Economic Calendar

Monday, November 14, 2011

S&P 500 Index Declines as Italian Yields Surge; IBM, Boeing Shares Advance

By Rita Nazareth - Nov 14, 2011 9:33 PM GMT+0700

U.S. stocks fell, signaling the Standard & Poor’s 500 Index may snap a two-day rally, as a surge in Italian borrowing costs at an auction deepened concern Europe will struggle to contain its debt crisis.

The S&P 500 dropped 0.5 percent to 1,257.78 at 9:32 a.m. New York time. The benchmark gauge for American equities increased 2.8 percent during the previous two days. The Dow Jones Industrial Average declined 20.73 points, or 0.2 percent, to 12,132.95 today as Boeing Co. (BA) and International Business Machines Corp. (IBM) helped limit losses.

“Europe’s putting some pressure on the U.S. markets,” Peter Jankovskis, who helps manage about $2.4 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “The market will continue to be sensitive to that for quite some time. In the U.S. market, there’s a good amount of positive news. Maybe people will look at it as a buying opportunity.”

Stocks rose last week, restoring the year-to-date gain for the S&P 500, as improving economic data and leadership changes in Greece and Italy bolstered investor optimism. Equities tumbled on Nov. 9 as yields on Italian government bonds surged, fueling concern European leaders will struggle to fund bailouts.

Italy sold 3 billion euros ($4 billion) of five-year bonds, the maximum target, at the highest yield in more than 14 years as Mario Monti seeks to form a new government to restore investor confidence in public finances. Spanish 10-year bonds slid, pushing the yield on the securities to more than 6 percent for the first time since Aug. 5. German Chancellor Angela Merkel called for an overhaul of the European Union, advocating closer political ties and tighter budget rules.

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

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




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Berkshire Takes $10.7 Billion IBM Stake, CEO Buffett Says

By Andrew Frye and Maryellen Tighe - Nov 14, 2011 8:20 PM GMT+0700

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) acquired a 5.5 percent stake in International Business Machines Corp. (IBM), the world’s biggest computer-services provider, as the billionaire chairman accelerated stock purchases.

The holding of about 64 million shares was acquired mostly in the third quarter and cost $10.7 billion, Buffett told CNBC in an interview today. That means his company paid an average of about $167.19, compared with IBM’s Nov. 11 close of $187.38. IBM advanced to $188.85 at 7:58 a.m. in early trading in New York.

“They have laid out a road map and followed it extremely well,” Buffett said in the interview of Armonk, New York-based IBM. “I probably read the annual report of IBM every year for 50 years.”

Buffett, 81, drew down Omaha, Nebraska-based Berkshire’s cash hoard in the three months ended Sept. 30 as U.S. stocks headed for their biggest quarterly decline since 2008. The chief executive officer invested $23.9 billion in the period as he acquired Lubrizol Corp., took a preferred stake in Bank of America Corp. (BAC) and broadened the stock portfolio.

IBM is investing in areas such as emerging markets and analytics software to boost earnings. The company has said it will generate $100 billion in cash flow between from 2010 to 2015 and return 70 percent of that to shareholders.

New CEO

Last month, IBM named Virginia “Ginni” Rometty the first female CEO in the company’s 100-year history. She is taking over from Sam Palmisano, who increased earnings by steering the company toward software and services, and disposing some hardware businesses such as personal computers.

IBM targets operating earnings of at least $20 a share by 2015, up from $13.35 the company projects for this year. Software will make up half of total profit in 2015, IBM forecasts. Analytics software, which helps businesses predict trends, is expected to draw $16 billion in sales by 2015, while cloud computing will draw $7 billion, IBM predicts.

Buffett “had the funds and the opportunity to purchase shares at an attractive price,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. “He’s not going to panic when there is some temporary economic problems which could cause the stock markets to plunge for some period of time. He just sees that as a buying opportunity.”

Mike Fay, an IBM spokesman, referred to Buffett’s comments on the company’s growth plans and said IBM didn’t immediately have anything to add.

Bank of America

The Standard & Poor’s 500 Index, which fell 14 percent in the third quarter, has advanced 12 percent since Sept. 30.

Buffett spent $11.4 billion on equity securities in the nine months ended in September, compared with $3.9 billion in same period last year and $3.2 billion in the first three quarters of 2009. The stock purchases this year are in addition to the $5 billion Berkshire spent on Bank of America preferred stock and warrants and the takeover of Lubrizol for about $9 billion.

“If the stock is cheap, we will buy it,” Buffett said in a Sept. 30 interview with Bloomberg Television.

Berkshire’s investable funds were boosted this year as Goldman Sachs Group Inc. (GS) and General Electric Co. returned financing that Buffett extended during the 2008 credit crunch. Cash was also bolstered by earnings at units from the Burlington Northern Santa Fe railroad to the Geico car insurer. The third- quarter investments reduced Berkshire cash hoard to $34.8 billion as of Sept. 30 from $47.9 billion three months earlier.

Cash Flow

“The guy has a billion plus coming in to Omaha” every month, said David Rolfe, chief investment officer of Berkshire investor Wedgewood Partners Inc.

Berkshire, which posted profit of $13 billion last year, reported a 24 percent decline in third-quarter net income as Buffett’s equity derivative bets pressured results. Insurance units reported a $1.7 billion pretax underwriting gain, while net earnings at the railroad rose 8.5 percent to $766 million.

Berkshire had $68.1 billion in stocks at the end of September. That includes investments of non-U.S. companies, including the biggest shareholding of Germany’s Munich Re and a stake in the U.K.’s Tesco Plc.

Buffett, in preparation for his eventual retirement, hired money manager Todd Combs last year and instructed him to focus on equities. Combs was assigned to oversee as much as $3 billion and can make trades without consulting Buffett. Berkshire said hedge fund manager Ted Weschler will join the company next year and take charge of a portion of the portfolio.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Maryellen Tighe in New York at mtighe6@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.




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Monti Rushes to Fashion Italian Government as Markets Offer Little Relief

By Chiara Vasarri and Lorenzo Totaro - Nov 14, 2011 9:05 PM GMT+0700

Nov. 14 (Bloomberg) -- Italian Senate Finance Committee Chairman Mario Baldassarri discusses the challenges facing Italy's new government and its need to regain credibility. He speaks with Francine Lacqua and Mark Gilbert on a Bloomberg Television special, "The Battle After Berlusconi." (Source: Bloomberg)

Nov. 14 (Bloomberg) -- Giuseppe Ragusa, assistant professor of economics at LUISS Guido Carli University, talks about the appointment of Mario Monti as Italian Prime Minister. He speaks in Rome with David Tweed on Bloomberg Television's "Countdown." (Source: Bloomberg)

Nov. 14 (Bloomberg) -- Former European Union Competition Commissioner Mario Monti will head a new government as Italy reaches outside the political arena for a leader to restore confidence in its ability to cut the euro region's second-biggest debt. David Tweed reports from Rome with Owen Thomas on Bloomberg Television's "First Look." (Source: Bloomberg)


Former European Union Competition Commissioner Mario Monti is rushing to form a new government in a bid to restore confidence in Italy’s finances as markets offered little relief to the premier-in-waiting.

Italian bonds and stocks erased early gains and declined as Monti met with leaders of the country’s political parties to discuss Cabinet nominees. The yield on Italy’s benchmark 10-year bond rose 19 basis points to 6.638 percent as of 3:03 p.m. in Rome and the benchmark FTSE MIB index was down 1.2 percent.

“Uncertainty remains over Monti’s team, the program and the majority, especially in terms of the conditions that will be requested to assure a stable majority in parliament,” said Gianluca Ziglio, a London-based interest-rate strategist at UBS AG. “The market now expects stability and the restoring of public finances to begin with.”

Europe’s inability to contain a regional debt crisis that started in Greece more than two years ago led to a surge in Italian bond yields as investors bet on which nation may need aid next. Monti, an economist and former adviser to Goldman Sachs Group Inc., will try to reassure investors that Italy can cut a 1.9 trillion-euro ($2.6 trillion) debt load and spur economic growth that has lagged behind the euro-region average for more than a decade.

New Cabinet

Monti, 68, will wrap up the consultations tomorrow, when he could announce his new cabinet. Both house of parliament will then hold confidence votes to confirm the new government. The new administration should be in place before Nov. 18, Chamber of Deputies Speaker Gianfranco Fini said today.

The professor, as Monti is known, already faces resistance to appointing some politicians to his so-called technical Cabinet. A government without any political insiders may find it harder to muster support from the parties in parliament to pass unpopular legislation.

“Monti would have liked to have politicians in the team, but apparently the main parties did not agree on this,” Gianfranco Micciche, head of the Southern Force party, said after meeting Monti in Rome today.

