Sony Forecasts $1.2 Billion Annual Loss on Stronger Yen, Waning U.S. Sales

By Mariko Yasu and Naoko Fujimura - Nov 2, 2011 6:22 PM GMT+0700

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Nov. 2 (Bloomberg) -- Ben Collett, head of Japan equities at Louis Capital Markets HK Ltd., discusses Sony Corp.'s unexpected fiscal second-quarter loss reported today and full-year forecast. Collett, speaking from Hong Kong with Linzie Janis and Owen Thomas on Bloomberg Television's "Countdown," also talks about investment opportunities in Japan. (Source: Bloomberg)

Sony Corp. (6758), Japan’s largest consumer- electronics exporter, forecast its fourth consecutive annual loss and slashed television sales targets after the yen reached a postwar high and floods in Thailand cut production.

The company predicted a 90 billion-yen ($1.2 billion) annual loss, compared with its earlier forecast for a 60 billion-yen full-year profit. Sony reported an unexpected loss of 27 billion yen for the quarter ended Sept. 30, and it cut annual sales targets for TVs, personal computers, compact cameras and Blu-ray DVD players.

The projected loss comes as Chairman Howard Stringer tries to revive sales amid competition from Samsung Electronics Co. and Apple Inc. (AAPL) The company lowered its TV sales target to 20 million units from 22 million units and said Thailand’s worst floods in almost 70 years will delay the introduction of NEX and Alpha cameras, hurting annual profit by 25 billion yen.

“TV prices have continued to fall and it’s natural that Sony is losing money,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “Sony is struggling to end the losses at its TV unit. That shows the company can no longer produce innovative products like it used to.”

TV Restructuring

Sony shares tumbled as much as 7.9 percent in German trading after the announcement. The stock closed 3.6 percent lower at 1,520 yen in Tokyo before Sony detailed the earnings, extending the loss this year to 48 percent. That compares with a 2.3 percent gain for Samsung and a 23 percent jump for Apple.

The second-quarter loss compared with the 19.5 billion yen average profit forecast of four analysts’ estimates compiled by Bloomberg.

The maker of Bravia TVs is taking a 50 billion-yen charge for streamlining its main TV operation, which is estimated to lose 175 billion yen this fiscal year, Sony said in a separate statement. Sony will write down the value of some facilities, reduce the number of models and cut expenses at its marketing units to make the unit profitable by March 2014.

After losing about 480 billion yen in the past seven fiscal years from its TV business, Sony began a reorganization of the business into three groups yesterday. The management “feels a sense of crisis” after losses at the unit, Executive Deputy President Kazuo Hirai told reporters in Tokyo today.

The Consumer Products and Services Group -- Sony’s biggest by revenue and maker of TVs, games and cameras -- had a loss of 34.6 billion yen in the quarter ended Sept. 30, compared with a loss of 35.5 billion yen a year earlier.

Debt Crisis, Floods

Sony cut its annual compact-camera sales projection to 23 million units from 24 million, while lowering the estimate for Blu-ray disc players to 7.9 million from 9.4 million.

The Professional Devices and Solution Group, which makes semiconductors, posted a loss of 12.3 billion yen in the quarter, narrower than the 35.2 billion-yen loss reported a year earlier.

“Europe’s financial crisis, the yen’s gain and Thai floods overlapped each other to make our business condition worse,” Chief Financial Officer Masaru Kato said at a briefing in Tokyo.

The impact from the Thailand floods has not been limited to Sony. Honda Motor Co., Japan’s third-largest carmaker, on Oct. 31 withdrew its forecasts after Thailand flooding crippled its production in Southeast Asia. Honda scrapped the forecasts as it reels from a disaster that’s inundated 10,000 factories and flooded more than 80 percent of Thailand’s provinces.

Stronger Yen

Japan’s currency earlier this week dropped from a post- World War II high against the dollar after the country intervened in the currency markets. The yen gained 13 percent against the euro during the quarter ended Sept. 30, while extending its value against the dollar by 8.3 percent. A stronger yen hurts the repatriated value of sales overseas.

Sony revised its assumptions for the yen’s exchange rate to the dollar and the euro to 105 yen and 75 yen, respectively, for the fiscal second-half to March 2012. The company had projected the Japanese currency to average 80 yen to the dollar and 115 yen to the euro three months ago.

Sony made 30 percent of its revenue in Japan, 21 percent in Europe, 20 percent in the U.S. and 18 percent in Asia excluding Japan in the year ended March 31, according to Bloomberg data.

“Sony faces a difficult situation as the surrounding environment has been changing dramatically,” Yoshihiro Okumura, who helps manage the equivalent of $365 million at Chiba-Gin Asset Management Co. in Tokyo, said before the announcement.

Phones, Tablets

Last week, Sony agreed to buy Ericsson AB’s 50 percent stake in Sony Ericsson Mobile Communications AB, their London- based mobile-phone venture, for 1.05 billion euros ($1.5 billion) in cash. The deal will help Sony tap demand for smartphones and integrate the operation with its gaming and tablet offerings.

The maker of Vaio laptops today slashed its annual sales target of personal computers to 9.4 million units from the 10 million predicted three months ago.

In September, Sony offered its first tablet computer, featuring a 9.4-inch LCD display as well as front and rear cameras, in a pursuit of market leader Apple. The company released another clamshell-styled tablet last month.

Sony plans to start offering its new PlayStation Vita portable game player next month in Japan. It will go on sale in the U.S. and Europe in February. The company maintained its previous estimate to sell 15 million units of PS 3 consoles.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; 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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Comcast Stems Cable-TV Customer Losses as Profit Rises 4.7%

By Alex Sherman - Nov 2, 2011 9:06 PM GMT+0700

Comcast Corp. (CMCSA) said third-quarter profit rose 4.7 percent as the largest U.S. cable company lost fewer TV customers than anticipated and added broadband customers.

Net income was $908 million, or 33 cents a share, compared with $867 million, or 31 cents, a year earlier, the Philadelphia-based company said today in a statement.

Comcast added 261,000 broadband Internet subscribers, topping the 230,000 average estimate of 10 analysts. The company lost 165,000 video customers, fewer than the projection of 191,000. It’s the fourth consecutive quarter that Comcast has stemmed TV losses from a year earlier.

“All the key metrics in the cable business were in line or better,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York with an “outperform” rating on the company’s shares. “Comcast is an attractive place for investors to hide over the next 12 months. It bears limited risk in the event of a meltdown in Europe, it’s got an attractive dividend and a significant share repurchase program.”

Revenue rose 51 percent to $14.3 billion from $9.5 billion a year ago, in line with analysts’ estimates. NBC Universal accounted for $5.2 billion of total sales. Comcast acquired 51 percent of NBC Universal from General Electric Co. in January.

Comcast rose 2.2 percent to $23.48 at 10:04 a.m. New York time. The shares gained 4.6 percent this year before today.

NBC Universal Slips

NBC Universal’s operating cash flow -- or earnings before interest, taxes, depreciation and amortization -- dropped 9.3 percent from a year earlier as it increased spending on broadcast television and couldn’t replicate the box-office success of “Despicable Me” in 2010.

NBC remains stuck in last place this fall in audience ratings among the major networks, trailing CBS Corp. (CBS)’s CBS, News Corp. (NWSA)’s Fox and Walt Disney Co. (DIS)’s ABC, according to data from Horizon Media Inc. Comcast said in May it would spend $300 million more for TV programming, and it won’t limit itself to that figure, NBC Universal President and Chief Executive Officer Steven Burke told analysts on a conference call.

“Comcast’s message has been it got into NBC too late to influence the fall,” said Jason Armstrong, an analyst at Goldman Sachs Group Inc. in New York who recommends buying the shares. “So what you’re seeing right now, Comcast is saying, ‘You can’t pin that on us. If things go wrong next fall, then you pin it on us.’”

Revenue at the cable networks -- including CNBC, USA and Bravo -- rose 12 percent to $2.1 billion.

Investment Writedown

Excluding some items, profit was 38 cents a share. Analysts anticipated 40 cents, the average of estimates compiled by Bloomberg. The company said it wrote down the value of a non- cash investment in the quarter, resulting in a charge against earnings of 3 cents a share, compared with a 2-cent gain a year ago. An accounting change related to the NBC Universal acquisition shaved off 2 cents in the quarter, the company said.

