market, also is attempting to attract customers to an operating system it has created for televisions. Unlike that approach, Apple would be building both the hardware and the software.

Apple rose 3.3 percent to $405.77 at the close in New York yesterday. The shares have climbed 26 percent this year.

SoundJam Player

Robbin, the software engineer helping lead the TV effort, was hired in 2000 to develop iTunes after Apple bought the SoundJam digital music player he developed. ITunes, introduced in January 2001, became Apple’s digital hub for synchronizing music, video and applications across Apple’s devices, including the iPod, iPhone and iPad.

According to the biography, Jobs considered Robbin such a valuable employee that he wouldn’t let a Time magazine reporter meet him without agreeing not to print his last name, for fear that he would be poached by a competitor.

Robbin was among the Apple executives who helped persuade Jobs to allow computers running Microsoft Corp. (MSFT)’s Windows software to use iTunes, according to the biography, a move that helped the company add millions of new customers. The iTunes digital store, with more than 225 million registered users, generated almost $1.5 billion last quarter.

Robbin also was closely involved with the development of the iPod, including participating in a crucial 2001 meeting when Apple decided on the spin-wheel design of the digital music player and charted its expansion beyond personal computers to mobile computing, according to the book.

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

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

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UBS Reports 39% Q3 Drop After Trading Loss

By Elena Logutenkova - Oct 25, 2011 3:09 PM GMT+0700
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UBS, which announced 3,500 job cuts in August, plans to scale down its investment bank and allocate more capital to wealth management. Photographer: Chris Ratcliffe/Bloomberg

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Oct. 25 (Bloomberg) -- Simon Maughan, head of sales and distribution at MF Global Ltd., discusses European banks' exposure to Greek debt and third-quarter earnings at UBS AG and Deutsche Bank AG. He talks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

UBS AG (UBSN), Switzerland’s biggest bank, posted a smaller decline in third-quarter profit than analysts expected after an accounting gain cushioned a $2.3 billion loss from unauthorized trading.

Net income fell 39 percent to 1.02 billion Swiss francs ($1.16 billion), the Zurich-based bank said today, beating analysts’ mean estimate of 318 million francs. UBS booked an accounting gain of 1.77 billion francs, exceeding the bank’s forecast earlier this month, as its credit spreads widened.

UBS, which announced 3,500 job cuts in August, plans to scale down its investment bank and allocate more capital to wealth management. Chief Executive Officer Oswald Gruebel quit following the trading loss and Chief Financial Officer Tom Naratil told investors this month that “economic uncertainty” is driving clients to trade less.

“We see the third-quarter results as being positive in a difficult quarter,” Teresa Nielsen, an analyst at Vontobel with a “buy” rating on UBS, said in a note, adding that shareholders’ equity increased in the quarter. UBS’s Tier 1 capital ratio increased to 18.4 percent from 18.1 percent at the end of June.

UBS rose 1.7 percent to 11.33 francs by 9:34 a.m. in Swiss trading, the second-best performer on the 46-company Bloomberg Europe Banks and Financial Services Index. The bank gained 3.6 percent since it announced the loss from unauthorized trading on Sept. 15, compared with a 9.7 percent increase in index.

Wealth Management

UBS said the investment bank recorded a pretax loss, excluding the trading incident and gains on its own credit, of 566 million francs compared with a loss of 19 million francs in the year-earlier period because of a stronger franc and lower revenue across all businesses in “difficult market conditions.”

Earnings at the wealth management and Swiss bank division rose 67 percent to 1.57 billion francs, helped by a gain from the sale of bonds. Wealth management Americas reported a pretax profit of 139 million francs compared with a loss of 47 million francs, while asset management earnings fell 31 percent to 79 million francs. Wealth management businesses saw clients add a net 7.8 billion francs in the quarter, while customers withdrew 2.6 billion francs from asset management.

