Economic Calendar

Saturday, November 12, 2011

Italy Vote to Pave Way for Berlusconi Exit

By Alessandra Migliaccio and Lorenzo Totaro - Nov 12, 2011 9:18 PM GMT+0700

Italy’s Chamber of Deputies will vote on debt-reduction measures today in an attempt to shore up investor confidence and pave the way for Prime Minister Silvio Berlusconi’s resignation.

The ballot follows yesterday’s Senate approval of the measures that were promised to the European Union to boost growth and cut Italy’s 1.9 trillion-euro ($2.6 trillion) debt, the world’s fourth-biggest. Berlusconi will resign once the plan receives final approval from parliament’s lower house, President Giorgio Napolitano said Nov. 8. The Chamber concluded debate on the bill and will reconvene at 4 p.m. in Rome to vote.

The package’s final adoption would be “a major step in the right direction, containing the measures to put Italy back on track and, when implemented, to start regaining the necessary credibility,” EU President Herman Van Rompuy said in a speech yesterday outside Florence, Italy. “Implementation is absolutely crucial.”

Voting was moved forward after Berlusconi’s parliamentary majority unraveled this week, causing Italian bond yields to surge to euro-era records. The premier’s departure may lead to the formation of a new government led by Mario Monti, former EU competition commissioner, with broad support in the legislature.

‘Extremely Competent’

Monti enjoys the support of much of the opposition to Berlusconi, and Napolitano’s decision to push for a Monti government has been praised by leaders outside Italy. International Monetary Fund Managing Director Christine Lagarde called Monti “extremely competent” in remarks in Tokyo today. European Central Bank President Mario Draghi met with Monti this morning in Rome, before having lunch with Berlusconi at Palazzo Chigi, the government’s headquarters.

While backing for Monti has mounted, there are signs that a growing number of Berlusconi’s allies, including his coalition party the Northern League, are pushing the premier to resist. Monti must win confidence votes in both houses of parliament, and Berlusconi still has a majority in the Senate, allowing him to block Monti’s confirmation should he be able to keep his forces together.

Monti risks going into the vote “as the Pope and coming out a cardinal,” Defense Secretary Ignazio La Russa said yesterday, referring to an Italian saying that alludes to cardinals seen as pontiff front-runners being skipped over in the selection process.

Resignation Offer

The yield on Italy’s 10-year bond declined for a second day yesterday, falling 43 basis points to 6.45 percent and narrowing the difference with German bunds to 456 basis points. The 10- year yield surged on Nov. 8 across the 7 percent threshold that prompted Greece, Portugal and Ireland to seek bailouts, as Berlusconi’s government unwound. The FTSE MIB index gained 3.7 percent, the biggest advance of any European benchmark.

Berlusconi, 75, offered to resign on Nov. 8 once the budget measures were approved. He came under pressure to step down after defections in his party left him without a majority in the lower house.

Napolitano will steer talks with political parties to try to muster support for a new government or call early elections. Opposition parties have indicated they would back a Monti government and Napolitano may complete the talks tomorrow and immediately offer the position to the former EU commissioner. Any new government formed through negotiations could not serve beyond the end of the current legislative term in April 2013.

Technical Governments

Italy has a tradition at times of political crisis to reach outside of parliament for leadership to form a so-called technical government. Monti spent almost a decade in Brussels as EU commissioner and previously had broad backing in Italy. He was first appointed to the commission by Berlusconi in 1994 and was then confirmed by the opposition when it came to power after Berlusconi’s first government collapsed.

“Monti is clearly in favor of quick implementation of labor-market reforms,” which “should help boost Italy’s productivity and potential growth,” Annalisa Piazza, an economist at Newedge Group in London, said in an e-mailed note yesterday. He also backs a more efficient tax system that could reduce company and labor-market levies and increase the value- added tax, Piazza said.

Austerity Plans

The austerity measures that the Chamber will vote on include a pledge to raise 15 billion euros from real-estate sales over the next three years, a two-year increase in the retirement age to 67 by 2026, opening up professions within 12 months and a gradual reduction in government ownership of local services.

The budget measures were first pledged to EU allies at a summit on Oct. 26 and are aimed at convincing investors Italy can overhaul its economy to reduce borrowing. Months of squabbling within Berlusconi’s Cabinet over the plans helped undo his majority and fuel the selloff of Italian debt.

“If they manage to get their problems under control the situation could stabilize,” said Heinrich Bayer, an economist at Deutsche Postbank in Bonn. “Italy has the potential to weather the turmoil but they’ve already wasted a lot of time. They need to act now.”

The country’s deficit of 4.6 percent of gross domestic product last year was similar to Germany’s at 4.3 percent and less than that of the U.K. and France. Italy also has a surplus in its primary budget, which excludes debt-interest payments.

Still, debt at almost 120 percent of GDP and economic growth that has trailed the EU average for more than a decade has unnerved investors shunning Europe’s riskiest assets.

The EU has been stepping up the pressure on Italy to adopt the budget measures and has said the government’s economic forecasts are too optimistic. The European Commission said Nov. 10 that Italy won’t make good on its pledge to balance the budget in 2013 and will end that year with a deficit of 1.2 percent of GDP.

To contact the reporters on this story: Alessandra Migliaccio in Rome at; Lorenzo Totaro in Rome at

To contact the editors responsible for this story: Craig Stirling at; Angela Cullen at


Billionaire Mallya’s Kingfisher Airlines Seeks Higher Loan Limit on Costs

By Siddharth Philip and Karthikeyan Sundaram - Nov 12, 2011 4:06 PM GMT+0700

Kingfisher Airlines Ltd. (KAIR), controlled by billionaire Vijay Mallya, asked banks to raise its lending limits to meet operating costs and pay for fuel as the stock fell the most in a month on concern that the company needs cash.

The carrier will cut flights to 300 a day from 340 as part of a strategy to return to profit, Chief Executive Officer Sanjay Aggarwal said yesterday in an e-mailed statement.

“The whole Indian aviation industry is struggling due to high costs and lower yields,” he said. “We are no exception.”

Kingfisher has posted losses totaling more than 47 billion rupees ($935 million) over the last three years as it added new planes and competed against state-owned Air India Ltd. Earlier this year, it won as much as 12.1 billion rupees of new loans after banks agreed to convert 13 billion rupees of existing debt into preferred shares.

The airline is complying with vendor payment arrangements and hasn’t requested the government for a bailout, Aggarwal said. India’s finance ministry may ask banks to help Kingfisher restructure its debt after the carrier sought the government’s assistance, Civil Aviation Minister Vayalar Ravi said yesterday in New Delhi.

“Every government has gone out of the way to support airlines and connectivity,” Mallya said in comments posted on his Twitter Inc. account. “In India, airlines are overtaxed and overcharged. Wonder why?”

The carrier, India’s second-biggest by market share, fell 9.5 percent to 19.65 rupees yesterday at the close of Mumbai trading, the most since Sept. 30. United Breweries (Holdings) Ltd., Mallya’s holding company and Bangalore-based Kingfisher’s biggest shareholder, fell 8.7 percent.

Money to Survive

“Unless there is an infusion of money at this point, I don’t really see how it’s going to survive,” said Rishikesha Krishnan, a professor of corporate strategy at the Indian Institute of Management, Bangalore, who has written papers about Indian aviation. “That infusion of money has to come from Mallya. I can’t see anybody else who’s going to put money in.”

Jet Airways (India) Ltd., the nation’s biggest, yesterday reported a wider-than-estimated loss of 7.14 billion rupees for the quarter ended Sept. 30. Revenue rose 7 percent to 32.9 billion rupees, the company said in a statement.

Kingfisher will report quarterly earnings on Nov. 14, according to the BSE India website.

Unprofitable Flights

The airline isn’t operating 36 percent of flights scheduled for the winter season, E.K. Bharat Bhushan, Director General of Civil Aviation, said yesterday in New Delhi. The slots at airports that Kingfisher isn’t using will be given to other carriers, he said, without elaborating.

Kingfisher said yesterday it dropped some unprofitable flights and rationalized routes to improve long-term profitability.

