Clearwire’s Debt Warning May Be ‘Ploy’ to Win Sprint Wholesale Agreement

By Scott Moritz and Tim Catts - Nov 19, 2011 12:01 PM GMT+0700

Clearwire Corp. (CLWR)’s warning that it could skip a debt payment coming due on Dec. 1 may be a “ploy” to win financial support from partner Sprint Nextel Corp. (S) or another company.

Erik Prusch, Clearwire’s chief executive officer, said in an interview with the Wall Street Journal that it is evaluating whether to make the $237 million payment. He said the “very expensive payment” would be a “significant drain” on cash. Clearwire tumbled 21 percent to $1.47 yesterday.

The statement may be aimed at pressuring Sprint into extending a network-sharing agreement with Clearwire or at drawing out other potential partners, said John Fruit, manager of the Nuveen High Income Bond Fund. He called the comments “a near-term ploy” to get financial support.

“There’s been some speculation out there they could throw this out as a tactical method for stirring something up with Sprint or a third party,” Fruit, who is based in Minneapolis and owns Clearwire bonds, said in a telephone interview. “The underlying fundamentals haven’t really changed at all.”

Clearwire and Sprint depend on each other, and a default or bankruptcy could disrupt the partnership. Clearwire, the money- losing provider of wireless broadband, gets most of its revenue from Sprint, which buys wireless capacity wholesale and then resells the service to its own customers. Clearwire has said it has enough financing for 12 months, and one challenge in raising more is that Sprint hasn’t committed to extending their existing wholesale deal beyond 2012.

Deal Likely?

Sprint is the largest shareholder in Clearwire, with a 54 percent economic interest, so it stands to lose as the carrier’s stock declines. Sprint also depends on Clearwire to provide wireless service to its customers and could lose access to Clearwire’s spectrum in a restructuring, when creditors gain influence.

Clearwire said it needs about $1 billion for its operations and to upgrade its network from the WiMax wireless technology to long-term evolution, or LTE, technology. Clearwire had $698 million of cash and short-term investments as of Sept. 30, and more than $4 billion in debt.

“Clearwire’s best interest is to make the payment and I think they will,” said Walt Piecyk, an analyst with BTIG LLC in New York.

‘Speculation’

Susan Johnston, a Clearwire spokeswoman, declined to comment on the interest payment or on her CEO’s comments in the Wall Street Journal.

“Clearwire does not comment on speculation,” she said in a statement. “The company remains focused on growing its wholesale and retail business, and raising additional funds.”

Clearwire’s $2.03 billion of 12 percent first-lien notes due in December 2015 fell 1.5 cent to a mid-price of 78 cents on the dollar yesterday in New York, according to Brownstone Investment Group LLC. Its $500 million of 12 percent second-lien debt maturing in December 2017 fell 3 cents to a mid-price of 46.5 cents.

“I don’t know that a whole lot has changed from this morning, other than more posturing from the company,” said Fruit. “For the most part, the holders still think there’s asset value there.”

Sprint said last month it will stop selling WiMax devices after 2012 and that it may use Clearwire’s network to handle traffic from customers using LTE beginning in 2013, though the talks haven’t yet concluded. Their current network-sharing agreement expires at the end of next year.

Sprint Wholesale Deal

“We believe that Sprint and Clearwire are in the final stages of working out an extension of the current wholesale agreement as well as a long-term network hosting deal,” Kevin Smithen, an analyst with Macquarie Securities USA Inc. in New York wrote in a note yesterday.

Smithen also expects Sprint to inject as much as $600 million into Clearwire this year as a loan or prepayment for service. He said part of the agreement will likely allow Clearwire to sell off some of its wireless spectrum.

Sprint and Clearwire are near a deal to extend their wholesale agreement for three to five years, three people familiar with the matter said last month. A new agreement with Sprint would put Clearwire on more stable financial ground.

The two companies have been talking “constantly” over the past few weeks to reach a deal, said Piecyk, citing conversations with executives at both companies.

Scott Sloat, a spokesman for Sprint, declined to comment.

Clearwire may have options beyond Sprint. Clearwire has said it may sell some of its spectrum as a way to raise additional capital. MetroPCS Communications Inc. said last month that it may be interested in buying from Clearwire.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Tim Catts in New York at tcatts1@bloomberg.net.