Potential ‘Headwinds’

The fair-value gain booked as the bank’s credit spreads widened in the third quarter was more than the 1.5 billion francs UBS estimated earlier this month. The accounting gain on own debt stems from a rule that required banks to write down the value of their debts as investors grow less confident of a company’s ability to repay them during the quarter. The gain is required under the theory that a profit would be realized if the debt were repurchased at a discount.

UBS also posted a 722 million-franc profit from the sale of U.S. Treasuries and U.K. gilts.

“Prospects for global economic growth remain largely contingent on the satisfactory resolution of euro-zone sovereign debt and banking industry concerns, as well as issues surrounding U.S. economic growth, employment and the U.S. federal budget deficit,” the bank said. “In the absence of such developments, current market conditions and trading activity are unlikely to improve materially, potentially creating headwinds for growth in revenues and net new money.”

UBS in July abandoned its goal of doubling pretax profit from last year’s level to 15 billion francs by 2014 and plans to disclose details of its new strategy at an investor day on Nov. 17 in New York.

Job Cuts

“The environment has deteriorated,” Kian Abouhossein, a London-based analyst at JPMorgan Chase & Co., said before today’s release. “We are seeing a much lower activity level driven by market uncertainty in fixed income. Banks that are struggling more will review their strategies first.”

UBS may announce further job cuts of about 1,700 at the investment bank as well as a reduction in risk-weighted assets of 70 billion francs, Abouhossein estimated.

Naratil today didn’t rule out more job cuts, saying that the previously-announced reductions were not “strategic,” and any such changes would be announced in November. He declined to comment on net new money developments in wealth management following the trading loss. On Oct. 4, he told investors that the bank had not seen a “material change” in money flows.

The strategy review started before the bank discovered the loss from unauthorized trading and the incident didn’t introduce any “material changes,” Naratil, 49, said at a presentation in London this month.

Trading Loss

The trading loss resulted from positions in Standard & Poor’s 500, DAX and EuroStoxx index futures and has led to resignations of the co-heads of the equities unit, Francois Gouws and Yassine Bouhara, as well as suspension of a number of front office staff. Sergio Ermotti, 51, was appointed interim CEO while UBS’s board looks for a permanent successor.

Kweku Adoboli, who is accused of making unauthorized trades, last week had his case transferred to a criminal court, where he will be expected to enter a plea on the accusations at a Nov. 22 hearing. Adoboli, who has been in custody since his arrest on Sept. 15, falsified records on exchange-traded-fund transactions, prosecutors said last week. The charges also include two counts of fraud.

Control Deficiencies

Ermotti said in a memo to employees this month that while the bank’s internal systems had detected “unauthorized or unexplained” activity, it wasn’t “sufficiently” probed and controls weren’t enforced.

The bank said today it filed a document to the U.S. Securities and Exchange Commission, stating that management has determined its internal controls weren’t effective on Dec. 31 2010. UBS has taken and continues to implement measures to address the deficiencies, it said.

UBS plans to reorganize its investment bank to focus on advisory, capital markets and “client flow and solutions businesses,” to produce less volatile results with less risk, CFO Naratil told investors this month. The investment bank will aim to “contribute meaningfully” to the strengths of UBS, Carsten Kengeter, who heads the division, said in the memo to employees on Oct. 6.

“Implementation of the investment bank’s client-centric strategy will make the business less complex and more capital efficient and ensure it provides more reliable returns to our shareholders,” the bank said today.

To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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Olympus Blasts Ex-CEO for Leaking Secrets

By Chris Cooper and Takashi Amano - Oct 25, 2011 2:11 PM GMT+0700

Olympus Corp. (7733) said its former chief executive officer used his position to leak “company secrets” by questioning $687 million paid to advisers on a takeover and that he aims “to ruin the credibility” of the camera maker.