Monti experienced his first market test today when the Treasury sold 3 billion euros of five-year bonds, the top target for the auction, at the highest yield since 1997. Italy paid 6.29 percent, up from 5.32 percent at the last sale on Oct. 13.

Berlusconi’s Resignation

President Giorgio Napolitano offered Monti the post last night in Rome, less than 24 hours after Prime Minister Silvio Berlusconi resigned. Berlusconi’s government unraveled after defections ended his parliamentary majority and the country’s 10-year bond yield surged over the 7 percent threshold that prompted Greece, Ireland and Portugal to seek EU bailouts.

“‘Monti will have to prove that he’s capable of implementing some pretty drastic reforms to bring Italy’s budget deficit and enormous debt under control,” Harvard University professor Niall Ferguson said on Bloomberg Television’s “InsideTrack” with Erik Schatzker. “He’s not exactly an experienced politician and in the end you have to be able to whip those politicians into shape to get tough decisions taken on taxation and expenditures.”

As support for a Monti government built last week, 10-year bond yields narrowed more than 100 basis points from the euro- era record of 7.48 basis points on Nov. 9. The relief rally was short lived, with the increase in 10-year yields pushing the difference with comparable German bunds up 26 basis points to 483 basis points.

EU Support

European Commission President Jose Barroso said he’s certain that Monti will be able to successfully deal with Italy’s economic difficulties, according to the text of a message released by the Italian Senate.

Italy has a tradition of reaching outside parliament for leaders to run technical governments at times of political crisis. Monti, who did graduate work in economics at Yale University, spent almost a decade in Brussels as EU commissioner and has been running the Bocconi University in Milan, the country’s top business school, since 1994.

“The democratic process is being put on hold, but Italians feel this is the right thing to do,” Giuseppe Ragusa, an economics professor at Rome’s LUISS Guido Carli University, said in an interview with Bloomberg Television’s David Tweed in Rome today. “More than austerity reform, he should place the debate on redesigning the labor market because with that comes redesigning the Italian productive system.”

Crisis Fallout

Berlusconi is the fourth leader of a southern EU country to be brought down by fallout from the debt crisis, with new administrations pledging to impose austerity measures demanded by the union and the International Monetary Fund.

Greek Prime Minister George Papandreou resigned last week to make way for a coalition led by former European Central Bank Vice President Lucas Papademos. Spanish Prime MinisterJose Luis Rodriguez Zapatero decided not to seek reelection and polls show Mariano Rajoy, leader of the conservative People’s Party, will win an absolute majority in the Nov. 20 vote. Portuguese Prime Minister Jose Socrates resigned in March after parliament rejected his government’s deficit-cutting plan.

Monti said last night he will focus on improving public finances and boosting economic growth. Berlusconi’s People of Liberty party has said it will back Monti’s government, though it doesn’t want him to go beyond implementing the austerity measures already drawn up to balance the budget in 2013.

The EU has been stepping up pressure on Italy to hasten implementation of the measures, which include raising the retirement age, opening up closed professions and the sale of real-estate assets. The EU also wants additional action to spur growth and trim debt. EU and ECB inspectors arrived in Italy last week to review progress and Berlusconi also agreed to let the IMF monitor implementation.

To contact the reporters on this story: Andrew Davis in Rome at abdavis@bloomberg.net abdavis@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net



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European Stocks Decline as Italian Yields Rise

By Sarah Jones - Nov 14, 2011 7:31 PM GMT+0700

European stocks dropped as Italy’s borrowing costs rose after the nation sold 3 billion euros ($4.1 billion) of bonds at the highest yield since 1997. Asian shares climbed and U.S. index futures fell.

Banks reversed earlier gains, led by Banco Bilbao Vizcaya Argentaria SA (BBVA) and UniCredit SpA (UCG), which both fell more than 2 percent. Hochtief AG (HOT) plunged 9.6 percent after the construction company said the sale of its airport-operating business has been delayed.

The benchmark Stoxx Europe 600 Index dropped 1.1 percent to 238.24 at 12:29 p.m. in London as all 19 industry groups declined. The MSCI Asia Pacific Index rose 1.1 percent and Standard & Poor’s 500 Index futures expiring in December retreated 0.5 percent.

“With Italy now in the firing line, the indications are that the euro-zone crisis is reaching a critical phase as we wait to see how quickly and decisively politicians and the European Central Bank will act,” wrote Peter Sullivan, head of equity research at HSBC Holdings Plc in a report dated today.

Stocks initially climbed after Mario Monti, a former European Union competition commissioner, was appointed Italy’s new prime minister, as the country tackles the euro region’s second-biggest debt.

Silvio Berlusconi resigned after defections ended his parliamentary majority and the country’s 10-year bond yield surged over the 7 percent threshold that prompted Greece, Ireland and Portugal to seek EU bailouts.

Italian Bond Auction

Italy sold 3 billion euros of five-year bonds, the maximum target for the auction, as borrowing costs climbed. The Rome- based Treasury sold the bonds to yield 6.29 percent, the highest since June 1997 and up from 5.32 percent at the last auction on Oct. 13. The yield on five-year Italian notes rose 11 basis points to 6.57 percent following the auction.

In Greece, the nation’s finance minister, Evangelos Venizelos, said his priority is to ensure the country gets a sixth loan under an EU-led bailout after Prime Minister Lucas Papademos took charge of a new interim government.

Spiegel magazine reported that German lawmakers are preparing for Greece’s departure from the euro if the debt- strapped country’s new government doesn’t commit to reforms. The magazine did not say where it got the information.

The Stoxx 600 advanced last week after Italy’s Senate approved austerity measures, easing concern the country would need a bailout. In Asia, stocks climbed today after Japan’s economy expanded for the first time in four quarters.

Bank Shares Slide

European lenders reversed earlier gains as Italy’s borrowing costs rose and the cost of insuring against default on sovereign and corporate debt advanced, according to traders of credit-default swaps.

BBVA, Spain’s second-biggest bank, dropped 2.8 percent to 6 euros and Banco Santander SA, Spain’s largest lender, slid 2.6 percent to 5.65 euros. UniCredit, which is said to be planning a 7.5-billion euro share sale, lost 3.3 percent to 79.8 euro cents.

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., told CNBC in an interview that he does not own any banks in the euro region and lenders will still need more capital.

Hochtief, Q-Cells

Hochtief declined 9.6 percent to 46.20 euros for the biggest drop on the Stoxx 600 after Germany’s largest construction company said that the “macroeconomic situation” has delayed the sale of its airport-operating unit. The company predicted it will post a net loss if the sale isn’t concluded this year.

Q-Cells SE (QCE) slumped 29 percent to 82 euro cents after the German solar cell and module maker posted a third-quarter loss before interest and taxes of 47.3 million euros, wider than analysts had estimated. Q-Cells also announced the resignation of its chief financial officer Marion Helmes.

Solarworld AG (SWV) dropped 15 percent to 3.26 euros after the company reduced its full-year sales outlook and reported third- quarter Ebit of 20.6 million euros, missing analysts’ estimates.

ITV Plc (ITV) climbed 2.5 percent to 65.3 pence after the U.K.’s biggest terrestrial broadcaster reported a 4.1 percent increase in nine-month revenue to 1.52 billion pounds ($2.4 billion). The company said it is “cautious” about the outlook for the TV market next year.

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

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




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Italians Obsessed by ‘Lo Spread’ as Advance in Bond Yields Makes Headlines

By Dan Liefgreen and Armorel Kenna - Nov 14, 2011 5:01 PM GMT+0700

As Italy struggles to survive the European debt crisis, watching “lo spread” is becoming a national obsession.

The yield difference between Italian 10-year government bonds and German bunds surged to a record 5.5 percentage points on Nov. 9 after the nation’s borrowing cost breached the 7 percent threshold that prompted Greece, Portugal and Ireland to seek bailouts. A day later, Prime Minister Silvio Berlusconi agreed to step down when an emergency budget package was passed.

Italian lawmakers approved the austerity measures Nov. 12, clearing the way for Mario Monti, a former European Union competition chief, to try and form Italy’s next government.

“I think it’s very scary and we are all concerned,” Gianluca Brozzetti, chief executive officer of luxury-goods maker Cavalli Group, said in a Milan interview. “It’s a challenge for our politicians to act fast and to find solutions to give Italy the place it deserves in the world, which is not this.”

“Spread a 500” (spread at 500 basis points) was a front- page headline of Corriere della Sera, Italy’s top-selling daily newspaper, on Nov. 9. That evening’s television talk shows featured charts of the 10-year spread as Italian economists and politicians discussed Italy’s crisis.