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

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Television Broadcasts Reaches Hong Kong License Deal With Music Companies

By Mark Lee - Nov 19, 2011 3:13 PM GMT+0700

Television Broadcasts Ltd. (511), operator of Hong Kong’s biggest TV station, said it reached a license deal with a group representing music companies, including Sony Corp. (6758) and EMI Group Ltd., resolving a dispute on copyright fees.

The agreement with the Hong Kong Recording Industry Alliance Ltd. covers the use of music and videos and will run to 2014, Television Broadcasts said in an e-mailed statement today. “The parties are delighted that the long dispute has come to an end,” it said.

Hong Kong Recording Industry Alliance represents Sony, EMI, Universal Music Group, Warner Music Group Corp. (WMG), and BMA Investment Group Ltd., according to the group’s website.

Television Broadcasts fell 0.4 percent to HK$45.40 in Hong Kong trading yesterday and has gained 8 percent this year, outperforming the 20 percent decline in the city’s benchmark Hang Seng Index.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

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Transocean Can’t Sue U.S. for Gulf Spill: Judge

By Margaret Cronin Fisk and Allen Johnson Jr. - Nov 19, 2011 6:04 AM GMT+0700

Transocean Ltd. (RIG) can’t sue the U.S. government for partial fault in the 2010 blowout of BP Plc (BP/)’s Macondo Well in the Gulf of Mexico and subsequent oil spill, a judge said.

“The U.S. has sovereign immunity here,” U.S. District Judge Carl Barbier said today at a hearing in New Orleans in dismissing a claim brought by Transocean in a lawsuit. The company can still present evidence of such allegations at trial in an effort to limit any damages against it, Barbier said.

Transocean filed its claim against the U.S. in February, contending the incident may have been caused in part by the acts of federal agencies and government employees. Transocean was seeking a credit or offset on any prospective damages assessed against the company in the lawsuits.

U.S. lawyers argued that the government wasn’t liable for the spill. “It was at all times the responsibility of the private parties involved in the oil drilling venture to comply with federal safety regulations, including maintaining control of their well,” the U.S. said in a May response to Transocean’s claim.

The Macondo well blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. A trial on liability for the explosion and spill is set for Feb. 27.

‘Allocation of Fault’

“I think it is clearly understood by all parties that there will be no allocation of fault” to the U.S. “in this trial, although that does not preclude evidence of conduct coming in at trial,” Barbier said at today’s hearing dismissing a motion by spill victims to exclude such evidence.

“The ruling addressed procedural aspects of the pleadings,” Brian Kennedy, a Transocean spokesman, said in an e-mail. “It does not impact the evidence that can and will be presented or the manner in which the court will consider the case. As the court said today, Transocean has both the right and ability to submit such evidence for credit against potential damages.”

The accident and spill led to hundreds of lawsuits against London-based BP and its partners and contractors including Transocean, the Switzerland-based owner and operator of the Deepwater Horizon drilling rig that exploded; Halliburton Co. (HAL), which provided cementing services; Cameron International Corp. (CAM), which provided blowout-prevention equipment; and BP’s minority partners in the well, Anadarko Petroleum Corp. (APC) and Mitsui & Co.’s Moex Offshore LLC unit.

The case is In Re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporters on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net; Allen Johnson Jr. in New Orleans at allenmct@gmail.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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JPMorgan, Goldman Sachs Are Sued Over Alleged Misstatements on MF Global

By Joel Rosenblatt - Nov 19, 2011 12:18 PM GMT+0700

JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS) units were sued by two pension funds over claims they made misleading statements about the exposure of MF Global Holdings Ltd. securities to European sovereign debt.

As a result of the misstatements, MF Global’s stock traded at “artificially inflated prices,” the funds said in the complaint filed yesterday in federal court in Manhattan. “While the extent of MF Global’s exposure to European sovereign debt was concealed, the defendants were able to raise some $900 million in the offerings.”

MF Global Holdings, which was run by former Goldman Sachs Group Inc. co-chief executive officer Jon Corzine, filed for bankruptcy Oct. 31 after making bets on sovereign debt and getting margin calls. The New York-based company listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers. The broker-dealer is being liquidated separately.

