China Home Prices Fall Most This Year as Curbs Drag Down Shanghai, Wenzhou

By Bloomberg News - Nov 18, 2011 3:22 PM GMT+0700

China’s home prices fell in 33 of 70 cities monitored by the government in October, the worst performance since it expanded property curbs and scrapped the reporting of national average housing data this year.

Wenzhou led the decline with a slump of 4.6 percent from September, more than 10 times the average drop, according to data released by the statistics bureau today. A credit squeeze on smaller businesses in the eastern city prompted a visit and pledge of financial aid from Premier Wen Jiabao last month.

China Vanke Co. and Poly Real Estate Group Co. fell more than 2.8 percent, leading a decline in stocks of developers after the report showed new home prices retreated in Shanghai, Shenzhen and Guangzhou. Wen said this month that the government won’t relax property curbs, after raising down-payment and mortgage requirements this year to avert a possible bubble.

“The turning point of China’s home prices has come,” Shen Jian-guang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said in a phone interview today. “Prices not only fell for new homes and in major cities, but also in secondary cities and in the existing home market.”

Analysts including Barclays Capital Research and asset managers such as CBRE Global Investors are betting price declines will force a policy reversal as the tightening weighs on economic growth. The government this year raised down payment and mortgage requirements and imposed home purchase restrictions in about 40 cities. The central bank also increased interest rates three times and reserves ratio six times this year.

‘More Apparent’

“The government’s property policy is working and working in a much more apparent way than expected,” Nicole Wong, a property analyst at CLSA Asia-Pacific Markets, said in a Bloomberg Television interview in Hong Kong today, adding that measures may be eased if there are further declines in sales. “Monetary measures do work, as a lot of buyers do use a lot of mortgages,” she said.

China’s banking regulator warned lenders that some projects backed by local governments may run out of funds, and loans to property developers are likely to sour as sales slow, a person with knowledge of the matter said.

The China Banking Regulatory Commission told lenders last week to step up asset sales and debt restructuring for unprofitable local government financing vehicles struggling to repay loans, the person said, declining to be identified as the instructions were private. The watchdog also said banks should cut “high-risk” loans to developers, the person said.

Shares Fall

The gauge tracking property shares on the Shanghai Composite Index fell 1.9 percent to a four-week low at the close, extending the decline this year to 14 percent.

More than twice the number of cities posted declines compared with September, when 16 locations reported lower prices from August. Prices in 23 cities were unchanged in October and 14 recorded gains, the data showed.

Housing values in the financial center of Shanghai and the southern business hub of Guangzhou fell 0.2 percent from the previous month, while those in Shenzhen neighboring Hong Kong slipped 0.1 percent. Beijing prices were unchanged. Five analysts surveyed by Bloomberg News expected prices in China’s four biggest cities, with a combined population of 66 million people, to drop as much as 0.3 percent.

Today’s figures came after private data also showed signs of cooling. China’s home prices slid for a second month in October, according to SouFun Holdings Ltd. (SFUN), the country’s biggest real estate website.

Wenzhou Visit

Existing home prices in Beijing dropped 0.5 percent last month from September, while those in Shanghai retreated 0.2 percent, according to the bureau. Wenzhou’s existing homes also lost the most among the 70 cities in October, declining 4.4 percent. Fewer than half of the locations tracked by the government posted a gain from September.

Premier Wen visited Wenzhou in eastern Zhejiang province last month amid reports of surging bankruptcies among private companies unable to repay debt to so-called underground lenders.

“A lot of the city’s entrepreneurs invested in the property market with the capital they earned from their own business,” Mizuho’s Shen said. “With the tightening of credit, they started to sell off properties.”

Home prices will fall between 15 percent to 30 percent in the next two years, Mark Mobius, who oversees $40 billion as Hong Kong-based executive chairman of Franklin Templeton Investments’ Emerging Markets Group, said before today’s release. BNP Paribas predicted a 10 percent decline by the second half of next year.

‘Over Correcting’

“The government should start to be cautious about property prices over correcting on the downside as it will inevitably affect the economy,” Wee Liat Lee, a Hong Kong-based property analyst at Samsung Securities Co., said in an e-mail.

Residential property accounted for 6.1 percent of the country’s gross domestic product last year, according to Citigroup Inc.

The nation’s trade surplus may be eliminated in one to two years, making the yuan rate less of an issue, said Li Daokui, an adviser to the central bank. Policy makers in the world’s second-largest economy have pledged to adjust the country’s growth toward domestic demand and narrow its external surplus to help address lopsided flows of trade and investment that contributed to the global financial crisis of 2008.

--Bonnie Cao. With assistance from Rishaard Salamat in Hong Kong and Jacob Gu in Shanghai. Editors: Linus Chua, Tomoko Yamazaki

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at +86-21-6104-3035 or bcao4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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Europe Running Out of Options: Katainen

By Kati Pohjanpalo - Nov 18, 2011 4:59 PM GMT+0700

Europe is running out of options to fix its debt crisis and it is now up to Italy and Greece to convince markets they can deliver the necessary austerity measures, Finnish Prime Minister Jyrki Katainen said.

“The European Union cannot restore confidence in Greece and Italy if they don’t do it themselves,” Katainen said in an interview in Helsinki yesterday. “We can’t do anything to boost confidence in them. If there are doubts about these countries’ abilities to take sensible and correct decisions on economic policy, no one else can repair that.”

Crisis management efforts have done little to stem the turmoil as Italy, the third-largest euro-area economy, struggles to persuade investors it can stay afloat without a bailout. Europe’s Oct. 26 deal, which boosted the region’s temporary rescue fund to 1 trillion euros ($1.4 trillion), has “failed to calm markets,” Katainen said.

Since last month’s agreement, the euro has lost 2.3 percent against the dollar and borrowing costs on two-year Italian government debt have jumped 135 basis points.

Pledging more European support isn’t the issue as “nothing else can have as strong an impact as a concrete, transparent and timed program of measures that is implemented” by Greece and Italy, Katainen said.

No Crisis Fix

Prime Minister Mario Monti said yesterday Italy’s actions will affect the future of the euro, as he pledged additional cuts to those targeted by Silvio Berlusconi. In Greece, the International Monetary Fund said yesterday it won’t release the next portion of its loan until Prime Minister Lucas Papademos wins broad political support for austerity measures.

Mapping out the possibility of euro exits “should be discussed when the rules are revamped,” Katainen said. “It’s no medicine to fix this crisis.”

Finland and other AAA rated euro nations are becoming more outspoken in their opposition to expanding rescue measures for Europe’s most indebted members. German Chancellor Angela Merkel yesterday rejected French calls to force the European Central Bank to become a lender of last resort. Germany and Finland both oppose common euro bonds as a solution to the crisis.

The ECB bought Italian government bonds today, said three people with knowledge of the trades, who declined to be identified because the transactions are private. Press officers at the central bank in Frankfurt weren’t immediately available for comment.

Price Stability

The spread between yields on Italy’s two-year debt and similar-maturity German bunds narrowed to 544 basis points today from this week’s high of 610 basis points Nov. 15. One basis point is 0.01 percentage point.

ECB President Mario Draghi said in Frankfurt today the bank should remain focused on price stability and pressed governments to act on promises to end the sovereign debt crisis, indicating he’s not prepared to come to the rescue with large-scale bond purchases.

EU treaties could be re-opened to toughen rules on budgets and the economy, Katainen said in an interview with French newspaper La Tribune, repeating comments made Nov. 7 that sought a “more realistic, not idealistic” treaty to guide the bloc.

Even top-rated countries like Finland need to step up efforts to keep their budgets in check, Katainen said. Finland must continue to outperform its AAA rated peers to retain its top rating, Standard & Poor’s said on Nov. 9.

“Finland can’t lull itself into thinking all is always well here. We must defend our credibility and the stability of our economy,” Katainen said. “The best guarantee for low yields is to keep our economy in good shape.”

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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Obama to Send Clinton to Myanmar After Regime Shows ‘Flickers of Progress’

By Margaret Talev and Daniel Ten Kate - Nov 18, 2011 7:31 PM GMT+0700

President Barack Obama offered a vote of confidence in Myanmar’s political opening, dispatching Hillary Clinton next month on the first visit by a U.S. secretary of state to the country in more than 50 years.

Speaking at a summit of Asian leaders in Bali, Indonesia, Obama said Myanmar’s political reforms mean the country “can forge a new relationship” with the U.S. He also said “more needs to be done” on human rights issues.

Myanmar President Thein Sein has released political prisoners, legalized unions and stopped censoring media outlets like the BBC since taking power nine months ago in an election that ended five decades of military rule. Opposition leader Aung San Suu Kyi’s party voted today to rejoin the political process and stand in by-elections likely to be held next month.