Spread Watching

In downtown Milan, adjacent to the city’s landmark Il Duomo cathedral, a group of Italians gather frequently to gaze at market prices on a giant TV screen displaying Bloomberg data.

“What’s the spread? It’s the difference that a country pays on interest rates compared with another,” said a 76-year- old retiree who would only identify himself as Peppino. “How can we pay 6 percent interest rates in Italy and Germany 2 percent?” Peppino said. “It shows that Italy is sick. When a country is strong, the spread falls.”

Italy’s 10-year yield is currently 6.41 percent, down from as high as 7.5 percent last week. Its yield premium to bunds, which has averaged 63 basis points in the past 10 years, has narrowed to about 458 basis points.

Alessandro Villa, a salesman for a confectionary company outside Milan, says he started following the 10-year spread in July. “It’s probably going to take six months to emerge from the crisis, hopefully we can do it,” he said.

Not everyone in Italy is familiar with English financial markets jargon. Le Iene (The Hyenas), a popular weekly satirical television show on one of Berlusconi’s networks, recently grabbed Italian legislators coming out of parliament in Rome to quiz them on English market terms such as spread, ratings, fundamentals and rating companies.

Marcello Di Caterina, a member of Berlusconi’s People of Liberty Party, struggled when asked by a reporter to define “lo spread.”

“Ah, it’s something regarding the economy,” he said. “But I’m not a member either of the Budget Committee or the Finance Committee.”

To contact the reporter on this story: Dan Liefgreen in Milan at dliefgreen@bloomberg.net

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




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Merkel Urges Overhaul of European Union

By Tony Czuczka and Brian Parkin - Nov 14, 2011 7:14 PM GMT+0700

Nov. 14 (Bloomberg) -- German Chancellor Angela Merkel said it's time to move toward closer political union in Europe to send a message to bondholders that euro-area leaders are serious about ending the sovereign-debt crisis. Linda Yueh reports on Bloomberg Television's "Countdown" with Owen Thomas. (Source: Bloomberg)

Nov. 14 (Bloomberg) -- Niall Ferguson, a history professor at Harvard University and a Bloomberg Television contributing editor, talks about the European sovereign-debt crisis and possible quantitative easing measures by the European Central Bank. Ferguson speaks with Sara Eisen and Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)


German Chancellor Angela Merkel called for an overhaul of the European Union, advocating closer political ties and tighter budget rules, in her most explicit prescription for ending the debt crisis.

Speaking to her Christian Democratic Union party’s annual congress in the eastern German city of Leipzig today, Merkel said leaders must create a “new Europe” by deepening ties in the 27-nation EU. At the same time, she repeated Germany’s rejection of jointly sold euro bonds.

“The task of our generation now is to complete the economic and currency union in Europe and, step by step, create a political union,” Merkel said. “It’s time for a breakthrough to a new Europe.”

Merkel’s address marks an escalation in her rhetoric as the debt crisis that began in Greece in October 2009 sent Italian and Spanish borrowing costs to euro-era records last week and roiled French markets. After leadership changes in Italy and Greece, the chancellor is turning her attention to shaping the euro and the EU’s future.

“What she means is that either we get more Europe now or the project will die,” Ralph Brinkhaus, a CDU member of parliament’s finance committee, said in an interview. “This means that Germany must give up some sovereign rights and some party colleagues and voters may find this hard to swallow. But there’s no alternative.”

Save the EU

Merkel renewed her warning that “if the euro fails, Europe fails” and said her mission was to save the “historic” EU project.

“Big political changes are now sweeping through the euro zone, putting -- at least for now -- the many skeptical political observers to shame,” said Erik Nielsen, chief global economist at UniCredit SpA (UCG) in London. In Italy, Greece and Spain, which holds elections on Nov. 20, “people want ‘more Europe,’ not less.”

Stocks and the euro declined on concern Europe will struggle to resolve its debt crisis. The Stoxx Europe 600 Index dropped 1.2 percent at noon in London, and futures on the Standard & Poor’s 500 Index lost 0.3 percent. The euro weakened 0.7 percent to $1.3653.

Italy sold all 3 billion euros ($4.1 billion) of five-year notes it offered at today’s auction after former EU Competition Commissioner Mario Monti was asked to set up a government.

“The chancellor is saying that she doesn’t want to go down in history as being responsible for the collapse of the euro,” Elmar Brok, a German CDU member of the European Parliament, said in an interview in Leipzig. “She wants to break out now and save the project. To quote the country’s first postwar chancellor Adenauer in 1952: ‘the European nation states have a past only but no future.’”

To contact the reporters on this story: Tony Czuczka in Leipzig via aczuczka@bloomberg.net; Brian Parkin in Leipzig via bparkin@bloomberg.net.

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



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Obama to China: Behave like "grown up" economy


U.S. President Barack Obama speaks at his news conference at the conclusion of the APEC Summit in Honolulu, Hawaii, November 13, 2011. REUTERS/Larry Downing

By Matt Spetalnick and Doug Palmer

HONOLULU | Mon Nov 14, 2011 3:00am EST

(Reuters) - President Barack Obama served notice on Sunday that the United States was fed up with China's trade and currency practices as he turned up the heat on America's biggest economic rival.

"Enough's enough," Obama said bluntly at a closing news conference of the Asia-Pacific Economic Cooperation summit where he scored a significant breakthrough in his push to create a pan-Pacific free trade zone and promote green technologies.

Using some of his toughest language yet against China, Obama, a day after face-to-face talks with President Hu Jintao, demanded that China stop "gaming" the international system and create a level playing field for U.S. and other foreign businesses.

"We're going to continue to be firm that China operate by the same rules as everyone else," Obama told reporters after hosting the 21-nation APEC summit in his native Honolulu. "We don't want them taking advantage of the United States."

China shot back that it refused to abide by international economic rules that it had no part in writing.

"First we have to know whose rules we are talking about," Pang Sen, a deputy director-general at China's Foreign Ministry said.

"If the rules are made collectively through agreement and China is a part of it, then China will abide by them. If rules are decided by one or even several countries, China does not have the obligation to abide by that."

Even as Obama issued the veiled threat of further punitive action against China, it was unclear how much of his tough rhetoric was, at least in part, political posturing aimed at economically weary U.S. voters who will decide next November whether to give him a second term.

Obama insisted that China allow its currency to rise faster in value, saying it was being kept artificially low and was

hurting American companies and jobs. He said China, which often presents itself as a developing country, is now "grown up" and should act that way in global economic affairs.

The sharp words between the U.S. and China contrasted with the unified front that Asia-Pacific leaders sought to present with a pledge to bolster their economies and lower trade barriers in an effort to shield against the fallout from Europe's debt crisis.

The members of APEC, which accounts for more than half of the world's economic output, said they had agreed on ways to counter "significant downside risks" to the world economy.

That followed an appeal by Obama, seeking to reassert U.S. leadership to counter China's growing influence around the Pacific Rim, for a commitment to expand trade opportunities as an antidote to Europe's fiscal woes.

International Monetary Fund chief Christine Lagarde, in Honolulu to consult with APEC leaders, said the euro zone upheaval risked sweeping the world economy into a "downward spiral" that all countries had a stake in resolving the crisis.

TRADE LIBERALIZATION PROMISED

APEC said in a final communique: "We recognize that further trade liberalization is essential to achieving a sustainable global recovery in the aftermath of the global recession of 2008-2009."

The communique also expressed a firm resolve "to support the strong, sustained and balanced growth of the regional and global economy" -- a clear reference to U.S. concerns about a huge trade deficit with China's export-driven economy, fiscal problems in developed nations and the low savings rate in the United States.

In another bow to U.S. pressure, APEC committed to reducing tariffs on environmental goods and services to 5 percent as a way to promote green technology trade, overcoming China's resistance to the idea.

Differences persist among APEC members -- a point hammered home by U.S.-China tensions -- and the question remains how far leaders will be able to go in turning promises into action. Many, Obama included, will face resistance to opening markets further to foreign competition.

Obama's public denunciation of China's policies came as he faces pressure at home, from Republican presidential contenders as well as fellow Democrats, for a tougher line on Beijing. But U.S. leverage is limited, not least because Beijing is America's largest foreign creditor.

Though Obama acknowledged a "slight improvement" in the value of China's yuan, he insisted it was not enough.

The United States has long complained that China keeps its currency artificially weak to give its exporters an advantage. China counters that the yuan should rise only gradually to avoid harming the economy and driving up unemployment, which would hurt global growth.

Hu was quoted by Chinanews.com in Beijing on Sunday as saying a big appreciation in the yuan against the dollar would not help U.S. trade and unemployment problems.