Comcast repurchased $600 million of its own shares in the quarter, up from $525 million in the previous period. The company has $491 million remaining in the current buyback program and plans to decide on a new repurchasing authorization for 2012 during this quarter.

Including Comcast’s annual 45-cent dividend, Comcast returned $909 million to shareholders during the third quarter, Chief Financial Officer Michael Angelakis said on the call.

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

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

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Discovery Raises Revenue Forecast as Subscription Sales Exceed Estimates

By Edmund Lee - Nov 2, 2011 11:01 AM GMT+0700

Discovery Communications Inc. (DISCA), the owner of cable television’s Animal Planet and TLC, topped analysts’ sales estimates for the third quarter and boosted its forecast for the year as subscription revenue increased.

Sales for the quarter climbed 18 percent to $1.1 billion, the Silver Spring, Maryland-based company said yesterday in a statement. Analysts estimated revenue of $1.01 billion on average, according to a survey by Bloomberg.

Revenue for the year is expected to be between $4.18 billion and $4.25 billion, compared with a forecast range in August of $4.08 billion to $4.18 billion, the company said.

“There has never been a better time to be in the content business, if you own your own content, which we do,” Chief Executive Officer David Zaslav, 51, said on a conference call with analysts yesterday after the statement was released.

Net income climbed 27 percent to $237 million, or 59 cents a share, from $186 million, or 43 cents, a year earlier. Analysts estimated a profit of 55 cents per share on average, according to a survey by Bloomberg.

Discovery said Oprah Winfrey plans to appear in a new entertainment show in January on the OWN television network, the joint venture largely funded by Discovery. Winfrey’s network still has “negative cash flow,” according to Chief Financial Officer Brad Singer.

Discovery fell 2.7 percent to $42.27 at the close yesterday in New York. The stock has declined 1.4 percent this year before today.

Discovery tapped the bond market in June, selling $650 million of debt and taking advantage of investment-grade yields hovering at that time near the lowest since the last November.

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

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

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Groupon’s Would-Be Investors Say Amazon Comparisons Don’t Stand Up: Tech

By Danielle Kucera - Nov 2, 2011 11:01 AM GMT+0700

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Nov. 2 (Bloomberg) -- Bloomberg's Cory Johnson reports on the outlook for Groupon Inc.'s initial public offering. He spoke yesterday with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Groupon Inc.’s argument that it’s like e-commerce leader Amazon.com Inc. (AMZN) is meeting with skepticism among investors.

Amazon was better suited at the time of its 1997 initial public offering to withstand competition than Groupon is on the eve of its sale, slated for tomorrow, said Peter Sorrentino, a senior money manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion. Groupon is also generating lower revenue per employee and spending more of its sales on marketing than Amazon was, making the comparison far-fetched, he said.

“In terms of its progress toward a profitable enterprise, I think that’s a huge stretch,” Sorrentino said of the comparison between the two companies. For Groupon, “the beast is growing faster than its revenue stream, and you may be chasing profitability for a while.”

The Chicago-based company is highlighting similarities to Amazon, the world’s largest online retailer, in meetings with investors in New York and San Francisco, as it seeks to stir interest before its IPO. Groupon is seeking to raise as much as $540 million selling 30 million shares for $16 to $18 apiece, according to regulatory filings.

“The parallels between Amazon and Groupon are amazing,” Jeff Holden, Groupon’s Senior Vice President of Product Management, said in a webcast of the roadshow, touting his nine years of experience at Amazon.

Mike Buckley, a spokesman for Groupon, declined to comment.

Back to 1997

Groupon aims to go public with slower growth, greater losses and a less productive workforce than Amazon had before its initial offering in 1997, data compiled by Bloomberg show. It’s also seeking a higher valuation compared with sales.

Amazon’s 256 employees generated an average of $62,520 in the quarter before its initial public offering, while Groupon’s 10,418-strong workforce produced an average $41,290 each last quarter. Amazon’s sales leaped about 18-fold in the quarter before its IPO, outpacing Groupon’s fivefold gain. Amazon’s loss of $5.78 million the year before its IPO amounted to 37 percent of revenue, while Groupon had losses of $527.7 million in the most recent four quarters -- equal to 41 percent of sales.

Even so, Groupon would trade at 4.6 times sales in its first year of business after the IPO, based on the midpoint of its per-share price range and revenue projections from Fred Moran, an analyst at Benchmark Co. That would surpass Amazon’s multiple of about 1.9 times revenue in the year after it went public.

“Like Groupon, Amazon was very much criticized for not making any money, and there were questions about whether it would ever make any money,” said Kerry Rice, an analyst at Needham & Co. in New York. “That’s where the similarities end.”

Market Conditions

The IPO by Groupon is likely to be oversubscribed, a person familiar with the matter said. Still, the company is considering current market conditions as it decides whether to alter plans on how much to raise and at what price, this person said. Global shares slumped yesterday amid concern that Europe’s debt crisis will slow growth.

Groupon is spending more to sign up merchant partners than Amazon did at its start. Groupon’s marketing expenses reached $613.2 million in the first nine months of this year on revenue of $1.12 billion, compared with Amazon’s $6.1 million the year before its IPO on revenue of $15.7 million.

“Jeff Holden and their CFO are both from Amazon, and they’re playing that up,” said Greg Sterling, an analyst at Opus Research Inc. in San Francisco, who watched the webcast. “They want you to think, ‘Obviously, Amazon is very successful. Here are smart people who wouldn’t be here if there wasn’t a similar opportunity.’”

Merchant Partners

While both companies must market themselves to merchant partners and depend on consumers to buy the products offered by those businesses, Amazon also stores its merchants’ products in its own fulfillment centers and ships them to consumers. That can put greater pressure on Amazon’s margins.

A business model based on marketing, by contrast, has the potential to be higher-margin than Amazon’s, Needham’s Rice said. Groupon can scale back marketing after gaining ground, while Amazon will always need to ship products and build out warehouses to match growth, he said. Amazon said fourth-quarter operating results may range from a loss of $200 million to a profit of $250 million as it builds fulfillment centers and develops new products.

Still, Groupon must differentiate itself at a time when hundreds of other competitors have entered the market, said Peter Jankovskis, who helps manage $2.4 billion at OakBrook Investments LLC in Lisle, Illinois. Existing retailers were ill- prepared to vie with Amazon’s Web storefront, while Groupon’s approach to daily coupons is easy to replicate.

“Amazon was trying to encroach on large, well-established businesses,” he said. “By the time the larger retailers recognized the threat, it was too late. Amazon was established. It’s going to be tougher for Groupon, because there are a whole lot of other companies out there already trying to do the same thing.”

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

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Stocks Rebound, Commodities Rise

By Stephen Kirkland and Rita Nazareth - Nov 2, 2011 10:53 PM GMT+0700

U.S. stocks rebounded from a two-day slump and commodities rose, while the dollar and Treasuries fell, as a report showed American payrolls grew more than forecast and investors awaited the Federal Reserve’s statements on the economy and monetary policy. The euro strengthened.

The Standard & Poor’s 500 Index climbed 1.7 percent to 1,238.95 at 11:51 a.m. in New York. The Stoxx Europe 600 Index rose 0.9 percent. The Dollar Index slid 0.5 percent, snapping a three-day advance. Treasury 10-year yields added four basis points to 2.03 percent, the first increase in four days. The euro appreciated against 13 of its 16 major peers as European leaders prepared to ratchet up pressure on Greece to accept a bailout. Copper halted a two-day retreat and oil gained.

U.S. companies added 110,000 workers in October, according to ADP Employer Services, and economists surveyed by Bloomberg forecast the Fed is probably engineering a third round of asset purchases to bolster growth, even as a decision is unlikely to be announced today. European leaders plan to hold emergency talks with Greek Prime Minister George Papandreou in Cannes, France, on the eve of a Group of 20 summit. French President Nicolas Sarkozy said yesterday the “only way” to repair Greek finances is through the deal hammered out last week.

“You’re seeing a little greed overtake fear of what could come from Europe,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $333 billion, said in a telephone interview. “The U.S. is moving away from a recession. The data does not support the need for QE3,” he said referring to a third round of quantitative easing, or asset purchases.

Rebound After Slump

The S&P 500 fell 5.2 percent during the first two days of the week after Papandreou planned a referendum to allow voters to decide if Greece should accept the bailout, spurring concern the rescue would be rejected and the nation would default on its debt.