“Is it Kingfisher’s duty to fly on loss-making routes when state governments tax heavily?” Mallya asked in a separate Twitter comment. “Or should we be financially prudent and fly profitably?”

Shares of Jet Airways and SpiceJet Ltd. (SJET), India’s only listed discount carrier, gained yesterday in Mumbai after Bhushan’s comments. Jet Airways rose 2.3 percent at the close, while SpiceJet climbed 3.6 percent.

Debt Guarantees

Kingfisher has about $1.5 billion of debt and a debt-to- asset ratio of 82, according to data compiled by Bloomberg. Jet Airways’ ratio is 67, while SpiceJet is at 7.7.

Jet has posted losses for at least four years even as travel demand has surged. The number of domestic passengers in India rose 18.6 percent this year through August to 39.6 million, according to the Directorate General of Civil Aviation.

Mallya, 55, doubled personal guarantees against the carrier’s debt to 61.7 billion rupees in the year ended March, according to the airline’s annual report. The carrier paid him 508.7 million rupees for loan assurances, according to the report, published in September.

United Breweries also more than doubled its debt guarantees to 168.5 billion rupees. The company, which owns 40 percent of Kingfisher, has dropped 71 percent this year.

Mallya formed Kingfisher Airlines in 2005, naming it after the UB Group’s beer brand. In 2008, Kingfisher completed a merger with Deccan Aviation Ltd., which operated India’s first low-cost airline, Air Deccan. Kingfisher had a fleet of 66 planes ranging from Avions De Transport Regional turboprops to Airbus SAS A330s as of March 31, according to its annual report.

The carrier has also ordered five Airbus A380 aircraft, deliveries of which are expected to start in 2016.

Mallya inherited the UB Group from his father in 1983 at the age of 27. He has since built United Breweries Ltd. (UBBL) into India’s biggest brewer.

The billionaire also has a stake in a Formula One team. In October, he sold a 42.5 percent stake in Force India to India’s Sahara Group for $100 million.

Mallya had a net worth of $1.1 billion, and was ranked 49th among India’s billionaires, according to Forbes magazine.

To contact the reporters on this story: Siddharth Philip in Mumbai at; Karthikeyan Sundaram in New Delhi at

To contact the editor responsible for this story: Neil Denslow at


Obama, Hu pitching different trade agendas

HONOLULU | Sat Nov 12, 2011 4:27am EST

(Reuters) - President Barack Obama and China's Hu Jintao will pitch differing trade agendas on Saturday as an antidote to weak global growth, as they try to sidestep the European debt crisis looming over an Asia-Pacific summit.

The heads of the world's two biggest economies will address business leaders in back-to-back morning speeches at the Asia-Pacific Economic Cooperation CEO summit in Honolulu, and later meet face to face. But Obama and Hu do not see eye to eye on how best to promote transpacific trade.

Obama arrived in Hawaii late on Friday at the start of a nine-day Asian trip during which he will attempt to reassert U.S. influence over the region's course in economic and security affairs. An unstated goal is to ensure China does not muscle the United States aside from its traditional Pacific role.

Obama hopes to leave his native state with at least the outline of a final deal on the Transpacific Partnership, a regional trade pact being negotiated between the United States and eight other countries.

Japan enhanced the stature of the U.S.-led regional trade initiative by announcing on Friday that it was interested in joining the talks, and other countries including Mexico and Canada also have indicated they might like to participate.

China is not part of these trade talks, and views them warily.

The differing views were captured on Friday in a politely pointed public exchange between top American and Chinese trade officials.

Asked whether China would join the TPP, as the talks are known, a Chinese official, Assistant Commerce Minister Yu Jianhua, noted that no invitation had been sent to Beijing.

"If one day we receive such an invitation, we will seriously study" it, Yu said.

U.S. Trade Representative Ron Kirk responded that the trade deal "is not designed to be a closed clubhouse. All are welcome. But it is also not one where you should wait for an invitation."

China has been reluctant to sign trade deals that would subject it to U.S-led efforts to further open its economy to foreign players because that would put competitive pressure on its state-owned enterprises.

A commentary in China's state-owned news agency Xinhua said Washington was using the trade deal as a way to enhance its influence in Asia on its own terms.

"The United States' primary reason for actively promoting the development and expansion of the TPP is to raise its leadership in the Asia-Pacific region," Xinhua wrote.

"The United States does not want to miss a golden opportunity with the economic development in the Asia-Pacific, and at the same time it hopes to install a fixed set of rules to guide changes in the region's future political and economic structure."

Hu has touted trade with China as a way to boost U.S. growth and help Obama achieve his goal of doubling exports. With Europe edging toward a recession, fast-growing Asia -- led by China -- is vital to sustaining global economic growth.

Developing Asia is expected to grow 8 percent in 2012, roughly four times faster than the United States, according to International Monetary Fund forecasts.

"Currently, instability and uncertainty of world economic recovery are growing," Hu told business leaders here on Thursday. "Under this type of situation, we especially need the world to cross the river in the same boat, and respond hand-in-hand with a spirit of cooperation and mutual benefit."

Hu's speech on Saturday is expected to focus on steps China is taking to bolster domestic demand, and its desire for greater representation of developing economies in global forums, Chinese officials told reporters.

In another sign of tough talks ahead, trade ministers here said they were unable to agree on the terms of an initiative pushed by the United States to boost trade in clean energy and other environmentally friendly technologies. They referred the issue to APEC leaders, who will meet on Sunday.

APEC, made up of 21 economies representing more than half of global output, laid out an agenda that included promoting trade and green growth, but discussions this week invariably returned to Europe's debt troubles.

China, with its $3.2 trillion in reserves, has come under pressure to come to Europe's aid by buying more government debt. Two independent sources told Reuters that Europe had spurned one of China's key demands -- that it receive more IMF influence in return for increasing its support for Europe.

"Europeans have to ... provide a clear picture and provide a solution and put their hands around their own issues, and the international community is willing to help," said Zhu Min, the IMF's deputy managing director.

(Reporting by Reuters APEC team; Writing by Emily Kaiser. Editing by Warren Strobel and Eric Walsh)


Obama seeks to hitch U.S. economy to Asian growth

CORONADO, California | Fri Nov 11, 2011 9:04pm EST

(Reuters) - With Europe mired in crisis, President Barack Obama is launching a charm offensive this week to hitch the U.S. economy to opportunities in Asia he hopes can help power the recovery he needs for re-election.

Obama, who was born in Hawaii and spent part of his childhood in Indonesia, will host leaders of the Asia-Pacific Economic Cooperation forum, including Chinese President Hu Jintao and Japanese Prime Minister Yoshihiko Noda, in Honolulu this weekend to seek to improve trade ties across the region.

He will then travel to Australia to announce plans to boost the U.S. military presence in the region and will be the first American president to attend the East Asia Summit in Bali, where he will heap attention on the Philippines, Thailand, Malaysia and Indonesia as well as India.

The campaign to cozy up to Asian powers large and small comes at a critical moment for the U.S. economy, whose recovery is at risk because of a spiraling debt crisis in Europe that dominated a summit of Group of 20 leaders in France last week.

"To have this trip happen when you have nothing but crisis in Europe and nothing but opportunity in Asia, you couldn't have more of a juxtaposition," said Victor Cha, who advised President George W. Bush on Asian affairs.

Georgetown University professor Charles Kupchan said he expected the Asia swing to be "much more upbeat" than the trip to Cannes had been for Obama, whose re-election chances in November 2012 hinge on his economic record.

Executives from companies such as Boeing, Caterpillar, General Electric and Time Warner Cable are also attending the APEC summit in Hawaii to help Obama make the case that closer ties with Asia will help create U.S. jobs.

"When you look for rays of light, where is growth going to come from, one of the main answers is exports to Asia," Kupchan said. "It is something that this president needs to focus on, particularly in an election season."

Obama and his wife Michelle were scheduled to arrive in Honolulu later on Friday.

En route to Hawaii, they stopped at Naval Base Coronado near San Diego to attend the Carrier Classic college basketball game being held on the flight deck of the USS Carl Vinson, the aircraft carrier used for burial at sea of al Qaeda leader Osama bin Laden in May.