The 92-year-old Japanese company said it was “considering legal action” against Michael C. Woodford, according to a letter posted on its internal website yesterday, a copy of which was given to Bloomberg News. Olympus fired Woodford on Oct. 14, citing disagreements over his management style.

The statement came after Olympus employees received an e- mail saying Chairman Tsuyoshi Kikukawa would respond to Woodford’s allegations, according to two people who declined to be named because they were not authorized to speak for the company. Olympus last week said an independent committee would investigate its acquisitions after three of the company’s biggest shareholders asked for an explanation of the fees paid in the $2 billion, 2008 takeover of Gyrus Group Plc.

“I am sure you all want to know more,” the unattributed statement said. “I will continue to speak out. My next message will be about Gyrus.”

FBI Investigation

Woodford has made public a PricewaterhouseCoopers report that said the company may face regulatory and legal scrutiny because of payments made to advisers in the Gyrus acquisition.

Kikukawa “has to answer the fundamental question: Why did he pay $687 million in adviser fees?” Woodford said in a telephone interview from London today. “The letter is a distraction.”

Merger and acquisition advisory fees usually range from 1 percent to 5 percent of the total transaction cost, two people with knowledge of such deals said, declining to be identified because they weren’t authorized to talk to the media.

Cayman Islands-incorporated AXAM Investments Ltd., which received $670 million of the payments, was removed from the local company registry in June 2010 for non-payment of license fees, three months after receiving its final fees from Olympus, according to the report.

The FBI is investigating payments by Olympus to advisers on a 2008 acquisition, said a person familiar with the probe who declined to be identified because the matter isn’t public.

Share Slump

Shares of Olympus, also the world’s biggest maker of endoscopes, have slumped more than 50 percent since Woodford was fired, wiping about $4.6 billion from the Tokyo-based company’s market value.

The stock rose 7 percent to 1,176 yen as of 1:50 p.m. in Tokyo today after brokers were told limits may be imposed on the number of shares available for trading through margin accounts. The request could discourage investors using borrowed shares to sell Olympus, reducing downward pressure on the price, according to Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co.

The Olympus statement accused Woodford of “autocratic behavior,” repeatedly rescheduling board meetings and using a private jet while demanding “severe cost cutting efforts.”

“Woodford was selected with the expectation that he would carry out things that Japanese would find difficult to do,” according to the internal statement. He “began to behave with no regard for organizational hierarchies and chains of command. He would issue orders to his own people, disregarding the presidents of company operations.”

‘Avoiding Tokyo’

Woodford “spent less than 40 percent of his time in Japan, avoiding Tokyo,” the statement said. “A continuation of this state of affairs would have imposed a tremendous burden on stakeholders, meaning that no time could be spared” in relieving him of his duties, the statement said.

The letter “contains lies,” Woodford said. “It’s nonsense.”

Olympus conducted a previous, internal probe into the acquisition of medical-equipment maker Gyrus that concluded it was “not able to discover any illegal or unjust points” in the fees, according to a 2009 copy of the report obtained by Bloomberg News.

The investigation, which was conducted by an attorney, an accountant and a professor, was published before Olympus paid $620 million to AXAM to repurchase preferred shares that formed part of the advisory fee.

Nippon Life Insurance Co., Olympus’s largest shareholder, Southeastern Asset Management Inc., the No. 3, and Harris Associates LP have sought more information from the company and urged it to respond to the allegations Woodford made.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Peter Langan at plangan@bloomberg.net

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Apple TV Project Is Said to Be Led By ITunes Creator Jeff Robbin

By Adam Satariano - Oct 25, 2011 11:01 AM GMT+0700

Apple Inc. (AAPL) is turning to the software engineer who built iTunes to help lead its development of a television set, according to three people with knowledge of the project.

Jeff Robbin, who helped create the iPod in addition to the iTunes media store, is now guiding Apple’s internal development of the new TV effort, said the people, who declined to be identified because his role isn’t public.