“After years of darkness we’ve seen flickers of progress in these last several weeks,” Obama said with Clinton standing next to him. He said he spoke yesterday with Suu Kyi and received her support for U.S. engagement.

Clinton will visit the cities of Naypyidaw and Yangon, Obama said. A senior administration official said the visit will be Dec. 1-2.

Representatives from the U.S. and Europe have made more trips to the country formerly known as Burma in recent months as they review financial and economic sanctions. The 10-member Association of Southeast Asian Nations yesterday agreed Myanmar will chair the group in 2014, a move they say will provide further momentum for reform.

‘Clearest Sign Yet’

“It’s the clearest sign yet that the U.S. recognizes the importance of the political changes taking place,” said Thant Myint-U, a Myanmar historian and former United Nations official, in a telephone interview from Bangkok. “The country is clearly at its most important watershed in half a century and help from the United States in seeing this transition through toward a more democratic government is absolutely crucial.”

All 106 members of the National League for Democracy’s central committee who attended voted to re-register as a political party after it boycotted last year’s election, opposition news outlet Mizzima reported. Earlier this month, Thein Sein tweaked the law to pave the way for Suu Kyi’s party to re-enter the political process and contest 48 seats.

China Ties Strained

Myanmar authorities released Suu Kyi last year, a week after Thein Sein’s Union Solidarity and Development Party, backed by the former ruling junta, won about 80 percent of 664 seats in the election. The military retains a quarter of seats in the two houses of Parliament, according to the constitution.

Ties with China have recently been strained, according to Willy Lam, an adjunct professor of history at Chinese University of Hong Kong. In September, Thein Sein suspended China’s construction of a $3.6 billion dam. China Power Investment Corp., an investor in the project, called the decision “bewildering,” and the Chinese foreign ministry called for “friendly talks” to resolve the issue.

India last month agreed to extend $500 million of credit to Myanmar and the two countries agreed to boost trade ties.

“Rangoon is hedging its bets and trying to avoid the passive situation of having just one patron,” Lam said in an e- mail, using the old name for Yangon, the country’s largest city and former capital. “Beijing is very worried about whether Washington might want to steal its client.”

‘Just as Good’

Ma Mingqiang, secretary-general of the Asean-China Center and a former foreign ministry official, told reporters in Bali that China-Myanmar ties “are just as good as they were before. Problems crop up and these problems must be solved through cooperation as well,” Ma said.

Foreign Ministry spokesman Liu Weimin today said China “would like to see the U.S. and other western countries enhance contact with Myanmar and improve their relations.”

U.S. sanctions ban new investment, imports from Myanmar and transfer of funds into the country. Europe’s restrictive measures are less severe, including bans on weapons sales and mining investments.

Myanmar is showing “the first stirrings of change in decades,” Clinton told reporters Nov. 10 in Honolulu, Hawaii. “Should the government pursue genuine and lasting reform for the benefits of its citizens, it will find a partner in the United States.”

The last secretary of state to visit was John Foster Dulles in February 1955, according to State Department records.

Poorest in Asia

Myanmar’s 60 million people are the poorest in Asia, earning about $1.15 per day on average, about a tenth of per capita income in neighboring Thailand, according to Asean statistics. In recent years, China, India and Thailand have invested in Myanmar’s ports, railways and oil and gas pipelines to gain access to natural resources.

International companies have stepped up deals in Myanmar. Italian-Thai Development Pcl (ITD), Thailand’s biggest construction company, signed a contract worth $8.6 billion last year to build a deep-sea port and industrial park. India approved plans for Oil & Natural Gas Corp. and GAIL India Ltd. (GAIL) to invest $1.3 billion in a natural gas project.

Proven gas reserves in the country reached 11.8 trillion cubic feet at the end of last year, equivalent to a tenth of Australia’s reserves, according to the BP Statistical Review.

Clinton’s trip “is a welcome development,” Surin Pitsuwan, Asean’s secretary-general, told reporters today. “This will open a larger space to help Myanmar to see how the global community is moving forward.”

To contact the reporters on this story: Margaret Talev in Washington at mtalev@bloomberg.net; Daniel Ten Kate in Bali at dtenkate@bloomberg.net

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

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Italian Bonds Rise as ECB Buys Debt; U.S. Futures Signal Stocks to Rebound

By Stephen Kirkland - Nov 18, 2011 7:24 PM GMT+0700

Italian and Spanish bonds rose as the European Central Bank bought the securities to stem the debt crisis. U.S. stocks futures gained, signaling the Standard & Poor’s 500 Index will rebound from a one-month low, and the euro strengthened.

The yield on the Italian two-year note fell 20 basis points to 6.06 percent at 7:15 a.m. in New York. The cost of insuring against default on European government debt declined and the euro appreciated 0.9 percent to $1.3576. S&P 500 futures added 0.8 percent, while the Stoxx Europe 600 Index lost 0.2 percent. Gold advanced 0.7 percent to $1,734.22 an ounce.

“Every day when the ECB has come in and bought stressed debt, the euro has reacted favorably,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There’s this psychology going on surrounding what the ECB might do, which is giving the euro some support.”

ECB President Mario Draghi said today governments shouldn’t lose any time in bolstering the region’s rescue fund. Europe is running out of options to fix its debt crisis and it’s now up to Italy and Greece to convince markets they can deliver austerity measures, Finnish Prime Minister Jyrki Katainen said yesterday. An index of U.S. leading economic indicators probably increased last month, analysts said before a report today.

The Italian 10-year note yield declined nine basis points, narrowing the difference with benchmark German bunds by 13 basis points. The Spanish two-year yield fell eight basis points. The ECB bought Spanish and Italian debt, according to at least three people with knowledge of the trades who declined to be identified. An ECB spokesman in Frankfurt declined to comment. Bund yields rose two basis points, climbing for the fourth day.

Bond Risk Slips

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments fell three basis points to 355, compared with a record of 362 reached on Nov. 15.

The cost for European banks to fund in the U.S. currency rose for a fifth day, to the highest since December 2008. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, increased to 130.5 basis points below the euro interbank offered rate, from 129 yesterday.

The euro gained against 13 of 16 major peers. Swiss franc climbed against all 16 major peers, appreciating 0.3 percent versus the euro and 1 percent against the dollar. The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 0.8 percent, snapping four days of gains.

Leading Indicators

The S&P 500 sank 1.7 percent yesterday. The Conference Board’s gauge of the outlook for the next three to six months probably increased 0.6 percent in October, according to the median forecast in a Bloomberg News survey of 56 economists.

The Stoxx 600 declined for a second day. Chemring Group Plc sank 15 percent, the most in nine years, as the developer of missile-avoidance equipment for the Joint Strike Fighter said full-year earnings fell short of analysts’ estimates. Kemira Oyj, the Finnish maker of water-treatment chemicals, slid 13 percent after cutting sales and profit forecasts.

Silver jumped 2 percent to $32.3525 an ounce, after falling 6 percent yesterday.

The MSCI Emerging Markets Index dropped 1.5 percent. The gauge has fallen 3.6 percent this week, the most since the five days ended Sept. 23. The Hang Seng China Enterprises Index sank 2.7 percent after new home prices fell last month in some Chinese cities and a person with knowledge of the matter said the country’s banking regulator warned lenders that some projects backed by local governments may run out of funds.

Benchmark indexes fell by more than 1 percent in Russia, India, South Africa and Turkey. Funds investing in developing nations withdrew $183 million in the week ended Nov. 16, first outflows in five weeks, Citigroup Inc. said, citing data compiled by researcher EPFR Global.

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

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

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European Stocks Pare Losses as Region’s Central Bank Buys Government Debt

By Corinne Gretler - Nov 18, 2011 7:31 PM GMT+0700

European stocks pared their losses as the region’s central bank was said to buy sovereign bonds for the fifth straight day, even as Germany and France differed over the monetary authority’s role in ending the debt crisis. U.S. index futures climbed and Asian shares fell.

The benchmark Stoxx Europe 600 Index lost less than 0.1 percent to 233.93 at 12:28 p.m. in London. The gauge has retreated 2.9 percent this week as Italian and Spanish borrowing costs surged and Germany and France differed on the role of the European Central Bank in ending the crisis.

“The ECB remains the only institution that can credibly counter a collective loss of confidence on such a scale,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mail. “Yet the longer its intervention in the bond markets of Italy and Spain remains limited and intermittent, the greater the risk that the crisis will escalate further.”

Spanish and Italian bonds rose today after the ECB was said to buy the nation’s securities in its fifth consecutive day of sovereign-debt purchases.