Other companies named as defendants in the complaint were Bank of America Corp. (BAC)’s Merrill Lynch unit, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., RBS Securities Inc. and Jefferies & Co. Corzine and MF Global officers were also named as defendants.

The complaint was filed by IBEW Local 90 Pension Fund and the Plumbers & Pipefitters’ Local #562 Pension Fund. The funds seek to represent other shareholders in a class-action, or group suit.

David Wells, a spokesman for New York-based Goldman Sachs, declined to comment. Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, and Joseph Evangelisti, a spokesman for New York-based JPMorgan, didn’t immediately return calls after regular business hours seeking comment on the lawsuit.

Separate Liquidation

The broker-dealer unit of MF Global Holdings is being liquidated separately. The trustee liquidating MF Global Inc. said yesterday distributions of collateral in customers’ accounts are “dependent upon assets available and there is no assurance of a 100 percent return.”

The trustee, James Giddens, got court permission Nov. 17 to transfer $520 million in assets to about 23,300 accounts. While planning a third transfer to include a “few hundred” accounts that haven’t had distributions so far, Giddens said the assets available for segregated commodities accounts are “substantially less” than his estimate of claims that will be allowed.

Shortfall, Remedy

“Efforts are ongoing to analyze the cause of the shortfall and to seek to remedy it in coordination with multiple regulators and law enforcement officials,” he said in a statement yesterday.

The broker-dealer’s bankrupt parent moved hundreds of millions of dollars from its futures client accounts to other accounts before its bankruptcy filing, according to a person familiar with the audit of the company, who declined to be identified because the discussions are private.

MF Global Holdings was required to segregate funds posted as collateral by futures clients. The company filed the eighth- largest U.S. bankruptcy after making a $6.3 billion bet on Eurobonds and getting margin calls.

Giddens, whose first transfer of assets was almost $1.6 billion, said the third payment might be a bulk transfer to bring the value of collateral to 60 percent of the net equity in the accounts of all claimants, including those who have received nothing yet. A bulk transfer depends on finding futures brokers to receive the assets, he said.

Multiple Probes

The Commodity Futures Trading Commission, Securities and Exchange Commission and Federal Bureau of Investigation are investigating cash movements at the firm before the bankruptcy filing. The CFTC has been probing about $600 million in futures client funds that disappeared as the firm prepared for bankruptcy. Regulators said they haven’t located the money.

In a separate matter, a federal judge yesterday said he will approve a $90 million settlement of investor claims stemming from a 2008 wheat-trading loss incurred at MF Global’s commodity brokerage.

U.S. District Judge Victor Marrero in Manhattan also said he would approve attorney fees of $16.2 million. A class of investors, led by four public pension funds, claimed losses of $1.1 billion on MF Global shares after the firm disclosed that a broker in its Memphis, Tennessee, office lost $141 million in a few hours in unauthorized trades.

Defendants in that case include MF Global; Man Group, its former owner; underwriters of MF Global’s initial public offering in July 2007; and some former and current officers and directors. The suit claimed MF Global deceived investors by misrepresenting its risk management measures.

Settlement Share

MF Global’s $2.5 million contribution to the settlement will be fully reimbursed, the company said in a court filing earlier this month.

The case is IBEW Local 90 Pension Fund v. Corzine, 11-8401, U.S. District Court, Southern District of New York. The bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-cv-7750, and the wheat-trading case is Rubin v. MF Global, 08-cv-02233, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Debt Supercommittee Moves Further Apart as Negotiations Enter Homestretch

By Heidi Przybyla and Laura Litvan - Nov 19, 2011 12:00 PM GMT+0700

Lawmakers on the congressional supercommittee made no visible progress ahead of a Nov. 23 deadline for a debt-reduction deal even as negotiators picked up the pace of bipartisan talks aimed at an agreement.

Republicans and Democrats offered a series of competing plans in the past week as they seek at least $1.2 trillion in deficit savings over the next decade, all of them rejected by the opposite side as negotiators offered little sign of progress or optimism.

The 12-member supercommittee, created in the aftermath of a rancorous debate over raising the nation’s debt ceiling in August, is struggling to find deficit reductions while Republicans reject Democrats’ demands for tax increases and Democrats oppose Republican efforts to make changes in entitlement programs such as Medicare.