During the trip, Obama will not be able to leave the European financial crisis behind entirely.

Asia-Pacific finance ministers meeting before the leaders' summit fretted about Europe's lack of strong action to deal with crises in Greece and Italy and talked of ways to bolster their economies to minimize spillover.


Obama will also seek to reassert the U.S. role as a Pacific power, shifting more of its budget-stretched military resources to Asia as it pulls out of Afghanistan and Iraq and worries less about security in Europe.

Obama wants to make clear at the summit that "the United States is all in as it relates to the Asia-Pacific region" despite U.S. budget constraints, senior White House aide Ben Rhodes told reporters.

"We believe we can ... play our role in terms of having a robust force posture even in a time of fiscal austerity in cuts in a defense budget," said Rhodes, a White House deputy national security adviser.

In Australia, Obama is set to announce an agreement for more than 2,000 U.S. Marines to train and do joint exercises from Darwin, a city with a large military presence on the country's northern coast, according to an Obama administration official familiar with the plans.

The cooperation deal is seen as a stepping stone to a more permanent presence for the United States in Australia, which could eventually see U.S. vessels stationed in Perth or nearby that could respond faster to regional threats or humanitarian emergencies than they could from Hawaii or California.

"This is part of a big push to put the United States back into the Asian game after a decade or so in which it has been preoccupied with the Middle East," Kupchan said.

Obama is likely to avoid direct references to China when making the announcement, although the agreement is widely seen as a way for the United States to act as a check on Chinese power and defuse conflicts over waterways and disputed islands.

"It is sending a very clear message that the United States is not ceding Asia diplomatically to China," said Cha, the former Bush adviser who is now a scholar at the Center for Strategic and International Studies.

(Additional reporting by Rob Taylor in Canberra; Editing by John O'Callaghan)


Olympus dumped by major shareholder as Japan steps up probe

SINGAPORE/TOKYO | Sat Nov 12, 2011 4:02am EST

(Reuters) - Singapore's sovereign wealth fund said on Saturday it has sold most of its holdings of Olympus Corp (7733.T) on concern about wrongdoing, the first major shareholder to show it had lost confidence in the scandal-hit Japanese medical device and camera maker.

Japanese authorities are investigating Olympus after the company admitted this week that it hid investment losses for decades using funds from M&A payments. Media reports on Saturday said police and regulators were joining forces in a rare collaborative effort to examine the cover-up.

GIC GIC.UL, which is the acronym for Government of Singapore Investment Corp, was the 10th biggest shareholder in Olympus, with 2.17 percent as of the end of March, according to the latest Olympus annual report.

"GIC disposed of almost all of its investments on first suspicion of possible wrongdoing in Olympus," the Singapore fund said in a statement.

GIC added it had only an insignificant holding under a portfolio managed by an external fund manager. It said the majority of its investment was made in the midst of the global financial crisis.

The Tokyo District Public Prosecutors Office's special investigations unit, the Tokyo Metropolitan Police Department and the Securities and Exchange Surveillance Commission (SESC) will team up to investigate the Olympus cover-up of investment losses, Japanese media reported on Saturday.

Nikkei has said the concealment could have exceeded 130 billion yen ($1.68 billion) at its peak, and said the company's creditors were likely to press for a change in lending terms.

Lenders will confront Olympus next week to demand an explanation on its accounting, a banking source said on Friday, though he denied reports they would seek more security over their loans.

Tokyo's stock exchange has told Olympus it will be delisted if it fails to report earnings by December 14, which could effectively leave the 92-year-old company cut off from equity capital markets at a time when its shares have already lost more than three-quarters of their market value since the scandal erupted on October 14.

Olympus plans to correct 20 years of its financial statements and submit them to financial authorities, the Mainichi newspaper reported on Saturday.

Delisting would take effect on January 15 in principle if Olympus does not meet the reporting deadline. Even if Olympus meets the deadline, the bourse could still decide to delist the company, depending on the scale of its past misreporting.

The bourse placed Olympus on its supervisory list on Thursday, which means short-selling of its shares is restricted. But such trading had already been suspended by Japan Securities Finance, the processor of margin transactions.


Sixteen investment trusts managed by Nomura Holdings Inc. (8604.T) group member Nomura Asset Management Co. have recently held Olympus in their portfolios, Nikkei also reported.

Eleven stock-index-linked mutual funds held a total of roughly 1.9 billion yen in Olympus shares as of Wednesday, and five more "fund of funds" owned shares as of September 30. The asset manager disclosed the information because of the possibility that Olympus will be delisted, Nikkei said.

Nomura Holdings, Japan's largest investment bank, said Olympus was its client but that it wasn't involved in any of the transactions at the center of the scandal.

Nikkei reported separately, quoting sources, that a majority of the 100-plus businesses acquired during former Olympus President Tsuyoshi Kikukawa's tenure are losing money. Kikukawa stepped down on October 26.

Most of the acquired firms, in areas such as pet care services, DVD production and others with little apparent connection to core Olympus operations, were unlisted and therefore not required to make their financial details public, Nikkei said.

Olympus President Shuichi Takayama on Tuesday blamed Kikukawa, Vice-President Hisashi Mori and internal auditor Hideo Yamada for the cover-up, and said he would consider criminal complaints against them. Mori was dismissed on Tuesday, and Hamada offered to resign.

The SESC, Japan's securities regulator, plans to take voluntary testimony from Kikukawa and two other current and former officials said to be involved in the investment cover-up, Nikkei said.

The report said the regulator also plans to hear as early as next week from former Olympus head Michael Woodford, who was ousted on October 14 - six months after being made president and just two weeks after becoming CEO - due to what the company said were management issues. Woodford subsequently made public some of the contentious M&A deals.

A third-party panel is now examining those acquisitions, and accounting experts have said the investigation could lead to asset writedowns of more than 70 billion yen, though Olympus' big and profitable medical business is likely to emerge unharmed.

The independent panel's head, retired Supreme Court justice Tatsuo Kainaka, told Reuters his team may recommend criminal charges in its report, to be completed early next month.

(Editing by Robert Birsel)


U.S. Stocks Gain on Consumer Confidence

By Kaitlyn Kiernan and Nikolaj Gammeltoft - Nov 12, 2011 12:01 PM GMT+0700

U.S. stocks rose this week, restoring the year-to-date gain for the Standard & Poor’s 500 Index, as improving economic data and leadership changes in Greece and Italy bolstered investor optimism.

Walt Disney Co. (DIS) and Cisco Systems Inc. (CSCO) advanced more than 5.4 percent, helping lead the Dow Jones Industrial Average (INDU) higher, after reporting better-than-estimated profits. Health- care stocks advanced the most in the S&P 500 as Merck & Co. gained 5.7 percent after increasing its dividend. E*Trade Financial Corp. slipped 14 percent after the board rejected putting the company up for sale.

The S&P 500 rose 0.9 percent to 1,263.85, overcoming a 3.7 percent decline on Nov. 9 that was the largest one-day loss since Aug. 18. The Dow advanced 170.44 points, or 1.4 percent, to 12,153.68 this week.

“With abated fears on Europe and abated fears on the U.S. economy, there is a general sense that the world is not going to come to an end,” Uri Landesman, who helps oversee $1 billion as managing general partner of New York-based hedge fund Platinum Partners LLP, said in a telephone interview. “Neither the bulls nor the bears are digging in their heels, so there is overreaction to the news.”

Stocks resumed the rally that drove the S&P 500 up as much as 20 percent since the first week of October. Equities gained after U.S. consumer confidence improved and Italy’s Senate approved debt-reduction measures, paving the way for a new government led by former European Union Competition Commissioner Mario Monti. Greece swore in Lucas Papademos to head a unity government.

Economic Surprises

The S&P 500 has rebounded 15 percent from a 13-month low on Oct. 3 as the Citigroup Economic Surprise Index for the U.S., which gauges whether reports are beating or trailing estimates, climbed to a seven-month high.