Sixty-nine percent of economists surveyed by Bloomberg say Fed Chairman Ben S. Bernanke will start a third round of quantitative easing, or QE3, with 36 percent predicting the move in the first quarter of next year, according to a poll of 42 economists from Oct. 26-31.

Financial, energy and commodity shares led gains among all 10 of the main industry groups in the S&P 500 today, with Citigroup Inc., DuPont Co. and Exxon Mobil Corp. rising at least 1.8 percent. All but one of the 81 stocks in the S&P 500 Financials Index (S5FINL) advanced, sending the group up 2.9 percent after a 4.7 percent plunge yesterday. Bank of America Corp. and Goldman Sachs Group Inc. climbed more than 3 percent, rebounding from losses of at least 5.5 percent yesterday.

European Stocks

The Stoxx 600 pared this week’s drop to 4.7 percent as basic-resource producers, auto companies and insurers led gains. Randgold Resources Ltd. rallied 8.2 percent after forecasting a 22 percent increase in gold output next year. Lloyds Banking Group Plc slid 7.4 percent as Chief Executive Officer Antonio Horta-Osorio took leave of absence from his duties following medical advice. Logica Plc sank 8.4 percent as the computer services provider had sales that missed estimates.

Benchmark indexes in Italy, France and Germany rose at least 1.5 percent, rebounding from plunges of at least 5 percent yesterday.

The euro strengthened 0.7 percent to $1.3803. The shared currency recovered after earlier paring gains as the European Financial Stability Facility said it will delay a planned 3 billion-euro ($4.1 billion) bond sale because of market conditions. The dollar weakened against 12 of 16 major peers, losing 0.5 percent to 78.01 yen.

“The dollar is softening into the meeting on talk of” quantitative easing, said Jane Foley, a senior currency strategist at Rabobank International in London. “That may be premature. We’ve had a glimmer of hope or optimism on the Greek situation,” which supports the euro, she said.

Bund Yields

German bund yields were seven basis points higher at 1.84 percent after dropping 26 basis points yesterday, the biggest decline since Bloomberg began collecting the data in 1992. Greek two-year yields rose as much as 944 basis points to a record 96.72 percent.

Germany sold 4 billion euros of five-year notes at a record-low yield of 1 percent, and Portugal raised 1.2 billion euros in a sale of three-month bills.

Papandreou stuck to plans to hold a referendum on Europe’s rescue package to confirm the nation’s membership of the euro amid signs his government may collapse. His grip on power weakened after a lawmaker from his socialist Pasok party defected, leaving him with 152 deputies in the 300-seat chamber, while another, Vasso Papandreou, called for the formation of a national unity government.

Default Swaps

The cost of insuring European debt fell as investors pared bets that Greece is headed for a disorderly default. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings dropped 21 basis points to 711, according to JPMorgan Chase & Co. at 3 p.m. in London. The gauge yesterday increased by the most ever, signaling deteriorating perceptions of credit quality.

Copper climbed 2.8 percent to $3.6005 a pound as inventories of the metal in warehouses monitored by the London Metal Exchange dropped for a 10th consecutive day, the longest decline since July 6.

Oil rose 0.9 percent to $93.01 a barrel in New York, the first advance in four days. Futures pared gains as the U.S. Energy Department said stockpiles advanced 1.83 million barrels to 339.5 million last week, topping the median forecast for a 1 million barrel increase in a survey of analysts.

The MSCI Emerging Markets Index rose 1 percent, following its worst two-day decline in a month. The Hang Seng China Enterprises Index climbed 2.6 percent in Hong Kong. Russia’s Micex Index advanced 1.3 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@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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Dollar Falls on Speculation Fed May Signal Easing

By Catarina Saraiva and Keith Jenkins - Nov 2, 2011 10:34 PM GMT+0700

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Nov. 2 (Bloomberg) -- Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA, talks about Greek Prime Minister George Papandreou's call for a referendum on Europe's rescue package and its impact on the euro. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

The dollar fell from a three-week high against the euro on speculation the Federal Reserve will signal today it’s moving toward a third round of asset purchases, or quantitative easing, to spur economic growth.

The U.S. currency declined for the first time in three days versus the yen amid speculation unemployment above 9 percent may spur the Fed to act. South Africa’s rand and Canada’s dollar rallied as stocks gained following two days of losses. The euro rose versus most major peers after Greece’s Cabinet backed Prime Minister George Papandreou’s call for a bailout-plan referendum.

“The markets are starting to price in some prospect of QE3,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. “We’re likely to be sorely disappointed, with the Fed unlikely to introduce anything new. The markets are distracted with the events going on in peripheral Europe and in euro land as a whole, which are overshadowing everything else.”

The dollar weakened 0.8 percent to $1.3809 per euro at 11:33 a.m. in New York. The greenback climbed to $1.3609 versus the euro yesterday, the strongest since Oct. 12. The U.S. currency slid 0.5 percent to 78.01 yen. The euro rose 0.3 percent to 107.70 yen.

Fed officials are probably engineering additional asset purchases, while they are unlikely to announce a decision at the end of their two-day meeting today, according to economists surveyed by Bloomberg. Sixty-nine percent said Chairman Ben S. Bernanke will embark on a third round of quantitative easing, with 36 percent predicting the move will come in the first quarter next year, according to the poll taken Oct. 26 to 31.

Communication Strategy

Sixty-three percent of the economists said policy makers would first alter their communication strategy by clarifying how they align policy with inflation and unemployment rates.

Fed Vice Chairman Janet Yellen and Chicago Fed President Charles Evans said in speeches last month that more action may be needed to reduce an unemployment rate stuck around 9 percent.

The U.S. jobless rate held at 9.1 percent for a fourth straight month in October, another Bloomberg survey forecast before the government reports the data Nov. 4. The rate has been at or above 9 percent since April 2009 except for two months early this year. The average for the past decade is 6.4 percent.

“It might be a tough balancing act for the Fed,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network. “They might not want to risk another leg lower in risky assets if they don’t signal that they’re ready to offer support.”

Stocks, Commodities

The Standard & Poor’s 500 Index rose 1.9 percent after plunging for the first two days of the week as investors shunned higher-yielding assets amid turmoil over efforts to curb Europe’s debt crisis. The Thomson Reuters/Jefferies CRB Index of raw materials rose 1 percent in its first gain in four days.

South Africa’s rand was the biggest winner versus the dollar, climbing 1.8 percent to 7.9562 after losing almost 5 percent in the week’s first two days. Canada’s dollar gained 0.9 percent to $1.0114 after falling for the past three days.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major trading partners, dropped 0.7 percent to 76.796.

The euro advanced against 12 of its 16 most-traded counterparts after a Greek official said the Cabinet gave Papandreou unanimous backing for his call for a national vote on the European Union’s latest rescue package. Government spokesman Elias Mosialos said the referendum will be held “as soon as possible,” and that a vote of confidence in Parliament is scheduled to begin today.

No Alternative

European leaders are set to tell Papandreou he has no alternative to the budget cuts imposed in a week-old debt-crisis strategy that they are racing to prevent from unraveling. Global stocks, the euro and bonds of debt-strapped countries tumbled yesterday as concern of a disorderly Greek default mounted.

The Greek prime minister will travel to Cannes, France, today to brief German Chancellor Angela Merkel, French President Nicolas Sarkozy and other officials on the eve of a Group of 20 summit on the debt crisis.

The Japanese currency strengthened against the dollar after sliding 3.4 over the past two days. Japan’s government intervened on Oct. 31, selling yen to weaken the currency after it appreciated to a post-World War II high of 75.35 per dollar.

The yen tends to strengthen in periods of financial turmoil because the nation’s current-account surplus makes it less reliant on foreign capital.

Japan’s currency dropped the most in the past week against the currencies of nine developed-nation counterparts, falling 3.4 percent, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar gained 0.9 percent in that time and the euro added 0.5 percent.