“It looks like a standoff,” said former Democratic U.S. Senator Byron Dorgan, who is now a lobbyist. “Nobody’s ever created a supercommittee where you have 523 members of Congress that are not involved and 12 who are working largely in secret,” he said. “It was generally a bad idea from the start.”

Even if negotiators are able to reach a compromise, some House Republicans signaled that any agreement with tax increases probably won’t pass the Republican-controlled chamber.

Sticking Point

“It would be difficult” to win passage of a plan that includes more taxes, said Representative Jim Jordan, head of the fiscally conservative Republican Study Committee, in a Bloomberg Television interview yesterday. “They may not get to some kind of agreement.”

Working against a Nov. 23 deadline for a deal, Democrats rejected a plan Republicans offered as a fallback. The Nov. 17 package included $643 billion in deficit reductions, a Republican leadership aide said yesterday. Democrats spurned it because it didn’t include enough revenue increases, according to a Senate Democratic leadership aide. Both aides spoke on condition of anonymity because they weren’t authorized to discuss the supercommittee negotiations.

The plan is “unacceptable,” said Democratic Senator John Kerry of Massachusetts. Not requiring more taxes from high earners would be “unconscionable,” Kerry said. He said he remains hopeful for a deal, “but I don’t know at this time.”

Corporate Jets

The Republican aide said the party’s proposal included $640 billion in spending cuts and interest savings, and $3 billion in revenue raised by ending a tax break for corporate jet travel; it didn’t change entitlement programs such as Social Security, Medicare and Medicaid opposed by Democrats, the aide said.

“Where the divide is right now is on taxes, whether or not the wealthiest Americans should share in the sacrifice,” Democratic Senator Patty Murray, the co-chairwoman of the panel said going into a meeting yesterday.

“It looks harder today than it did certainly two weeks ago,” supercommittee member Chris Van Hollen, the top Democrat on the House Budget Committee, told Bloomberg Television yesterday.

Later he met with a bipartisan group of five senators on the supercommittee to try to break the logjam. Most Republican lawmakers shunned the spotlight, with Senator John Kyl of Arizona saying only, “the meeting went just fine.”

Representative Dave Camp, a Michigan Republican and panel member, said time is running out and blamed Democrats.

“They really have not been willing to make the common- sense spending reductions we need to make but yet are continuing at the same time to insist on $1 trillion in job killing tax increases,” Camp told reporters.

CBO Deadline

To meet the Nov. 23 deadline for panel approval of a plan, the nonpartisan Congressional Budget Office must estimate its impact on the deficit. Legislators must have 48 hours to review the CBO’s findings before they vote.

Failure by the supercommittee to agree on a plan by Nov. 23 could trigger automatic, across-the-board spending cuts of $1.2 trillion starting in January, 2013. That process, called “sequestration,” is designed to spare the U.S. from another credit downgrade.

After Standard & Poor’s downgraded the U.S. AAA debt on Aug. 5, the government’s borrowing costs fell to record lows as Treasuries rallied. The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to below 1.72 percent on Sept. 22. The yield on the 10-year note was at 2.01 percent at 5:14 p.m. yesterday, New York time, according to Bloomberg Bond Trader prices.

“Sequestration will give us progress whether people like it or not,” said Representative Xavier Becerra, a California Democrat on the panel. Even so, he compared the process, which would cut both domestic and defense programs, to “a guillotine.”

Opposing Camps

A bloc of congressional Democrats said they are worried about proposals under discussion, such as lowering the top tax rate to 28 percent from 35 percent or cutting spending by $876 billion.

Democrats who represent districts with many elderly or low- income residents said sequestration is preferable to some options being considered by the supercommittee, such as limiting benefits in programs like Medicare.

“Sequestration is not the worst thing that could happen,” said Representative Keith Ellison, a Minnesota Democrat and co- chairman of the Congressional Progressive Caucus. “Getting a deal where there’s minimal revenue and all cuts on ordinary people, I’d rather see sequestration than that.”