The benchmark measure of U.S. equities rose 2 percent yesterday, preventing a second weekly drop, after a gauge of consumer sentiment topped estimates in November and reached the highest level since June. The Labor Department said Nov. 10 that the number of Americans filing applications for unemployment benefits fell to the lowest level in seven months.

Stocks tumbled on Nov. 9 as yields on Italian government bonds surged, fueling concern European leaders will struggle to fund bailouts.

Focused on Europe

“It’s hard not to focus on the negative news from Europe, despite compelling corporate earnings reports and data at the micro level,” said David Sowerby, a fund manager with Bloomfield Hills, Michigan-based Loomis Sayles & Co., which manages more than $150 billion.

Walt Disney climbed 5.6 percent to $36.70 for the second- biggest advance in the Dow. Higher fees from pay-TV operators, advertising gains and improved results at resorts drove revenue and profit higher. Audience ratings for ESPN increased 13 percent in the quarter, according to Nielsen data provided by Barclays Plc. Disney resorts benefited from higher ticket prices and a new ship.

Viacom Inc. (VIA/B) rallied 9 percent to $44.90 for the biggest gain in the S&P 500. The owner of the MTV network and Paramount Pictures reported fourth-quarter profit and revenue that rose more than analysts estimated and boosted its stock-repurchase program by $6 billion.

Cisco, Merck

Cisco climbed 5.5 percent, third-most in the Dow, to $19.02. The world’s largest maker of networking equipment posted higher-than-estimated fiscal first-quarter profit. Chief Executive Officer John Chambers is eliminating jobs, scaling back operating expenses and revamping a management structure that slowed decision making.

Health-care companies in the S&P 500 increased 2.3 percent. Merck advanced 5.7 percent to $35.97 for the biggest increase in the Dow. The second-biggest U.S. drugmaker raised its dividend for the first time since 2004 and emphasized drug discovery in a meeting with analysts.

E*Trade lost 14 percent to $9.09. The online brokerage’s board rejected putting up for sale following a strategic review spurred by Citadel LLC, the company’s biggest shareholder. E*Trade hired Morgan Stanley in July to explore a sale and then replaced the bank with Goldman Sachs Group Inc. The broker initiated the review following Citadel’s request to address “catastrophic losses.”

Federal Budget

Computer Sciences Corp. (CSC) tumbled 18 percent to $26.48 for the biggest retreat in the S&P 500. The contractor for U.S. government agencies and companies reduced its fiscal 2012 profit forecast amid “federal budget uncertainty.”

Apple Inc. (AAPL) slumped 3.9 percent to $384.62 amid concern about a drop in supplier orders, indicating potentially weaker sales of the iPad and iPhone. Analysts at Cleveland Research Co. reduced their predictions for shipments of the iPad to 12 million from 14 million this quarter, citing information it gleaned from Apple’s suppliers. Ticonderoga Securities also said a survey of suppliers suggests slower sales of Apple gadgets.

Lowe’s Cos. advanced 7.3 percent to $23.11 for the second- biggest gain in the S&P 500. Pershing Square Capital Management LP’s Bill Ackman recommended at a conference that investors buy shares of the home-improvement retailer, according to a person who attended the presentation who declined to be identified.

“Demand for most stocks has improved, pushing prices higher,” James Stellakis, the founder and director of technical research at New York-based Technical Alpha, wrote in an e-mail. “But from a risk-reward standpoint, these gains have made stock selection much harder. Many stocks now trade midway between their recent buy and sell levels, and we can make a case for most names to rise and fall by the same amount.”

To contact the reporters on this story: Kaitlyn Kiernan in New York at; Nikolaj Gammeltoft in New York at

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


Citigroup Sells EMI in Parts for $4.1 Billion to Vivendi, Sony

By Matthew Campbell, Amy Thomson and Andy Fixmer - Nov 12, 2011 12:00 PM GMT+0700

Citigroup Inc. (C) agreed to sell EMI Group’s recorded music and publishing businesses in separate transactions for a combined $4.1 billion.

Vivendi SA (VIV)’s Universal Music Group will buy EMI’s record labels, home to Katy Perry and Coldplay, for 1.2 billion pounds ($1.9 billion), and a Sony Corp (6758).-led group that includes billionaire David Geffen will pay $2.2 billion for the publishing unit, according to statements yesterday.

The breakup of London-based EMI, the 114-year-old music company that owns Abbey Road Studios, sells Beatles albums and publishes songs written by the late Amy Winehouse, ends a nine- month bidding war. Citigroup, the New York-based lender, seized EMI in February after investor Guy Hands fell out of compliance with loan covenants.

“The two companies coming in to buy the asset know the music industry well; they’re not going to have any false pretenses about what will or won’t happen,” said Ben Rumley, an analyst at Enders Analysis in London. “We might be getting close to the point where the decline, in the recorded side at least, is ending.”

The auction had a surprise ending, with the two winning bids outstripping rivals who had been in the lead for much of the process.

Warner Music Group, owned by billionaire Len Blavatnik, offered $1.5 billion to $1.6 billion for EMI’s recorded arm, people with knowledge of the situation said last month. Sony was vying with BMG Rights Management GmbH, the music company controlled by KKR & Co., which had bid $1.8 billion to $2 billion for publishing, people said then.

Credit Markets

Uncertainty in credit markets worked in Sony’s favor, because the private-equity suitors rivals for the publishing business depended on higher debt leverage and could extract fewer cost savings, said Rob Wiesenthal, chief financial officer of the Tokyo’based company’s U.S. unit.

“It accrued to our advantage,” Wiesenthal said in an interview. “While credit markets fluctuated, we were able to secure soverign entities, which are long-term holders.”

The Universal transaction values EMI’s recorded-music arm at about seven times earnings before interest, taxes, depreciation and amortization and before synergies, Paris-based Vivendi said in a statement.

Citigroup, based in New York, agreed to assume liability for employee pensions and any litigation with Hands’ Terra Firma Capital Partners, said two people with knowledge of the talks. Universal Music will assume all risk related to regulatory approval, said the people, who weren’t authorized to talk publicly.

Geffen Role

Vivendi plans to finance the purchase with existing credit lines and a 500 million euro sale of non-core assets of Vivendi and Universal Music, the world’s largest music company.

“Universal will go from being the largest recorded music company to significantly the largest recorded music company,” Rumley said. “Universal can generate huge economies of scale.”

The Sony group, including the Mubadala Development Co. sovereign fund of Abu Dhabi, secured financing of more than $500 million from Blackstone Group LP (BX)’s GSO unit, people with knowledge of the talks said. Geffen, 68 and based in Los Angeles, made his fortune founding and selling Asylum Records and Geffen Records.

Sony/ATV Music Publishing, the joint venture formed in 1995 that is co-owned with Michael Jackson’s estate, will oversee the world’s second-biggest music catalogue. Martin Bandier, Sony/ATV’s chairman and CEO since 2007, had previously overseen EMI publishing.

Song Value

“This is the greatest grouping of songs from every decade,” Martin Bandier, chairman and CEO of Sony/ATV, said in an interview. Bandier had previously overseen EMI publishing. “It was a real advantage for us and our investor group to have a sense of the value of these songs and the potential that is yet untapped.”

Music was the second-biggest contributer of operating income after financial services at Tokyo-based Sony during the fiscal year ended in March.

The expanding girth of Universal Music and Sony will likely draw the attention of regulators, said Makan Delrahim, a former deputy assistant attorney general for antitrust under President George W. Bush. Sony’s music publishing business may draw more interest, he said.

“That is a very concentrated industry,” Delrahim said in an interview. “That’s where you’re going to see much more scrutiny.”

Opposition in Europe

Impala, the European trade group that represents independent music companies, said it will oppose the deal.

The combination of EMI’s record label with Universal will ultimately be good for the industry and musicians, Vivendi Chief Executive Officer Jean-Bernard Levy said.

“We are very confident that this transaction will be approved by the regulators,” Levy said on a conference call. “We expect to have a very deep and fruitful dialogue with them, and we believe we have very strong arguments.”

