Bank of America Drops Plan for $5 Debit Fee as Competitors Scrap Charges

By Hugh Son - Nov 1, 2011 10:47 PM GMT+0700

Nov. 1 (Bloomberg) -- Bank of America Corp. (BAC), the second- biggest U.S. lender by deposits, dropped plans to charge a $5 monthly fee for debit cards after a nationwide backlash from customers and lawmakers.

“We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee,” David Darnell, co-chief operating officer, said in a statement from the Charlotte, North Carolina-based lender today. “As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.”

Bank of America reversed course after competitors including Wells Fargo & Co. (WFC), the No. 2 debit-card issuer, decided not to charge similar fees. Atlanta-based SunTrust Banks Inc. (STI) and Regions Financial Corp., based in Birmingham, Alabama, said yesterday they will eliminate their check-card fees after customers rebelled.

Card issuers have been seeking to replace revenue lost after the U.S. capped fees on debit-card transactions earlier this year. The limits, mandated by the Dodd-Frank Act, may cut annual revenue by $8 billion at the biggest U.S. banks, according to data compiled by Bloomberg Government.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net

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Credit Suisse to Cut 1,500 More Jobs

By Elena Logutenkova - Nov 1, 2011 5:42 PM GMT+0700

Credit Suisse Group AG (CSGN), the second- biggest Swiss bank, said it will cut about 1,500 more jobs and reorganize its securities unit after the division reported its first quarterly loss since 2008.

Credit Suisse fell the most in almost three years in Zurich trading as third-quarter net income of 683 million Swiss francs ($767 million) missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg.

Chief Executive Officer Brady Dougan, who said current volatility in the markets is “similar” to the 2008 crisis, is adding to the 2,000 staff cuts announced in July. That may make it more difficult for the Zurich-based bank to compete with larger rivals amid the European sovereign debt crisis and as the global economic slowdown crimps investment-banking revenue.

“The bank is trying to resolve its earnings problems by aggressive downsizing,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. “It’s very difficult to achieve as once you fall out of the competition with the biggest investment banks it gets harder to attract good people even in areas the company wants to keep. Rivals will be happy.”

Credit Suisse dropped as much as 10 percent, the biggest intraday decline since December 2008, and was down 8.2 percent at 23.51 francs as of 11:37 a.m. in Zurich. The stock is down 35 percent this year, compared with 30 percent declines at larger rival UBS AG and the 46-company Bloomberg Europe Banks and Financial Services Index.

Investment-Banking Loss

Credit Suisse’s investment bank reported a pretax loss of 190 million francs for the quarter, compared with a profit of 395 million francs in the year-earlier period. Earnings at the private bank slumped 78 percent to 183 million francs after the company made 478 million francs of litigation provisions for tax settlements in Germany and the U.S. Asset management profit fell 32 percent to 92 million francs.

“We believe subdued economic growth and the low interest rate environment and increased regulation that we are seeing may persist for an extended period,” Dougan said in a statement. “We may well continue to see continued low levels of client activity and a volatile trading environment.”

Credit Suisse’s job cuts will reduce the bank’s total headcount by almost 7 percent from the current 50,700 by the end of 2013. That will save about 2 billion francs in annual costs, the bank said. While the cuts will be spread across the group, the private bank will be less affected, Chief Financial Officer David Mathers told reporters on a conference call.

Market Volatility

Credit Suisse had added about 4,000 employees since the beginning of 2009, including staff at the investment bank, to try to gain a bigger market share after surviving the subprime crisis with lower losses than some peers. The bank increased its target for cutting risk-weighted assets by 57 percent.

Compared to 2008, “the volatility in the markets is similar in terms of the fact that people are taking a much more conservative approach to how they actually conduct themselves in financial matters,” Dougan said in an interview. “We need to have a period of more stability before we can get the markets and players in the markets acting in a more consistent way.”

UBS and Deutsche Bank AG, the biggest bank in Germany, last week signaled more jobs may be at risk amid demands for more capital and as a deteriorating global economy hurts investment- banking revenue.

Targets Scrapped

Deutsche Bank Chief Financial Officer Stefan Krause said Oct. 25 the Frankfurt-based lender will continue to adjust its “platform” if the challenging environment persists after announcing 500 job cuts earlier that month. His UBS counterpart Tom Naratil said in an interview the same day that a reorganization of the investment bank, which the Zurich-based company plans to announce on Nov. 17, may lead to a lower headcount at the unit.

Dougan cut Credit Suisse’s profitability goal in February, blaming stricter capital requirements, and now aims for a return on equity of more than 15 percent over the next three to five years, down from a previous goal of more than 18 percent. Tougher rules from the Basel Committee on Banking Supervision and Swiss regulators will require the bank to hoard more capital for its securities business.

Credit Suisse, UBS, Deutsche Bank and Barclays Plc have already disclosed plans to shrink their combined risk-weighted assets by as much as $415 billion to prepare for the stricter capital requirements under Basel III rules. As the euro area’s sovereign debt crisis erodes earnings, the banks may have little choice but to accelerate asset reductions and job cuts, analysts including JPMorgan Chase & Co.’s Kian Abouhossein said last month.

Shrinking Assets

Third-quarter profit at Credit Suisse rose 12 percent, helped by an accounting gain from the widening of its credit spreads, the Zurich-based bank said today. That gain 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.

Credit Suisse, which previously aimed to reduce risk- weighted assets by as much as 70 billion francs to prepare for Basel III, said today it will cut them by 110 billion francs, including some 99 billion francs at the fixed-income unit, by the end of 2014.

“They are becoming a niche player in certain parts of investment banking,” said Becker of Kepler. “For them, it doesn’t make sense to retain a presence in fixed income.”

Exiting Business

The bank is exiting the business of commercial mortgage- backed securities origination and will scale down long-dated unsecured trades in global rates, emerging markets and commodities businesses. It will also shrink its advisory businesses to reduce any overlaps in covering certain countries, industries and products, Credit Suisse said.

The measures will improve the return on equity at the investment bank, which would have slumped by 9 percentage points without any measures. After cuts in risk-weighted assets all businesses at the investment bank should be producing a return on equity in excess of Credit Suisse’s 15 percent target, Dougan said.

Credit Suisse’s private bank needs to prepare for “a difficult environment” as its decline in profitability is “more than a cyclical slump,” Hans-Ulrich Meister, who took over as head of the division on Aug. 1, told staff in an internal memo in September.

Litigation Provisions

The annualized gross margin in wealth management, or the amount of revenue earned on assets under management, fell to 114 basis points in the third quarter from 131 basis points in 2009. A basis point is one-hundredth of a percentage point.

The bank said today it will aim to expand its business with ultra-high-net-worth individuals and with clients who book assets in their countries of residence, seeking to boost pretax profit at the private bank by 800 million francs by 2014.

Credit Suisse in September agreed to pay 150 million euros ($210 million) to settle proceedings in Germany against employees investigated for allegedly helping German clients evade taxes. The bank made provisions for the German settlement and set aside 295 million francs for U.S. tax matters, it said.

The bank is a target of a criminal investigation by the U.S. Department of Justice over former cross-border private- banking services to American customers, the company said in July. Eight bankers, including Credit Suisse’s former head of North America offshore banking, were charged with conspiring to help American clients evade taxes through secret bank accounts. Credit Suisse said at the time that it’s cooperating with the U.S. authorities “subject to our Swiss legal obligations.”

Swiss banks will probably settle a sweeping U.S. probe of offshore tax evasion by paying billions of dollars and handing over names of thousands of Americans who have secret accounts, two people familiar with the matter who declined to be identified because the talks are confidential, said last month.

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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Bernanke Reviving Housing May Rely on Wider Access to Mortgage Refinancing

By Scott Lanman and Caroline Salas Gage - Nov 1, 2011 10:19 PM GMT+0700

Federal Reserve Chairman Ben S. Bernanke can’t go it alone when it comes to reviving the U.S. housing market.

Fed policy makers, who start a two-day meeting today, are considering buying mortgage-backed securities to push down borrowing costs and help homeowners refinance their debt. That would reduce monthly payments, freeing up cash for other purchases that could spur the economy and reduce unemployment, Fed Governor Daniel Tarullo said Oct. 20.