Republican Activists

Republican activists increased pressure on their party’s lawmakers to block any compromise that involves increasing taxes. Former U.S. Attorney General Edwin Meese circulated a message to a group of fiscal and social conservatives who are to meet in Washington next week and plan a news conference Nov. 22.

“Conservatives have been down this ‘Read My Lips’ road before, and any increase in taxes will be a betrayal of the promises made during the 2010 campaign,” Meese wrote, referring to then-Vice President George H.W. Bush’s campaign-trail pledge never to raise taxes, which he broke as president.

Representative Jeb Hensarling of Texas, the supercommittee’s Republican co-chairman, has said Republicans won’t go beyond their offer to raise tax revenue by $300 billion until Democrats offer a plan to address the growth in spending on entitlement programs.

House Democratic leader Nancy Pelosi of California said the “only way we will be able to reach an agreement” is if Republicans accept balance between revenue increases and spending cuts.

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; Laura Litvan in Washington at llitvan@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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European Stocks Drop for Second Week in Three

By Peter Levring - Nov 19, 2011 7:00 AM GMT+0700

Play Video

Nov. 18 (Bloomberg) -- Bill Gross, co-chief investment officer at Pacific Investment Management Co., and Laurence Fink, chief executive officer of BlackRock Inc., talk about the European sovereign-debt crisis and Germany's response. They spoke with Bloomberg's Erik Schatzker yesterday at an alumni event hosted by the UCLA Anderson School of Management and Bloomberg Television. Bloomberg Television's special event, "Heavy Hitters: Gross / Fink," airs Monday, Nov. 21, at 10pm Eastern time. (Source: Bloomberg)

European stocks declined for the second week in three as sovereign borrowing costs surged to record levels in the euro area and policy makers disagreed over their response to the spreading debt crisis.

Cable & Wireless Worldwide Plc sank 35 percent after suspending future dividends. Dexia SA (DEXB) and KBC Groep NV (KBC), Belgium’s biggest lenders, slumped more than 20 percent. PSA Peugeot Citroen and Renault SA paced losses on a gauge of the region’s automakers. Voestalpine AG fell the most in more than three months after cutting its earnings outlook.

The benchmark Stoxx Europe 600 Index dropped 3.7 percent this week to 232.17, its lowest close in six weeks, as Italian, Spanish and French bond yields soared, renewing concern that contagion from the debt crisis is infecting more euro members. The European Central Bank was said to have bought government bonds throughout the week offering bouts of respite to equities.

“If rates stay where they are now it’ll trigger a recession in Italy and Spain,” said Morten Kongshaug, chief equity strategist at Danske bank A/S in Copenhagen. More bond- buying would be needed for stocks to stop reacting to every surge in bond yields, he said.

ECB bond purchases failed to stem the spread of the crisis as yields in Italy, the euro-area’s third largest economy, increased for the sixth consecutive week and the extra yield investors demand to hold French, Spanish or Belgian debt instead of benchmark German bunds jumped to the highest since the euro was created.

Lack of Progress

An Oct. 26 agreement to bolster the region’s bailout fund, the European Financial Stability Facility, stalled as Germany and France differed over how tackle the crisis. France called for using the ECB as a crisis backstop, although Germany rejected it. Chancellor Angela Merkel listed using the ECB as lender of last resort, issuing joint euro-area bonds and going in for a “snappy debt cut” as unworkable proposals.

New governments took charge in Greece and Italy, raising optimism that the region’s two most-indebted nations will implement austerity measures. 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.

Greece seeks to secure the release of an 8 billion-euro loan under an earlier bailout by the middle of next month. Disbursement was halted by Merkel and French President Nicolas Sarkozy after former Prime Minister George Papandreou announced and abandoned a plan to hold a referendum on the budget cuts imposed by the aid.

Germany’s Debt

Germany’s debt level came into focus when Luxembourg Prime Minister Jean-Claude Juncker called it a “cause for concern” in an interview to the General-Anzeiger newspaper.

“Germany has a higher debt than Spain,” Juncker said. “The only thing is that no one here wants to know about that.”

In Italy, Prime Minister Mario Monti struggled to bring political leaders aboard his new government. He vowed to present multiple structural reforms in one package aimed at reducing the country’s debt burden and spur growth. When Monti was sworn in on Nov. 16, the 10-year bond yield topped the 7 percent threshold that led Greece, Portugal and Ireland to seek European Union aid.