Standard & Poor’s 500 Index futures expiring in December added 1 percent. The MSCI Asia Pacific Index slipped 1.5 percent as home prices in China fell in 33 of 70 cities monitored by the government in October, the worst performance since it expanded property curbs.

France vs. Germany

German Chancellor Angela Merkel yesterday rejected French calls to deploy the ECB as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil. Merkel listed using the ECB as lender of last resort alongside joint euro-area bonds and a “snappy debt cut” as proposals that won’t work.

Europe is running out of options to fix its debt crisis and it is now up to Italy and Greece to convince markets they can deliver the necessary austerity measures, Finnish Prime Minister Jyrki Katainen said.

Greek Prime Minister Lucas Papademos won approval for the final 2012 budget designed to regain the confidence of creditors and secure resumption of international financing. The budget forecasts Greece’s debt as a proportion of gross domestic product will fall to 145.5 percent in 2012 from 161.7 percent this year.

Italian Vote

In Italy, Prime Minister Mario Monti faces a final confidence vote in his new government today after vowing to attack the euro-region’s second-biggest debt and spur growth in its third-largest economy.

“Investors want to see action from politicians and a plan over how to solve the European debt problem, not just firefighting,” said Lars Knudsen, who manages about $110 million at LGT Capital Management AG in Pfaeffikon, Switzerland. “It is as much a growth problem in Europe as a debt problem. Trading will continue to be influenced by news coming from politicians.”

In the U.S., a report at 10 a.m. New York time may show that the index of leading economic indicators increased in October. The conference Board’s gauge of the outlook for the next three to six months climbed 0.6 percent after a 0.2 percent gain in September, according to the median estimate of 56 economists in a Bloomberg News survey.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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

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‘Unsellable’ Real Estate Threatens Spanish Banks

By Sharon Smyth - Nov 18, 2011 6:00 AM GMT+0700

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Nov. 18 (Bloomberg) -- Pablo Cantos, managing partner of MaC Group, talks about the exposure of Spanish banks to risky real-estate assets. He spoke with Bloomberg's Sharon Smyth in Madrid on Nov. 8. (Source: Bloomberg)

Spanish banks, under pressure to cut property-backed debt, hold about 30 billion euros ($41 billion) of real estate that’s “unsellable,” according to a risk adviser to Banco Santander SA (SAN) and five other lenders.

“I’m really worried about the small- and medium-sized banks whose business is 100 percent in Spain and based on real- estate growth,” Pablo Cantos, managing partner of Madrid-based MaC Group, said in an interview. “I foresee Spain will be left with just four large banks.”

Spanish lenders hold 308 billion euros of real estate loans, about half of which are “troubled,” according to the Bank of Spain. The central bank tightened rules last year to force lenders to aside more reserves against property taken onto their books in exchange for unpaid debts, pressing them to sell assets rather than wait for the market to recover from a four- year decline.

Land “in the middle of nowhere” and unfinished residential units will take as long as 40 years to sell, Cantos said. Only bigger banks such as Santander, Banco Bilbao Vizcaya Argentaria SA (BBVA), La Caixa and Bankia SA are strong enough to survive their real-estate losses, he said. MaC Group is an adviser on company strategy focused on financial services.

The banks will face increased pressure if Mariano Rajoy becomes prime minister as expected after national elections on Nov. 20. The People’s Party leader has said the “clean-up and restructuring” of the banking system is his top priority as he seeks to fuel economic recovery by boosting the credit supply.

More Consolidation

“Naturally, there is going to be a new wave of consolidation,” said Luis de Guindos, director of the PricewaterhouseCoopers and IE Business School Center for Finance and named by newspapers as a contender for finance minister in a Rajoy government. “Stricter provisioning rules for land need to be implemented. Many banks will be able to deal with it, but others won’t.”

Land in some parts of Spain is literally worthless, said Fernando Rodriguez de Acuna Martinez, a consultant at Madrid- based adviser R.R. de Acuna & Asociados. More than a third of Spain’s land stock is in urban developments far from city centers. About 43 percent of unsold new homes are in these areas, known as ex-urbs, while 36 percent are in coastal locations built up during the real-estate boom.

“If you take into account population growth for these areas, there’s no demand for them, not now or in ten years,” he said. “Around 35 percent of Spain’s land stock is in the ex- urbs, which means it’s actually worth nothing.”

Prices Fall

Spanish home prices have fallen 28 percent on average from their peak in April 2007, according to a Nov. 2 report by Fotocasa.es, a real-estate website, and the IESE business school. Land prices dropped by more than 60 percent in the provinces of Lugo, A Coruna and Murcia, and 74 percent in Burgos since the peak in 2006, data from the Ministry of Development and Public Works showed. Land values fell 33 percent nationwide.

“If there were to be a proper mark to market of real estate assets, every Spanish domestic bank would need additional capital,” said Daragh Quinn, an analyst at Nomura Holdings Inc. in Madrid, in a telephone interview.

Santander has 9.2 billion euros of foreclosed assets, followed by Banco Popular SA with 6.05 billion euros, BBVA with 5.87 billion euros, Bankia with 5.85 billion euros, Banco Sabadell SA with 3.6 billion euros and Banco Espanol de Credito SA (BTO) with 3.36 billion euros, according to an analysis by Exane BNP Paribas.

Dozens of Spanish banks have failed or been absorbed since the economic crisis ended a debt-fueled property boom in 2008. Spain’s bank-bailout fund took over three lenders on Sept. 30, valuing them at zero to 12 percent of book value. Bank of Spain Governor Miguel Angel Fernandez Ordonez said the overhaul of the industry was complete after 45 savings banks merged into 15 and lenders increased capital levels.

Three Banco Pastor SA shareholders with about 52 percent of the stock accepted a takeover bid from Banco Popular Espanol SA (POP) on Oct. 10 as part of the industry’s consolidation. Banco Pastor’s shares gained 21 percent.

Public Cost

The cost to the public of cleaning up the industry’s books has so far been 17.7 billion euros in the form of share purchases from the government bailout funds known as the FROB.

Banks have made provisions for a potential 105 billion euros of writedowns since the market crashed. Lenders may need to make another 60 billion euros in provisions to clean up their balance sheets, including real-estate debt, according to Rafael Domenech, chief economist for developed nations at BBVA.

“Since the crisis began, banks have only put their lowest- quality assets on sale while they waited for a recovery, so as not to sell the better properties at a loss,” said Fernando Encinar, co-founder of Idealista.com, Spain’s largest property website. Idealista currently advertises 45,912 bank-owned homes in Spain, up from 29,334 in November 2010. In 2008 it didn’t list any.

Home Glut

Spain is struggling to digest the glut of excess homes in a stalling economy where joblessness is among the highest in Europe. Unemployment has almost tripled to 22.6 percent from a low of 7.9 percent in May 2009, according to Eurostat.

Property transactions fell 28 percent in September from a year earlier, the seventh consecutive month of decline, according to the National Statistics Institute.

Financial institutions have foreclosed on 200,000 homes and that will balloon to as many as 600,000 in coming years as unemployment continues to rise, according to a report by Taurus Iberica Asset Management, a Spanish mortgage servicer which manages 35,000 foreclosed properties for 25 lenders.

“Spain has 1 million new homes that won’t be completely absorbed by the market until the middle of 2017,” Fernando Acuna Ruiz, managing partner of Taurus Iberica, said in an interview in Madrid. “Prices will fall a further 15 to 20 percent in the next two to three years.”

Investors Fade

Lack of financing and concern about economic growth has choked investment in Spanish commercial real estate, currently at its lowest level in a decade, according to data compiled by U.K. property broker Savills Plc. (SVS)

A total of 1.25 billion euros of offices, shopping malls, hotels and warehouses changed hands in the first nine months, 52 percent less than a year earlier, Savills estimated.

There is an “enormous” gap between prices offered by banks and what investors are willing to pay, preventing sales of large property portfolios, MaC Group’s Cantos said.

He proposes that banks create businesses, in which they can hold a maximum stake of 19 percent, that attract other investors to help dispose of their real estate assets over five to eight years. The investors would manage the businesses.

Cantos says that prime assets can be sold at a 30 percent discount, while portfolios comprised of land, residential and commercial real estate may only sell after 70 percent discounts.

“Therein lies the problem,” he said. “Banks have already provisioned for a 30 percent loss, but if you are selling at 70 percent discount, you have to take another 40 percent loss. Which small and medium size banks can take such a hit?”