Such an effort would save homeowners $60 billion to $80 billion a year, or about 0.5 percent of gross domestic product, so long as the Obama administration succeeds in helping homeowners through a stepped-up refinancing aid plan, said Joseph Gagnon, a former Fed economist. Should the program fail, Fed asset-buying would probably provide homeowners less than half its potential savings, said Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington.

“The Achilles’ heel of the Fed’s efforts so far has been that the monetary-policy transmission has not worked as they would like because of, in large part, the inability of consumers to get loans” for homes and other purchases, said Ward McCarthy, chief financial economist at Jefferies & Co. in New York.

Refinancing Program

The Federal Housing Finance Agency said Oct. 24 it will let qualified homeowners refinance mortgages regardless of how much their houses have dropped in value, expanding terms of the 2009 Home Affordable Refinance Program, which has fallen 80 percent short of the goal of reaching 5 million borrowers. The FHFA estimates the changes will help generate about 900,000 refinanced loans by the end of 2013. If the alterations to the so-called HARP plan don’t spur refinancing, any Fed purchases of mortgage bonds would bring limited benefits, said McCarthy, a former Fed researcher.

The Federal Open Market Committee, which has kept its benchmark interest rate near zero since December 2008, began a two-day meeting today and plans tomorrow to release a statement and economic projections from governors and regional Fed presidents. Bernanke is scheduled to hold a press conference at 2:15 p.m., his first since June and third since the Fed started the briefings in April.

Central bank officials may not be ready this week to pull the trigger on more bond-buying because of an increase this year in core inflation, which excludes food and fuel costs, Gagnon said. Once policy makers see slowing price gains for another month or two, “they will then feel empowered, indeed driven,” to restart asset purchases, he said.

‘Top of the List’

Tarullo, in a speech in New York last month, said additional mortgage-securities purchases should “move back up toward the top of the list of options” because “the aggregate -demand effect should be felt not just in new-home purchases, but also in the added purchasing power of existing homeowners who are able to refinance.” Fed Vice Chairman Janet Yellen said Oct. 21 that a third round of asset purchases “might become appropriate” if the economy’s state warranted additional stimulus.

“I don’t know how you could embark on a program of buying agency mortgages thinking you’re going to stimulate more refinancing,” said Bryan Whalen, co-head of mortgage bonds at Los Angeles-based TCW Group Inc., which oversees $120 billion in assets. “It’s not a rate issue, it’s a qualification issue.”

Switch From Treasuries

The average rate on a typical 30-year fixed mortgage fell to a record low 3.94 percent in October, from this year’s high of 5.05 percent, before climbing to 4.10 percent last week, according to Freddie Mac survey data. In September, the FOMC voted to reinvest proceeds from maturing housing debt into mortgage-backed securities, switching from Treasuries.

Treasuries rose as renewed concern Greece will default and the European rescue plan will unravel boosted demand for the safest assets. The yield on the 10-year Treasury note fell 12 basis points to 1.9 percent at 11:09 a.m. in New York trading.

New York Fed President William C. Dudley said Oct. 24 that removing “impediments” to the transmission of monetary stimulus would make the central bank’s record easing more effective. The FHFA’s plan to make it easier for borrowers with high loan-to-value ratios to refinance is “a step in the right direction,” he said, adding he hoped additional measures would follow.

Bernanke said in congressional testimony last month that the Fed needs help from other branches of government to aid the economy. “Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy,” he told the Joint Economic Committee Oct. 4.

Boosting Stocks

Gagnon urged the central bank to target a 30-year mortgage rate of 3 percent to 3.5 percent by buying as much as $2 trillion of mortgage-backed securities. While boosting stocks and supporting property prices, Fed asset purchases may help create at least 3 million jobs, he said in an Oct. 24 blog titled “The Last Bullet.”

“The Fed could do stuff, and it would help, but there would be a lot of people who without HARP couldn’t take advantage of it,” Gagnon said in a telephone interview.

Reduced home prices and tightened lending standards have slowed the pace of replacement home loans. The Mortgage Bankers Association forecast on Oct. 11 that refinancing this year would total $783 billion, down from $1.1 trillion last year, even amid lower interest rates. Refinancing peaked at a record $2.5 trillion in 2003.

Reduce Loan Rates

Stanford University Professor John Taylor, best known for the Taylor Rule formula that suggests how the Fed should set its benchmark interest rate, said more Fed purchases of mortgage bonds are unlikely to reduce loan rates.

Another round of purchases wouldn’t cut rates “appreciably, and not really in any predictable way,” Taylor, an economic adviser to House Republican lawmakers, said in a phone interview.

Taylor and one of his graduate students, Johannes Stroebel, wrote a paper arguing that “it is difficult to detect a significant effect” from Fed purchases of mortgage bonds totaling $1.25 trillion from January 2009 to March 2010.

Gagnon, co-author of a Fed study that found the bond buying lowered borrowing costs and helped the economy, disputed Stroebel and Taylor’s findings, saying they focused on the impact of the actual purchases, rather than the announcement.

Fewer ‘Distortions’

A May 2011 Bank of Canada review of research into central bank bond-buying said the Fed’s MBS purchases “appear to have eased mortgage-market conditions.” At the same time, the Fed’s $600 billion, second round of bond purchases, undertaken from November 2010 through June of this year, probably had a “more modest” effect because of fewer “distortions” in financial markets and the economy at the time, the Canadian central bank’s researchers said.

Without the administration program sparking more refinancing, Fed asset purchases won’t be of much help to the housing market, says Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who opposes further bond-buying.

“If the pipeline is stuck, then it doesn’t matter if mortgage rates are 4 percent, 3.5 percent or zero,” said Stanley, a former Richmond Fed researcher.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Caroline Salas Gage in New York at csalas1@bloomberg.net.

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

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U.S. Stocks Decline as Greek Referendum Threatens European Bailout Plans

By Rita Nazareth - Nov 1, 2011 9:53 PM GMT+0700

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Nov. 1 (Bloomberg) -- David Rovelli, managing director of U.S. equity trading at Canaccord Genuity Inc., discusses stock market performance amid concerns that a Greek referendum pledged by Prime Minister George Papandreou may threaten Europe’s bailout. Rovelli speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

U.S. stocks slumped, following the biggest decline in almost a month for the Standard & Poor’s 500 Index, on concern that a Greece referendum pledged by Prime Minister George Papandreou may threaten Europe’s bailout.

Stocks briefly pared losses after Germany and France’s leaders said Greece’s deal is “more necessary than ever.” Bank of America Corp. (BAC) and Citigroup Inc. (C) retreated more than 3.7 percent as a gauge of European lenders tumbled 6.4 percent. The Morgan Stanley Cyclical Index of companies most-tied to the economy lost 2.7 percent. Alcoa Inc. (AA) and Halliburton Co. (HAL) dropped at least 2.5 percent as commodity prices fell on demand concern.

The S&P 500 fell 2 percent to 1,228.57 as of 10:50 a.m. New York time, after dropping as much as 2.8 percent earlier. The benchmark gauge for U.S. equities slumped 2.5 percent yesterday. The Dow Jones Industrial Average declined 204.76 points, or 1.7 percent, to 11,750.25 today.

“I just don’t get it,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “A Greek referendum is a very risky proposition and it’s very surprising. Everybody thought last week that this crisis was behind us on a near-term basis, but Europe is going to be front and center.”

The S&P 500 jumped 11 percent in October, the best monthly gain since 1991, after European leaders took action to contain the debt crisis. Equities trimmed monthly gains yesterday amid concern Europe will struggle to raise financing for a bailout.

Trading Range

Today’s decline cut the S&P 500’s price to 12.9 times reported earnings, the lowest since Oct. 20 and 22 percent below its five-decade average of 16.4, according to data compiled by Bloomberg. The index is trading just above the level where three rallies stopped in August and September, the top of a so-called trading range that prevailed for 10 weeks.

Global stocks sank today as a gauge of European shares dropped 3.3 percent. Papandreou’s gambit risks pushing the country into default if rejected by voters, and raises the ante with dissidents in his own party. Equity futures extended losses after state-run Athens News Agency reported, without citing anyone, that six senior members of the ruling party called on Papandreou to step down.

“The bailout and austerity measures are hugely unpopular among the Greek people,” Andrew Ross, a partner and global equity trader at First New York Securities LLC, a New York-based proprietary trading firm that bets on stocks, commodities and derivatives, said in an e-mail. “In the event Greek people opt out of the bailout program, Greece will default and an extremely ugly precedent will set for Italy, Portugal and Spain.”