Companies in the U.S. added 110,000 workers to payrolls, according to data today from Roseland, New Jersey-based ADP Employer Services, compared with a revised 116,000 in September. The median forecast in a Bloomberg News survey called for an advance of 100,000 from an earlier estimate of 91,000.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

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

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EU Leaders Will Tell Papandreou Cuts a Must

By Rebecca Christie and Simon Kennedy - Nov 2, 2011 7:58 PM GMT+0700

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Nov. 2 (Bloomberg) -- Former Greek Finance Minister Stefanos Manos discusses Prime Minister George Papandreou's call for a referendum on the Europe's rescue package. He talks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

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Nov. 2 (Bloomberg) -- Kate Moore, senior global equity strategist at Bank of America Merrill Lynch, discusses the European sovereign debt crisis, financial markets and investor sentiment. Moore speaks with Betty Liu, Dominic Chu and Julie Hyman on Bloomberg Television's "In the Loop." (Source: Bloomberg)

European leaders are set to tell Greek Prime Minister George Papandreou he has no alternative to the budget cuts imposed in a week-old debt-crisis strategy that they are racing to prevent from unraveling.

Papandreou, his hold on power weakening, was summoned to Cannes, France, for emergency talks on the eve of a Group of 20 summit where he will hear from French President Nicolas Sarkozy that the “only way to resolve Greek debt problems” is through a deal hammered out in a six-day crisis-management marathon. German Chancellor Angela Merkel said today that policy makers “must bring calm to the euro.”

Papandreou triggered the latest upheaval in the two-year- long crisis by abruptly announcing on Oct. 31 a parliamentary confidence vote and his desire to hold a referendum on the rescue pact. Global stocks, the euro and bonds of debt-strapped countries tumbled yesterday as concern of a disorderly Greek default mounted.

People ‘Perplexed’

Papandreou will join a group at about 8:30 p.m. comprising Sarkozy, Merkel, International Monetary Fund Managing Director Christine Lagarde, as well as European Union authorities, according to a statement from Sarkozy’s office. They will have met at about 5:30 p.m. without Papandreou.

Japanese Finance Minister Jun Azumi said today in Tokyo that “everyone is perplexed” by Greece’s referendum decision and that the issue will be discussed at the Cannes summit.

Italian Prime Minister Silvio Berlusconi, under pressure to cut Europe’s second-biggest debt load, convened a special meeting of advisers late yesterday to discuss budget-cutting plans. Like Sarkozy, Berlusconi held crisis talks with Merkel yesterday. His key cabinet ministers will meet today to draft measures for the country’s financial-stability legislation, the Italian news agency ANSA said, citing government officials.

Europe ‘Surprised’

The euro rose against the dollar today, gaining 0.6 percent to $1.3784 as of 12:21 p.m. in London. It fell 3.1 percent over the previous two days.

The Stoxx Europe 600 Index was little changed after sinking the most in five weeks yesterday. German bonds fell after surging yesterday as investors sought the safest assets. The Greek two-year yield reached 92.35 percent today, a record high.

Papandreou’s announcement, which Sarkozy said “surprised all of Europe,” threatens to overshadow the Nov. 3-4 Group of 20 summit in Cannes. European leaders had designated the talks as a stage to present their plan to stamp out the crisis and end the threat to the global economy.

“The referendum will be a clear mandate and strong message within and without Greece on our European course and our participation in the euro,” Papandreou told his ministers in Athens late yesterday, according to an e-mailed transcript. It will “ensure this course in the most decisive way.”

Greek Pressure

EU officials had hoped to use the Oct. 27 rescue agreement, which includes renewed commitments to fiscal austerity as well as new rescue resources, to anchor their economic agenda at the G-20 summit and secure support from their counterparts. Now, officials meeting as the confidence vote plays out in Athens will be called on to assess the deal’s -- and the euro’s -- future, especially if Papandreou’s government falls and Greece comes under more pressure to default or leave the common currency.

European leaders agreed to boost the European Financial Stability Facility’s firepower to 1 trillion euros ($1.4 trillion), set aside 100 billion euros for Greece and provide 30 billion euros in collateral for a debt swap that will give Greece’s investors new, lower-risk bonds at 50 percent of the existing bonds’ face value.

The deal to reduce Greece’s debt load will do nothing to aid the country’s recovery from recession, opposition New Democracy leader Antonis Samaras said on Oct. 27. Papandreou’s majority meanwhile slipped as his support narrowed to 152 lawmakers in the 300-deputy parliament amid a party rebellion.

‘Profound’ Risks

Whether the EU’s plan would succeed “was a matter for debate. But at least there was a plan,” Yiannis Koutelidakis, an economist at Fathom Financial Consulting in London, said in a note yesterday. “The risks engendered by this move are profound for the euro in general, not just for Greece as the expulsion of any one member state would critically undermine the Economic and Monetary Union.”

Such uncertainty “will likely block any” governments outside the euro area from stumping up cash for its reworked rescue fund as the continent’s leaders would like, said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc. While Brazil and Russia have signaled a willingness to help, Chinese officials say they want more details.

The leaders of Brazil, Russia, India, China and South Africa -- the so-called BRICS -- may also meet in Cannes today, Sergei Prikhodko, Russian President Dmitry Medvedev’s foreign policy aide, said yesterday. Chinese President Hu Jintao, who will also meet Sarkozy today, told Le Figaro newspaper yesterday that he wants stability in the euro area.

A lack of outside assistance will leave the European Central Bank under pressure to keep buying the bonds of stressed states, Cailloux said. While Sarkozy’s office said ECB President Mario Draghi would be in Cannes after taking office yesterday, his spokesperson said today he won’t be because of the need to chair tomorrow’s meeting of the central bank’s governing council

Nomura Holdings Plc economist Jens Sondergaard said although he expects the ECB to leave its benchmark rate at 1.5 percent this week, the “adverse market reaction” to Greece’s referendum call leaves a one-in-three chance of a 25 basis-point reduction.

To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net

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

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European Stocks Rise Before Fed Meeting; Randgold, Next Advance

By Peter Levring - Nov 2, 2011 9:54 PM GMT+0700

European stocks rose, snapping the biggest three-day drop in almost two months, as the Federal Reserve prepared to release its latest policy statement.

Randgold Resources Ltd. (RRS) rallied 8.2 percent after forecasting a 22 percent increase in gold output next year. Lloyds Banking Group Plc (LLOY) slid 7.4 percent as Chief Executive Officer Antonio Horta-Osorio took leave of absence from his duties following medical advice. Logica Plc (LOG) sank 8.4 percent as the computer services provider had sales that missed estimates.

The Stoxx Europe 600 Index advanced 1 percent to 237.43 at 2:53 p.m. in London, having swung between gains and losses at least 14 times. The gauge retreated 5.8 percent over the previous three days as Greek Prime Minister George Papandreou called a referendum on the nation’s latest bailout package, spurring concern that a rejection of the measures may push the country into default.

“The situation remains better than three weeks ago, despite the uncertainty caused by Papandreou moving on his own to issue the referendum,” said Witold Bahrke, a Copenhagen- based senior strategist at PFA Pension A/S, which manages $45 billion. “The ring-fencing of Greece is ongoing.”

National benchmark indexes climbed in 13 of the 18 western European markets today. The U.K.’s FTSE 100 rose 1.1 percent and France’s CAC 40 advanced 1.5 percent. Germany’s DAX Index gained 2.2 percent.

VStoxx Drops

The VStoxx Index (V2X), which measures the cost of protecting against a decline in shares in the Euro Stoxx 50, slipped 2.6 percent to 41.84 to snap a 42 percent, three-day climb.

Fed officials are probably engineering a further round of large-scale asset purchases, while they are unlikely to announce a decision today, according to economists in a Bloomberg survey. Sixty-nine percent said Chairman Ben S. Bernanke will embark on a third round of quantitative easing, with 36 percent predicting the move in the first quarter of next year, according to a poll of 42 economists from Oct. 26-31.

The Federal Open Market Committee plans to release a policy statement at 12:30 p.m. in Washington after a two-day meeting. The FOMC forecasts will be released at 2 p.m., and Bernanke is scheduled to hold a press conference beginning at 2:15 p.m.

Euro-area leaders, racing to prevent their week-old debt crisis strategy from unraveling, are holding emergency talks today to tell Greece there is no alternative to the budget cuts imposed in the bailout plan.

Summoned to Cannes

Papandreou was summoned to Cannes on the eve of a Group of 20 summit where he will hear from French President Nicolas Sarkozy that the “only way to resolve Greek debt problems” is through a deal hammered out last week in a six-day crisis- management marathon.