To contact the reporter on this story: Sharon Smyth in Madrid at ssmyth2@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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Franco-German Spat on Role of ECB Renewed

By Tony Czuczka and Mark Deen - Nov 18, 2011 4:22 PM GMT+0700

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Nov. 18 (Bloomberg) -- Laurence Fink, chief executive officer of BlackRock Inc., and Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., talk about the European sovereign debt crisis and the global outlook. They speak with Bloomberg's Erik Schatzker yesterday at an alumni event hosted by the UCLA Anderson School of Management and Bloomberg Television. (Source: Bloomberg)

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Nov. 18 (Bloomberg) -- Stephen King, chief economist at HSBC Holdings Plc, talks about the euro-zone debt crisis, bond yields and the European Central Bank's role in backing indebted nations. He speaks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

The failure of European leaders to end the debt crisis with their broadest effort yet has revived a Franco-German dispute over the European Central Bank’s role and fueled investor concerns over policy makers’ economic impotence.

ECB chief Mario Draghi today slammed governments for failing to implement policy commitments as holders of Greek debt began talks in Athens on structuring a 50 percent writeoff that was the cornerstone of a deal pieced together last month at an all-night summit. Officials in Berlin and Paris yesterday swapped barbs and European borrowing costs outside of Germany rose to euro-era records.

The discord highlighted markets’ brushoff of a package that included a scaled-up rescue fund, proposed guarantees of sovereign debt and a bid to attract more international loans. The accord, which finance ministers aim to implement next month, was at least the fourth plan billed as a comprehensive strategy to end the crisis born in Greece in 2009, none of which provided a lasting fix.

“Where is the implementation of these long-standing decisions?” Draghi said in a speech in Frankfurt today. “We should not be waiting any longer.”

Stocks slid, dragging the MSCI All Country World Index to a six-week low. The Stoxx Europe 600 Index decreased 0.7 percent. The premium France pays over Germany to borrow for 10 years jumped to a record 200 basis points yesterday, as yields on bonds of countries from Portugal to Finland, the Netherlands to Austria also rose relative to Germany.

‘Clearly Broadening’

“The crisis is clearly broadening,” Riccardo Barbieri, London-based chief European economist at Mizuho International Plc, told Bloomberg Radio’s Ken Prewitt yesterday. “Only Germany, and to some extent the Netherlands, are immune from the crisis at the moment.”

German Chancellor Angela Merkel and French President Nicolas Sarkozy telephoned new Italian prime minister Mario Monti late yesterday and stressed the need for the euro region to accelerate implementation of those measures agreed on at the Oct. 26-27 summit, according to an e-mailed statement.

It is now up to Italy and Greece to convince markets they can deliver the necessary austerity measures as Europe runs out of options to fix its debt crisis, Finnish Prime Minister Jyrki Katainen said in an interview in Helsinki yesterday.

“The European Union cannot restore confidence in Greece and Italy if they don’t do it themselves,” Katainen said.

Merkel’s Rejection

As President Barack Obama urged more urgent action to avert global turmoil, Merkel rejected French calls to deploy the ECB as a crisis backstop.

“If politicians believe the ECB can solve the problem of the euro’s weakness, then they’re trying to convince themselves of something that won’t happen,” Merkel said.

French Finance Minister Francois Baroin said in a speech in Paris on Nov. 16 that “the best way to avoid contagion is to have a solid firewall” by using central bank support for Europe’s 440 billion-euro ($595 billion) rescue fund.

“We haven’t won the argument,” Baroin said. “We won’t make it a casus belli, but naturally we continue to think it would be the best way to bring stability to Europe.”

Inflation Fears

Sarkozy had backed down over the role the ECB should play in fire-fighting, acknowledging Germany’s inter-war experience of inflation, to help obtain the Oct. 27 accord among European leaders. The Frankfurt-based ECB has also resisted calls to provide more support. Draghi said Nov. 3 that backstopping government borrowing lies outside the ECB’s remit.

“Printing money at the end of the day means inflation,” Michael Fuchs, the economy spokesman for Merkel’s Christian Democratic Union party, said in an interview with BBC Radio 4’s “Today” show. “Every German is very much scared about inflation.”

The clash is intensifying as France, Europe’s second- biggest economy and the second-largest backer of the European Financial Stability Facility after Germany, is dragged more deeply into the crisis that in the past week led to the ousting of Italy’s Silvio Berlusconi and George Papandreou of Greece.

In her speech, Merkel reached out to the U.K. on the eve of Prime Minister David Cameron’s visit to Berlin today, praising his effort to cut government spending and saying that “we want a Europe with Great Britain” that doesn’t exclude any member country from the euro area.

To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; James Hertling at jhertling@bloomberg.net

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Disney’s Alligator Topples Angry Birds in Quest for Billion Gamers: Tech

By Olga Kharif - Nov 18, 2011 5:00 AM GMT+0700

“Where’s My Water?,” the new mobile game from Walt Disney Co. (DIS), stars Swampy, an alligator who lives in an underground sewer.

The googly eyed reptile likes to lounge around in his subterranean bathtub while he scrubs his back with a brush. Players swipe their fingers across an Apple Inc. (AAPL) iPhone screen to guide water into his tub while dodging toxic sludge and collecting rubber duckies as prizes.

With the 99-cent application, also available for Apple’s iPad tablet, the House of Mickey is attempting to do something it has never done before: spin a multimillion-dollar franchise out of a character that made his debut on a 3.5-inch screen, Bloomberg Businessweek reports in its Nov. 21 issue.

So far the Swampy experiment is going swimmingly. Following its Sept. 22 release, “Where’s My Water?” quickly jumped to the top of the Apple App Store’s paid applications chart, displacing the record-setting “Angry Birds” game from the No. 1 spot for three weeks.

The logic behind Disney’s new release is simple. A movie takes three to five years and hundreds of millions of dollars to make, and as with “Mars Needs Moms,” Disney’s big theatrical release this past spring, success is hardly guaranteed.

‘New Way’

The cost of a mobile game runs in the hundreds of thousands. It took a crew of seven people seven-and-a-half months to produce “Where’s My Water?” If Swampy becomes a hit with kids, a follow-up movie could have a ready base of fans eager to buy tickets.

“This is a very, very cost-effective way to develop characters,” said Tim Nollen, an analyst at Macquarie Capital USA Inc. in New York. “It’s a new way of doing things.”

About 52 percent of kids 8 and younger have used a mobile device for games and other activities, according to a recent survey of 1,384 parents by Common Sense Media Inc.

A new generation of Disney fans “is growing up, and this is their main platform,” said Bart Decrem, senior vice president and general manager of Disney Mobile, a 150-person unit. “My gut feeling is, over the next few years, someone will create a game with a billion gamers on it. We want to be that company.”

Disney already has Swampy’s career plotted out. A 12- episode animated series will air on Disney.com and on Google Inc. (GOOG)’s YouTube sometime in the first quarter of 2012, part of a deal that will have the two companies spend as much as $15 million on co-branded content. A book and a movie featuring the cute green gator could follow, Decrem says.

‘Angry Birds’

The company aims to replicate Rovio Entertainment Oy’s success in catapulting “Angry Birds” into something beyond a digital phenomenon.

The Finnish gamemaker sells 1 million plush toys a month -- along with T-shirts, school lunch boxes and other gear -- and publishes a comic strip online. There are also plans for educational books and a movie.

There’s no reason why Disney, with its amusement parks, hundreds of stores and a cruise line, can’t do the same, said Jack Kent, an analyst at researcher IHS Screen Digest.

“Disney is one of the experts in merchandising,” he said.

Disney last year acquired social-gaming company Playdom Inc. and mobile-games maker Tapulous Inc., where Decrem was chief executive officer.

Swampy’s Emotions

Working in this new medium required some adjustments for Disney’s animators. Swampy had to be able to show emotions within the constraints of a tiny phone screen.

The company says it solved the problem by developing a special technique that doesn’t require gamers to download large files. It also has put more effort into character development and storytelling than is typical for a mobile game -- an investment it hopes will pay off as Swampy makes the progression from mobile devices to streaming video, and perhaps eventually the big screen.

Disney is confident enough about its alligator’s ability to navigate the digital shoals that it’s already considering two more original characters for mobile gadgets.

“We want to create new characters that are born and sized for this platform,” said Decrem.

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

To contact the editor responsible for this story: Cristina Lindblad at mlindblad1@bloomberg.net.

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Battery Gains Top $440 Million After Angie’s List Follows Groupon With IPO

By Ari Levy - Nov 18, 2011 8:57 AM GMT+0700

Battery Ventures’ investments in Angie’s List Inc. and Groupon Inc. have produced more than $440 million in paper profit after the Internet-commerce companies sold shares to the public this month.

Angie’s List, the consumer-review site, jumped 25 percent to $16.26 in its debut yesterday, giving the Indianapolis-based company a valuation of $904 million. That values Battery’s $35 million investment from 2008 at $139.4 million, not including some shares it already sold.