Group of 20

German Chancellor Angela Merkel and French President Nicolas Sarkozy called for the implementation of a European deal to write down Greece’s debt. The two will meet in Cannes tomorrow to discuss Greece before a Group of 20 summit starting in the French city on Nov. 3, Merkel’s chief spokesman Steffen Seibert said in an e-mailed statement.

American banks tumbled. Bank of America retreated 3.7 percent to $6.58. Citigroup declined 5.4 percent to $29.88.

U.S. regulators are investigating whether hundreds of millions of dollars are missing from client accounts at MF Global Holdings Ltd., according to two people with knowledge of the matter. The firm, which filed for bankruptcy protection yesterday, was ordered by the enforcement division of the Commodity Futures Trading Commission to preserve records for the review, one of the people said.

Chinese Manufacturing

Stocks also fell after data showed a Chinese manufacturing index dropped to the lowest level since February 2009, bolstering the case for fiscal or monetary loosening to support the expansion of the world’s second-biggest economy.

In the U.S., the Institute for Supply Management’s factory index fell to 50.8 in October from 51.6 the prior month, the Tempe, Arizona-based group said today. A reading of 50 is the dividing line between expansion and contraction in manufacturing.

Companies most-tied to the economy declined. Caterpillar Inc. (CAT) fell 3.1 percent to $91.56 and Hewlett-Packard Co. (HPQ) slumped 3.6 percent to $25.65. The Dow Jones Transportation Average, a proxy for the economy, slid 1.4 percent.

Concern about slower demand for commodities drove energy and raw material shares in the S&P 500 down by at least 2.4 percent. Alcoa erased 2.5 percent to $10.49. Halliburton sank 5.9 percent to $35.15.

Baker Hughes Inc. tumbled 9.8 percent to $52.29. The oilfield contractor reported third-quarter earnings excluding some items of $1.18 a share, missing the average analyst estimate by 3 percent, according to Bloomberg data.

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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MF Global Probe May Involve Hundreds of Millions in Funds

By Silla Brush and Matthew Leising - Nov 1, 2011 9:33 PM GMT+0700

MF Global Holdings Ltd. (MF), under investigation by U.S. regulators after filing for bankruptcy protection, violated requirements that it keep clients’ collateral separate from its own accounts, the head of the world’s largest futures exchange said.

Craig Donohue, CME Group’s chief executive officer, said on a conference call with analysts today that MF Global isn’t in compliance with the rules of the exchange and the Commodity Futures Trading Commission.

“While we are unable to determine the precise scope of the firm’s violation at this time, we are investigating the circumstances of the firm’s failure,” Donohue said.

MF Global, the holding company for the futures broker run by former New Jersey Governor and ex-Goldman Sachs Group Inc. Co-Chairman Jon Corzine, is being investigated by regulators for hundreds of millions of dollars that may be missing from client accounts, according to two people with knowledge of the matter.

CME Group’s Chicago Mercantile Exchange is the designated self-regulatory organization for MF Global, meaning it audits and monitors the firm’s positions on a regular basis, said Laurie Bischel, a CME Group spokeswoman.

MF Global told regulators yesterday about deficiencies in accounts that it managed for clients in the futures market, the CFTC and Securities and Exchange Commission said in an e-mailed statement. MF Global was ordered by the CFTC’s enforcement division to preserve records for the review, said one of the people, who spoke on condition of anonymity because the probe isn’t public.

$6.3 Billion Wager

Corzine, 64, now faces a regulatory probe as well as a bankruptcy. He wagered $6.3 billion of the firm’s own money on sovereign European debt in a bid to increase profits. Instead, the firm reported a $191.6 million quarterly loss on Oct. 25 as Europe’s debt crisis led to demands from regulators to boost capital, as well as credit downgrades and margin calls, MF Global President Bradley Abelow said.

Corzine and Diana Desocio, an MF Global spokeswoman, didn’t respond to e-mails or phone messages seeking comment.

Under the regulations, futures brokers that trade on exchanges are required to keep their clients’ collateral, often cash or securities, separate from their own accounts. The segregated collateral is meant to reduce risk in futures trades. MF Global had almost $7.3 billion in customer funds in segregated accounts as of Aug. 31, according to the most recent CFTC data.

‘Third Rail’

“It’s kind of considered the third rail of the brokerage industry that when you’re holding your customers’ funds in their names, you don’t touch them -- even in an emergency situation when you’re running short of cash,” Darrell Duffie, a professor at Stanford University’s Graduate School of Business, said in a telephone interview.

“The fact that the CME has stated that customer funds have been mishandled increases the likelihood that this is not just a simple accounting error or IT glitch,” he said. “The CME obviously has access to its own clearing account records and would probably have based its statement on a review of those records.”

The regulators said in their statement yesterday that they advised bankruptcy as the “safest and most prudent course of action to protect customer accounts and assets.”

The missing funds were reported yesterday by the New York Times. As much as $950 million was thought to be missing at first, and that figure fell to less than $700 million as the firm reviewed its accounting, the Times said today, citing people briefed on the matter. More funds may show up in coming days, the report said.

Debt and Assets

MF Global listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed in U.S. Bankruptcy Court in Manhattan.

Corzine, who won the top job at Goldman Sachs by leading the firm’s fixed-income unit, was recruited to the firm in 1975 as a trainee on the government bond desk. He graduated in 1969 from the University of Illinois at Urbana-Champaign, served in the Marine Corps Reserve and received his master’s degree in business administration from the University of Chicago in 1973.

Corzine, a Democrat, was elected to the U.S. Senate a year after he left Goldman Sachs in 1999 with an estimated $400 million as the firm went public. He became governor in 2006 and was defeated in November 2009 by Republican Chris Christie.

Options

MF Global’s board met through the weekend to consider options including a sale, a person with direct knowledge of the situation said. The firm was in discussions with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, a person with knowledge of the matter said on Oct. 28.

Interactive Brokers Group Inc. was still considering a rescue early yesterday, but pulled out after the discrepancy surfaced in customer accounts, The Wall Street Journal reported yesterday, citing unidentified sources.

Thomas Peterffy, Interactive Brokers’ chief executive officer, didn’t respond to a request for comment.

“The first thing you do in any liquidation is go through the accounts and figure out what’s in there and whether they’ve been properly credited,” said Peter Henning, a law professor at Wayne State University in Detroit. “If they say it’s been credited and in fact they’re not there, then you have some very major problems.”

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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European Stocks Sink as Greece Calls Referendum; Banks Tumble

By Sarah Jones - Nov 1, 2011 9:08 PM GMT+0700

European stocks sank the most in four weeks, as Greece’s government called a referendum on its latest bailout package, spurring concern that the country may default.

Credit Suisse Group AG (CSGN) and Danske Bank A/S led a selloff in lenders, both sliding more than 7 percent, after earnings fell short of analysts’ estimates. National Bank of Greece SA (ETE) sank 13 percent in Athens trading. Mining companies tumbled after a gauge of Chinese manufacturing dropped to the lowest level since February 2009.

The Stoxx 600 slid 3.4 percent to 235.25 at 2:04 p.m. in London, extending yesterday’s 2.2 percent selloff and paring last month’s biggest advance since 2009. The VStoxx Index (V2X), which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, jumped 20 percent to 42.13, its biggest gain since Sept. 5.

“After the euphoria from last week’s euro-zone summit, this is a dose of cold water and introduces further uncertainty into the market,” said Edmund Shing, chief European strategist at Barclays Plc (BARC) in London. “It just shows you how important details have become. It’s not as bad as the market makes out and is more of a knee-jerk reaction. We don’t yet know when the referendum will take place.”

National benchmark indexes tumbled at least 2.5 percent in all 16 western European markets that were open today, except Iceland. France’s CAC 40 Index dropped 4.9 percent, Germany’s DAX Index sank 4.7 percent, Italy’s FTSE MIB Index plunged 6.5 percent and Greece’s ASE Index plunged 6.8 percent.

Greece Calls Referendum

U.S. stocks extended the selloff and Asian shares tumbled after Greek Prime Minister George Papandreou called a referendum on the euro area’s latest bailout package, saying voters will give him their support to proceed with economic reforms.