Legal music-streaming services such as Spotify and Apple Inc. (AAPL)’s iTunes have helped record labels blunt the effect of plummeting CD sales, reviving investor interest in the sector.

Industry wide, sales of record albums, which include digital downloads, compact discs, some vinyl LPs and cassettes, are up 3 percent, according to Nielsen SoundScan, the music industry’s sales tracking system. A total of 255 million albums have been sold in the U.S. so far this year, compared with 247 million this time last year. At this point last year, overall album sales were down 13 percent from the previous year.

Digital Sales

Sean Parker, whose Napster music-sharing service helped destroy music companies’ traditional business models, said this year that labels were “dramatically undervalued” and were poised to make gains as a result of new online applications.

EMI is the second major music label to change hands this year. Blavatnik acquired New York-based Warner Music in May for about $3.3 billion, including $1.99 billion in debt after a three-month auction.

Citigroup slashed the value of what it was owed on EMI to 1.2 billion pounds from 3.4 billion pounds after the February takeover.

Vivendi and Universal Music were advised by Allen & Co. and the law firm SJ Berwin, according to their statement.

Sony’s group was advised by Joe Ravitch’s Raine Group, Peter J. Solomon Co., UBS Investment Bank and Guggenheim Securities LLC. UBS led the lending group and legal advice was provided by Dewey & LeBoeuf LLP and Weil Gotshal & Manges LLP.

Citi Global Banking acted as financial adviser to Citigroup and EMI, while Clifford Chance LLP, Shearman & Sterling LLP and Freshfields Bruckhaus Deringer LLP served as legal advisers.

To contact the reporters on this story: Matthew Campbell in Paris at; Amy Thomson in London at; Andy Fixmer in Los Angeles at

To contact the editors responsible for this story: Kenneth Wong at; Anthony Palazzo at


GM’s Chevy Volt Catching Fire Said to Prompt U.S. Lithium-Battery Probe

By Jeff Green, David Welch and Angela Greiling Keane - Nov 12, 2011 12:00 PM GMT+0700
Enlarge image Lithium Batteries Scrutinized by U.S. After GM Volt Fire

Marisol McCormick, operations manager at General Motors Co.'s Brownstown Battery Assembly Plant, demonstrates a lithium-ion battery. Photographer: Gary Malerba/Bloomberg

Nov. 11 (Bloomberg) -- Regulators from the U.S. National Highway Traffic Safety Administration will now examine the safety of lithium-ion batteries that power all plug-in electric vehicles after a General Motors Co. Chevrolet Volt caught fire, according to people familiar with the probe. Megan Hughes reports on Bloomberg Television's "Street Smart." (Source: Bloomberg)

U.S. auto-safety regulators are examining the safety of lithium-ion batteries that power all plug-in electric vehicles after a General Motors Co. Chevrolet Volt caught fire, people familiar with the probe said.

The regulators have asked automakers, including GM, Nissan Motor Co. and Ford Motor Co., that sell or have plans to sell vehicles with lithium-ion batteries about the batteries’ fire risk, four people familiar with the inquiry said. LG Chem Ltd., South Korea’s biggest chemical maker, supplies Volt batteries.

The Volt caught fire while parked at a National Highway Traffic Safety Administration testing center in Wisconsin, three weeks after a side-impact crash test May 12, said an agency official. The official and the three other people familiar with the inquiry declined to be identified because the investigation isn’t public.

“I want to make this very clear: the Volt is a safe car,” Jim Federico, GM’s chief engineer, said in an e-mailed statement yesterday. “We are working cooperatively with NHTSA as it completes its investigation. However, NHTSA has stated that based on available data, there’s no greater risk of fire with a Volt than a traditional gas-powered car.”

President Barack Obama’s goal of putting 1 million electric vehicles on U.S. roads by 2015 is part of his strategy to reduce dependence on foreign oil. Nissan is among companies that have received financing assistance from the U.S. Energy Department and European Investment Bank to develop electric vehicles and lithium-ion batteries. GM in January withdrew a request for $14.4 billion in U.S. loan guarantees.

Battery Supplier

LG Chem “is fully aware of the situation and is working closely with GM and NHTSA on the investigation,” the Seoul- based company said in an e-mailed statement distributed by Dick Pacini of the Millerschin Group, a public relations firm that represents it in the U.S.

Through Oct. 31, 13,051 Leafs and Volts were sold in the U.S. this year, according to Autodata Corp.

Automakers are looking to expand plug-in offerings beyond the Volt and Nissan’s Leaf, which went on sale in the 2011 model year as the first mass-market plug-in electric cars in the U.S. Toyota Motor Corp.’s Prius, the world’s best-selling hybrid, uses a nickel-metal battery. A plug-in Prius and an electric version of the RAV4 sport-utility vehicle will use lithium batteries.

“The people who are looking at EVs and plug-in hybrids are already committed to the technology,” said Eric Noble, president of The CarLab, an auto-industry consulting firm in Orange, California. The Volt fire and investigation probably won’t affect sales of plug-in cars unless something more dire happens, he said.

Market Reaction

GM fell 0.8 percent to $22.51 at the close in New York yesterday. Nissan’s American depositary receipts, each equal to two ordinary shares, rose 2 percent to $18.39. LG Chem shares aren’t traded in the U.S.

A123 Systems Inc., which has a contract to supply batteries for GM’s electric Chevrolet Spark, fell 1.7 percent to $2.92. Polypore International Inc., which makes battery components, rose 1.8 percent to $54.95 and Tesla Motors Inc., the maker of luxury electric cars, rose 7.4 percent, to $33.64, the highest since December 2010.

NHTSA’s normal practice is to open formal auto-safety investigations, which it publicizes, following consumer complaints. In this case, it had no such complaints and decided to probe based on its observations from the one fire, which occurred in a Volt it bought for the test, the official said.

Trying to Replicate

In June, GM and NHTSA both crashed a Volt and couldn’t replicate the May fire, said Greg Martin, a spokesman for the automaker. GM has safety procedures for handling the Volt and its battery after an accident. Had those been followed, there wouldn’t have been a fire, he said in a phone interview.

“There are safety protocols for conventional cars,” Martin said. “As we develop new technology, we need to ensure that safety protocols match the technology.”

NHTSA and the Energy Department next week plan to test Volt battery modules that have been removed from the cars to see if they can replicate the condition that led to the fire, the NHTSA official said. The agencies will study the batteries immediately and continue to observe them in the coming weeks, he said.

Dan Borgasano, a spokesman for A123 Systems, based in Waltham, Massachusetts, declined to comment. Brian Sinderson, a spokesman for New York-based battery maker Ener1, didn’t respond to an e-mail seeking comment.

‘Really Hot’

Carmakers have engineered electric vehicles using lithium batteries to withstand serious accidents because the element is flammable, said Sandy Munro, president of Munro and Associates, an engineering consulting firm in Troy, Michigan.

Lithium batteries could catch on fire if the battery case and some of the internal cells that store electricity are pierced by steel or another ferrous metal, he said.

“Lithium burns really hot,” Munro said in a phone interview. “But it doesn’t happen often. You have to do something pretty dramatic to make it catch fire.”

If a lithium battery is pierced by steel, a chemical reaction will start raising the temperature and can result in a fire, he said. If the piercing is small, that reaction can take days or weeks to occur, he said.

Nissan, Tesla

There hasn’t been a reported fire involving the more than 8,000 Leafs on U.S. roads, Katherine Zachary, a spokeswoman for Nissan’s U.S. unit, said in an e-mail.

“The Nissan Leaf battery pack has been designed with multiple safety systems in place to help ensure its safety in the real world. All of our systems have been thoroughly tested to ensure real-world performance,” she said.

Tesla vehicles have been driven more than 16 million miles without having a post-crash fire or battery-safety incident, Ricardo Reyes, a spokesman for the Palo Alto, California-based company, said in an e-mailed statement.

“A fully charged Roadster battery carries the energy content equivalent of less than 3 gallons of gasoline,” he said. Tesla has worked with first responders to develop procedures for handling crashed electric vehicles, he said.