“The prospects of Greece leaving the euro have grown and investors are positioning for more bad news from politicians,” said Henrik Drusebjerg, who helps oversee $230 billion as senior strategist at Nordea Bank AB in Copenhagen. “The other euro countries can’t sit around and wait until the Greeks are done with the referendum. Papandreou may be told today that the other 16 countries will go ahead with plans to bolster the euro area with or without Greece.”

The Stoxx 600 pared gains today as two people with knowledge of the deal said the euro region’s rescue fund, the European Financial Stability Facility, will delay a planned 3 billion-euro bond sale because of market conditions.

Manufacturing Contracts

Europe’s manufacturing industry contracted for a third month in October, adding to signs the euro-area economy is edging toward a recession. A gauge based on a survey of purchasing managers in the 17-nation euro region fell to 47.1 from 48.5 in September, London-based Markit Economics said today. That’s below an initial estimate of 47.3 published on Oct. 24. A reading less than 50 indicates contraction.

Randgold Resources climbed 6.2 percent to 7,155 pence as the miner said it expects its gold production to increase as much as 22 percent next year as output in Mali and Ivory Coast rises. Output may jump to 850,000 ounces to 900,000 ounces in 2012 from a target of 740,000 ounces to 760,000 ounces this year, Chief Executive Officer Mark Bristow said today in an interview in London.

Rio Tinto, the world’s second-biggest mining company, advanced 2.4 percent to 3,330.5 pence as copper rose 2.5 percent on the London Metal Exchange. Antofagasta Plc (ANTO) advanced 2.7 percent to 1,144 pence as the copper producer controlled by Chile’s Luksic family reported a 17 percent jump in third- quarter output.

Next Sales

Next Plc (NXT), the U.K.’s second-largest clothing retailer, advanced 5.6 percent to 2,699 pence after reporting growth in third-quarter brand sales that exceeded analyst estimates.

Lundin Petroleum AB (LUPE), the oil explorer with a stake in the giant Avaldsnes-Aldous Major North Sea find, rose 4.1 percent to 159.20 kronor after forecasting higher production in 2012. The company reported third-quarter earnings before interest, taxes, depreciation and amortization of $262 million, beating the average analyst estimate of $223 million.

G4S Plc (GFS) climbed 2.7 percent to 251.8 pence as analysts upgraded the world’s largest security company after it abandoned an $8.3 billion takeover of Denmark’s ISS A/S. The shares were added to the “most preferred” list at UBS AG and upgraded at Credit Suisse Group AG and Exane BNP Paribas.

Lloyds, Britain’s biggest mortgage, dropped 7.4 percent to 28.29 pence. Horta-Osorio is taking leave of absence from his duties as CEO following medical advice and will be replaced in the interim by Finance Director Tim Tookey.

Logica, an Anglo-Dutch computer services provider, sank 8.4 percent to 82 pence, the biggest drop in almost three months. The company posted third-quarter sales that trailed analysts’ estimates and cut its full-year earnings forecast.

Standard Chartered Plc (STAN), the U.K.’s second-largest bank by market value, declined 1.2 percent to 1,421 pence after revenue growth slowed in the third quarter.

Sampo Oyj (SAMAS), which owns the Nordic region’s largest property and casualty insurer, dropped 1.7 percent to 18.94 euros as third-quarter profit missed estimates.

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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

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Fed Lays Ground for Large-Scale Asset Buys

By Joshua Zumbrun - Nov 2, 2011 7:42 PM GMT+0700

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Nov. 1 (Bloomberg) -- Alfred Broaddus, former president of the Federal Reserve Bank of Richmond, talks about the outlook for the Federal Reserve's Federal Open Market Committee decision on monetary policy tomorrow. He speaks with Lisa Murphy on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Federal Reserve officials are probably engineering a third round of large-scale asset purchases, while they are unlikely to announce a decision today, according to economists in a Bloomberg News survey.

Sixty-nine percent of those surveyed say Chairman Ben S. Bernanke will embark on a third round of quantitative easing, or QE3, with a plurality of 36 percent predicting the move in the first quarter of next year, according to the poll of 42 economists from Oct. 26-31.

“We are becoming increasingly persuaded that QE3 is coming, this time focused on purchases of mortgage-backed securities,” said Dana Saporta, U.S. economist at Credit Suisse in New York. “The best guess is at this meeting they’ll try to build some consensus around the idea and lay the groundwork for eventual purchases.”

Fed officials are weighing further easing even after economic growth last quarter accelerated to the fastest pace in a year. Vice Chairman Janet Yellen and Chicago Fed President Charles Evans said in speeches last month that more action may be needed to reduce an unemployment rate stuck around 9 percent or higher for 30 months. Governor Daniel Tarullo said the Fed should consider buying housing debt to lower mortgage rates and spur growth.

Three regional bank presidents have dissented against two easing steps since August, posing the strongest opposition among policy makers since 1992. Bernanke hasn’t publicly said whether he believes a third-round of asset purchases is necessary. In a speech last month in Boston, he said the Federal Open Market Committee is exploring ways to better communicate its goals, including through its forecasts and policy statement.

Bernanke Press Conference

The FOMC plans to release a policy statement at 12:30 p.m. in Washington after a two-day meeting. The FOMC forecasts will be released at 2 p.m., and Bernanke is scheduled to hold a press conference beginning at 2:15 p.m.

Sixty-three percent of economists say Fed officials will first alter their communication strategy by clarifying how they align policy with inflation and unemployment rates. Some 42 percent believe the Fed will announce its intentions to hold interest rates near zero until certain levels of inflation and unemployment are reached, an idea proposed by Evans.

The central bank should ease until unemployment reaches 7.5 percent, so long as inflation in the medium-term doesn’t breach 3 percent, Evans said.

Twenty-one percent of economists say the Fed, in changing its approach to communications, will first set explicit long-run targets for inflation and unemployment, though not necessarily as a condition for zero interest rates. Twenty-four percent say the Fed will start out by announcing an explicit target for inflation only.

‘More Accommodative’

“A new communication device would help people understand when and how policy would return back to normal, and it would help explain how policy might have to be even more accommodative in the short term,” said Michael Dueker, chief economist for Russell Investments North America in Seattle.

The FOMC said after its September meeting that it saw “significant downside risks” to the U.S. economy from strains in global financial markets. The economy strengthened in the third quarter of 2011, growing at an annual rate of 2.5 percent, compared with 0.4 percent in the first quarter and 1.3 percent in the second.

Companies added 110,000 jobs in October, Roseland, New Jersey-based ADP Employer Services said today. The median forecast of economists surveyed by Bloomberg called for an advance of 100,000.

Stock Futures

Treasuries extended losses and stock futures held gains after the report. The yield on the 10-year Treasury note rose five basis points, or 0.05 percentage point, to 2.04 percent at 8:32 a.m. in New York. Futures on the Standard & Poor’s 500 Index expiring in December rose 0.5 percent to 1,230.50.

A Labor Department report on Nov. 4 may show that nonfarm payrolls increased by 95,000 jobs last month, down from a gain of 103,000 in September, according to another Bloomberg survey. The unemployment rate probably stayed at 9.1 percent.

The S&P 500 has dropped 5.2 percent in the past two trading days on concern that a Greece referendum pledged by Prime Minister George Papandreou may threaten Europe’s bailout.

The European fiscal crisis claimed one U.S. firm, MF Global Holdings Ltd., the holding company for the broker-dealer run by former Goldman Sachs Group Inc. co-chairman Jon Corzine. The company filed for bankruptcy Oct. 31 after making bets on European sovereign debt.

Impetus for Fed

“If there’s a blow-up in Europe, that would be the impetus the Fed needs to move,” said Ellen Zentner, senior U.S. economist at Nomura Securities in New York, in a phone interview. Action would probably be targeted to the housing market, she said.

“The Fed has known that housing is the root of all evil for the economy, and we’re finally getting acknowledgment of that” she said, with the Obama administration’s announcement last month it would expand the Home Affordable Refinance Program. The so-called HARP aims at helping homeowners with Fannie Mae or Freddie Mac mortgages and little or no equity in their properties.

The FOMC’s previous two statements drew opposition from Charles Plosser, president of the Philadelphia Fed, along with Narayana Kocherlakota of Minneapolis and Richard Fisher of Dallas. The regional Fed chiefs objected to the central bank’s pledge in August to hold its target rate near zero through at least mid-2013, and to its September commitment to replace $400 billion of short-term Treasuries with the same amount of longer- term bonds in a bid to push down borrowing costs.