Papandreou’s gambit risks pushing the country into default if voters reject the financial accord. An opinion poll published on Oct. 29 showed most Greeks believe the euro area’s expanded bailout package and debt writedown are negative.

Leaders from the Group of 20 meet at a summit on Nov. 3-4 in Cannes, France, a week after the euro area’s authorities pledged to expand their rescue fund to 1 trillion euros ($1.4 trillion). They have already sought financial help from China and cooperation from the International Monetary Fund.

Credit Suisse Plunges

Credit Suisse slumped 7.7 percent to 23.62 Swiss francs after the second-largest Swiss bank announced 1,500 more job cuts and plans to reorganize its securities unit after the division reported its first quarterly loss since 2008.

Third-quarter net income rose 12 percent to 683 million Swiss francs ($765 million), helped by an accounting gain from the widening of its credit spreads, the Zurich-based bank said. That missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg.

Danske Bank tumbled 10 percent to 66.85 kroner after Denmark’s largest lender reported an unexpected third-quarter net loss of 384 million kroner ($70 million). That compares with the average analyst estimate of a 763 million-krone profit in a Bloomberg survey. The Danish lender also announced plans to cut 2,000 jobs.

A gauge of European banks sank 6.5 percent, its largest decline since Aug. 18. National Bank of Greece and EFG Eurobank Ergasias SA (EUROB), the country’s two biggest lenders, lost 13 percent to 1.50 euros and 16 percent to 57 euro cents, respectively.

Barclays Plc dropped 8.8 percent to 178.2 pence after UBS AG lowered its recommendation for Britain’s second-largest bank by assets to “neutral” from “buy.”

Commodity Companies Retreat

Mining companies declined with copper prices as a report showed a drop in manufacturing in China, the world’s biggest consumer of the base metal.

The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement. That compared with the median economist forecast of 51.8 in a Bloomberg News survey. A reading above 50 indicates expansion.

Xstrata Plc (XTA) declined 5.6 percent to 986.8 pence, Antofagasta Plc (ANTO) retreated 5 percent to 1,109 pence and BHP Billiton Ltd. (BHP), the world’s largest mining company, lost 2.8 percent to 1,913 pence.

Legal & General Falls

Elsewhere, Legal & General Group Plc (LGEN) slid 7 percent to 102.8 pence, pacing a selloff in financial shares. The company posted a 0.7 percent drop in third-quarter sales to 1.34 billion pounds ($2.1 billion) because of lower revenue from insured savings and annuities.

Sandvik AB (SAND) dropped 6.5 percent to 84.25 kronor. The world’s biggest maker of metal-cutting tools posted a 60 percent plunge in third-quarter profit to 626 million kronor ($94 million) after a writedown on goodwill for a business it plans to sell. The company also said it will cut 365 jobs in Sweden.

Just over half of the 150 companies in the Stoxx 600 that have released earnings since Oct. 11 beat analysts’ profit estimates, according to data compiled by Bloomberg.

Daimler AG (DAI) paced a selloff in carmakers, falling 5.7 percent to 34.91 euros after Barclays downgraded the world’s third-largest maker of luxury vehicles to “underweight” from “equal weight.”

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

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

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Papandreou’s Power Weakens as Lawmakers Rebel on Vote

By Maria Petrakis, Natalie Weeks and Marcus Bensasson - Nov 1, 2011 9:47 PM GMT+0700

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Nov. 1 (Bloomberg) -- Greek Prime Minister George Papandreou said voters will give him support to forge ahead with economic reforms as he pledged a referendum on the European Union's latest accord on the nation's financing. Owen Thomas and Nicole Itano report on Bloomberg Television's "Countdown." (Source: Bloomberg)

Greek Prime Minister George Papandreou’s grip on power weakened before a confidence vote later this week as his decision to call a referendum on a new bailout package provoked a lawmaker rebellion.

Milena Apostolaki said she will defect from Papandreou’s socialist Pasok party. With Kerdos newspaper reporting that Eva Kaili will also abandon Pasok, Papandreou would only control 151 seats in the 300-seat chamber. Six members of the party called on the premier to resign in a joint letter, Athens News Agency said today. Greek ministers meet at 6 p.m. local time.

Stocks fell, the euro tumbled and Italian bonds plunged on concern that the referendum, which blindsided Greek lawmakers as well as European policy makers, will push Greece into default if the bailout is rejected. Austerity steps imposed by creditors have sparked a wave of social unrest in the past 18 months, undermining support for the government. Papandreou won his last major vote on austerity measures by 154 votes to 144 on Oct. 20.

“If it continues with Papandreou and the referendum, we will end up with a default and the default will push us into the drachma,” former Greek Finance Minister Stefanos Manos said in an interview with Dublin-based broadcaster RTE today. The referendum call puts in jeopardy the payment of the next installment of bailout funds by the International Monetary Fund and the European Union, he said.

Another key member of the ruling party, Vasso Papandreou, called on the Greek president to move toward forming a national unity government.

Forced Default

German bunds jumped, sending yields down the most since March 2009, and the euro weakened while stocks and U.S. futures fell. German 10-year yields slipped 22 basis points to 1.8 percent at 2:16 p.m. in London. Italian bonds dropped, pushing the 10-year yield to as much as 452 basis points above benchmark German bunds, a euro-era record. The euro was 1.4 percent lower at $1.3665 after yesterday’s 2 percent decline.

A rejection of the EU-IMF aid plan “would increase the risk of a forced and disorderly sovereign default” and raises the chance of Greece leaving the euro, Fitch Ratings said in a statement today.

Papandreou, 59, wants to hold a referendum after details of last week’s second bailout package for Greece are approved. The vote of confidence in Parliament is currently scheduled to begin tomorrow and to conclude at the end of this week. Before then, Papandreou will travel to Cannes to discuss the crisis with Group of 20 leaders, according to a Greek official.

‘Uncontrollable Dimensions’

“The crisis in the country has taken on uncontrollable dimensions and threatens the cohesion of Greek society,” said lawmaker Milena Apostolaki, who said she will defect from Pasok. “The titanic effort needed to exit the crisis needs national acceptance and social support. A referendum is a deeply divisive process. I want to express my categorical disagreement with this initiative of the government.”

Most of the 1,009 people surveyed on Oct. 27, the day the new bailout package was announced, said the accord should be put to a referendum, according to the results of a Kapa Research SA poll, published in To Vima newspaper. Forty-six percent said they’d oppose the plan at such a referendum. In the same poll, more than seven in 10 favored Greece remaining in the euro.

Early Hours

“Papandreou’s government is something that defies logic: it ought to have fallen some time ago given the economic situation of Greece,” Niall Ferguson, a historian currently at Harvard University, said in a Bloomberg Television interview. “The reason it hasn’t is that the Greeks themselves aren’t sure if there’s a better alternative to this grim austerity.”

EU leaders carved out a second aid package for Greece at a summit in Brussels lasting into the early hours of Oct. 27, after Papandreou scraped together parliamentary approval for the second round of austerity measures in four months. Greece will receive 130 billion euros ($178 billion) in public funds plus a 50 percent writedown on Greek debt, following a fully taxpayer- funded package of 110 billion euros extended in May 2010.

“For the new agreement, we must go to a referendum for Greeks to decide,” Papandreou told Pasok lawmakers yesterday. “Democracy is alive and well and Greeks are being called to rise to a national duty beyond the regular electoral processes.”

The MSCI All-Country World Index fell 2.75 percent today and the Standard & Poor’s 500 Index lost 2 percent. The Athens benchmark general index sank 7.5 percent to 747.65 at 4:38 p.m. in Athens.

Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian said the referendum call “is material and consequential.”

“In addition to constituting a major political gamble, the run-up will put the European Central Bank, EU and International Monetary Fund in a tough position regarding disbursements to Greece,” El-Erian said in an e-mail today. He also expressed concern that the European Union deal “appears to be unraveling from many sides.”

To contact the reporters responsible for this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Tim Quinson at tquinson@bloomberg.net

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Credit Suisse Plans 1,500 More Job Cuts After Loss at Securities Division

By Elena Logutenkova - Nov 1, 2011 5:42 PM GMT+0700

Credit Suisse Group AG (CSGN), the second- biggest Swiss bank, said it will cut about 1,500 more jobs and reorganize its securities unit after the division reported its first quarterly loss since 2008.