The yuan inched up against the dollar. Dealers said Hu's comments in Honolulu indicated that China had no intention of letting the currency rise faster in the near term.

U.S. ENGAGEMENT

Obama declared U.S. engagement in the Asia-Pacific region as "absolutely critical" to America's prosperity. By harnessing the potential for expanded trade with the world's fastest-growing region, Obama hopes he can create U.S. jobs to help him through a tough reelection fight in 2012.

Obama's drive toward a pan-Pacific free trade zone -- the signature U.S. achievement of the summit -- got a boost when Canada, Mexico and Japan said they were interested in joining talks now under way among nine countries, and they agreed to complete the detailed framework in 2012.

The Philippines was discussing the matter, U.S. officials said.

The Transpacific Partnership adds momentum to Obama's pledge to double U.S. exports, made more urgent by the virtual collapse of the Doha round of trade talks. A free trade zone in the region would outstrip the market size of the European Union. But for Japan, such a deal faces major political obstacles at home.

Yet there was little promise of immediate economic dividends as such trade deals often take years to take effect.

Obama is seeking to assure allies of a U.S. "pivot" as China flexes its economic and military muscles in Asia and beyond. But leaders may doubt whether Washington can avoid being distracted by economic woes at home and foreign policy priorities like Afghanistan, Pakistan and Iran.

(Reporting by Reuters APEC team; Writing by Matt Spetalnick; Editing by Stella Dawson)





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Olympus Sale Helped Hide Balance Sheet Hole

By Chris Cooper - Nov 14, 2011 4:49 PM GMT+0700

Olympus Corp. (7733)’s 2009 sale of its profitable diagnostics unit may have undermined efforts to expand into health care as the company sought cash to shore up a balance sheet that was hiding decades of losses.

Olympus’s then-President Tsuyoshi Kikukawa said the Japanese camera maker was unable to compete in the industry, even as he bought face cream, plastic cookware and recycling companies. A day after Beckman Coulter Inc. (BEC) purchased the Olympus unit, Chief Executive Officer Scott Garrett told analysts the division’s “long and enviable track record of above-market growth” would give an immediate boost to earnings. Barclays Capital upgraded Beckman on the deal.

“If we hadn’t wasted all our money on silly things,” diagnostics would have been a good business to invest in, said Michael C. Woodford, who publicly questioned Kikukawa’s acquisitions after he was fired as chief executive officer on Oct. 14. “We had to strengthen our balance sheet and didn’t have the money to invest.”

Scrutiny of Olympus’s past deals has intensified since the Tokyo-based company admitted Nov. 8 that it used the purchase of Gyrus Group Ltd. and three other takeovers to cover up losses on investments dating back decades. The $1 billion sale to Beckman of a unit Olympus spent four decades building helped the Japanese company bolster its finances, even as it booked writedowns on acquisitions to hide the impairments.

Lack of Trust

Olympus has asked its main banks to join a meeting on Nov. 16, Koichi Miyata, president of Sumitomo Mitsui Financial Group Inc., told reporters today in Tokyo. The camera maker’s Tokyo- based spokesman Tsuyoshi Kitada declined to comment.

“The problem with making an investment decision on all the information we have is that we can’t trust the people who put the information there,” said Ben Collett, head of Japan equities at Louis Capital Markets HK Ltd. “Anyone close to this issue, or involved at the time, has to be taken out immediately.”

Olympus’s shares have dropped almost 80 percent since Woodford’s dismissal. The Tokyo Stock Exchange said 92-year-old Olympus may be delisted as it faces regulatory and criminal probes at home and in the U.S. Kikukawa stepped down Oct. 26, and newly installed President Shuichi Takayama last week blamed him and two senior aides for the cover-up.

Before Woodford’s dismissal, Olympus won plaudits from Goldman Sachs Group Inc. (GS) analysts Toshiya Hari and Kenya Moriuchi for making the Briton its first foreign head in April. Woodford had promised to focus on the more profitable medical business, cut costs and bring discipline to mergers and acquisitions, they wrote in an Oct. 12 report.

Medical Opportunity

The slump in Olympus’s shares has left the company with a market capitalization of $1.6 billion, or $6.2 billion less than the value of its medical unit, according to data compiled by Bloomberg and BGC Partners Inc.

While Olympus owes more money than 98 percent of Japan’s biggest companies versus common equity, and camera revenue tumbled in the past three years, it still sells three times as many endoscopes as all its competitors combined, data compiled by Bloomberg show.

Olympus sold its blood-testing and chemical-analysis unit for 77.5 billion yen ($1 billion) to Beckman in August 2009.

In a conference call with analysts after announcing the deal in February, Garrett said the division’s expected revenue for the year would be about $500 million. By contrast, Olympus paid 4.8 times sales in its $2.1 billion takeover of U.K.-listed medical-equipment maker Gyrus in February 2008.

High Price

“We paid a really high valuation for Gyrus in an area where we already had better products,” Woodford said. “I said so at the time.”

Only 18 months after the Olympus sale, Danaher Corp. (DHR) bought Beckman for $6.8 billion. The deal valued Beckman’s equity and net debt at 8.6 times earnings before interest, taxes, depreciation and amortization, the cheapest deal of more than $1 billion on record for a medical-instruments maker, according to data compiled by Bloomberg. Olympus paid 27 times Ebitda for Gyrus.

Danaher picked up Beckman relatively cheap after the company’s shares plunged and it put itself up for sale. Beckman received a warning from the Food and Drug Administration in June last year for marketing a heart test without proper clearance, and Garrett left three months later when earnings fell short of analysts’ estimates.

Cayman Islands

Tokyo-based Olympus admitted last month it paid $687 million in fees to advisers on Gyrus. Most of that went to a Cayman Islands fund that no longer exists, according to filings from the offshore center’s registry.

The fees may have never reached the advisers and instead may have been used to cancel out non-performing securities Olympus was keeping off its books, according to a report in the Shukan Asahi magazine. Olympus said last week an independent committee appointed to look into its acquisitions is still examining the method used to hide the losses.

“You can’t just throw $700 million down a pipe without anyone else being involved,” Collett said. “There’s a combination of events that need to involve other parties.”

‘Tobashi’

Olympus’s revelations recall the practice of concealing impaired investments known as “tobashi” that became widespread in Japan in the late 1980s, according to Yasuhiko Hattori, a professor at Ritsumeikan University in Kyoto.

“M&A is probably one of the most popular ways to do ‘tobashi,’” said Tadashi Kageyama, the Hong Kong-based head of Asia-Pacific investigations at risk consultant Kroll Inc. “You have a lot of consulting fees where you can hide these losses.”

Between 2006 and 2008, Olympus paid 73.4 billion yen to increase stakes in News Chef Inc., which makes plastic containers for microwave ovens; Humalabo, a face-cream maker; and recycling company Altis Co., according to a letter Woodford sent to Kikukawa, a copy of which was given to Bloomberg News.

The prices paid were based on forecasts that revenues at the companies would rise as much as 30-fold over four years, Executive Vice President Hisashi Mori told reporters in Tokyo on Oct. 27. Mori was fired last week for his role in the cover-up.

“We explored M&A to accelerate growth centered on the medical business,” Takayama said at the Oct. 27 briefing. “One way to achieve that was the acquisition of Gyrus and the three Japanese companies.”

Olympus wrote down 55.7 billion yen, or 76 percent, of the acquisition value of the three companies in March 2009.

To contact the reporter on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net




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Singapore’s GIC Sold Most Olympus Shares on ‘First Suspicion’ of Scandal

By Kyunghee Park - Nov 14, 2011 4:38 PM GMT+0700

Government of Singapore Investment Corp., manager of more than $100 billion of the city’s reserves, sold almost all of its 2 percent stake in Olympus Corp. (7733), the camera maker that said it hid losses with inflated fees.

GIC now only has an “insignificant holding” in Olympus under a portfolio managed by an external fund manager after the sale, the fund said in an e-mailed statement on Nov. 12, without elaborating on the financial effect of the divestment or plans for its remaining shares.

“Ever since the story broke and the unraveling of the extent of the fraud and cover-up of the company, there has always been increasing risk of the viability of the company,” said Song Seng Wun, a Singapore-based economist at CIMB Research Pte. “Rather than take the risk, GIC’s management may have decided to bite the bullet.”

GIC, which said earlier this year risks and market volatility may increase, faced 6.7 billion Swiss francs ($7.4 billion) of paper losses two months ago as the biggest investor in UBS AG after the Swiss bank announced a $2.3 billion unauthorized trading loss that led to the resignation of its chief executive officer. The state-owned investor, ranked the world’s sixth largest by Sovereign Wealth Fund Institute, also had unrealized losses on its investment in Citigroup Inc.