Roger Lee, a general partner at Battery and an Angie’s List board member, also orchestrated his firm’s $58 million investment in Groupon, which has ballooned into a stake worth $396 million. With the investments, Battery wagered that Angie’s List and Groupon would help companies that had previously struggled to reach customers online, Lee said.

“Over time, services would emerge that would allow consumers and merchants to find each other and conduct local commerce on the Web,” said Lee, who is based in Battery’s Menlo Park, California, office. “We always thought that would be a really big opportunity.”

Battery’s returns are being bolstered by a resurgent IPO market. IPOs are poised to raise the most money in six months in November following an 11 percent increase in the Standard & Poor’s 500 Index last month. Groupon raised $700 million on Nov. 3, the biggest IPO by a U.S. Web company since Google Inc. sold shares in 2004. Angie’s List raised $114 million.

Combined Investment

Battery invested a combined $93 million in the two companies. As of yesterday’s close, the holdings were worth $535 million. The firm sold 403,224 Angie’s List shares in the offering, worth $5.24 million based on the $13 offer price, and had sold some stock before the IPO.

For Battery to secure the gains, the companies’ stock prices need to hold up for at least six months, the period during which insiders are barred from selling. While Groupon remains above its offer price, the shares have dropped 5.1 percent since their first day of trading.

Both companies also face competition -- including from each other. Angie’s List, which provides reviews of plumbers, electricians and other professionals, introduced a service last year, The Big Deal, which lets users sign up for discounts on local services. In its prospectus, the company says it competes with Groupon and LivingSocial, the two biggest daily-deal providers. Yelp Inc., a consumer-review website, announced plans yesterday to raise as much as $100 million in an IPO.

Battery’s Funds

Battery, founded in 1983, has offices in Menlo Park; Waltham, Massachusetts; and Herzliya, Israel. The firm raised a $750 million fund last year for investments in technology and clean-energy companies. It previously raised a fund of the same amount in 2007. That one includes the Angie’s List investment and part of the Groupon stake.

Through March 31, the 2007 fund had gained 7.1 percent annually, according to the California Public Employees’ Retirement System, a Battery Investor.

Lee, 40, joined Battery in 2001 and focuses on software, Internet and digital-media companies. His other investments include online-payment service TrialPay Inc., Internet- advertising company FreeWheel Media Inc., and online Web game company World Golf Tour Inc.

Before Battery, Lee spent 10 years at technology companies and was co-founder of Corio Inc., which was sold to International Business Machines Corp. (IBM) in 2005.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

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

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HP Adds Activist Shareholder Ralph Whitworth to Board to Boost Credibility

By Jeffrey McCracken - Nov 18, 2011 12:01 PM GMT+0700

Hewlett-Packard Co. (HPQ), the largest computer maker, is adding activist shareholder Ralph Whitworth to its board to help shore up investor confidence shaken by strategy shifts and slashed sales forecasts.

Whitworth, whose Relational Investors LLC held about 17.5 million Hewlett-Packard shares as of Sept. 30, is joining the board’s compensation committee and its finance and investment committee, Hewlett-Packard said in a statement yesterday.

Hewlett-Packard aims to assuage investors who sold stock amid a growth slowdown in the months before Meg Whitman replaced Leo Apotheker as chief executive officer. Whitworth, whose firm oversees $6.5 billion, told management his appointment would burnish credibility and that he’d press for share buybacks, higher dividends or more investment in research and development, a person with knowledge of the talks said.

“It’s definitely a positive development for the company,” said Brian Marshall, an analyst at ISI Group in San Francisco. “The board needs help, and Ralph has the background to help them.”

Hewlett-Packard, based in Palo Alto, California, also appointed Rajiv Gupta as lead independent director. Whitworth brings the total number of board members to 14.

Hewlett-Packard climbed to $27.81 in late trading yesterday after Bloomberg reported Whitworth’s appointment. It had slipped 64 cents to $27.29 at 4 p.m. New York time.

Buybacks, Dividends

Whitworth, 56, has used his shareholdings to agitate for change at other companies, including industrial conglomerate ITT Corp. (ITT) and defense contractor L-3 Communications Holdings Inc. (LLL)

Relational, based in San Diego, began accumulating its stake in late August, according to the person with knowledge of the transactions. That came after Hewlett-Packard announced plans to buy Autonomy Corp. for $10.3 billion and said it might spin off the personal-computer division. Investors said Hewlett- Packard overpaid for Autonomy and that the proposed spinoff was ill conceived. The firm kept buying shares through September, this person said. Whitman was appointed on Sept. 22.

Whitworth contacted Whitman and Executive Chairman Ray Lane in early October, the person said. After a few weeks of conversation, the company agreed to put Whitworth on the board, this person said.

Whitman, former CEO of online commerce pioneer EBay Inc. (EBAY), has already begun reversing strategies pursued by her predecessor. Last month, she abandoned a proposal to spin off the company’s market-leading PC unit and she shares management responsibilities with Lane.

ITT, L-3

Relational pushed for changes at industrial products maker ITT and L-3 Communications before those companies announced spinoffs this year. Last year, Whitworth was elected to the board of Genzyme Corp., which in February agreed to a sale to Sanofi-Aventis SA after a nine-month pursuit.

Whitworth served as chairman of Waste Management Inc. (WM) from 1999 to 2004, overseeing a turnaround at the company after it settled lawsuits alleging former executives overstated earnings. He also led an effort at Tyco International Ltd. (TYC) to oust directors who served under former CEO Dennis Kozlowski, and sat on the board of Apria HealthCare Group Inc., which was acquired by Blackstone Group LP (BX) in a 2008 buyout.

Whitworth and David Batchelder founded Relational in 1996 with an initial allocation of $200 million from the California Public Employees’ Retirement System, the nation’s largest public pension fund. The two had previously worked for billionaire oil executive T. Boone Pickens.

To contact the reporter on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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Olympus Ex-Director Sets Up Website Calling for Woodford to Return as CEO

By Naoko Fujimura, Takashi Amano and Kazuyo Sawa - Nov 18, 2011 1:24 PM GMT+0700

Olympus Corp. (7733) should reinstate Michael C. Woodford as head to rebuild trust after the camera and endoscope maker admitted to hiding losses, a retired company director said.

Koji Miyata, 70, set up the website “Olympus Grassroots” on Nov. 11, and it now has at least 356 people registered as supporters including some existing employees, he said. Miyata, who was a director at Olympus between 1995 and 2006 and has known Woodford for 25 years, said he didn’t contact the former chief executive officer about the website.

Woodford was fired as president and CEO on Oct. 14 after he confronted the board about over-sized payments made to advisers in the acquisition of Gyrus Group Plc in 2008. Olympus revealed last week it used the purchase of Gyrus and three other takeovers to cover up losses on investments dating back decades.

“I want support from employees so that management will reinstate Woodford,” Miyata said in an interview in Tokyo yesterday. “He was the only one who acted right as a director when all the allegations emerged.”

Olympus has lost about 75 percent of its market value since Woodford was ousted. The stock fell today for the first time in five days, declining 16 percent to 625 yen at the 3 p.m. close in Tokyo trading.

Okayama University Hospital decided to cancel an endoscope order for Olympus, Dr. Yoshiro Kawahara said, joining shareholders including Southeastern Asset Management Inc. in criticizing corporate governance at the 92-year-old company.

Endoscopes in Hospital

“My impression is Olympus turned 180 degrees,” Kawahara said in a phone interview yesterday. “It’s a terrible company to me now.”

Okayama University Hospital has nine endoscopes priced at as much as 10 million yen ($130,000) apiece, the 46-year-old doctor said. Eight of them are made by Olympus, and one is made by Hoya Corp.’s Pentax, he said.

Baillie Gifford & Co. and Harris Associates LP are among investors petitioning for Woodford’s return. Southeastern Asset, which owns about 5 percent of Olympus, said Nov. 8 that Olympus board members should resign immediately and an emergency general meeting of shareholders be called.

Olympus President Shuichi Takayama called Miyata’s website “noise,” according to his note posted on the company’s internal website on Nov. 15.

To contact the reporters on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net; Kazuyo Sawa in Tokyo at ksawa3@bloomberg.net

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

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China Trade Surplus May Be Gone in Two Years, Central Bank Adviser Li Says

By Bloomberg News - Nov 18, 2011 12:55 PM GMT+0700

China’s trade surplus may disappear within two years as domestic demand rises, making the yuan rate less of an issue, an adviser to the nation’s central bank said.