Credit Suisse fell the most in almost three years in Zurich trading as third-quarter net income of 683 million Swiss francs ($767 million) missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg.

Chief Executive Officer Brady Dougan, who said current volatility in the markets is “similar” to the 2008 crisis, is adding to the 2,000 staff cuts announced in July. That may make it more difficult for the Zurich-based bank to compete with larger rivals amid the European sovereign debt crisis and as the global economic slowdown crimps investment-banking revenue.

“The bank is trying to resolve its earnings problems by aggressive downsizing,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. “It’s very difficult to achieve as once you fall out of the competition with the biggest investment banks it gets harder to attract good people even in areas the company wants to keep. Rivals will be happy.”

Credit Suisse dropped as much as 10 percent, the biggest intraday decline since December 2008, and was down 8.2 percent at 23.51 francs as of 11:37 a.m. in Zurich. The stock is down 35 percent this year, compared with 30 percent declines at larger rival UBS AG and the 46-company Bloomberg Europe Banks and Financial Services Index.

Investment-Banking Loss

Credit Suisse’s investment bank reported a pretax loss of 190 million francs for the quarter, compared with a profit of 395 million francs in the year-earlier period. Earnings at the private bank slumped 78 percent to 183 million francs after the company made 478 million francs of litigation provisions for tax settlements in Germany and the U.S. Asset management profit fell 32 percent to 92 million francs.

“We believe subdued economic growth and the low interest rate environment and increased regulation that we are seeing may persist for an extended period,” Dougan said in a statement. “We may well continue to see continued low levels of client activity and a volatile trading environment.”

Credit Suisse’s job cuts will reduce the bank’s total headcount by almost 7 percent from the current 50,700 by the end of 2013. That will save about 2 billion francs in annual costs, the bank said. While the cuts will be spread across the group, the private bank will be less affected, Chief Financial Officer David Mathers told reporters on a conference call.

Market Volatility

Credit Suisse had added about 4,000 employees since the beginning of 2009, including staff at the investment bank, to try to gain a bigger market share after surviving the subprime crisis with lower losses than some peers. The bank increased its target for cutting risk-weighted assets by 57 percent.

Compared to 2008, “the volatility in the markets is similar in terms of the fact that people are taking a much more conservative approach to how they actually conduct themselves in financial matters,” Dougan said in an interview. “We need to have a period of more stability before we can get the markets and players in the markets acting in a more consistent way.”

UBS and Deutsche Bank AG, the biggest bank in Germany, last week signaled more jobs may be at risk amid demands for more capital and as a deteriorating global economy hurts investment- banking revenue.

Targets Scrapped

Deutsche Bank Chief Financial Officer Stefan Krause said Oct. 25 the Frankfurt-based lender will continue to adjust its “platform” if the challenging environment persists after announcing 500 job cuts earlier that month. His UBS counterpart Tom Naratil said in an interview the same day that a reorganization of the investment bank, which the Zurich-based company plans to announce on Nov. 17, may lead to a lower headcount at the unit.

Dougan cut Credit Suisse’s profitability goal in February, blaming stricter capital requirements, and now aims for a return on equity of more than 15 percent over the next three to five years, down from a previous goal of more than 18 percent. Tougher rules from the Basel Committee on Banking Supervision and Swiss regulators will require the bank to hoard more capital for its securities business.

Credit Suisse, UBS, Deutsche Bank and Barclays Plc have already disclosed plans to shrink their combined risk-weighted assets by as much as $415 billion to prepare for the stricter capital requirements under Basel III rules. As the euro area’s sovereign debt crisis erodes earnings, the banks may have little choice but to accelerate asset reductions and job cuts, analysts including JPMorgan Chase & Co.’s Kian Abouhossein said last month.

Shrinking Assets

Third-quarter profit at Credit Suisse rose 12 percent, helped by an accounting gain from the widening of its credit spreads, the Zurich-based bank said today. That gain 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.

Credit Suisse, which previously aimed to reduce risk- weighted assets by as much as 70 billion francs to prepare for Basel III, said today it will cut them by 110 billion francs, including some 99 billion francs at the fixed-income unit, by the end of 2014.

“They are becoming a niche player in certain parts of investment banking,” said Becker of Kepler. “For them, it doesn’t make sense to retain a presence in fixed income.”

Exiting Business

The bank is exiting the business of commercial mortgage- backed securities origination and will scale down long-dated unsecured trades in global rates, emerging markets and commodities businesses. It will also shrink its advisory businesses to reduce any overlaps in covering certain countries, industries and products, Credit Suisse said.

The measures will improve the return on equity at the investment bank, which would have slumped by 9 percentage points without any measures. After cuts in risk-weighted assets all businesses at the investment bank should be producing a return on equity in excess of Credit Suisse’s 15 percent target, Dougan said.

Credit Suisse’s private bank needs to prepare for “a difficult environment” as its decline in profitability is “more than a cyclical slump,” Hans-Ulrich Meister, who took over as head of the division on Aug. 1, told staff in an internal memo in September.

Litigation Provisions

The annualized gross margin in wealth management, or the amount of revenue earned on assets under management, fell to 114 basis points in the third quarter from 131 basis points in 2009. A basis point is one-hundredth of a percentage point.

The bank said today it will aim to expand its business with ultra-high-net-worth individuals and with clients who book assets in their countries of residence, seeking to boost pretax profit at the private bank by 800 million francs by 2014.

Credit Suisse in September agreed to pay 150 million euros ($210 million) to settle proceedings in Germany against employees investigated for allegedly helping German clients evade taxes. The bank made provisions for the German settlement and set aside 295 million francs for U.S. tax matters, it said.

The bank is a target of a criminal investigation by the U.S. Department of Justice over former cross-border private- banking services to American customers, the company said in July. Eight bankers, including Credit Suisse’s former head of North America offshore banking, were charged with conspiring to help American clients evade taxes through secret bank accounts. Credit Suisse said at the time that it’s cooperating with the U.S. authorities “subject to our Swiss legal obligations.”

Swiss banks will probably settle a sweeping U.S. probe of offshore tax evasion by paying billions of dollars and handing over names of thousands of Americans who have secret accounts, two people familiar with the matter who declined to be identified because the talks are confidential, said last month.

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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Stocks, Euro Decline on Greek Referendum Call

By Stephen Kirkland - Nov 1, 2011 9:24 PM GMT+0700

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Nov. 1 (Bloomberg) -- Hans Goetti, the Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, talks about the outlook for global financial markets and his investment strategy. Goetti also discusses the G-20 summit to be held in Cannes, France. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

Nov. 1 (Bloomberg) -- Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., talks about the impact of Europe's debt deal on global stocks and his investment strategy. Stocks retreated from an almost three-month high as Italian and Spanish bonds fell amid concern European leaders will struggle to raise funds to contain the region’s debt crisis. Koesterich speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Stocks sank, while a surge in German bunds sent yields down the most on record, as Greek Prime Minister George Papandreou’s plan to hold a referendum on Europe’s bailout fueled concern the debt crisis will worsen. The Dollar Index extended its biggest two-day rally in three years.

The MSCI All-Country World Index retreated 3.2 percent at 10:22 a.m. in New York, with gauges in Italy, France and Germany sliding at least 4.4 percent. The Standard & Poor’s 500 Index lost 2.2 percent. German 10-year yields fell as much as 26 basis points to 1.77 percent. Rates on 10-year Italian and French debt reached euro-era records above benchmark German bunds. The euro fell 1.4 percent to $1.3664, a three-week low. Copper lost 3.5 percent and oil decreased 2.9 percent to pace losses in commodities after China’s manufacturing growth cooled.

Greece’s referendum poses a threat to financial stability in the euro region and increases the risk of a “disorderly” default, Fitch Ratings said. Papandreou’s grip on power weakened before a confidence vote on Nov. 4 as six senior members of the ruling party called on the prime minister to step down, state- run Athens News Agency reported, without citing anyone.

“The risk of a Lehman-style disorderly default now looms a bit larger than before, including some residual risk that Greece may leave the euro zone if it rejects the offer of orderly debt relief in exchange for harsh new spending cuts and reforms,” Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London, wrote in a note. “This could be negative for markets for equities and other risk assets. It could exacerbate potential financial turbulence and the euro-zone recession.”