Unlike the batteries in the Volt and Nissan’s Leaf, Tesla uses cells about the size of those used in laptop computers, he said. Such cells “carry much less energy per cell than the larger prismatic cells preferred by other manufacturers, providing an additional layer of safety,” Reyes said.

Crash-Test Rating

NHTSA this year gave the Leaf and Volt its top crash-test rating, following a “good” rating in April by the Insurance Institute for Highway Safety.

In the simulated side-impact crash test, a new U.S. safety test for the 2011 model year, metal punctured the battery, the official said.

The fire in May was severe enough to burn vehicles parked near the Volt, the agency official said. Investigators determined the battery was the source of the fire, the official said.

NHTSA also sent a team of investigators this week to Mooresville, North Carolina, to probe a fire in a residential garage where a Volt was charging. That investigation is continuing, the agency official said.

Duke Energy Corp., which had installed a charging station in the home as part of a pilot program, has told the 25 users of stations in North Carolina and South Carolina to stop using them until the investigation is completed.

Cargo-Plane Crash

The Federal Aviation Administration, in an advisory to airlines in October 2010, warned that lithium batteries used in cell phones, digital cameras and other devices are “highly flammable and capable of ignition,” adding that fire- suppression systems aren’t effective when that happens.

It issued the advisory after a United Parcel Service Inc. cargo plane carrying thousands of lithium batteries crashed in Dubai after catching fire, killing both pilots.

“As manufacturers continue to develop vehicles of any kind -- electric, gasoline, or diesel -- it is critical that they take the necessary steps to ensure the safety of drivers and first responders both during and after a crash,” NHTSA said in an e-mailed statement.

“Based on the available data, NHTSA does not believe the Volt or other electric vehicles are at a greater risk of fire than gasoline-powered vehicles. In fact, all vehicles -- both electric and gasoline-powered -- have some risk of fire in the event of a serious crash.”

First Responders

Regulators want to use information collected from automakers to educate emergency responders, tow-truck operators and salvage yards about how to handle plug-in electric cars involved in crashes that may penetrate the battery compartment, the official said.

NHTSA will use the information from the automakers, which also include Toyota and Bayerische Motoren Werke AG, for a three-year $8.8 million electric-vehicle safety study it announced in June, the official said.

“I don’t think lithium battery-pack safety will prove a significant safety hazard, at least compared to dangers of gasoline fuel,” Chris Paine, producer of the documentary film “Revenge of the Electric Car” about the Volt, Leaf and Tesla, said in an interview. “The technology has really stabilized in recent years.”

Range Anxiety

LMC Automotive, a forecasting firm based in Oxford, England, predicts electric vehicles will make up 1 percent of the U.S. car market in 2020. Along with safety, concerns about the short distance electric vehicles can go on one charge -- called range anxiety -- will keep some buyers away, Mike Omotoso, a LMC analyst, said.

“We think it will take two to three generations of EVs before the price comes down enough to get people to buy them,” Omotoso said in a phone interview. “It will take that much time for consumers to overcome fears of safety aspects and range anxiety. By 2020 we expect enough public and private charging stations so that people will be able to drive an EV almost anywhere in the country.”

Fifteen electric-car or battery-powered models will be available in the U.S. by the end of 2014, according to LMC Automotive, which forecasts a glut of electric cars given that hybrid-electric sales were only 2 percent of the car market so far this year.

To contact the reporters on this story: Jeff Green in Southfield, Michigan at; David Welch in Detroit at; Angela Greiling Keane in Washington at

To contact the editors responsible for this story: Bernard Kohn at; Jamie Butters at


Obama Opposes Effort to Avoid Budget Sequester

By Mike Dorning - Nov 12, 2011 8:37 AM GMT+0700

President Barack Obama told leaders of a congressional supercommittee on debt reduction that he opposes efforts to get around automatic cuts required if the group can’t reach an agreement, White House spokesman Jay Carney said.

Obama spoke today with the committee’s co-chairmen -- Washington Democratic Senator Patty Murray and Texas Republican Representative Jeb Hensarling -- and urged them to reach an agreement before the Nov. 23 deadline. Carney briefed reporters on Air Force One as the president flew to San Diego.

The automatic cuts were “agreed to by both parties to ensure there was a meaningful enforcement mechanism to force a result from the committee,” the White House said in a statement. “Congress must not shirk its responsibilities.”

Legislation that Congress passed in August to raise the national debt limit charges a 12-member, bipartisan supercommittee with reaching a deal to cut $1.5 trillion from the federal deficit over 10 years. The law sets a Nov. 23 deadline for the panel to reach agreement. Failure to pass a plan through Congress by the end of the year would trigger $1.2 trillion in automatic spending cuts in 2013.

Carney said it would be “premature” to discuss pushing back either of the deadlines.

‘Balanced’ Approach

A White House statement describing the conversations said Obama spoke separately by telephone with Murray and Hensarling because he “wanted to hear from the bipartisan leadership of the committee on the status of their discussions.”

Obama told the lawmakers there should take a “balanced” approach that “will require tough choices by both sides, including looking at revenues and entitlements,” according to the statement.

Hensarling told Obama that Republicans have made “a major concession” by agreeing to raise revenue and that Democrats haven’t reciprocated with a plan to reform Medicare and Medicaid to cut health-care costs, said Hensarling spokesman David Popp in an e-mail. “Their reluctance to do so has made deliberations difficult,” Popp said.

Murray’s office had no comment on the call from Obama

Senate Armed Services Committee Republicans John McCain of Arizona and Lindsey Graham of South Carolina are trying to head off automatic cuts to defense spending if Congress doesn’t enact a deficit-cutting plan.

House Speaker John Boehner, an Ohio Republican, told reporters Nov. 3 that he felt bound by the automatic-cut provisions. “It was part of the agreement, either we succeed or we are in the sequester,” he said. “That’s why we have to succeed.”

To contact the reporter on this story: Mike Dorning in Washington at

To contact the editor responsible for this story: Mark Silva at


Romney’s Prospects Force Republicans to Choose

By Julie Hirschfeld Davis - Nov 11, 2011 12:00 PM GMT+0700

Growing numbers of Republican conservatives now see Mitt Romney as most likely to win their party’s presidential nomination -- and that is forcing them to make a choice.

They can resist the former Massachusetts governor’s primary candidacy at all costs. Or they can back him and use that leverage to pressure him to hew to the party’s agenda, including opposition to abortion rights, gay marriage, a hard line on illegal immigration and skepticism toward global warming.

“We’re at the 11th hour of this process, and there are really one of two ways to go,” said Al Cardenas, chairman of the anti-tax, anti-government-spending American Conservative Union in Alexandria, Virginia, and former head of Florida’s Republican Party.

The options being debated, he said, are, “either to have a movement conversation with Mitt Romney and reach a level of comfort, and move forward with the concept of the inevitable nomination of Mitt Romney,” or “to finally put all of its weight behind one other candidate.”

The debate is reaching its crescendo with the first voting in Iowa set to begin in less than eight weeks, a shrinking window that has some worried that time will run out on their ability to influence the nominating process.

Anti-Romney Group

Some conservative activists have already picked sides. A group of Republican strategists, bloggers and commentators this week launched a web-based anti-Romney organization called

The website is dedicated to halting Romney’s progress by highlighting claims that he’s switched positions on such issues as abortion and gun rights, illegal immigration and the causes of climate change.

On abortion, Romney critics often cite his pledge in the 2002 Massachusetts governor’s race: “I will preserve and protect a woman’s right to choose and am devoted and dedicated to honoring my word in that regard.”

Since that race, Romney has said his position evolved. At a June 13 CNN debate, he attempted to put the matter to rest. “I am firmly pro-life,” he said, “I believe in the sanctity of life from the very beginning to the very end.”

Climate Change Shift

On climate change, Romney’s language has shifted more recently. In his 2010 book “No Apologies,” Romney wrote, “I believe that climate change is occurring,” and that “human activity is a contributing factor. I am uncertain how much of the warming, however, is attributable to man and how much is attributable to factors out of our control.”

At an event in Pittsburgh on Oct. 27, Romney said, “My view is that we don’t know what’s causing climate change on this planet.”