‘First Suspicion’

“GIC disposed of almost all of its investments on first suspicion of possible wrongdoing in Olympus,” the fund said in the statement, without elaborating on details of the share sale. “The majority of the investment was made in the midst of the global financial crisis.”

The comment came less than two months after its Sept. 20 meeting with the management of UBS in Singapore, where it “expressed disappointment and concern about the lapses” at the biggest Swiss bank, according to a GIC statement that same day.

The Singapore fund owned 2.13 percent of Olympus shares as of March, according to data compiled by Bloomberg. The value of the shares has plunged as much as 84 percent since June 21, when the camera maker’s stock reached this year’s high of 2,798 yen.

Tokyo Stock Exchange Group Inc. placed Olympus on the bourse’s so-called watchlist for review for possible delisting last week after it reversed earlier denials of wrongdoing.

Olympus has lost more than 500 billion yen ($6.5 billion) of market value since mid-October, when it ousted President Michael C. Woodford and he made public fraud accusations. The world’s biggest maker of endoscopes said last week it concealed losses by paying $687 million to advisers on 2008 acquisitions.

Reversing Denials

Olympus closed at 460 yen on Nov. 11 in Tokyo, the lowest price since February 1975. The shares rose 17 percent to 540 yen at the close today, climbing by their daily limit after Japan’s securities regulator may recommend Olympus pay a levy for making false financial statements to avoid delisting from the stock market, Reuters reported, citing an unidentified source familiar with the case.

On Nov. 8, Olympus President Shuichi Takayama reversed earlier denials of wrongdoing and said the company was looking into the role played by special-purpose funds in hiding the losses, which date to the 1990s.

At least eight Cayman Islands entities have been linked to Olympus takeovers that are suspected of playing a role in the accounting scandal. Five of those no longer exist, according to a search of the Caymans registry, which doesn’t give details on the individuals behind the companies.

Misplaced Trust

Olympus funneled more than $600 million in fees on the $2 billion Gyrus Group Plc takeover to funds to cancel unrealized losses that the company had kept off its books, the company said on Nov. 8. Former Olympus Chairman Tsuyoshi Kikukawa was involved in the cover-up, Takayama said. Executive Vice President Hisashi Mori, who was fired, and auditor Hideo Yamada also took part, he said.

Japanese and U.S. regulators are probing allegations by Woodford that more than $1.5 billion was siphoned through offshore funds.

“This is a reminder that when people commit fraud there’s not much you can do,” Song said. “This is a case of putting trust in a company’s management which was misplaced.”

GIC said in its annual report in July that it boosted investments in emerging economies to tap higher returns, and cut back in Europe and the U.S. Emerging-market stocks made up 15 percent of its holdings from 10 percent a year earlier, while those in developed economies fell to 34 percent from 41 percent. Investments in Japan accounted for 11 percent of GIC’s portfolio at the end of March, according to the report.

Temasek

Unlike GIC, Temasek Holdings Pte, Singapore’s other state investment company, divested shares in Bank of America Corp. and Barclays Plc at losses more than two years ago. GIC and Temasek spent more than $25 billion buying stakes in U.S. and European banks in the past four years as the collapse of the subprime mortgage market led to more than $2 trillion in losses and writedowns worldwide.

GIC also owns about 3.8 percent of New York-based Citigroup, the third-largest U.S. bank, after selling half of its original stake for a $1.6 billion profit two years ago. It’s the lender’s single-biggest investor, while 18 funds managed by State Street Corp. hold a combined 4.1 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Lars Klemming at lklemming@bloomberg.net




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Olympus Untraded in Tokyo, Poised to Rise by Daily Limit After Levy Report

By Yuki Yamaguchi and Gearoid Reidy - Nov 14, 2011 5:23 PM GMT+0700

Nov. 14 (Bloomberg) -- Jamie Allen, secretary general of the Hong Kong-based Asian Corporate Governance Association, talks about the accounting scandal at Olympus Corp. and corporate governance in Japan. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)


Olympus Corp. (7733), the camera maker that admitted hiding losses with inflated takeover fees, rose for the first time in more than two weeks in Tokyo after a report that the company may avoid delisting and instead pay a fine.

The stock rose 17 percent to 540 yen at the close after buy bids outnumbered offers 30-to-1 in the morning session. It was the first gain since Oct. 27, according to Bloomberg data. The shares have declined 78 percent so far this year.

“Investors are buying back the shares because of reports that Olympus may avoid delisting,” said Satoshi Yuzaki, a Tokyo-based analyst at Takagi Securities Co. “There may be some speculators putting in buy orders, too.”

Reuters, citing a source it didn’t identify, reported yesterday that Japan’s securities watchdog may recommend that a fine be imposed on Olympus for false financial reports, which could prevent delisting of the company shares. Last week, the camera maker admitted that three of its top executive colluded to hide losses, reversing weeks of denials that there was any wrongdoing in past acquisitions.

Earnings Deadline

“We are not in the position to comment right now,” Tsuyoshi Kitada, a spokesman for Olympus, said by telephone today.

A spokesman for the Securities and Exchange Surveillance Commission declined to comment.

Olympus, the world’s biggest maker of endoscopes, last week said it concealed losses by paying $687 million to advisers for the 2008 acquisition of Gyrus Group Ltd. The Tokyo Stock Exchange subsequently said it’s considering moving the Tokyo- based company to a watch list for possible delisting because of accounting fraud.

According to Tokyo exchange rules, a company found to have falsified earnings statements is first placed under the “watch list” post, where it is kept for a month. During that period, the exchange will review the magnitude of the wrongdoings, including whether the falsification was done in an organized manner.

Today was the last day for Japanese companies to file earnings reports for the previous quarter. Olympus had postponed the release of second-quarter earnings from Nov. 8 because of a probe into $1.4 billion of writedowns and fees related to acquisitions. The company said Nov. 10 it aims to file by Dec. 14.

Asahi Shimbun also reported Saturday that Koji Miyata, a former Olympus executive, started to collect company employees’ signatures advocating the return of ousted President Michael Woodford.

To contact the reporter on this story: Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net

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



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Infosys Sees ‘Hit’ as Clients Cut Tech Budgets

By Ketaki Gokhale - Nov 14, 2011 1:52 PM GMT+0700

Infosys Ltd., India’s second-largest software exporter, said growth may slow next year because of a possible reduction in technology spending by clients.

Infosys is seeing “volatility” in customers’ decision- making, Co-Chairman S. Gopalakrishnan said in an interview in Mumbai yesterday. Sales growth at the Bangalore-based company fell in each of the past four quarters as a global economic slowdown prompted companies to reduce their outsourcing contracts.

“Probably there will be some budget cuts for next year,” said Gopalakrishnan, 56. “In the short term, you will take a hit. You can’t restructure your business, look at new areas fast enough to replace everything that is lost.”

The comments are the first the code writer made since it slashed the dollar-based sales forecast for the year ending in March last month while increasing the rupee estimates because of a weaker currency. Infosys, which has the biggest cash pile in India’s computer-services industry, aims to expand by spending $700 million on acquisitions in areas where the company has “very small” exposure, the former chief executive said.

“Budgets in Europe will come down quite substantially,” said Ankur Rudra, an analyst at Ambit Capital Pvt. in Mumbai, who has a “sell” rating for Infosys shares. Budget reductions in Europe will be bigger than among the U.S. companies, he said.

Infosys rose 1.3 percent to 2,813.05 rupees after gaining 2 percent earlier today. The shares have declined 18 percent this year, compared with a 1.6 percent drop for bigger rival Tata Consultancy Services Ltd. (TCS)

Rupee, Forecast

Last month, Infosys decreased its forecast for sales in dollar terms in the year ending March 2012 to a range of $7.08 billion to $7.2 billion, from a range of $7.13 billion to $7.25 billion it estimated in July.

Infosys raised the guidance in rupee terms to between 335 billion rupees and 340.9 billion rupees, from an earlier forecast for 317.8 billion rupees to 323.1 billion rupees.

Last week, the rupee fell to the lowest since April 2009, which helps inflate the repatriated value of overseas sales at Infosys and other Indian software companies.

Gopalakrishnan said some of the budget cuts may be offset by customers allocating a greater portion of their spending to offshore software-service providers.

Infosys is looking to acquire companies that specialize in providing technology services to health-care companies and utilities, companies that build software platforms, or companies based in non-English speaking countries, including Germany, France and Japan, Gopalakrishnan said. Infosys is looking at three to four targets at a time, he said.

Acquisition Targets

“We are seeing volatility in all sectors except some, like utilities and health care, which are countercyclical,” he said. “But our exposure to these sectors is very small. We want sectors that are countercyclical to become a larger part of our portfolio.”