Banks Retreat

The S&P 500 extended yesterday’s 2.5 percent retreat and is down 4.6 percent so far this week. The index surged 3.8 percent last week, capping a 17 percent rebound from a 13-month low on Oct. 3, after European officials agreed on enhancing the region’s bailout fund.

Gauges of energy, commodity and financial shares slid at least 3.5 percent to lead losses in the S&P 500 today as all 10 of the index’s main industry groups sank at least 1.1 percent.

JPMorgan Chase & Co., Caterpillar Inc. and Hewlett-Packard Co. lost at least 4.3 percent for the biggest declines in the Dow Jones Industrial Average. Jefferies Group Inc. fell as much as 14 percent as investors renewed their focus on Europe’s financial crisis, prompting the investment bank to say it has “no meaningful exposure” to debt issued by Portugal, Italy, Ireland, Greece and Spain.

MF Global Probe

U.S. regulators are investigating whether hundreds of millions of dollars are missing from client accounts at MF Global Holdings Ltd. (MF), according to two people with knowledge of the matter. The firm filed for bankruptcy protection yesterday after wagering $6.3 billion of its own money on European sovereign debt. MF Global was ordered by the enforcement division of the Commodity Futures Trading Commission to preserve records for the review, one of the people said.

Manufacturing in the U.S. expanded less than forecast in October as inventories shrank by the most in a year and production cooled. The Institute for Supply Management’s factory index dropped to 50.8 last month from 51.6 in September. A reading of 52 was the median forecast in a Bloomberg News survey of economists. Fifty is the dividing line between growth and contraction.

The Stoxx Europe 600 Index declined 3.4 percent, the biggest drop in six weeks. Greece’s ASE Index slid as much as 7.5 percent, the most in three years on a closing basis. The National Bank of Greece SA, Banco Comercial Portugues SA and France’s Societe Generale SA and Credit Agricole SA tumbled more than 10 percent. Credit Suisse Group AG (CSGN) sank 7.6 percent after the Swiss bank reported earnings that missed analysts’ estimates.

Bond Spreads

Yields on Italian 10-year debt surged to as much as 4.55 percentage points above German bunds, while French rates climbed to 1.23 percentage points above. The Belgian-German 10-year yield spread widened to a euro-era record 263 basis points. Greek two-year note yields surged as much as 7.34 percentage points to a record 85.08 percent.

The yield on Sweden’s 10-year bond dropped 23 basis points to 1.72 percent, and Norway’s yield slid 18 basis points to 2.52 percent. Sweden and Norway aren’t part of the euro area.

The euro depreciated 1.3 percent to 106.97 yen, while Japan’s currency was little changed at 78.25 per dollar. The Australian dollar weakened versus 15 of its 16 major peers, falling 1.9 percent to $1.0330.

Dollar Rallies

The Dollar Index, a gauge of the currency against six major peers, climbed 1.6 percent to 77.37 and is up 3.1 percent in two days.

The cost of insuring against default on sovereign debt surged the most in almost four months with the Markit iTraxx SovX Western Europe Index of credit swaps linked to 15 governments jumping 30 basis points to 334 basis points. Contracts on Italy soared 46 to 498 basis points, France was up 16 at 192 and Germany climbed 10 to 94 basis points.

Greece’s proposed referendum poses a threat to the region’s financial stability, Fitch Ratings said. Group of 20 leaders gather Nov. 3-4 for a summit in Cannes, France, to discuss the debt crisis.

The MSCI Emerging Markets Index declined 2.9 percent and is down 4.3 percent in two days. The Hang Seng China Enterprises Index slid 3.1 percent. Benchmark stock indexes fell at least 3 percent in Russia, Turkey, and the Czech Republic. The ruble weakened 1.9 percent against the dollar and South Africa’s rand slid 2.7 percent.

Commodities sank amid signs of weakening growth in Asia. China’s manufacturing, South Korean exports and Taiwan’s economy all expanded at the slowest pace since 2009, adding to concern global economic growth may falter. The China Purchasing Managers’ Index fell to 50.4 last month, lower than the 51.8 estimate in a Bloomberg survey of 16 economists.

Aluminum lost 4 percent, leading all 24 commodities in the S&P GSCI index lower. Oil in New York dropped for a third day, falling to $90.47 a barrel. China is the biggest energy user and largest buyer of industrial metals.

To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net

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European Stocks Sink on Greek Referendum Call

By Sarah Jones - Nov 1, 2011 5:35 PM GMT+0700

European stocks dropped, extending the Stoxx Europe 600 Index’s biggest plunge in four weeks, as the announcement of a Greek referendum spurred concern that the country may default. U.S. futures and Asian shares retreated.

Credit Suisse Group AG (CSGN) and Danske Bank A/S led a selloff in lenders, both dropping more than 7 percent, after earnings fell short of analysts’ estimates. National Bank of Greece SA (ETE) sank 12 percent in Athens trading. Mining companies tumbled after a gauge of Chinese manufacturing dropped to the lowest level since February 2009.

The Stoxx 600 slid 3.2 percent to 235.67 at 10:33 a.m. in London, extending yesterday’s 2.2 percent selloff. Futures contracts on the Standard & Poor’s 500 Index lost 2 percent and the MSCI Asia Pacific Index dropped 2.2 percent.

“After the euphoria from last week’s euro-zone summit, this is a dose of cold water and introduces further uncertainty into the market,” said Edmund Shing, chief European strategist at Barclays Plc (BARC) in London. “It just shows you how important details have become. It’s not as bad as the market makes out and is more of a knee-jerk reaction. We don’t yet know when the referendum will take place.”

The VStoxx Index (V2X), which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, jumped 16 percent percent to 40.57, its biggest gain since Sept. 9. European stocks slid the most since Oct. 4 yesterday, paring the Stoxx 600’s biggest monthly advance since 2009, as investors awaited details on how Europe will fund its expanded bailout facility.

Greek Bailout Referendum

U.S. stocks extended the selloff and Asian shares tumbled after Greek Prime Minister George Papandreou called a referendum on the euro area’s latest bailout package, saying voters will give him support to proceed with economic reforms.

Papandreou’s gambit risks pushing the country into default if voters reject the financial accord. An opinion poll published on Oct. 29 showed most Greeks believe the euro area’s expanded bailout package and debt writedown are negative.

Leaders from the Group of 20 meet at a summit on Nov. 3-4 in Cannes, France, a week after the euro area’s authorities pledged to expand their rescue fund to 1 trillion euros ($1.4 trillion). They have already sought financial help from China and cooperation from the International Monetary Fund.

Credit Suisse Plunges

Credit Suisse slumped 7.7 percent to 23.62 Swiss francs after the second-largest Swiss bank announced 1,500 more job cuts and plans to reorganize its securities unit after the division reported its first quarterly loss since 2008.

Third-quarter net income rose 12 percent to 683 million Swiss francs ($768 million), helped by an accounting gain from the widening of its credit spreads, the Zurich-based bank said. That missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg.

Danske Bank tumbled 9 percent to 67.80 kroner after Denmark’s largest lender reported an unexpected third-quarter net loss of 384 million kroner ($71 million). That compares with the average analyst estimate of a 763 million-krone profit in a Bloomberg survey. The Danish lender also announced plans to cut 2,000 jobs.

A gauge of European banks sank 5.7 percent, its largest decline in four weeks. National Bank of Greece and EFG Eurobank Ergasias SA (EUROB), the country’s two biggest lenders, lost 12 percent to 1.51 euros and 15 percent to 58 euro cents, respectively. Greece’s benchmark ASE Index plunged 6.1 percent.

Barclays Plc dropped 7.6 percent to 180.5 pence as UBS AG lowered its recommendation for Britain’s second-largest bank by assets to “neutral” from “buy.”

Commodity Companies Retreat

Mining companies declined with copper prices as a report showed a drop in manufacturing in China, the world’s biggest consumer of the base metal.

The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement. That compared with the median economist forecast of 51.8 in a Bloomberg News survey. A reading above 50 indicates expansion.

Separately, Australia’s central bank lowered its benchmark interest rate today for the first time since April 2009 as weaker global growth threatens to slow the nation’s resource- driven economy.