In an Internet statement describing their mission, the all- volunteer, anti-Romney group, asked: “How do you support a candidate when you literally don’t know what he really thinks about anything?”

Ali A. Akbar, a co-founder of the group who is unaffiliated with any candidate, said he and others are convinced Romney is “on a trajectory to become the nominee, because we’ve never all come together in order to block him.”

Akbar said the group, which has produced an anti-Romney Web video entitled “Nominee,” will organize a telephone-based campaign against him in Iowa, South Carolina and Florida, sites of early nominating contests.

Abortion Rights

Connie Mackey, president of the Washington-based Family Research Council Action Political Action Committee, an anti- abortion-rights group, said a Romney bandwagon won’t deter her from withholding support.

“Maybe there is inevitability that he will be the candidate just because of his stick-to-it-iveness over the last four years, but I don’t see any additional willingness to sign on,” Mackey said. “I am amazed at how locked in against Mitt Romney people are, mostly because they don’t believe for one minute that he has changed his position on life and marriage.”

Mackey said Romney “has said all the right things” about opposing abortion and not recognizing same-sex marriage, “but there’s a standoffishness -- there’s something about him that they just don’t buy it.”

Public Polls

A nationwide Gallup poll released Nov. 9 found that with 45 percent of Republicans believe Romney will be the party’s presidential nominee, with 13 percent naming Herman Cain and 9 percent predicting Texas Governor Rick Perry.

Romney has been leading or second in polls of the Republican presidential race conducted this year, yet his backing has never risen beyond 25 percent to 30 percent. He gets low marks from those identifying themselves as conservative or aligned with the Tea Party.

In an ABC News/Washington Post poll conducted Oct. 31-Nov. 3, Romney drew support from 24 percent of those who leaned Republican. Among those who called themselves “very conservative,” Romney’s backing stood at 15 percent.

Romney’s campaign strategists argue there is time for him to build support. “All things come in due time -- let’s just have patience on that,” said Neil Newhouse, Romney’s polling expert, during a Nov. 2 breakfast with reporters in Washington.

Senator Roy Blunt, a Missouri Republican backing Romney, said he’s making the argument to fellow fiscal and social conservatives that supporting Romney is the politically astute move for a party focused on defeating President Barack Obama next year.

Being Pragmatic

“There’s a real deep-felt belief that a second Obama administration would not be good for the country, and the most important thing here is to do whatever is required politically to be sure that we don’t continue down this path,” Blunt said. “There’s nothing wrong with being pragmatic.”

Senator John Thune, a South Dakota Republican who hasn’t endorsed a presidential candidate, said Romney “over time is probably growing in terms of acceptance among conservatives.”

Some activists say Romney’s evolving policy positions on key issues don’t bother them, so long as he ends up in their corner.

“What you’ve seen up until this point is the ‘anyone-but- Romney’ campaign,” said Brent Bozell, founder of the Media Research Center, an Alexandria, Virginia-based nonprofit organization that works to combat what it sees as liberal media bias. “I have no problem with somebody changing positions,” Bozell said, “when they go the right way.”

To contact the reporter on this story: Julie Hirschfeld Davis in Washington at or

To contact the editor responsible for this story: Mark Silva in Washington at


U.S. Prime Money-Market Funds Pull $8 Billion From Deutsche Bank

By Radi Khasawneh and Alberto Fuertes - Nov 11, 2011 11:51 PM GMT+0700

The biggest U.S. prime money-market funds cut their investments in Deutsche Bank AG (DBK) by $8.1 billion in October, the largest drop among 35 of the largest banks in Europe, the U.S., Japan and Canada, Bloomberg analysis shows.

The amount of Deutsche Bank short-term obligations held by the eight biggest U.S. funds eligible to purchase corporate debt, which included offerings from Fidelity Investments, JPMorgan Chase & Co. (JPM) and BlackRock Inc. (BLK), declined by 56 percent to $6.3 billion from Sept. 30 to Oct. 31, according to monthly portfolio updates compiled by Bloomberg and published in today’s Bloomberg Risk newsletter.

Deutsche Bank Chief Financial Officer Stefan Krause said that money funds aren’t a major source of funding on an Oct. 25 earnings call. Krause estimated that the funds provided 3 percent of the bank’s total funding.

Germany’s largest bank said it increased its discretionary unsecured wholesale funding to 135 billion euros from 113 billion euros between the end of June and the end of September, according to a presentation given by Krause at the time. The bank has increased its use of transaction banking and retail funding since the end of 2007, according to the presentation. Transaction banking represented 12 percent of its 1.1 trillion- euro funding at Sept. 30, up 5 percent from the end of 2007.

“What you are seeing is a domino effect on European banks, which have sequentially been affected as European contagion has spread,” Kinner Lakhani, senior bank analyst at Citigroup Inc., said in an interview. “The key point is that Deutsche Bank is likely to have been much better prepared.”

Dollar Funding

Lakhani said the bank’s global transaction services business provides dollar funding as an alternative. In contrast, the main French banks, which also experienced money-market fund outflows, had large U.S. dollar financing operations.

Deutsche Bank spokesman Armin Niedermeier declined to comment further on the bank’s money-market funding changes over the month. “We can’t reconcile these numbers,” he said in an e-mailed statement.

French banks saw their money-market funding decline 25 percent on the month to $16 billion. The drop followed a 44 percent decline in September. Over the last twelve months the eight big money funds have pulled 78 percent, or $61.3 billion, of their funding from French banks.

Credit Agricole, BNP

Among the French banks, commitments to Credit Agricole SA (ACA) saw the biggest decline, falling 66 percent in October to $1.3 billion. BNP Paribas (BNP) SA saw a decline of 10 percent, Societe Generale (GLE) SA lost 11 percent in funding and holdings in Natixis (KN) were cut to zero.

Money funds have cut investments in Societe Generale by $15 billion over the last 12 months, according to the Bloomberg survey. Dollar funding pressures have led the bank to announce it was planning to sell assets and exit some businesses.

Societe Generale expects 750 million euros of losses as a result of these actions, according to a presentation. The bank declined to comment further.

The data was compiled from the most recent disclosures given by the eight largest U.S. money-market funds by assets. The funds surveyed were Fidelity Cash Reserves Fund, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Fund, Fidelity Institutional Money Market Portfolio, Fidelity Institutional Prime Money Market Portfolio, BlackRock TempFund, Wells Fargo Advantage Heritage Money Markets Fund and Federated Prime Obligations Fund.

The figures include repurchase agreements that are backed by government collateral. Fidelity, which cut its holdings in Deutsche Bank by $5.1 billion across three funds in October, said it was “very comfortable” with its current investments in European banks.

“Our money-market mutual funds remain well-positioned in light of the continued risk and uncertainty unfolding across Europe,” Adam Banker, a spokesman at Fidelity, said in an e- mailed statement.

To contact the reporters on this story: Radi Khasawneh in London at; Alberto Fuertes in London at

To contact the editors responsible for this story: Edward Evans at; Ted Merz in New York at


RIM’s New OS Will ‘Surprise,’ Cooperman Says

By Miles Weiss - Nov 12, 2011 5:18 AM GMT+0700

Research In Motion Ltd. (RIM), struggling to stem sales declines amid competition from Apple Inc. (AAPL), gained the support of hedge-fund manager Leon Cooperman, who said the BlackBerry maker’s new operating system will help it rebound.

“People think it’s a melting ice cube,” Cooperman, whose Omega Advisors Inc. hedge fund purchased a stake in RIM last quarter, said today in an interview. “We think the new operating system is going to surprise people” and that RIM is going to meet its projections.

RIM has lost 68 percent this year, slumping below the net value of its assets because of market-share losses to Apple’s iPhone and devices that run Google Inc. (GOOG)’s Android software. The decline has put pressure on RIM to shake up management, and investors such as Jaguar Financial Corp. (JFC) have called for the company to split up, seek a merger or sell itself.

The company, which helped create the smartphone market a decade ago with its first e-mail device, would be worth more than its current market capitalization if it combines with another company, Cooperman said.