The treasuries of Italy, France and Spain sold debt this week, showing an ability to raise money to run the government in the wake of surging yields. While Italy and France met their fund-raising targets, Spain struggled, selling 11 percent less than its goal in its bond auction.

National benchmark indexes fell in all but two of the 18 western-European markets. France’s CAC 40 slid 4.8 percent, the U.K.’s FTSE 100 dropped 3.3 percent and Germany’s DAX lost 4.2 percent.

Cable & Wireless

Cable & Wireless Worldwide slumped 35 percent for the worst performance on the Stoxx 600 after it suspended future dividend payments as profit and sales declined.

The company said it will withhold dividends to “improve balance sheet strength and to enable investment in the business” and that dividends will only be paid in the future when covered by free cash flow. The provider of telecommunications services to the U.K. police force named Gavin Darby as chief executive officer.

A gauge of lenders on the Stoxx 600 fell 6.4 percent as policy makers debated how much loss bondholders must be asked to take on Greek bonds. BNP Paribas (BNP), France’s largest lender, fell 13 percent. Societe Generale (GLE) dropped 12 percent and Credit Agricole SA (ACA) slid 11 percent.

KBC Groep, Dexia

KBC Groep sank 21 percent after Bank of America Corp. said in a report that Belgium’s largest bank may reduce its dividend.

Dexia fell 24 percent as the three-month cross-currency basis swap, the rate European banks pay to convert euro payments into dollars reached the most expensive level since December 2008.

A gauge of European automakers underperformed all other industry groups in the Stoxx 600, declined 8 percent as car sales dropped and economic confidence in the region fell. Sales in Italy and Spain, the region’s fourth- and fifth-biggest markets, fell 5.5 percent and 6.7 percent respectively.

Peugeot and Renault, France’s biggest carmakers, decreased 9.8 percent each. New car registrations fell 1.4 percent in October to 1.04 million vehicles from 1.06 million units a year earlier, the Brussels-based European Automobile Manufacturers Association said.

Voestalpine fell 15 percent, the biggest weekly drop since August, after the steelmaker cut its profit outlook for the full year, citing a “difficult economic environment.”

Copper traders and analysts were the most bearish in almost two months on mounting concern that Europe’s debt crisis will curb demand in the region that accounts for about 19 percent of global consumption. Vedanta Resources Plc (VED), the largest copper producer in India, lost 13 percent.

To contact the reporter on this story: Peter Levring in Copenhagen at Plevring1@bloomberg.net

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

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MF Global Australian arm shut down after no buyers: report

SYDNEY | Sat Nov 19, 2011 4:05am EST

(Reuters) - The Australian arm of collapsed U.S. futures broker MF Global Holdings Ltd (MFGLQ.PK) has been shut down by the administrator Deloitte after no buyers could be found, the Australian newspaper reported on Saturday

Employees were told by the administrator on Friday that the business had been wound up and most had lost their jobs, the newspaper reported.

A Deloitte spokesman told Reuters the general information contained in the newspaper report was correct but declined to comment further.

Deloitte was appointed joint administrator of MF Global Australia (MFGA) on November 1, one day after its U.S. parent applied for bankruptcy protection after losing money on misplaced bets on European sovereign debt.

The administrators had hoped the sale of the local business would be completed by the end of this week.

In response to the collapse of MF Global, the Australian government on Saturday released a discussion paper in a first step aimed at reforming the regulatory regime and strengthening client protection for over-the-counter (OTC) derivative transactions.

"The collapse of MF Global has underscored the need to investigate options for strengthening client money protections for over-the-counter derivative transactions," Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, said.

The government and financial regulatory watchdog, the Australian Securities and Investments Commission, had been working for some time on these issues, Shorten said in a statement.

"This discussion paper was being drafted before the MF Global collapse, but the government is moving more quickly to consider these issues in light of recent events" he added.

The local unit of MF Global was the largest broker in Australian grain futures as well as a provider of highly leveraged contracts-for-difference derivatives.

Deloitte partner Christopher Campbell told the first creditors meeting in Sydney on November 11 that it would take more than three months to calculate the final amounts MF Global Australia clients can claim.