Xstrata Plc (XTA) declined 6.5 percent to 977.3 pence, Antofagasta Plc (ANTO) retreated 6 percent to 1,097 pence and BHP Billiton Ltd. (BHP), the world’s largest mining company, decreased 3 percent to 1,909.5 pence.

Legal & General Falls

Elsewhere, Legal & General Group Plc (LGEN) slid 6.7 percent to 103.1 pence, pacing a selloff in financial shares. The company posted a 0.7 percent drop in third-quarter sales to 1.34 billion pounds ($2.1 billion) because of lower revenue from insured savings and annuities.

Sandvik AB (SAND) dropped 3.7 percent to 86.85 kronor. The world’s biggest maker of metal-cutting tools posted a 60 percent plunge in third-quarter profit to 626 million kronor ($95 million) after a writedown on goodwill for a business it plans to sell. The company also said it will cut 365 jobs in Sweden.

Just over half of the 150 companies in the Stoxx 600 that have released earnings since Oct. 11 beat analysts’ profit estimates, according to data compiled by Bloomberg.

Daimler AG (DAI) paced a selloff in carmakers, plunging 5.4 percent to 35 euros as Barclays downgraded the world’s third- largest maker of luxury vehicles to “underweight” from “equal weight.”

G4S Plc (GFS) advanced 2 percent to 249 pence, one of three companies to rise on the Stoxx 600 today. The company abandoned its plan to buy ISS A/S, a Danish cleaning-services company, following a revolt by shareholders.

U.S. Manufacturing Report

In the U.S., a report today may show manufacturing in the world’s largest economy expanded at a faster pace in October, driven by exports and consumer spending, economists said. The Institute for Supply Management’s factory index, due at 10 a.m. New York time, rose to 52 from 51.6 in September, according to the median economist forecast.

Federal Reserve officials begin a two-day meeting today to determine whether additional steps, such as another round of securities purchases or changes to public communication, are needed to spur growth.

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

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

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Papandreou Asks Greeks to Back EU Debt Accord in Vote

By Maria Petrakis, Natalie Weeks and Marcus Bensasson - Nov 1, 2011 5:36 PM GMT+0700

Greek Prime Minister George Papandreou called a referendum and a parliamentary confidence vote, raising the prospect of derailing Europe’s bailout effort and pushing Greece into default. Stocks and the euro tumbled.

Papandreou’s gambit risks pushing the country into default if rejected by voters, and raises the ante with dissidents in his own party. Papandreou’s popularity has plunged after a raft of austerity measures cut pensions and wages, increased taxes and sparked a wave of social unrest. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative.

“Papandreou could lose the referendum, which means that new elections would have to be called,” Thomas Costerg, European economist at Standard Chartered Bank in London, said in an e-mail. “Heightened Greek uncertainty could propagate to other fragile euro-area countries, in particular Italy.”

German bunds jumped, sending yields down the most since March 2009, and the euro weakened while stocks and U.S. futures fell. German 10-year yields slipped 17 basis points to 1.85 percent at 10 a.m. in London. Italian bonds dropped, pushing the 10-year yield to as much as 440 basis points above benchmark German bunds, a euro-era record. The euro was 1 percent lower at $1.3718 after yesterday’s 2 percent decline.

The MSCI All-Country World Index retreated 1.6 percent and Standard & Poor’s 500 Index futures lost 1.4 percent. The Athens benchmark general index sank 6.2 percent to 758.46 at 12:10 p.m. in Athens.

‘Consequential’ Move

Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian said the referendum call “is material and consequential.”

“In addition to constituting a major political gamble, the run-up will put the European Central Bank, EU and International Monetary Fund in a tough position regarding disbursements to Greece,” El-Erian said in an e-mail today. He also expressed concern that the European Union deal “appears to be unraveling from many sides.”

Most of the 1,009 people surveyed on Oct. 27, the day the agreement was announced, said the accord should be put to a referendum, according to the results of the Kapa Research SA poll, published in To Vima newspaper. Forty-six percent said they’d oppose the plan at such a referendum. In the same poll, more than seven in 10 favored Greece remaining in the euro.

Confidence Vote

The referendum will likely be held after details of the EU accord are wound up, Papandreou said. The vote of confidence in Parliament will begin tomorrow and conclude late on Nov. 4, according to statements yesterday by House Speaker Filipos Petsalnikos.

“For the new agreement, we must go to a referendum for Greeks to decide,” Papandreou told lawmakers of his ruling socialist Pasok party in statements carried live yesterday from Athens on state-run Vouli TV. “Democracy is alive and well and Greeks are being called to rise to a national duty beyond the regular electoral processes.”

EU leaders carved out a second aid package for Greece at a summit in Brussels lasting into the early hours of Oct. 27, after Papandreou scraped together parliamentary approval for the second round of austerity measures in four months. Greece will receive 130 billion euros ($180 billion) in public funds plus a 50 percent writedown on Greek debt, following a fully taxpayer- funded package of 110 billion euros extended in May 2010.

Blindsided

The decision to call a referendum on the five-day-old bailout blindsided Greece’s European partners and placed another hurdle in the way of efforts to staunch the debt crisis, German coalition lawmakers said.

The announcement came “out of the blue, it’s surprising, very risky,” Norbert Barthle, the ranking member of Merkel’s Christian Democratic Union party on parliament’s budget committee, said by phone today. French President Nicolas Sarkozy is “dismayed” by the Greek plan, Le Monde newspaper reported, citing unnamed people close to Sarkozy.

At least three Pasok lawmakers have voiced concerns over Papandreou’s moves yesterday, with one, Dimitris Lintzeris, calling for a national salvation government in an open letter to Papandreou. Another deputy, Kostas Kartalis, asked for a meeting of ruling party lawmakers to be held as soon as possible.

“I can no longer look at polls where the majority is against the agreement, the majority is against the program, but a majority is also in favor of staying in the euro,” Finance Minister Evangelos Venizelos said on Antenna TV after Papandreou announced his decision. A “no” vote at the referendum would lead to “developments” that the government would assess, Venizelos said.

Stomach Pains

Venizelos was admitted to an Athens hospital with stomach pains early today and is expected to remain in the clinic until later in the day, according to an e-mailed statement from the Athens-based Finance Ministry.

Papandreou, whose term ends in 2013, is seeking renewed support to push through measures including job cuts to turn around an economy that is set to shrink 5.5 percent this year. The program involves new taxes and cuts in spending to plug the EU’s second-biggest budget gap.

The state budget deficit widened to 19.2 billion euros in the January to end-September period from 16.7 billion euros a year earlier, according to an e-mailed statement from the Athens-based Finance Ministry yesterday.

‘Reckless’

Opposition parties repeated their call for elections. Papandreou’s plans are “reckless” and put Greece’s EU membership at risk, lead opposition New Democracy party spokesman Yiannis Michelakis said.

Papandreou “has tossed Greece’s future in Europe in the air like a coin,” Michelakis said in an e-mailed statement from ND’s Athens offices yesterday. “He is dangerous and must go. There is a solution: elections now. It’s the safest ‘referendum.’”

New Democracy leader Antonis Samaras told President Karolos Papoulias today in Athens that “we have a historic responsibility to do what is necessary so that the future of the country and Europe is not placed at risk.” He told reporters afterwards that elections are a “national imperative.”

Papandreou now has just a three-seat majority in parliament and won approval for his latest austerity package amid protests that left one person dead. The budget measures prompted a near- rebellion in Papandreou’s party and violence in the streets.

The New Democracy party would win 22 percent of the vote in elections, with Papandreou’s Pasok party receiving 14.7 percent, and neither getting enough to form a majority in parliament, according to the Kapa poll. More than 26 percent of voters said they were undecided on who to back. The margin of error is 3.09 percentage points.

Not Binding

Separately, the International Swaps and Derivatives Association said that the euro-area proposals for Greek bonds appear to involve “a voluntary exchange that would not be binding on all holders,” according to an e-mailed statement.

“As such, it does not appear to be likely that the euro zone proposal will trigger payments under existing CDS contracts,” the statement said. “However, whether or not it does so will be decided by the Determinations Committee on the basis of specific facts, if a request is made to them.”

The ISDA statement late yesterday follows a review of whether the proposal would constitute a “credit event” for holders of credit-default swaps linked to the securities.