Policy Setting

Asked if monetary policy was appropriate given the outlook for the economy, 48 percent of economists said it was too easy, compared with 26 percent who said it was too tight. Another 26 percent said it was “just right.”

Still, the Fed should signal the need for more stimulus by adopting a target for nominal gross domestic product, former White House economist Christina Romer said in a New York Times editorial published on Oct. 30. Romer is also a contributing editor at Bloomberg. Goldman Sachs Group Inc. chief economist Jan Hatzius also supported such a move in an Oct. 15 note to clients.

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net;

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

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Lawmakers to Propose Transaction Tax for Financial Firms Modeled on Europe

By Phil Mattingly - Nov 2, 2011 4:53 AM GMT+0700

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Nov. 1 (Bloomberg) -- Robert Shapiro, chairman of Sonecon LLC, and Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, debate the tax options Congress's deficit supercommittee may consider. Bloomberg Government analyst Joann Weiner moderates this edition of Bloomberg Government's "BGOV Debate." (Source: Bloomberg)

Two U.S. lawmakers will introduce measures to impose a transaction tax on financial firms that resembles a proposal released by the European Union.

Senator Tom Harkin, an Iowa Democrat, and Representative Peter DeFazio, an Oregon Democrat, will introduce the bills tomorrow in their respective chambers. The bills will give the United States an increased role in the international debate over a transaction tax, which is likely to be discussed at the Group of 20 summit this week in Cannes, France.

“It’s a significant way to raise some needed revenue,” Harkin said in an interview today in Washington. “Quite frankly, I bet nobody would even feel it.”

The European Union in September proposed a financial- transaction tax that would take effect in 2014 and raise about $57 billion euros ($78 billion) a year. Germany and France have led a push for global implementation.

The bills are unlikely to become law: Republicans, who have opposed transaction taxes in the past, control a majority in the House. President Barack Obama’s administration has also voiced concerns over the proposal and declined to give a direct endorsement in advance of the G-20 summit that opens Nov. 3.

The chances a transaction tax could pass in the U.S. “are less than 50/50” primarily because of Republican opposition, Brian Gardner, senior vice president of research for Keefe, Bruyette & Woods Inc. in Washington, said in a Sept. 28 note to clients.

U.S. exchange operators fell the most since August on the news that the lawmakers would propose the tax.

Stocks Drop

NYSE Euronext (NYX) declined 6.8 percent, the most since Aug. 18, to $24.76, while Nasdaq OMX Group Inc. (NDAQ) fell 2.8 percent to $24.36. CME Group Inc. (CME) slumped 8.6 percent to $251.88 in the biggest retreat since Aug. 10.

The exchanges would be negatively affected by the tax because “volume will drop off,” Sam Ginzburg, a partner and head of capital markets at First New York Securities LLC, a New York-based proprietary trading firm, said today.

“I shudder to think of the landscape of the market if this happens,” Ginzburg said.

Harkin and DeFazio introduced similar proposals in recent years that fell short; the lawmakers expressed hope that the European proposals may increase support in the U.S. Congress.

Lower Rate

Harkin and DeFazio are proposing a lower rate for the U.S. While the EU proposal would apply a tax of 0.1 percent on trades of stocks and bonds, the U.S. tax would be “about three basis points” or 0.03 percent, Harkin said.

“We’re simplifying it, looking at a lower rate and actually substantially mirroring the proposal in Europe,” DeFazio said in an interview.

The lawmakers have the backing of union groups and associations that fought for tighter regulations in the wake of the 2008 financial crisis. The AFL-CIO and National Nurses United, a professional association and union for nurses, have scheduled a rally in front of the Treasury Department on Nov. 3 in support of the fee.

Americans for Financial Reform, an umbrella group of unions, civil rights lawyers and consumer advocates, is circulating petitions in support of the measure.

Obama administration officials support efforts to assess fees on financial firms that pose a risk to the larger economy; however, they oppose levying fees on ordinary investors.

Retail Investors

“We’re very much synched up with the goal of assuring that the largest financial institutions” bear the burden for risky investments, Lael Brainard, the Treasury undersecretary for international affairs, told reporters yesterday. The Obama administration has proposed a “financial crisis responsibility fee” to be paid by the largest banks, not retail investors.

Bank trade groups like the Financial Services Forum and Securities Industry and Financial Markets association have opposed transaction tax proposals in the past. In September, they joined with five other business trade groups to send a letter to Treasury Secretary Timothy F. Geithner opposing the idea, which was gathering support in Europe.

“The G-20 members have committed to work together to support policies that will lead to strong, sustainable and balanced growth,” the trade groups, which included the U.S. Chamber of Commerce and the Business Roundtable, wrote in the Sept. 22 letter. “The imposition of a financial transaction tax would run counter to achieving these objectives.”

The European Commission, the EU’s executive arm, will discuss its proposals for a transaction tax at this week’s summit in France, EU officials said last week. There is not yet strong support for a global tax, so discussions will serve as a way to keep the topic in focus for future years, the officials said.

To contact the reporter on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net.

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

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Greek Referendum on Bailout Will Hinder IMF-EU Aid Payment, De Jager Says

By Jurjen van de Pol and Fred Pals - Nov 2, 2011 5:37 PM GMT+0700

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Nov. 2 (Bloomberg) -- Former Greek Finance Minister Stefanos Manos discusses Prime Minister George Papandreou's call for a referendum on the Europe's rescue package. He talks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

Play Video

Nov. 2 (Bloomberg) -- Nick Sargen, chief investment officer at Cincinnati-based Fort Washington Investment Advisors, talks about the Greek referendum on Europe's bailout and the outlook for the U.S. and European economies. Sargen speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

A Greek referendum on its latest bailout package will hinder the next installment of aid funds from the International Monetary Fund and the European Union, Dutch Finance Minister Jan Kees de Jager said.

“This hinders the planning of the IMF and the euro zone. It creates a problem for the whole sixth tranche,” De Jager told parliament in The Hague late last night. “I can imagine that it will be very difficult for the IMF if there is uncertainty about the sustainability.”

The Netherlands and euro-area countries including Germany and France seek to minimize the damage from a “very unfortunate” referendum called by Greek Prime Minister George Papandreou, Dutch Prime Minister Mark Rutte told lawmakers.

The new round of political turmoil throws into doubt Greece’s ability to access the emergency funding that’s keeping its finances afloat. The IMF’s executive board was due to meet in mid-November to decide on its part of the sixth tranche, which is worth a total of 8 billion euros ($11 billion). Greece has said it has the cash to operate until mid-November.

Papandreou meets in Cannes at about 9 p.m. today with French President Nicolas Sarkozy, German Chancellor Angela Merkel, European Central Bank President Mario Draghi and IMF Managing Director Christine Lagarde before a Group of 20 summit.

Sixth Aid Payment

“After the meetings we expect at least an indication of what will happen with the disbursement of the sixth tranche of the first Greek package,” Juergen Michels, chief euro-area economist at Citigroup Inc. in London, wrote in a note to investors today.

In Germany, the head of parliament’s interior-affairs committee, Wolfgang Bosbach, today told ZDF television he “can’t imagine” that the next tranche will be disbursed without assurances that Greece will meet its commitments under the aid accord.

France and Germany are “also searching for a way out that minimizes the damage from what has happened in Greece,” Rutte told parliament, adding the Netherlands and other euro-area states are putting pressure on Greece to cancel the referendum. Papandreou said the vote will confirm Greece’s commitment to the euro.

After two crisis summits in four days, European Union leaders agreed on Oct. 27 to increase the euro area’s bailout fund to 1 trillion euros, recapitalize banks and convince lenders to write down their holdings of Greek debt by 50 percent.

Lawmakers of opposition parties D66, GreenLeft and Labor, who supported previous euro-region bailouts, last night said they need more insight into the conditions and consequences of the Oct. 27 agreement before they can pledge support.

Rutte’s ruling bloc of Liberals and Christian Democrats relies on Labor to back its European policy as Geert Wilders’s Freedom Party, which last year agreed to support the minority Cabinet, opposes further financial aid to euro countries.

To contact the reporters on this story: Jurjen van de Pol in Amsterdam at jvandepol@bloomberg.net; Fred Pals in Amsterdam at fpals@bloomberg.net

To contact the editors responsible for this story: James Ludden at jludden@bloomberg.net; Tim Quinson at tquinson@bloomberg.net

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Gross Says Collapse of Corzine’s MF Global May Erode Investor Confidence

By Margaret Collins - Nov 2, 2011 11:01 AM GMT+0700

Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., said the collapse of MF Global Holdings Ltd. (MF) may further erode investor confidence.