Robbin’s involvement is a sign of Apple’s commitment to extending its leadership in smartphones and tablets into the living room. Before his Oct. 5 death, Apple co-founder Steve Jobs told biographer Walter Isaacson that he had “finally cracked” how to build an integrated TV with a simple user interface that would wirelessly synchronize content with Apple’s other devices.

“It will have the simplest user interface you could imagine,” Jobs told Isaacson in the biography “Steve Jobs,” released yesterday by CBS Corp. (CBS)’s Simon & Schuster.

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment. Outside of Jobs’s remarks in the book, Apple hasn’t acknowledged that it’s developing a TV set. And according to one person, it’s not guaranteed that Apple will release a television.

Until now, the company’s TV efforts have been limited to Apple TV, a small $99 gadget that plugs in to a television and gives users access to content from iTunes, Netflix Inc. (NFLX)’s streaming service and YouTube. Jobs had called it Apple’s “hobby,” rather than something designed to be a serious moneymaker.

Prototype Model

That may be changing. Apple has a prototype TV in the works and may introduce a product for sale by late next year or 2013, according to Gene Munster, an analyst with Piper Jaffray Cos. He based that timing on meetings with contacts close to Apple’s suppliers in Asia, industry contacts and Apple’s patent portfolio. Munster said Apple also is investing in manufacturing facilities and securing supplies of LCD screens.

Apple’s introduction of the voice-command software Siri and Web-storage service iCloud also could be used for a future television, Munster said in a note to investors yesterday. Siri may help search for videos, while iCloud allows customers to store video, music, pictures and other content on the company’s servers instead of their own hard drives.

Searching for Shows

One of Apple’s goals for a new TV is to let users more seamlessly search for a show or movie, said one of the people. For example, instead of having to separately check to see if a movie or show is available through Netflix or a cable service, all the material could be integrated, this person said.

One challenge will be getting makers of movies and television shows to change how they make their content available. Apple has considered adopting new business models for delivering video, including a subscription TV service, media executives said last year. Those talks didn’t lead to a deal.

Building a full TV set would put Apple in closer competition with consumer-electronics companies such as Samsung Electronics Co. and Sony Corp. (SNE) Apple could sell 1.4 million TVs next year, out of about 220 million flat-panel sets for the total market, according to Munster. That could add $6 billion in revenue to the company’s top line by 2014, he said.

Google Inc. (GOOG), which competes with Apple in the smartphone market, also is attempting to attract customers to an operating system it has created for televisions. Unlike that approach, Apple would be building both the hardware and the software.

Apple rose 3.3 percent to $405.77 at the close in New York yesterday. The shares have climbed 26 percent this year.

SoundJam Player

Robbin, the software engineer helping lead the TV effort, was hired in 2000 to develop iTunes after Apple bought the SoundJam digital music player he developed. ITunes, introduced in January 2001, became Apple’s digital hub for synchronizing music, video and applications across Apple’s devices, including the iPod, iPhone and iPad.

According to the biography, Jobs considered Robbin such a valuable employee that he wouldn’t let a Time magazine reporter meet him without agreeing not to print his last name, for fear that he would be poached by a competitor.

Robbin was among the Apple executives who helped persuade Jobs to allow computers running Microsoft Corp. (MSFT)’s Windows software to use iTunes, according to the biography, a move that helped the company add millions of new customers. The iTunes digital store, with more than 225 million registered users, generated almost $1.5 billion last quarter.

Robbin also was closely involved with the development of the iPod, including participating in a crucial 2001 meeting when Apple decided on the spin-wheel design of the digital music player and charted its expansion beyond personal computers to mobile computing, according to the book.