Customers in the health-care industry contributed 1.8 percent of Infosys’s revenue in the quarter ended Sept. 30, compared with 35.1 percent contributed by customers in the insurance, banking and financial services industry, according to the company.

Global IT Spending

Infosys had 185 billion rupees ($3.7 billion) of cash, near-cash items and short-term investments at the end of September, according to Bloomberg data.

Tata Consultancy may spend as much as $500 million on an acquisition in Germany or Japan, Chief Executive Officer N. Chandrasekaran said in February.

Growth in worldwide spending on IT goods and services by businesses and governments, which includes computer equipment and outsourcing, will slow to 5.5 percent in 2012 for a total of $2.15 trillion, from estimated growth of 11 percent this year, according to a Sept. 16 Forrester Research Inc. report.

The outlook for IT demand in 2012 is “not bright,” as weak economic growth in the U.S. and Europe will make business and governments more cautious about investing in technology, according to the report from the Cambridge, Massachusetts-based researcher.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

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




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Stocks Drop as Euro Weakens on Debt Concern While Copper, Italy Bonds Rise

By Stephen Kirkland - Nov 14, 2011 5:25 PM GMT+0700

Stocks and the euro declined on concern Europe will struggle to resolve its debt crisis. Copper climbed as Japan’s economy grew for the first time in a year, while Italian bonds maintained their earlier gains after the nation sold debt.

The Stoxx Europe 600 Index dropped 0.3 percent at 10:15 a.m. in London, and futures on the Standard & Poor’s 500 Index slipped 0.2 percent. Japan’s Nikkei 225 Stock Average climbed 1.1 percent. The euro weakened 0.4 percent to $1.3697. The yield on the Italian five-year bond fell five basis points, with the 10-year U.S. Treasury yield two basis points higher. Copper jumped as much as 3.9 percent.

Italy sold all 3 billion euros ($4.1 billion) of the five- year notes it offered at today’s auction after former European Union Competition Commissioner Mario Monti was asked to set up a government. German Chancellor Angela Merkel said it’s time to embrace a “political union” in Europe to send a message to bondholders that euro-area leaders are serious about ending the sovereign debt crisis. Japan’s gross domestic product grew an annualized 6 percent in the last quarter as exports recovered from the record earthquake on March 11, government data showed.

The yield on Italy’s 10-year bond declined five basis points. The Rome-based Treasury sold the bonds to yield 6.29 percent, the highest since June 1997 and up from 5.32 percent at the last auction on Oct. 13. Demand was 1.47 times the amount on offer, compared with 1.34 times last month.

The 10-year French yield slid eight basis points, with the Spanish yield rising two basis points. The Greek two-year note yield surged 188 basis points, or 1.88 percentage points, to 110.78 percent.

Commodities

Copper led raw materials higher, with the S&P GSCI index of 24 commodities rising to a two-month high. Raw sugar jumped 1.7 percent and soybeans climbed 1.3 percent. Oil in New York fell 0.2 percent after earlier today rising to $99.69 a barrel, the most since July 26.

Three shares fell for every two that gained in the Stoxx 600. Hochtief AG sank 9.8 percent after Germany’s largest construction company delayed the sale of its airport operating business and reported third-quarter earnings that missed estimates. ITV Plc advanced 3 percent as the U.K. broadcaster reported increased revenue.

S&P 500 futures expiring in December were little changed after the U.S. gauge’s 0.9 percent advance last week. The S&P 500 has risen 0.5 percent this year.

Boeing Co. advanced 1.5 percent to $67.91 in German trading. The planemaker secured the biggest order in its almost 100-year history after signing a $26 billion agreement with Emirates for as many as 70 777 aircraft.

The MSCI Emerging Markets Index climbed 1.1 percent. South Korea’s Kospi Index (KOSPI) and Taiwan’s Taiex Index rose more than 2 percent. The Hang Seng China Enterprises Index in Hong Kong jumped 2.8 percent.

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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China ‘Ready’ to Allow Foreign Firms to Sell Stock, Exchange Official Says

By Bloomberg News - Nov 14, 2011 1:27 PM GMT+0700

The Shanghai Stock Exchange said it’s “basically ready” to let foreign issuers sell stock, paving the way for companies from HSBC Holdings Plc (HSBA) to Coca-Cola Co. (KO) to list in the world’s second-biggest equity market.

Trading should start “as soon as possible when the time is ripe,” Xu Ming, executive vice president in charge of the international stocks board, said in a Nov. 11 interview at the exchange. While there’s no timetable, the exchange has finished work on technological and regulatory requirements, Xu said.

The trading of foreign equities will mark the biggest change for China’s stock market in more than five years and add impetus to Shanghai’s drive to become a global financial center by 2020. It will broaden options for the nation’s 85 million individual investors who are restricted from buying shares abroad by China’s capital controls, with HSBC, Coca-Cola and NYSE Euronext among companies expressing interest in selling stock in Shanghai.

“The internationalization of the securities market will benefit the whole nation and overseas companies are highly motivated,” Xu said.

Listing in China would let foreign companies benefit from higher valuations and give them access to Chinese currency to fund their expansion in the world’s second-biggest economy, Arjuna Mahendran, Singapore-based head of investment strategy for Asia at HSBC Private Bank, overseeing $460 billion globally, said in a June interview.

Asset Bubbles

China’s currency has appreciated as the nation’s economy, which grew 10.4 percent last year, attracted inflows of capital. The yuan reached 6.3370 per dollar on Nov. 4, the strongest level since the country unified the official and market exchange rates at the end of 1993.

China is also seeking to revive investor interest in an equities market that has slumped the past two years as the government raised interest rates and imposed curbs on property transactions to tame inflation and prevent asset bubbles. Overseas companies are barred from selling stock in China, though are allowed to do so in Hong Kong, a former British colony that reverted to mainland sovereignty in 1997.

Shanghai, the nation’s financial hub and home to one of China’s two stock exchanges, has been contacted by foreign companies in the finance, telecommunications, consumer goods and manufacturing industries, Fang Xinghai, head of the city’s financial services office, said in a May 2010 interview. The international board has been slowed by issues such as legal jurisdiction, accounting standards and regulatory approvals, said Hubert Tse, a partner at law firm Boss & Young in Shanghai.

Coca-Cola

Coca-Cola, the world’s largest soft-drink maker, plans to invest $4 billion in China over three years from 2012 and announced in June that it’s in talks to list in Shanghai. NYSE Euronext (NYX)’s chief operating officer said in June of last year it was “very interested” in selling shares.

HSBC Chief Executive Officer Stuart Gulliver said in May it was his “desire” that Europe’s biggest bank be the first foreign financial institution to be listed on the Shanghai exchange. Paul Harris, a London-based spokesman for HSBC, said the company’s position is unchanged. HSBC’s origins date back to 1865 when it operated as the Hongkong and Shanghai Banking Corp. to finance trade in opium, silk and tea.

“They are all big companies and most of them are from the Fortune 500,” Xu said. “Many of the companies are already listed and some have multi-listings such as HSBC.”

Investor Protection

He said the exchange is looking for companies that already have operations in China, an earnings history and strong corporate governance. Companies seeking to list on the international board should have a market value of more than 30 billion yuan ($4.7 billion) and combined three-year net income of more than 3 billion yuan, the 21st Century Business Herald reported in April, citing a draft plan.

“We favor companies of good quality, that are stable and are of fairly large scale,” Xu said. “We need to consider the protection of small investors and see if the operations of the companies carry risks.”

Xu said the Shanghai bourse has set no priority on which foreign companies can list first, refuting media reports that so-called red-chips, or overseas-incorporated Chinese businesses listed in Hong Kong, would be first. Hong Kong-listed Cnooc Ltd. (883), China’s largest offshore energy producer, would sell stock if it received regulatory clearance, Chairman Fu Chengyu said in March.

Hong Kong Exchanges

“We have no plan for the first batch of companies to be listed or how many there will be in the first batch,” Xu said. “We don’t give priority to whether foreign companies or red- chip companies should be listed first. Whoever is ripe will get listed first.”

Ronald Arculli, chairman of Hong Kong Exchanges & Clearing Ltd., said China opening itself to foreign listings will stimulate greater interest in the Greater China region, including Hong Kong.

“We don’t see the competition that will come about that’s going to be bad for anyone,” Arculli said in an interview with Bloomberg Television today. “That would mean China is gradually opening up and relaxing some of the controls, and that would create more activity.”

The China Securities Regulatory Commission is working on rules for share issuance on the international board, Xu said. A change in leadership at the regulatory body won’t hinder progress, he said.