“In one to two years, our trade surplus will be zero,” the adviser, Li Daokui, said in an interview in Beijing today. “It’s possible for the renminbi to face depreciation pressure. If that time comes, let the market decide its fluctuation,” he said, referring to the Chinese currency.

Policy makers in the world’s second-largest economy have pledged to adjust the nation’s growth toward domestic demand and narrow its external surplus to help address lopsided flows of trade and investment that contributed to the global financial crisis of 2008. Unbalanced trade flows have triggered calls from U.S. and other Group of 20 nations for China to allow its currency to trade more flexibly.

President Barack Obama said on Nov. 13 that “enough’s enough” on what the U.S. views as a too-slow strengthening in the yuan, saying that Chinese exporters “like the system the way it is.”

Still, exchange rates have become a “much smaller” issue over the years, Li said at a forum today. China’s trade surplus may account for less than 1.6 percent of gross domestic product this year, he said.

“The marketplace will eventually provide a good answer to all these political pressures,” Li said. “I often call upon my countrymen not to be irritated, not to become angry to the international pressure of exchange rate appreciation. That’s daily politics.”

Yuan Rate

The yuan fell 0.16 percent to 6.3528 per dollar today. China’s currency has appreciated 2.3 percent against the dollar in the past six months, according to Bloomberg Data.

Standard Chartered has scaled back its projections for the yuan against the dollar this week, predicting the currency will appreciate 0.6 percent each quarter in the first half of 2012, lower than the 1 percent quarterly advance the company previously expected.

China’s inflation rate has dropped from a three-year high of 6.5 percent in July to 5.5 percent last month, government data show. The economy expanded 9.1 percent in the third quarter, the least since 2009, amid the government’s campaign to cool consumer and property prices.

“Inflation will likely ease to 2.8 percent next year,” Li said. That may help deposit rates rise above the inflation rate, in line with the central bank’s goal, he said.

Economic Growth

China will probably invest in public works projects if there’s a risk of the nation’s growth falling below 6 percent, Li said. China’s economy will grow 9 percent next year, according to an International Monetary Fund projection in September.

The central bank this week said it can’t loosen control over prices and reiterated Premier Wen Jiabao’s pledge to “fine-tune” policies when needed. While inflation may continue to moderate, “the foundation for price stability is not yet solid,” the bank said in its third-quarter monetary policy report.

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

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Amazon Is Preparing Smartphone for Fourth Quarter of 2012, Citigroup Says

By Ian King - Nov 18, 2011 4:20 AM GMT+0700

Amazon.com Inc. (AMZN), seeking to build on its expansion into e-readers and tablets, is working on a smartphone that will go on sale in the fourth quarter of next year, according to Citigroup Inc.

The phone will be a mid-range device that uses a processor from Texas Instruments Inc. (TXN) and connectivity chips from Qualcomm Inc. (QCOM), said Mark Mahaney, a San Francisco-based analyst at Citigroup, citing research by Asian colleagues. The total list of components won’t exceed $100, he said.

Amazon’s Kindle is the best-selling e-book reader, and its new tablet computer, the $199 Kindle Fire, is going up against Apple Inc. (AAPL)’s iPad this holiday season. That has set the stage for Amazon to push into mobile phones, Mahaney said. The idea would be to use the device to sell more digital media, such as books and music, rather than making money on the phone itself.

“With the clear success of the Kindle e-reader over the past three years, and Kindle Fire possibly succeeding in the low-priced tablet market, we view this as the next logical step for Amazon,” Mahaney said in a report. “We continue to believe Amazon has now set its eyes on the mobile (and tablet) media and product consumption frontier.”

The device may retail for less than other phones because Amazon doesn’t need to make money on it, he said. The company may sell it to carriers for $170 -- the cost of production and licensing the product -- or maybe even less, Mahaney said. The phone will be manufactured by Hon Hai Precision Industry Co., which makes other devices for Amazon, he said.

Drew Herdener, a spokesman for Seattle-based Amazon, didn’t respond to a request for comment. Heather Ailara, a spokeswoman for Dallas-based Texas Instruments, and Emily Kilpatrick, a representative of Qualcomm in San Diego, declined to comment.

Amazon shares fell 3.5 percent to $204.52 at the close in New York. The stock has climbed 14 percent this year.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

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

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Southeast Asian Slowdown Looms as Thai Floods Compound Europe Demand Slump

By Chong Pooi Koon and Suttinee Yuvejwattana - Nov 18, 2011 12:31 PM GMT+0700

Growth in Southeast Asian economies including Malaysia and Thailand may have peaked last quarter as the European debt crisis and Thai floods hurt the outlook for exports, adding pressure on policy makers to cut interest rates.

Malaysia’s gross domestic product increased 4.8 percent in the three months through September from a year earlier, after a 4 percent expansion the previous quarter, according to the median of 25 estimates in a Bloomberg News survey. Thailand’s growth probably quickened to 4.5 percent from 2.6 percent, according to a survey of 11 economists.

“Exports will likely soften in the coming months as Europe slides into a recession,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “Both Bank Negara Malaysia and Bank of Thailand will keep their options open and ease if growth readings turn ugly in coming months.”

Authorities in Singapore and Indonesia have cut growth forecasts in recent weeks and the Asian Development Bank said economies in the region may expand at a slower pace than earlier estimated. Most Asian currencies fell in the past three months on concern the nations that led the recovery from the 2009 global recession will falter, and United Overseas Bank Ltd. said policy makers may allow more weakening to support exports.

“It’s part of monetary easing if they let their currencies weaken,” said Ho Woei Chen, an economist at United Overseas Bank in Singapore who expects Malaysia and Thailand to highlight the risks to growth going forward. “Probably they are not cutting interest rates that aggressively but letting their currency depreciate.”

Ringgit Falls

Malaysia’s central bank will release GDP data at 6 p.m. today. Thailand will give its economic report for the third quarter on Nov. 21.

The Malaysian ringgit has fallen more than 5 percent in the past three months and the Thai baht has weakened 3.6 percent. Neither Malaysia nor Thailand have cut rates even as Indonesia and Australia lowered borrowing costs this quarter. The ringgit fell 0.2 percent to 3.1648 a dollar at 1:19 p.m. in Kuala Lumpur, and the baht slid 0.6 percent to 31.03 a dollar.

Singapore, which uses the island’s dollar as its main tool to manage inflation, said in October it will reduce the pace at which the currency strengthens. The nation’s exports fell the most in more than two years in October as electronics shipments by companies such as contract manufacturer Venture Corp. dropped 31.2 percent, a report showed yesterday.

Revised third-quarter GDP data due Nov. 21 may show Singapore’s economy grew faster than the government estimated earlier, a Bloomberg survey showed.

Major Risks

Exports and domestic demand probably helped Thailand and Malaysia expand faster last quarter, before the deepening European sovereign-debt crisis and the worst Thai floods in almost 70 years threatened global growth and regional trade.

“Strong domestic demand continued to drive growth” in Malaysia, said Daniel Wilson, an analyst at Australia & New Zealand Banking Group Ltd. in Singapore. “Looking ahead, one of the major risks to growth is a slowdown in the external sector spilling over into the domestic economy. Supply chain disruptions stemming from Thai floods may depress industrial production in the short run.”

Investment has accelerated in Southeast Asia’s third- largest economy since Prime Minister Najib Razak’s government last year identified $444 billion worth of private sector-led projects to spur growth.

International Business Machines Corp., Toshiba Corp. and Agilent Technologies Inc. are among companies pledging new investments in Malaysia. Exports grew at the fastest pace in more than a year in September as companies shipped abroad more electronics and commodities.

Thai Floods

“Most of the emerging economies like ours are still experiencing growth even though we may experience a moderation in growth because of the challenging global environment,” Bank Negara Malaysia Governor Zeti Akhtar Aziz said this week.

Thai leader Yingluck Shinawatra is struggling to rescue the nation from floods that have claimed at least 567 lives, swamped thousands of factories and threatened the homes of 20 percent of the country’s 67 million people since late July. Yingluck was sworn in as the nation’s first female prime minister in early August.

Thai Signal

The Bank of Thailand has signaled it may consider cutting rates as the disaster curbs growth. It kept rates unchanged in October for the first time in 2011.

The flood damage could cost as much as 400 billion baht ($13 billion), or 4 percent of GDP, Rahul Bajoria, a Singapore- based regional economist at Barclays Plc said in a research note yesterday. He revised down his forecast for Thai economic growth this year to 2.4 percent and predicted the central bank will cut the benchmark rate by 50 basis points to “shore up consumer and business confidence.”