Investors may be “more concerned about the return of their money than the return on their money,” Gross said yesterday in San Francisco at a conference for investment advisers held by Charles Schwab Corp. (SCHW)

MF Global filed the eighth-largest U.S. bankruptcy on Oct. 31, after failing to find a buyer over the weekend. The New York-based futures broker suffered a ratings downgrade and loss of customers after revealing it bet $6.3 billion on Italian, Spanish, Belgian, Portuguese and Irish debt, leading to the bankruptcy filing.

The collapse exemplifies how the banking system has become more about leveraging the returns of capital than transferring it to profitable industries, said Gross, 67, who is co-chief investment officer of Newport Beach, California-based Pimco.

“Over a period of years Wall Street sort of lost its way,” Gross said. “We need a banking system that is attractively and conservatively capitalized.”

The best way for the U.S. to get out of a “new normal” of slow growth is “to grow at the expense of the rest of the world,” Gross said. The nation can do that through education, technology, buying American goods and devaluing the currency in relation to other developed countries, he said.

4% a Year

“We would have to grow at 4 percent for a number of years to elevate GDP and reduce debt,” Gross said.

Economists project gross domestic product expansion of 2 percent in 2012, according to the average estimate of 80 responses in a Bloomberg survey.

Pimco outlined the firm’s “new normal” scenario at its annual Secular Forum in May 2009. The company predicted that following the market plunge in 2008 the U.S. economy would expand at a below-average pace for the next several years as growth in developed countries slows, unemployment stays elevated and the “heavy hand of government” is evident.

The U.S. is in a period of “financial repression” with savers subsidizing the nation’s debt, Gross said.

The Occupy Wall Street movement of protesters who have camped out for about six weeks in Lower Manhattan’s Zuccotti Park and in other cities is focused on employment, Gross said. “They’re sending a message that they want a job,” he said.

Gross spoke at this week’s Impact conference, which has more than 4,000 people registered including about 2,000 investment advisers, according to Susan Forman, a spokeswoman for San Francisco-based Charles Schwab.

To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net

To contact the editor responsible for this story: Rick Levinson at rlevinson2@bloomberg.net

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European Stocks Drop on EFSF Bond Sale Delay

By Peter Levring - Nov 2, 2011 6:30 PM GMT+0700

European stocks erased their decline as automakers and basic-resources companies advanced. Asian shares fell while U.S. index futures gained.

The Stoxx Europe 600 Index rose less than 0.1 percent to 235.21 at 11:28 a.m. in London, having earlier lost 0.7 percent. The gauge had retreated 5.8 percent over the previous three days as Greece called a referendum on its latest bailout package, spurring concern that the country may default.

The MSCI Asia Pacific Index added 0.6 percent, while futures on the Standard & Poor’s 500 Index rose 0.4 percent.

Euro-area leaders, racing to prevent their week-old debt crisis strategy from unraveling, are holding emergency talks today to tell Greece there is no alternative to the budget cuts imposed in the bailout plan.

Greek Prime Minister George Papandreou was summoned to Cannes on the eve of a Group of 20 summit where he will hear from French President Nicolas Sarkozy that the “only way to resolve Greek debt problems” is through a deal hammered out last week in a six-day crisis-management marathon.

The region’s rescue fund, the European Financial Stability Facility, will delay its planned 3 billion-euro bond sale because of market conditions, according to two people with knowledge of the deal.

European Economy

Europe’s manufacturing industry contracted for a third month in October, adding to signs the euro-area economy is edging toward a recession. A gauge based on a survey of purchasing managers in the 17-nation euro region fell to 47.1 from 48.5 in September, London-based Markit Economics said today. That’s below an initial estimate of 47.3 published on Oct. 24. A reading less than 50 indicates contraction.

Federal Reserve officials are probably engineering a further round of large-scale asset purchases, while they are unlikely to announce a decision today, according to economists in a Bloomberg News survey. Sixty-nine percent say Chairman Ben S. Bernanke will embark on a third round of quantitative easing, with 36 percent predicting the move in the first quarter of next year, according to the poll of 42 economists from Oct. 26-31.

The Federal Open Market Committee plans to release a policy statement at 12:30 p.m. in Washington after a two-day meeting. The FOMC forecasts will be released at 2 p.m., and Bernanke is scheduled to hold a press conference beginning at 2:15 p.m.

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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

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Bangkok Governor Tells Police to Defend Floodgates From Residents’ Attacks

By Daniel Ten Kate and Anuchit Nguyen - Nov 2, 2011 11:28 AM GMT+0700

Bangkok Governor Sukhumbhand Paribatra ordered police to protect a levee on the city’s outskirts after thousands of people damaged the floodgate, threatening inner parts of the Thai capital.

“The gate needs to be urgently fixed otherwise the floodwater would cause heavy flooding” in eastern Bangkok near industrial estates where international manufacturers are located, he said on his website last night. “There are a number of people who are trying to obstruct the fixing of the floodgate.”

Residents living near Sam Wa canal in northeastern Bangkok destroyed part of a levee so water would flow out of their neighborhood, television images on the Thai PBS television channel showed. The canal is north of Bang Chun and Lat Krabang industrial estates, home to factories operated by Honda Motor Co., Unilever and Cadbury Plc, and connects to a canal that runs near downtown business areas.

Bangkok officials are struggling to maintain a system of dikes, canals and sandbag barriers designed to divert water around the city center. Floodwaters that spread over 63 of Thailand’s 77 provinces over the past three months have killed 427 people and shuttered 10,000 factories north of Bangkok, disrupting supply chains across Asia.

Forecast Slashed

The Bank of Thailand, which last week slashed its 2011 economic growth forecast to 2.6 percent from 4.1 percent, expects expansion to slow as the global economy weakens and the impact of the nation’s flood crisis increases, according to the minutes of its Oct. 19 meeting released today. Thailand’s inflation rate held above 4 percent for the seventh straight month in October as food costs climbed, government data released yesterday show.

Members of the Bank of Thailand’s Monetary Policy Committee “were concerned about the impact of the still-evolving flood situation, especially on production in key export sectors including rice, automobile, electronics and electrical appliances, as well as tourism, all of which were already feeling the effects of a weaker global economy,” said the minutes.

Emerson Electric Co. (EMR), a U.S. maker of electrical products, will see “more significant” supply disruptions from the Thai floods than from Japan’s March 11 earthquake and tsunami, Chief Executive Officer David Farr said on a conference call yesterday. Honda, Japan’s third-largest carmaker, abandoned its full-year profit forecast earlier this week on the floods.

45 Days

Thailand’s government said yesterday it may need 45 days to pump water out of seven inundated industrial estates. It will start with Rojana industrial estate in Ayutthaya province on Nov. 7, Permanent Secretary for Industry Witoon Simachokedee said earlier this week.

“After that we will send technicians to check out damage to machinery,” Industry Minister Wannarat Charnnukul told reporters. “For the remaining estates that are not flooded, we have already prepared measures to protect them and we believe they won’t be flooded.”

Prime Minister Yingluck Shinawatra ordered the evacuation of eastern parts of Bangkok near the Sam Wa canal yesterday on the risk of flooding, said Thongtong Chantarangsu, a spokesman for the government’s flood relief operations. In western parts of the city, “the flooding has spread and risen,” he said in a national broadcast last night.

Lower Tides

Still, lower tides have allowed more water to drain through the city’s canals toward the Gulf of Thailand, 30 kilometers (19 miles) to the south, Thongtong said.

“The amount of floodwater coming into Bangkok has declined,” he said. “This is a very good sign.”

Flooding in the capital is mainly limited to northern and eastern areas and low-lying places near canals, while the business districts of Silom and lower Sukhumvit remain dry, and Suvarnabhumi Airport and public transport links are unaffected. Shortages of bottled water, eggs and instant noodles have eased after retailers imported products, Permanent Secretary for Commerce Yanyong Phuangrach said yesterday.

Rainfall about 42 percent more than average this year filled dams north of Bangkok to capacity, prompting authorities to release more than 9 billion cubic meters of water down a river basin the size of Florida, with Bangkok at the bottom.