National Strategy

The central government last month appointed Guo Shuqing, chairman of China Construction Bank Corp., as head of the CSRC as part of the biggest reshuffle of financial officials in a decade. Guo replaces Shang Fulin, who succeeds as chairman of the China Banking Regulatory Commission. The international board is “coming closer,” Shang said at a financial forum in Shanghai on May 2.

The international board is part of “a national strategy, not a strategy of a certain government department,” Xu said. “Whichever leader comes to power, the strategy won’t change.”

China’s benchmark Shanghai Composite Index has fallen 10 percent this year, adding to a 14 percent drop last year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation. China has the world’s second-biggest stock market with a combined market value of $3.6 trillion for the Shanghai and Shenzhen bourses as of Nov. 11, according to data compiled by Bloomberg. The U.S. is the largest with a market value of $15.2 trillion.

There are about 104 million investors in China, including mutual funds, institutional investors and 85 million individuals, the Shanghai exchange said.

“China and its capital markets don’t lack money,” Xu said. “Once the companies are listed, it will have a huge advertisement effect.”

--Allen Wan, Stephanie Wong and Zhang Shidong in Shanghai. With assistance from Howard Mustoe in London, Chitra Somayaji, Kana Nishizawa and Rishaad Salamat in Hong Kong. Editors: Darren Boey, Jim McDonald.

To contact Bloomberg News staff for this story: Allen Wan at +86-21-6104-3041 or awan3@bloomberg.net; Zhang Shidong in Shanghai at +86-21-6104-3040 or szhang5@bloomberg.net; Stephanie Wong at +86-21-6104-3042 or swong139@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net




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Japan Emerges From Post-Quake Slump

By Andy Sharp - Nov 14, 2011 3:10 PM GMT+0700

Japan’s economy expanded for the first time in four quarters as exports recovered from a record earthquake, an expansion that is already slowing because of weakening overseas demand.

Gross domestic product grew at an annualized 6 percent in the three months ending Sept. 30, the fastest pace in 1 1/2- years, the Cabinet Office said today in Tokyo. At 543 trillion yen ($7 trillion), economic output was back to levels seen before the March 11 earthquake, the report showed.

Japan’s return to growth after three quarters of contraction was driven by companies including Toyota Motor Corp. making up for lost output from the disaster. A sustained rebound will depend on how much reconstruction demand can offset a slowdown in global growth as Europe’s debt crisis damps global confidence and an appreciating yen erodes profits.

“GDP will slow very sharply in the current quarter,” said Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo. A yen trading near World War-II highs and Europe’s fiscal woes are “very strong headwinds” for the nation’s manufacturers, he said.

Expansions in Asian nations from China to South Korea to the Philippines are already showing signs of cooling. International Monetary Fund Managing Director Christine Lagarde said on Nov. 12 that Japan needed to swiftly implement reconstruction spending.

Europe’s Woes

The GDP figure was inline with the 5.9 percent median forecast of 26 economists surveyed by Bloomberg News. The yen traded at 77.10 per dollar as of 4:57 p.m. in Tokyo, from 77.18 before the report. The Nikkei 225 Stock Average rose 1.1 percent amid optimism new governments in Greece and Italy will help contain European fiscal woes.

Personal consumption rose 1 percent from the previous three months in the third quarter, led by an increase in durable goods purchases and exceeding forecasts, and overseas shipments advanced 6.2 percent, today’s report showed.

“Market interest has already shifted to a slowing down in the fourth quarter, and the first quarter of next year,” Junko Nishioka, chief economist at RBS Securities in Tokyo said in a Bloomberg Television interview. Nishioka predicted the pace of growth will dip below 2 percent in the first half of 2012.

Japan’s rebound is likely to slow to 2.1 percent this quarter, according to the average forecast of 42 analysts surveyed by the Economic Planning Association, a government- affiliated body, released last week.

Reconstruction Work

“Japan’s economic growth will remain elevated, mainly on domestic demand,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. (JPM) in Tokyo and a former Bank of Japan official. “Especially from the first quarter, we expect reconstruction work in the Tohoku region to support the economy,” he said, referring to the northeast region struck by the temblor.

Companies plan to cut machinery orders for the first time this year in the quarter ending Dec. 31, a government survey last week showed, a sign growth will slow even as government spending for reconstruction takes effect. Industrial production fell in September for the first time since the March disaster.

“We’re aware that the environment surrounding the Japanese economy is becoming more harsh,” Motohisa Furukawa, the economy minister, told reporters in Tokyo today. “A further slowdown of overseas economies as well as fluctuations of the yen and stock prices may pose downside risks to Japan’s economy, and we must pay close attention to these factors.”

Currency Losses

Publicly traded companies have lost 301 billion yen ($3.9 billion) in currency transactions because of the stronger yen, a report by Tokyo Shoko Research Ltd., a credit research company, showed last week. Nintendo Co., the world’s largest maker of video game consoles, forecast its first annual loss in at least 30 years.

Toyota’s second-quarter profit fell a bigger-than-expected 19 percent to 80.4 billion yen in the quarter ended Sept. 30. Even so, Asia’s biggest automaker has been hiring temporary workers to help make up for lost output after the March earthquake and tsunami that left about 19,000 dead or missing caused shortages of parts and electricity.

Japan’s currency last week advanced to its highest level since authorities intervened on Oct. 31, the day the yen reached a postwar record of 75.35 against the dollar. Prime Minister Yoshihiko Noda said in parliament on Nov. 11 that the government would sell yen as necessary.

‘Competitive Devaluation’

“The Ministry of Finance has been intervening more than they ever have,” Martin Schulz, a senior research fellow at Fujitsu Research Institute in Tokyo who has previously conducted research for the Bank of Japan (8301), said before the report. “This policy helps exporters and it produces liquidity, but it produces major disruptions in Asia in terms of competitive devaluation.”

The yen may remain at 77 per dollar until the end of March 2012, according the median analyst estimate compiled by Bloomberg. Former Japanese Finance Ministry official Eisuke Sakakibara said last month it may strengthen to the low 70s against its U.S. counterpart.

Japan’s central bank will hold a two-day policy meeting from tomorrow, after having expanded its asset-purchase program last month by 5 trillion yen to shield the economy from damage from the strong yen. In a Bloomberg News survey, 13 of 14 economists expected the BOJ to leave policy unchanged.

Japanese companies with factories in Thailand have also had to contend with record flooding in the Southeast Asian country. Unable to measure the extent of the damage, Toyota and Honda Motor Co. have scrapped their annual profit forecasts.

The lower house of parliament approved on Nov. 10 a third supplementary budget for the reconstruction of the quake- devastated northeast region of the nation. The 12.1 trillion yen budget comes on top of two packages worth a total of 6 trillion yen already pledged.

To contact the reporter on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Ken McCallum at kmccallum4@bloomberg.net




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Mario Monti to Lead New Italy Government

By Andrew Davis and Lorenzo Totaro - Nov 14, 2011 3:16 PM GMT+0700

Nov. 14 (Bloomberg) -- Giuseppe Ragusa, assistant professor of economics at LUISS Guido Carli University, talks about the appointment of Mario Monti as Italian Prime Minister. He speaks in Rome with David Tweed on Bloomberg Television's "Countdown." (Source: Bloomberg)

Nov. 14 (Bloomberg) -- Former European Union Competition Commissioner Mario Monti will head a new government as Italy reaches outside the political arena for a leader to restore confidence in its ability to cut the euro region's second-biggest debt. David Tweed reports from Rome with Owen Thomas on Bloomberg Television's "First Look." (Source: Bloomberg)


Former European Union Competition Commissioner Mario Monti will head a new government as Italy reaches outside the political arena for a leader to restore confidence in its ability to cut the euro region’s second- biggest debt.

President Giorgio Napolitano offered Monti, 68, the post last night in Rome, less than 24 hours after Prime Minister Silvio Berlusconi resigned. Berlusconi’s government unraveled after defections ended his parliamentary majority and the country’s 10-year bond yield surged over the 7 percent threshold that prompted Greece, Ireland and Portugal to seek EU bailouts.

“In a particularly difficult moment for Italy, in a very turbulent European and international landscape, the country must prevail in the challenge of redemption,” Monti said last night after meeting Napolitano in Rome. “Italy must once again be an element of strength, not of weakness, in the European Union, which we helped found and in which we must be protagonists.”

Europe’s inability to contain a regional debt crisis that started in Greece more than two years ago led to a surge in Italian bond yields as investors bet on which nation may need aid next. Monti, an economist and adviser to Goldman Sachs Group Inc., will try to reassure investors that Italy can cut a 1.9 trillion-euro ($2.6 trillion) debt load and spur economic growth that has lagged behind the euro-region average for more than a decade.