“Why do people buy a stock? They buy a stock because they think it is undervalued,” he said. “The merger value is worth more than the market value.”

Omega, based in New York, bought 1.43 million RIM shares last quarter, as it increased the proportion of its equity investments in technology stocks by 6.3 percent, data compiled by Bloomberg show.

Investors Dropping Out

RIM rose 5.2 percent to $18.49 at the close in New York.

Cooperman said that James Balsillie and Michael Lazaridis, who together serve as co-chairmen and co-chief executive officers, together hold about $1 billion of RIM stock, providing them with incentive to make it succeed. Another point in RIM’s favor is the company’s installed base of more than 70 million subscribers, he said.

The company, based in Waterloo, Ontario, posted its first quarterly revenue decline in nine years in September and is struggling to move its BlackBerry lineup onto the new operating system. The software is part of a bid to win users from the iPhone, which runs Apple’s iOS software, and devices from Samsung Electronics Co. and HTC Corp. (2498) that run Android.

RIM’s U.S. market share sank to 9.2 percent in the third quarter from 24 percent a year earlier as consumers opted for the iPhone and Android devices, according to researcher Canalys.

Major investors who have sold all their shares in recent months include Brookside Capital Investors Inc., Greystone Managed Investments Inc., Janus Capital Management LLC and Montrusco Bolton Investments Inc., according to Bloomberg data.

RIM is scheduled to report fiscal third-quarter earnings on Dec. 15.

To contact the reporter on this story: Miles Weiss in Washington at

To contact the editor responsible for this story: Christian Baumgaertel at


Weill Lists Manhattan Penthouse for $88M

By Katie Spencer - Nov 12, 2011 12:02 AM GMT+0700

Sanford Weill, the former chairman of Citigroup Inc. (C), put his Manhattan penthouse up for sale for $88 million, a potential record price for a home in the city.

The 6,744-square-foot (627-square-meter), full-floor condominium at 15 Central Park West was listed today on the website of brokerage Brown Harris Stevens. Weill and his wife, Joan, paid $43.7 million for the property in 2007, according to city records.

A deal anywhere close to the listing price would be the most expensive residential transaction ever in Manhattan, said Jonathan Miller, president of appraiser Miller Samuel Inc. The current record is the $53 million sale of a townhouse to private-equity investor J. Christopher Flowers in 2006, he said.

Weill plans to donate the proceeds of the sale to charity, he said in an interview with the Wall Street Journal. He and his wife will move to a smaller apartment they own on the sixth floor of the same building, the newspaper reported yesterday.

Michael Conway, Weill’s chief of staff, didn’t return phone calls yesterday and today seeking comment on the listing.

The four-bedroom condo features a wraparound terrace, two woodburning fireplaces and a library, according to a floorplan on Brown Harris’s website.

To contact the reporter on this story: Katie Spencer in New York at

To contact the editor responsible for this story: Kara Wetzel at


Cameron Aims to Stop $800M in Bonuses at RBS

By Robert Hutton and Thomas Penny - Nov 11, 2011 10:23 PM GMT+0700

U.K. Prime Minister David Cameron said he can stop Royal Bank of Scotland Group Plc (RBS) from paying a reported 500 million pounds ($800 million) in bonuses to investment bankers this year.

“We can stop the 500 million, yes, absolutely,” Cameron said in an interview on BBC Radio 2 today. “That is not the agreed figure. That’s a proposal I’ve read about in the newspapers.” The Sunday Times reported the 500 million-pound figure on Nov. 6.

RBS was rescued by the U.K. government in 2008 and is now 83 percent state-owned. Lloyds Banking Group Plc (LLOY), which was rescued at the same time, is 41 percent state-owned. The government has tried to manage both at arm’s length, with a view to privatizing them again when the market recovers. The issue of large bonus payments to traders at bailed-out banks has strained that policy.

The bank cut the amount it set aside for bonuses last year at its investment-banking unit by 27 percent to less than 950 million pounds as part of an agreement with the government. RBS posted a net loss for the first nine months of the year of 199 million pounds, compared with a 1.14 billion-pound loss for the same period a year earlier.

The prime minister said he didn’t want to “spend the next six months simply having a war of words, a great big fight, with the banks about everything” and instead wanted to push them to lend money and help the economy recover.

“The real need in our economy is to get growth,” Cameron said. “You can’t do that if your entire life is spent at war with the banks.”

The British Bankers’ Association said Nov. 9 that lending to companies was 11 percent ahead of a target agreed with the government in February known as Project Merlin.

RBS said it had no comment on Cameron’s statement.

To contact the reporters on this story: Robert Hutton in London at; Thomas Penny in London at

To contact the editor responsible for this story: Eddie Buckle at


Euro Debate: Goldman Says Buy, Morgan Stanley Says Sell

By Allison Bennett - Nov 12, 2011 3:07 AM GMT+0700

Goldman Sachs Group Inc. recommends buying the euro after developments in Europe’s sovereign-debt crisis this week. Morgan Stanley said its time to sell the 17- nation currency against the dollar.

The 17-nation currency gained today, rising 1.1 percent to $1.3749, as former European Central Bank Vice President Lucas Papademos was sworn in as prime minster of Greece and Italy’s Senate approved an austerity bill, paving the way for a new administration that may be led by former European Union Competition Commissioner Mario Monti. Italian bonds gained, pushing yields down from euro-era records above 7 percent.

The emergency of the new governments helps reduce “near- term political uncertainty” and suggests “that euro-zone fiscal tensions could continue to decline, at least for a period of time,” wrote Thomas Stolper, Goldman’s London-based chief foreign-exchange strategist, in a client note.

Investors should target $1.40 and should exit the trade if the euro falls to $1.35, according to the Goldman note. In a video webcast today, Stolper reiterated a 12-month forecast of $1.48 for the euro.

Morgan Stanley said the shared currency may fall to $1.30, according to analysts led by Hans Redeker, the firm’s head of foreign-exchange strategy in London. “Political uncertainties” and Italian bond yields that remain above 6 percent leave the firm “fundamentally bearish” on the euro “as Italy runs the risk of being too big to save,” the firm said in a client note.

Traders should sell the euro, targeting $1.3050, and end the bet if it rises to $1.3950, Morgan Stanley recommended in a note yesterday.

To contact the reporter on this story: Allison Bennett in New York at

To contact the editor responsible for this story: Dave Liedtka at


Apple Customers Say Update Didn’t Fix Glitch

By Adam Satariano - Nov 12, 2011 4:17 AM GMT+0700

Nov. 11 (Bloomberg) -- Gene Munster, analyst with Piper Jaffray Cos., talks about the outlook for Apple Inc.'s stock price amid concerns about a drop in supplier orders. He speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Apple Inc. (AAPL) customers say devices with the new iOS 5 operating system are still suffering from weak battery life, even after the company issued a software update meant to fix the malfunction.

Users took to message boards on Apple’s website to complain that the software remedy delivered yesterday hasn’t corrected the flaw. The criticisms first surfaced after Apple released the mobile operating system last month, in conjunction with its new iPhone 4S. Apple said that it’s looking into the matter.

“The recent iOS software update addressed many of the battery issues that some customers experienced on their iOS 5 devices,” said Trudy Muller, a spokeswoman for Cupertino, California-based Apple. “We continue to investigate a few remaining issues.”

Apple also drew controversy last year over the previous iPhone’s antenna, which would lose signal when gripped a certain way -- a problem known as “Antennagate.” Apple gave away free cases and updated the software to address those complaints. The iOS software runs on the iPhone, as well as the iPad and iPod Touch media player.

The company responded to the battery-life criticism last week, saying a “few bugs” have affected a “small number” of customers. Apple didn’t elaborate on what was causing the problem. The company’s iOS devices account for about two-thirds of its sales.

One customer said today that battery life has gotten worse since the software update, while others complained that the battery loses 10 percent of its power each hour.

Apple’s shares fell 0.2 percent to $384.62 in U.S. trading. While the stock is still up 19 percent this year, it has lost ground in the past three trading days.

To contact the reporter on this story: Adam Satariano in San Francisco at

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