“The strong growth we’ve seen in all GDP components in the third quarter will turn opposite this quarter,” said Kampon Adireksombat, an economist at Tisco Securities Co. in Bangkok. “The flooding is far worse than what we had expected as the water spread through most of our capital. We expect the central bank to come up with a drastic move of a 50 basis-point cut at the upcoming meeting if they want to rescue the economy.”

Malaysia’s benchmark rate stands at 3 percent, and Thailand’s is 3.5 percent.

To contact the reporters on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net; Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.

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China Home Prices Fall Most This Year on Curbs

By Bloomberg News - Nov 18, 2011 11:52 AM GMT+0700

China’s home prices fell in 33 of 70 cities monitored by the government in October, the worst performance since it expanded property curbs and scrapped the reporting of national average housing data this year.

Wenzhou led the decline with a slump of 4.6 percent from September, more than 10 times the average drop, according to data released by the statistics bureau today. A credit squeeze on smaller businesses in the eastern city prompted a visit and pledge of financial aid from Premier Wen Jiabao last month.

China Vanke Co. and Poly Real Estate Group Co. fell more than 3 percent, leading a decline in stocks of developers after the report showed new home prices retreated in Shanghai, Shenzhen and Guangzhou. Wen said this month that the government won’t relax property curbs, after raising down-payment and mortgage requirements this year to avert a possible bubble.

“The turning point of China’s home prices has come,” Shen Jian-guang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said in a phone interview today. “Prices not only fell for new homes and in major cities, but also in secondary cities and in the existing home market.”

Analysts including Barclays Capital Research and asset managers such as CBRE Global Investors are betting price declines will force a policy reversal as the tightening weighs on economic growth. The government this year raised down payment and mortgage requirements and imposed home purchase restrictions in about 40 cities. The central bank also increased interest rates three times and reserves ratio six times this year.

‘More Apparent’

“The government’s property policy is working and working in a much more apparent way than expected,” Nicole Wong, a property analyst at CLSA Asia-Pacific Markets, said in a Bloomberg Television interview in Hong Kong today, adding that measures may be eased if there are further declines in sales. “Monetary measures do work, as a lot of buyers do use a lot of mortgages,” she said.

China’s banking regulator warned lenders that some projects backed by local governments may run out of funds, and loans to property developers are likely to sour as sales slow, a person with knowledge of the matter said.

The China Banking Regulatory Commission told lenders last week to step up asset sales and debt restructuring for unprofitable local government financing vehicles struggling to repay loans, the person said, declining to be identified as the instructions were private. The watchdog also said banks should cut “high-risk” loans to developers, the person said.

Shares Fall

The gauge tracking property shares on the Shanghai Composite Index fell 1.8 percent to the lowest in almost four weeks at the midday break, extending the decline this year to 14 percent.

More than twice the number of cities posted declines compared with September, when 16 locations reported lower prices from August. Prices in 23 cities were unchanged in October and 14 recorded gains, the data showed.

Housing values in the financial center of Shanghai and the southern business hub of Guangzhou fell 0.2 percent from the previous month, while those in Shenzhen neighboring Hong Kong slipped 0.1 percent. Beijing prices were unchanged. Five analysts surveyed by Bloomberg News expected prices in China’s four biggest cities, with a combined population of 66 million people, to drop as much as 0.3 percent.

Today’s figures came after private data also showed signs of cooling. China’s home prices slid for a second month in October, according to SouFun Holdings Ltd. (SFUN), the country’s biggest real estate website.

Wenzhou Visit

Existing home prices in Beijing dropped 0.5 percent last month from September, while those in Shanghai retreated 0.2 percent, according to the bureau. Wenzhou’s existing homes also lost the most among the 70 cities in October, declining 4.4 percent. Fewer than half of the locations tracked by the government posted a gain from September.

Premier Wen visited Wenzhou in eastern Zhejiang province last month amid reports of surging bankruptcies among private companies unable to repay debt to so-called underground lenders.

“A lot of the city’s entrepreneurs invested in the property market with the capital they earned from their own business,” Mizuho’s Shen said. “With the tightening of credit, they started to sell off properties.”

Home prices will fall between 15 percent to 30 percent in the next two years, Mark Mobius, who oversees $40 billion as Hong Kong-based executive chairman of Franklin Templeton Investments’ Emerging Markets Group, said before today’s release. BNP Paribas predicted a 10 percent decline by the second half of next year.

‘Over Correcting’

“The government should start to be cautious about property prices over correcting on the downside as it will inevitably affect the economy,” Wee Liat Lee, a Hong Kong-based property analyst at Samsung Securities Co., said in an e-mail.

Residential property accounted for 6.1 percent of the country’s gross domestic product last year, according to Citigroup Inc.

The nation’s trade surplus may be eliminated in one to two years, making the yuan rate less of an issue, said Li Daokui, an adviser to the central bank. Policy makers in the world’s second-largest economy have pledged to adjust the country’s growth toward domestic demand and narrow its external surplus to help address lopsided flows of trade and investment that contributed to the global financial crisis of 2008.

--Bonnie Cao. With assistance from Rishaard Salamat in Hong Kong and Jacob Gu in Shanghai. Editors: Linus Chua, Tomoko Yamazaki

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at +86-21-6104-3035 or bcao4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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Stocks, Metals Decline on Europe Debt, China Bank Loan Concerns

By Lynn Thomasson and Yoshiaki Nohara - Nov 18, 2011 3:19 PM GMT+0700
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Japan’s Nikkei 225 Stock Average lost 1.3 percent, South Korea’s Kospi tumbled 2.1 percent and Hong Kong’s Hang Seng Index retreated 1.8 percent. Photographer: Tomohiro Ohsumi/Bloomberg

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Nov. 18 (Bloomberg) -- Rajiv Jain, a senior portfolio manager at Vontobel Asset Management, talks about the outlook for Europe's debt crisis, global equity markets and his investment strategy. Jain speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Stocks fell, dragging the MSCI All Country World Index to a six-week low, while metals dropped and the South Korean won weakened as Europe’s debt crisis spread and concern mounted that bad loans in China increased.

MSCI’s global equity benchmark retreated 0.6 percent at 8:18 a.m. in London, heading for a third week of losses. The Stoxx Europe 600 Index decreased 0.4 percent. Standard & Poor’s 500 Index futures gained 0.2 percent after the U.S. gauge sank 1.7 percent yesterday. Copper lost 0.3 percent and nickel and zinc fell at least 0.7 percent. The won declined 0.8 percent as Asian currencies headed for the biggest weekly loss since September. Oil, which slid below $100 a barrel yesterday, climbed 0.2 percent to $99.

Investors drove up the funding costs of France and Spain as the countries sold 11.6 billion euros ($15.6 billion) of debt yesterday. The China Banking Regulatory Commission told lenders last week that loans to property developers are likely to sour as sales slow, a person with knowledge of the matter said. China’s home prices fell in 33 of 70 cities monitored by the government in October, the statistics bureau reported today.

“The main concern continues to be the European debt crisis and their inability to solve that problem,” said Michael Liang, chief investment officer at Foundation Asset Management (HK) Ltd. China’s property report “has caught the attention of investors that home prices are falling and China’s regulator is reminding people about banking risks,” he said.

The drop in property prices is the worst performance since the government expanded property curbs and scrapped the reporting of its national average housing data this year.

Nikkei, Kospi

S&P 500 futures climbed to 1,216.70. The U.S. stock gauge has slumped 3.8 percent in the past four days and closed yesterday at the lowest level in a month.

About five stocks fell for each that rose on the MSCI Asia Pacific Index. The regional benchmark has retreated 2.6 percent this week, bringing its loss for the year to 17 percent. Japan’s Nikkei 225 Stock Average declined 1.2 percent, South Korea’s Kospi tumbled 2 percent and Hong Kong’s Hang Seng Index sank 1.7 percent.

China Vanke Co., the nation’s biggest listed property developer, slumped 4.8 percent in Shenzhen, southern China. The regulator said banks should cut “high-risk” loans to developers, the person with knowledge of the instructions said. China Resources Land Ltd. fell 4.1 percent in Hong Kong.

Greek Bailout

“We see more problems in China,” Rajiv Jain, who oversees about $15 billion at New York-based Vontobel Asset Management Inc., told Susan Li on Bloomberg Television’s “First Up.” “We would not touch Chinese banks or Taiwanese banks or Korean banks or property stocks.”

Growth in Southeast Asian economies may have peaked last quarter as the European debt crisis and Thai floods hurt the outlook for exports. Malaysia’s gross domestic product increased 4.8 percent in the three months through September from a year earlier, after a 4 percent expansion the previous quarter, based on the median of 25 estimates from a Bloomberg News survey taken before a central bank’s report today.