The death toll from the disaster rose to 427 today, according to the Department of Disaster Prevention and Mitigation. Twenty-six provinces are still affected by flooding, the agency said on its website.

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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EU Leaders Will Tell Papandreou No Alternative to Cuts

By Rebecca Christie and Simon Kennedy - Nov 2, 2011 3:39 PM GMT+0700

European leaders racing to prevent their week-old debt crisis strategy from unravelling convene emergency talks today to tell Greece there is no alternative to the budget cuts imposed in the bailout plan.

Greek Prime Minister George Papandreou, his hold on power weakening, was summoned to Cannes on the eve of a Group of 20 summit where he will hear from French President Nicolas Sarkozy that the “only way to resolve Greek debt problems” is through a deal hammered out last week in a six-day crisis-management marathon.

Papandreou triggered the latest upheaval in the two-year- long crisis by abruptly announcing on Oct. 31 a parliamentary confidence vote and his desire to hold a referendum on the rescue pact. Global stocks, the euro and bonds of debt-strapped countries tumbled yesterday as concern of a disorderly Greek default mounted.

“Given the state of markets and world affairs in general, it is clear that the leaders will work hard at sending a positive message of cooperation and solidarity” from the G-20, said Erik Nielsen, global chief economist at UniCredit Bank AG in London. “But, frankly, it is difficult to be too optimistic.”

People ‘Perplexed’

Papandreou will join a group at about 8:30 p.m. comprising Sarkozy, German Chancellor Angela Merkel, European Central Bank President Mario Draghi, International Monetary Fund Managing Director Christine Lagarde as well as European Union authorities, according to a statement from Sarkozy’s office. They will have met at about 5:30 p.m. without Papandreou.

Japanese Finance Minister Jun Azumi said today in Tokyo that “everyone is perplexed” by Greece’s referendum decision and that the issue will be discussed at the Cannes summit.

Italian Prime Minister Silvio Berlusconi, under pressure to cut Europe’s second-biggest debt load, convened a special meeting of advisers late yesterday to discuss budget-cutting plans. Like Sarkozy, Berlusconi held crisis talks with Merkel yesterday. His key cabinet ministers will meet today to draft measures for the country’s financial stability legislation, the Italian news agency ANSA said, citing government officials.

Europe ‘Surprised’

The euro rose against the dollar today, gaining 0.6 percent to $1.3780 as of 8:21 a.m. in London. It fell 3.1 percent over the previous two days.

European stocks also gained, with the Stoxx Europe 600 Index adding 0.7 percent. The gauge sank the most in five weeks yesterday after Papandreou called the referendum. German bonds declined, after surging yesterday as investors sought the safest assets. The Greek two-year yield was at 86.13 percent today, close to a record high.

Papandreou’s announcement, which Sarkozy said “surprised all of Europe,” threatens to overshadow a Nov. 3-4 Group of 20 summit in Cannes, France. European leaders had designated the talks as a stage to present their plan to stamp out the crisis and end the threat to the global economy.

“The referendum will be a clear mandate and strong message within and without Greece on our European course and our participation in the euro,” Papandreou told his ministers in Athens late yesterday, according to an e-mailed transcript. It will “ensure this course in the most decisive way”.

Greek Pressure

EU officials had hoped to use the Oct. 27 rescue agreement, which includes renewed commitments to fiscal austerity as well as new rescue resources, to anchor their economic agenda at the G-20 summit and secure support from their counterparts. Now, officials meeting as the confidence vote plays out in Athens will be called on to assess the deal’s -- and the euro’s -- future, especially if Papandreou’s government falls and Greece comes under more pressure to default or leave the common currency.

European leaders agreed to boost the European Financial Stability Facility’s firepower to 1 trillion euros ($1.4 trillion), set aside 100 billion euros for Greece and provide 30 billion euros in collateral for a debt swap that will give Greece’s investors new, lower-risk bonds at 50 percent of the existing bonds’ face value.

The deal to reduce Greece’s debt load will do nothing to aid the country’s recovery from recession, opposition New Democracy leader Antonis Samaras said on Oct. 27. Papandreou’s majority meanwhile slipped as his support narrowed to 152 lawmakers in the 300-deputy parliament amid a party rebellion.

‘Profound’ Risks

Whether the EU’s plan would succeed “was a matter for debate. But at least there was a plan,” Yiannis Koutelidakis of Fathom Financial Consulting in London, said in a note yesterday. “The risks engendered by this move are profound for the euro in general, not just for Greece as the expulsion of any one member state would critically undermine the Economic and Monetary Union.”

Such uncertainty “will likely block any” governments outside the euro-area from stumping up cash for its reworked rescue fund as the continent’s leaders would like, said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc. While Brazil and Russia have signalled a willingness to help, Chinese officials say they want more details.

The leaders of Brazil, Russia, India, China and South Africa -- the so-called BRICS -- may also meet in Cannes today, Sergei Prikhodko, Russian President Dmitry Medvedev’s foreign policy aide, said yesterday. Chinese President Hu Jintao, who will also meet Sarkozy today, told Le Figaro newspaper yesterday that he wants stability in the euro area.

A lack of outside assistance will leave the ECB under pressure to keep buying the bonds of stressed states, Cailloux said. Today’s meetings are Draghi’s first on the international stage since he took over the ECB presidency yesterday from Jean- Claude Trichet and come a day before he chairs a meeting of the ECB’s Governing Council for the first time.

While Nomura Holdings Plc economist Jens Sondergaard said he expects the ECB to leave its benchmark rate at 1.5 percent this week, the “adverse market reaction” to Greece’s referendum call leaves a one-in-three chance of a 25 basis point reduction.

To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net

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

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U.S. Futures Rise, Commodities Climb Before Fed

By Stephen Kirkland - Nov 2, 2011 6:02 PM GMT+0700

U.S. index futures and commodities rose, while the dollar and Treasuries retreated before the Federal Reserve’s policy statement. European stocks fell as the euro-area rescue fund delayed a bond sale.

Standard & Poor’s 500 Index futures added 0.3 percent at 6:50 a.m. in New York, following a 2.8 percent slump in the U.S. gauge yesterday. The Stoxx Europe 600 Index lost 0.2 percent. The Dollar Index declined 0.4 percent, snapping a three-day advance, and Treasury 10-year yields gained six basis points, the first increase in four days. Italian 10-year bonds rose, narrowing the yield difference with benchmark German bunds by nine basis points to 433. Copper ended two days of losses.

The Fed is probably engineering a third round of asset purchases, even as a decision is unlikely to be announced today, economists surveyed by Bloomberg said. The European Financial Stability Facility will delay its planned 3 billion-euro ($4.1 billion) bond sale because of market conditions. European leaders will hold talks with Greek Prime Minister George Papandreou in Cannes, France, before a Group of 20 summit.

“The dollar is softening into the meeting on talk of” quantitative easing, said Jane Foley, a senior currency strategist at Rabobank International in London. “That may be premature. The Fed’s tone will be very cautious.”

The S&P 500 fell for a second day yesterday. Sixty-nine percent of economists surveyed by Bloomberg say Fed Chairman Ben S. Bernanke will start a third round of quantitative easing, or QE3, with 36 percent predicting the move in the first quarter of next year, according to a poll of 42 economists from Oct. 26-31.

Cutting Forecast

The Stoxx 600 has dropped 6 percent this week. Logica Plc sank 7.4 percent as the Anglo-Dutch computer services provider cut its sales-growth forecast.

German bund yields were three basis points higher after dropping 26 basis points yesterday, the biggest decline since Bloomberg began collecting the data in 1992. Greek two-year yields rose 141 basis points to 88.69 percent, after climbing to as high as a record 88.81 percent yesterday.

Germany sold 4 billion euros of five-year notes at a record-low yield of 1 percent, and Portugal raised 1.2 billion euros in a sale of three-month bills.

The euro strengthened 0.6 percent to $1.378. The dollar weakened 0.4 percent to 78.03 yen.

Copper climbed 2.3 percent as inventories of the metal in warehouses monitored by the London Metal Exchange dropped for a 10th consecutive day, the longest decline since July 6. New York oil rose 0.3 percent to $92.49 a barrel, the first gain in four days.

The MSCI Emerging Markets Index rose 0.5 percent, following its worst two-day decline in a month. The Hang Seng China Enterprises Index climbed 2.6 percent in Hong Kong.

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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