Democracy ‘on Hold’

“The democratic process is being put on hold, but Italians feel this is the right thing to do,” Giuseppe Ragusa, an economics professor at Rome’s LUISS Guido Carli University, said in an interview with Bloomberg Television’s David Tweed in Rome today. “More than austerity reform, he should place the debate on redesigning the labor market because with that comes redesigning the Italian productive system.”

As support for a Monti government built last week, 10-year bond yields narrowed more than 100 basis points from the euro- era record of 7.48 basis points on Nov. 9. The yield fell 4 basis points to 6.41 percent, the lowest in since Nov. 4. The difference with German bonds narrowed 2 basis points to 454 basis points as of 9:05 a.m. in Rome, down from the euro-era record of 576 basis points on Nov. 9, more than twice the average for the year.

Stocks Gain

Italy’s benchmark FTSE MIB stock index rose 1.7 percent at 9:10 a.m. in Milan, more than three times the advance of the Stoxx Europe 600. Banks let the gains, with UniCredit SpA up 3.1 percent and Intesa Sanpaolo SpA adding 3 percent.

“Monti’s appointment is clearly a positive for markets,” Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan, who oversees assets of about 700 million euros, said in an interview. “This is a first step in the right direction, which will help Italy’s credibility issue.”

Monti will see his first test in the markets today when the Treasury sells as much as 3 billion euros of five-year bonds. Italy was forced to pay 6.087 percent on one-year bills at an auction on Nov. 10, the most in more than 14 years. The country faces about 200 billion euros in bond maturities next year, more than twice as much as Spain, which has also seen yields surge on fallout from the debt crisis.

Technical Governments

Italy has a tradition of reaching outside parliament for leaders to run so-called technical governments at times of political crisis. Monti, who did his graduate work in economics at Yale University, spent almost a decade in Brussels as EU commissioner and has been running the Bocconi University in Milan, the country’s top business school, since 1994.

Berlusconi is the fourth leader of a southern EU country to be brought down by fallout from the debt crisis, with new administrations pledging to impose austerity measures demanded by the union and the International Monetary Fund.

Greek Prime Minister George Papandreou resigned last week to make way for a coalition led by European Central Bank Vice President Lucas Papademos. Spanish Prime MinisterJose Luis Rodriguez Zapatero decided not to seek reelection and polls show Mariano Rajoy, leader of the conservative People’s Party, will win an absolute majority in the Nov. 20 vote. Portuguese Prime Minister Jose Socrates resigned in March after parliament rejected his government’s deficit-cutting plan.

‘More Europe’

People in the region “want more Europe, not less,” Erik Nielsen, global chief economist at UniCredit SpA, wrote in a note to investors yesterday. “While few people like to see their individual benefits being cut, or their individual taxes hiked, the broader sentiment in southern Europe is that people want core-Europe-quality institutions and stability.”

Monti must present the names of his Cabinet ministers to Napolitano before he can be sworn in. He will then face confidence votes in both houses of parliament. Leaders of Berlusconi’s People of Liberty party told Napolitano yesterday they’ll support a Monti government, virtually ensuring his confirmation, which may come this week.

Monti said he will focus on improving public finances and boosting economic growth, and he pledged to decide on his Cabinet as quickly as possible. Press speculation about who will be in the Cabinet is “pure fantasy,” he said.

European Commission President Jose Barroso and EU President Herman Van Rompuy welcomed Napolitano’s decision to offer Monti the chance to lead Italy’s government.

“We believe that it sends a further encouraging signal,” following Italy’s “swift adoption” of the budget law, they said in an e-mailed statement yesterday.

EU Pressure

The EU has been stepping up pressure on Italy to hasten implementation of growth measures needed to trim its debt. EU and ECB inspectors were in Italy last week to review progress and Berlusconi also agreed to let the IMF monitor implementation.

“Italy has a potentially high economic performance, yet it needs huge efforts to unleash it in a structural and permanent fashion,” Van Rompuy said in a speech near Florence on Nov. 11. “Both Europe’s and Italy’s fates are at stake,” he said.

As the region’s debt crisis began to spread, Italy initially fared better than Greece, Ireland and Portugal, which were forced to seek 256 billion euros in bailouts. Italy’s budget deficit of 4.6 percent of gross domestic product last year is similar to that of Germany and less than France’s 7.1 percent and the U.K.’s 10.3 percent.

The country has a surplus in its primary budget, which excludes debt-interest payments, and its debt is set to start declining from next year. About half of government bonds are owned by domestic investors and the country has one of the highest savings rates in Europe. Italy’s main banks passed two rounds of EU stress tests.

To contact the reporter on this story: Andrew Davis in Rome at abdavis@bloomberg.net abdavis@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net





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Apple Faces Search for Retailing Genius

By Jeff Green and Adam Satariano - Nov 14, 2011 12:01 PM GMT+0700

For Apple Inc. (AAPL) the hunt is on for its next retailing genius. Finding another one like Ron Johnson, though, won’t be easy.

When Johnson announced plans in June to leave Apple for Plano, Texas-based J.C. Penney Co., he left behind a powerful legacy -- creating Apple’s retail strategy with Steve Jobs, then launching more than 350 stores infused with a look and experience that customers adore, centered around the stores’ now legendary Genius Bars.

His replacement faces a host of new challenges, most notably implementing an ambitious expansion strategy in China while maintaining the stores’ high standards and industry- leading revenue per square foot.

“It’s a relatively small pool of talent,” said Brenda Malloy, a managing director who specializes in retail recruitment for Russell Reynolds Associates, an executive-search firm in New York. She doesn’t have any specific knowledge of Apple’s search.

Finding just the right person may be so daunting that Apple Chief Executive Officer Tim Cook may instead turn to someone within the company, said Neil Stern, a senior partner at McMillanDoolittle LLP, a retail consulting firm.

‘Lots of Interest’

Only 64 companies qualify as global retailers, meaning they have $1 billion in sales and business on at least two continents, according to Russell Reynolds. Of those, five have total revenue in the range of Apple, which had sales of more than $108 billion last year.

Apple’s search is being led by search firm Egon Zehnder International, a person familiar with the matter said in August.

“The search is under way with lots of interest, and we are carefully selecting Ron’s successor,” said Steve Dowling, a spokesman for Cupertino, California-based Apple.

Johnson’s main deputies at Apple were Jerry McDougal, the vice president of retail, Steve Cano, who is global head of store personnel, and Bob Bridger, who is charge of choosing store locations. The blog 9to5Mac said Cano was going to be tapped to replace Johnson -- a report Apple said isn’t true.

The retail division helped Apple launch stores in many marquee locations, such as Fifth Ave in New York. According to Sanford C. Bernstein & Co., Apple’s sales per square foot were $4,355 in 2010. That’s about two-thirds higher than luxury jeweler Tiffany & Co. (TIF)

Different Job

Unlike Johnson, who was brought in from Target Corp. (TGT) to build Apple’s first stores, the new retail chief’s biggest challenge will be expanding overseas. Of Apple’s 40 stores opening in 2012, about 30 will be outside the U.S. For now, less than a third of the company’s stores are international.

“It’s a very different situation from when Ron was hired to go build something and they needed somebody who was visionary and could build something that didn’t exist,” said Colin McGranahan, a retail analyst with Bernstein. “That’s probably not what they are looking for now.”

For a search to replace someone of the stature of Johnson, a company typically needs to consider 300 candidates, which it then narrows down to about 10 finalists, according to Neil Sims, a managing director for search firm Boyden in San Francisco, who has done work for Apple in the past.

China, where Apple generated $4.5 billion in sales last quarter, is a focus for Cook. The company plans to expand beyond the six stores now open there.

Coach, Nike

If Cook looks outside Apple’s ranks, he may select somebody from a lifestyle brand rather than a technology retailer, said McMillanDoolittle’s Stern. Those include Victor Luis, Coach Inc. (COH)’s international head of retail, and Elliott Hill, an executive at Nike Inc.

Retail companies based overseas may yield candidates as well. In Europe, Alliance Boots Gmbh, Ikea Group and Next Plc all have a similar reach as Apple, according to Russell Reynolds. There’s also Fast Retailing Co. in Japan.

If Apple is committed to finding an external candidate, it may have to cast its net even wider, said Sims, who is not involved in the search to replace Johnson. The key will be finding someone who fits Apple’s culture of innovation, he said.

“If I were advising them, I would be telling them to look broadly, beyond retail,” Sims said. “It’s more of a way of thinking, than a resume.”

To contact the reporters on this story: Jeff Green in Detroit at jgreen16@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net

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




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