Olympus Corp. (7733), the camera maker that admitted to hiding losses for decades, plunged 16 percent to end a four-day streak of gains. The company is under investigation by Japanese officials on suspicion of cooperating with organized crime to obscure billions of dollars of losses, the New York Times said.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, was poised for a third week of declines. South Korea’s won weakened to 1,139.13 per dollar today. Indonesia’s rupiah fell 0.8 percent to 9,075 per dollar.

European Turmoil

The euro gained 0.5 percent to $1.3520 after falling the past four days. German Chancellor Angela Merkel rejected yesterday French calls to deploy the European Central Bank as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil. Merkel listed using the ECB as lender of last resort alongside joint euro-area bonds and a “snappy debt cut” as proposals that won’t work.

Copper dropped 0.3 percent to $7,519.25 a metric ton, having fallen as much as 2.1 percent today. The metal is set for a 1.6 percent decline this week, the third weekly drop. Zinc weakened 0.7 percent to $1,913 a ton and nickel lost 1.1 percent to $17,870.

Copper traders and analysts are the most bearish in almost two months because of mounting concern that Europe’s debt crisis will curb demand in the region that accounts for about 19 percent of global consumption. Eleven of 23 surveyed by Bloomberg expect the metal to decline, the second consecutive week that their outlook worsened and the highest proportion since Sept. 23.

The cost of protecting corporate and sovereign bonds from default in the Asia-Pacific region rose, according to traders of credit-default swaps. The Markit iTraxx Japan index increased 6 basis points to 192, Deutsche Bank AG prices show. That would be its highest close since Oct. 26, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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IMF Says It Won’t Release Funding for Greece Until There’s Broad Support

By Sandrine Rastello - Nov 18, 2011 3:25 AM GMT+0700

The International Monetary Fund won’t release the next tranche of funding for Greece under a 110-billion euro ($148 billion) package with the European Union until there is broad political support for the measures attached to the loan, a spokesman said.

“It’s important that the unity government now shares its commitment to the implementation of the economic program” and the decisions agreed by European leaders last month, IMF spokesman David Hawley told reporters today. “Once broad political support” for the measures “is assured, then we can proceed with completion” of the review and the release of the tranche.

Greek Prime Minister Lucas Papademos, a former European Central Bank vice president, won a three-month mandate to implement budget measures and ensure a second bailout package from the IMF and euro nations that was agreed to last month. The Greek government is seeking the release of 8 billion euros under the first rescue plan by the middle of December.

The IMF, which will finance about 2.2 billion of the 8 billion-euro tranche, is seeking assurances of political support from Greece, Hawley said, while declining to describe what form those should take.

Written Commitment

European finance ministers expect a written commitment from the Greek government on the measures, the European Union Economic and Monetary Affairs Commissioner Olli Rehn said earlier this month.

Papademos, who won a confidence motion yesterday, is also completing next year’s budget and working on a voluntary debt swap that is part of the second bailout agreement.

Hawley also said that a mission going to Italy at the end of the month to track that country’s progress in reducing its debt burden will be an IMF-only team. Italy has not requested financial assistance, he said.

Asked about the European debt crisis, Hawley said there is “great concern” about the region.

“It is important that the European authorities move expeditiously to implement their plans to strengthen a comprehensive crisis management framework,” he said.

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net

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

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UBS Will Aim for Return on Equity of 12%-17%, Plans to Reinstate Dividend

By Elena Logutenkova - Nov 18, 2011 6:01 AM GMT+0700

UBS AG (UBSN), Switzerland’s biggest bank, set a target for profitability, announced its first cash dividend in five years and said it will shrink the investment bank to concentrate on wealth management.

UBS will aim for a return on equity of between 12 percent and 17 percent starting in 2013 and plans a dividend of 10 centimes a share for this year, the Zurich-based bank said yesterday as top executives spoke to investors in New York.

Chief Executive Officer Sergio Ermotti, who took over from Oswald Gruebel following a $2.3 billion loss from unauthorized trading in September, is scaling down fixed-income businesses as stricter capital rules and Europe’s sovereign debt crisis hurt profit. UBS plans to cut risk-weighted assets at the investment bank by 145 billion Swiss francs ($158 billion), or almost half, by 2016 under Basel III rules.

The reorganization and restarting dividend payments “should reassure the market somewhat,” said Huw van Steenis, a Morgan Stanley analyst in London. “But we should not underestimate the challenge for UBS to deliver on these targets whilst deleveraging without discounting the assets too much.”

UBS fell 32 percent to 10.49 Swiss francs in Zurich trading this year, compared with a 35 percent decline in the 46-company Bloomberg Europe Banks and Financial Services Index.

‘Painful’ for Banks

Ermotti, who joined the bank in April and became interim CEO after Gruebel quit, was confirmed in that role on Nov. 15.

“We have chosen to substantially reduce the risk profile of the bank,” Ermotti, 51, said yesterday. “We will continue to invest in products and geographies where we see opportunities to grow, particularly in our wealth management businesses.”

The investment bank will shrink its long-term rates business, almost halving the risk-weighted assets of the macro unit, which also includes foreign-exchange trading. Assets at the credit and emerging markets businesses will be cut by about a quarter each by 2016, while so-called legacy assets, such as auction-rate securities, will be exited.

Closing Desks

The investment bank will also get out of asset securitization, complex structured products, macro-directional trading and equity proprietary trading, slides from the presentation of investment-banking chief Carsten Kengeter showed. The bank wants to expand its commodities business and the special situations group, and build on its strengths in equities, foreign exchange, capital markets and advisory businesses, Kengeter said.

The investment bank will aim for headcount of about 16,000 in the future, Ermotti said. The reduction from 17,878 at the end of September will be achieved through the about 1,600 job cuts announced in August, and as the bank exits or scales back businesses and through attrition, he said.

UBS will expand in wealth management, targeting an increase in client advisers to 4,700 from 4,252 at the end of September. UBS adjusted its expectations for earnings and new assets as the economic slowdown makes its wealthy clients more risk averse.

Margins, New Money

The goal for gross margins, or the amount of revenue the bank makes on assets under management, was changed to between 95 basis points and 105 basis points from an earlier target of more than 100. A basis point is a hundredth of a percentage point.

UBS aims to attract net new money of between 3 percent and 5 percent of assets under management annually, compared with about 5 percent previously.

UBS’s wealth management Americas business, which is run by Robert McCann and includes the former Paine Webber Inc., is not up for sale, Ermotti said. McCann, in his presentation, said wealth management Americas can achieve the $1 billion pretax profit it set as a target two years ago.

The return on equity target compares with an ROE of 10.7 percent during the first nine months of 2011, on an annualized basis, and a goal of 15 percent to 20 percent announced two years ago.

UBS, which abandoned its previous profit goals in July, isn’t alone in cutting targets and shrinking its securities arm. Zurich-based Credit Suisse Group AG (CSGN), Switzerland’s second- largest bank, said earlier this month it will eliminate about 1,500 positions, in addition to 2,000 announced in July, and trim risk-weighted assets by 110 billion francs, including almost 100 billion francs at the fixed-income unit, by the end of 2014.

‘Tricky’ Execution

Credit Suisse cut its return-on-equity goal in February to more than 15 percent from more than 18 percent previously, citing stricter regulation and challenging markets. Barclays Plc set an ROE target in February of 13 percent for 2013, down from an average of 18 percent over the past 30 years.

“Everybody is doing the same thing” because Basel III rules are hard on investment banks, said Christopher Wheeler, a London-based analyst at Mediobanca SpA. “It’s a massively complex execution of getting out of businesses without damaging the franchise that you want to keep, keeping up the morale of people, avoiding losses on the rundown of the books. It’s going to be very tricky indeed.”

The shift in strategy coincides with another round of management upheaval at UBS, which was ravaged by more than $57 billion of credit-related losses during the financial crisis of 2008. Wheeler cut his rating on UBS to “underperform” from “outperform” after the September departure of Gruebel, 67. Chairman Kaspar Villiger is leaving in 2012, a year earlier than planned, to make way for former Bundesbank President Axel Weber in the role.

‘New Guy’

Tom Naratil became chief financial officer in June, replacing John Cryan, after serving as CFO and chief risk officer of UBS’s wealth management Americas unit. Maureen Miskovic, a former risk officer at Boston-based State Street Corp. and Lehman Brothers Holdings Inc. of New York, took over as group chief risk officer in January.

“It’s hard for anyone to make it in investment banking at the moment,” said Matthew Clark, a London-based analyst at Keefe, Bruyette & Woods Ltd. “The question is in execution. The ingredients are all there, but the manager that was entrusted to deliver that story is no longer there, so we really need to see how the new guy does.”

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

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

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