To contact the reporters responsible for this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net

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TDK Shares Advance in Tokyo as Investors Favor Plan to Reduce 11,000 Jobs

By Naoko Fujimura - Nov 1, 2011 2:57 PM GMT+0700

TDK Corp. (6762), the world’s biggest maker of magnetic heads for disk drives, rose for the first time in three days in Tokyo trading on plans to cut about 12 percent of its workforce after profit plunged 74 percent.

TDK advanced 3.7 percent to 3,390 yen at the close on the Tokyo Stock Exchange. The benchmark Nikkei 225 Stock Average dropped 1.7 percent.

The electronic parts maker joined Panasonic Corp. (6752) in announcing restructuring plans as a strengthening yen eroded their profits. Japan sold yen yesterday to damp its gains after the currency reached a postwar high. TDK and other manufacturers also were forced to halt production in Thailand because of flooding there.

“Investors are taking this as a wise decision,” said Tsuyoshi Segawa, a strategist at Mizuho Securities Co. in Tokyo.

About 11,000 jobs may be eliminated, Tokyo-based TDK said in a statement yesterday. The company also will sell its organic electroluminescent display business and some unused assets worldwide, according to the statement.

The restructuring plans are scheduled to begin as early as this fiscal year, the company said. The company had 88,449 employees worldwide as of Sept. 30, according to data compiled by Bloomberg.

Net income dropped to 6.7 billion yen ($86 million) in the six months ended Sept. 30 from 26.1 billion yen a year earlier, TDK said. Profit will probably be about 20 billion yen this fiscal year, compared with a previous forecast for 50 billion, the company said, partly because of the stronger yen and the Thailand floods.

TDK based its earnings forecast for the second half on an exchange rate of 76 yen versus the dollar and 105 yen to the euro, compared with its earlier estimate of 80 yen and 110 yen, respectively.

Organic light-emitting diode displays use a rival technology to liquid-crystal displays to make panels for smartphones and other devices.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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Sony Reorganizes TV Units in Struggle for Profit

By Cliff Edwards and Takashi Amano - Nov 1, 2011 12:07 PM GMT+0700

Sony Corp. (6758), struggling to rebound from seven consecutive annual losses in television manufacturing, reorganized the business into three groups.

One group will oversee the liquid-crystal-display operations, another will coordinate contract manufacturing and a third will oversee the development of next-generation sets, a spokeswoman, Ayano Iguchi, said by telephone. The changes take effect today, one day before the company announces earnings.

Sony, which sells products ranging from PlayStation game consoles to life insurance, is struggling to compete against Samsung Electronics Co. and low-cost TV set maker Vizio Inc. in an industry where sales have flattened in developed countries. Chief Executive Officer Howard Stringer has said TVs remain vital to the Tokyo-based company’s sales of related products, including Blu-ray players and video cameras.

The company makes LCD and LED TVs, sets that connect to the Internet using Google Inc.’s Android operating system and models that let users watch video in 3-D. The company uses other manufacturers, including Taipei-based Hon Hai Precision Industry Co., to produce lower-end sets.

Sony has indicated it will create a separate unit to handle the commodity hardware side of the TV business, said Ben Bajarin, director of consumer technology practice at consulting firm Creative Strategies Inc. in Campbell, California.

Smart TVs

The other units would be free to work on so-called smart TVs, which are more expensive sets that can pull content off the Internet, Bajarin said in an interview. These groups also would look at using Sony’s music, movie and video-game assets in high- end TVs, tablets and smartphones.

“They are taking a much harder look at the three pillars of their business,” Bajarin said. “It makes sense for them to have more of the manufacturing side outsourced.”

Investors have been awaiting the company’s turnaround plan after Sony, Japan’s largest exporter of electronics, announced in August that a strategic review of the business was under way.

“Sony needs to focus on the strength of its mobile and set products,” Eiichi Katayama, an analyst with Bank of America Merrill Lynch in Tokyo, wrote yesterday.

Other Japanese TV manufacturers also are trying to turn around their business. Panasonic Corp. (6752), the maker of Viera televisions, yesterday forecast its biggest annual loss in 10 years and cut its annual TV sales target to 19 million from 25 million.

Toshiba Corp. (6502), the maker of Regza televisions, said profit fell 19 percent as a strengthening yen eroded overseas sales. The falling prices of TVs and the end of a sales boom triggered by switching to digital broadcasts in July hurt Toshiba’s audiovisual division, the company said in a statement yesterday.

The company’s TV business had an operating loss of at least 10 billion yen in the six months ended Sept. 30, Corporate Executive Vice President Makoto Kubo said.

To contact the reporters on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net

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European, U.S. Stock Futures Drop as Greece’s Government Calls Referendum

By Sarah Jones - Nov 1, 2011 2:44 PM GMT+0700

European stock futures fell, indicating the Stoxx Europe 600 Index will extend its biggest drop in four weeks, as the announcement of a Greek referendum spurred concern that the country may default. U.S. index futures and Asian shares also retreated.

Mining companies may decline with metal prices after Chinese manufacturing dropped to the lowest level since February 2009. Credit Suisse Group AG (CSGN) might retreat after the Swiss bank reported earnings that missed analysts’ estimates. Danske Bank A/S may slide after Denmark’s largest lender posted an unexpected loss. G4S Plc (GFS) might advance after the company abandoned its plan to buy ISS A/S.

Futures on the Euro Stoxx 50 Index lost 2.9 percent to 2,318 at 7:43 a.m. in London. Futures contracts on the FTSE 100 Index expiring in December retreated 2 percent as Standard & Poor’s 500 Index futures expiring the same month declined 1.3 percent. The MSCI Asia Pacific Index tumbled 1.9 percent.

“Pessimism over the outlook for resolving the European debt crisis continues to mount,” said Peter Stanhope, an institutional trader at IG Markets in Melbourne. “Greece has shocked markets with the announcement of a referendum. With more elements adding to uncertainty like this, it seems likely that the turbulent market conditions will prevail.”

European stocks slid the most since Oct. 4 yesterday, paring the Stoxx 600’s biggest monthly advance since 2009, as investors awaited details on how Europe will fund its expanded bailout facility.

Greek Bailout Referendum

U.S. stocks extended the selloff yesterday and Asian shares tumbled today after Greek Prime Minister George Papandreou called a referendum on the euro area’s latest bailout package, saying voters will give him support to proceed with economic reforms. Papandreou’s gambit risks pushing the country into default if voters reject the financial accord.

Leaders from the Group of 20 meet at a summit on Nov. 3-4 in Cannes, France, a week after the euro area’s authorities pledged to expand their rescue fund to 1 trillion euros ($1.4 trillion). The have already sought financial help from China and cooperation from the International Monetary Fund.

Copper fell for a second day in London amid speculation European leaders will struggle to rein in the debt crisis and as a report showed a drop in Chinese manufacturing.

China’s Manufacturing Index

The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement today. That compared with the median economist forecast of 51.8 in a Bloomberg News survey. A reading above 50 indicates expansion.

Separately, Australia’s central bank lowered its benchmark interest rate today for the first time since April 2009 as weaker global growth threatens to slow the nation’s resource- driven economy.

BHP Billiton Ltd. (BHP), the world’s largest mining company, dropped 2.7 percent to A$36.77 in Sydney trading and Rio Tinto Group, the second biggest, retreated 3 percent to A$67.15.

Credit Suisse might decline after the second-largest Swiss bank announced 1,500 more job cuts and plans to reorganize its securities unit after the division reported its first quarterly loss since 2008.

Third-quarter net income rose 12 percent to 683 million Swiss francs ($774 million), helped by an accounting gain from the widening of its credit spreads, the Zurich-based bank said. That missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg.

Danske Bank, G4S

Danske Bank may slide after the lender reported a third- quarter net loss of 384 million kroner ($71 million) compared with an average analyst estimate of a 763 million-kroner profit in a Bloomberg survey.

G4S may gain after terminating its planned purchase of ISS, a Danish cleaning-services company, following a revolt by the U.K. company’s shareholders.

Barclays Plc (BARC) may slip after UBS AG lowered its recommendation for the shares to “neutral” from “buy.” Britain’s second-biggest bank by assets yesterday reported a third-quarter profit that beat analysts’ estimates.

Daimler AG (DAI) might also slide after Barclays downgraded the world’s third-largest maker of luxury vehicles to “underweight” from “equal weight.”

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

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

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