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

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

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Euro Snaps Five-Day Advance, Most Stocks Fall

By Stephen Kirkland and Shiyin Chen - Oct 25, 2011 4:44 PM GMT+0700
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Asian stocks and U.S. equity-index futures slid and the euro snapped a five-day advance against the dollar before European leaders hold a summit tomorrow to discuss ways to contain the region’s debt crisis. Photographer: Chris Ratcliffe/Bloomberg

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Oct. 25 (Bloomberg) -- Markus Rosgen, Hong Kong-based chief Asian strategist at Citigroup Inc., talks about the outlook for Asian and U.S. equity markets. Rosgen also discusses the impact of Europe's debt crisis on global stocks. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Commodities rose for a third day while stocks and U.S. index futures fluctuated as energy companies reported earnings that beat estimates and investors awaited tomorrow’s European leaders’ meeting to resolve the region’s debt crisis.

Oil advanced 1 percent, leading the Standard & Poor’s GSCI index of 24 commodities 0.4 percent higher at 10:40 a.m. in London. The Stoxx Europe 600 Index increased 0.1 percent, after gain as much as 0.4 percent and losing 0.4 percent. S&P 500 Index (SPX) futures added less than 0.1 percent. German bonds declined, with the 10-year yield climbing three basis points to 2.15 percent.

European leaders will hold a second summit in four days tomorrow, seeking to bolster the region’s rescue fund, recapitalize banks and provide debt relief to Greece. Boosting the effectiveness of the European Financial Stability Facility will require further talks with investors as German lawmakers prepare to vote on its new powers, a European Union document showed. BP Plc said today profit dropped less than expected, while BG Group Plc’s third-quarter earnings rose 25 percent.

“The dominant factor is what’s happening in Europe,” said Angus Gluskie, who manages more than $350 million at White Funds Management in Sydney. There may be “superficial optimism that some sort of deal might be reached. Underneath the surface, though, I think investors still have a lot of questions in the back of their minds and they are alert to risks.”

Thailand Floods

Oil in New York jumped as much as 1.9 percent to $92.99 a barrel, the highest since Aug. 3, extending yesterday’s 4.4 percent advance. Rice climbed 1.6 percent on speculation floods in Thailand will boost demand for U.S. supplies. The S&P GSCI index gained 2.4 percent yesterday and 1 percent on Oct. 21.

The Stoxx 600 fluctuated near an 11-week high. BP, Europe’s second-biggest oil company, and BG, the U.K.’s third-largest natural-gas producer, rose more than 3.5 percent. Neste Oil Oyj, Finland’s only oil refiner, jumped 16 percent as the outlook for its renewable-fuels unit improved. STMicroelectronics NV (STM), Europe’s largest semiconductor maker, fell 7.1 percent after predicting fourth-quarter sales short of analysts’ estimates.

The S&P 500 index has gained for three days. Home prices in 20 U.S. cities probably fell at a slower pace and consumer confidence hovered near a two-year low, highlighting the obstacles facing the recovery in its third year, economists said before reports today.

Forty-three companies in the S&P 500 are due to release earnings today, according to data compiled by Bloomberg. About 73 percent of the 119 index members that have reported results since Oct. 11 have beaten analysts’ estimates, the data show.

Five-Day Gain

The euro snapped a five-day gain versus the dollar, weakening 0.1 percent to $1.3910. The Dollar Index, which tracks the U.S. currency against those of six of the country’s major trading partners, was little changed. The New Zealand dollar weakened versus all 16 of its major peers after the government said inflation slowed in the third quarter.

U.K. government bonds declined amid a sale of index-linked gilts managed by banks. The 10-year yield was five basis points higher at 2.61 percent. Spanish 10-year bonds were little changed as the nation sold 3.48 billion euros ($4.9 billion) of bills.

The MSCI Emerging Markets Index rose 1 percent to the highest in five weeks. The Shanghai Composite Index gained 1.7 percent as China Vanke Co.’s profit jump eased concern that the slowing economy and tighter monetary policies will spur a collapse in earnings. Thailand’s SET index climbed 2.9 percent as trading resumed after yesterday’s holiday.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net;

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

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