He estimated that nearly half the total funds owed to the Australian business's clients were held in cash, with most of the remainder tied up with counterparties.

Further communication will be made with clients on Monday, the Deloite spokesman said.

(Writing by Morag MacKinnon, Editing by Jonathan Thatcher)

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China Says Sea Navigation ‘Not a Factor’ as Wen Talks With Obama in Bali

By Daniel Ten Kate - Nov 19, 2011 4:31 PM GMT+0700

China downplayed concern that tensions in the South China Sea could impede navigation in vital shipping lanes after U.S. President Barack Obama urged the rising naval power to adhere to a set of rules.

“China believes that freedom of navigation has not been a factor in the South China Sea because the South China Sea over the decades has been maintained as a very important route for international trade,” China’s Assistant Foreign Minister Liu Zhenmin told reporters today in Bali, Indonesia. “With the rapid development of economies in China and East Asian countries, the country and region attach more importance to freedom of navigation than anybody else.”

Liu reiterated that China believes territorial disputes in the area potentially rich in oil and gas reserves should be handled directly between concerned countries. China has proposed setting up a maritime cooperation fund with the 10-member Association of Southeast Asian nations to be worth 3 billion yuan ($472 million), Liu said.

Liu said Chinese Premier Wen Jiabao had “very cordial and frank” talks with Obama today and said the U.S. is a very important player in the region.

In a news conference in Canberra, Australia, on Nov. 16, Obama said that it is “mistaken” to say the U.S. fears China or is seeking to isolate the world’s most populous nation.

“The main message that I’ve said not only publicly but also privately to the Chinese is that with their rise comes increased responsibilities,” Obama said. “It’s important for them to play by the rules of the road.”

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Patrick Harrington at pharrington8@bloomberg.net

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Goldman’s Cohn May Face Questions From Gupta Lawyers in SEC Suit

By Bob Van Voris - Nov 19, 2011 12:49 PM GMT+0700

Goldman Sachs Group Inc. (GS) President Gary Cohn may be questioned by lawyers defending former company director Rajat Gupta and Galleon Group LLC co-founder Raj Rajaratnam against insider-trading claims by federal regulators.

Former Galleon Group trader Ian Horowitz and Goldman Sachs managing director David Loeb were also identified by lawyers as witnesses who may be called to give pretrial testimony.

U.S. District Judge Jed Rakoff in Manhattan is considering whether the parties may take depositions in the Securities and Exchange Commission lawsuit before completion of a parallel criminal case against Gupta.

Gupta was charged in an indictment unsealed on Oct. 26 with five counts of securities fraud and one count of conspiracy to commit securities fraud. The U.S. Securities and Exchange Commission filed the civil lawsuit the same day accusing Gupta of engaging in an “extensive insider-trading scheme” with Rajaratnam.

In the SEC complaint, Gupta is accused of passing tips about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs before it was publicly announced on Sept. 23, 2008, and about Procter & Gamble Co. (PG)’s earnings while he was a board member.

$23 Million Profits

The tips generated “illicit profits and loss avoidance” of more than $23 million, the SEC alleged in its complaint.

Rakoff, who is presiding over both cases, has set trial dates of April 9, 2012 for Gupta’s criminal case and Oct. 1, 2012, for the SEC case.

“I don’t want to change these trial dates under any set of circumstances,” Rakoff told the lawyers at yesterday’s hearing.

Lawyers for the SEC and U.S. Attorney’s office asked Rakoff to postpone the depositions, to prevent Gupta’s lawyers from using them to get an unfair advantage in the criminal trial. Lawyers for Gupta and Rajaratnam asked to be permitted to take depositions sooner. Rakoff said he will decide no later than Nov. 29.

Rakoff said he had asked the SEC, Gupta and Rajaratnam to submit lists of the most important 10 witnesses they plan to depose. Cohn, Loeb and Horowitz were disclosed as possible witnesses during the hearing. Rakoff said he will release the rest of the names publicly on Nov. 21.

Rajaratnam Conviction

Rajaratnam was convicted in May of being at the center of the biggest insider-trading scheme in U.S. history and was sentenced last month to 11 years in prison.

In Rajaratnam’s criminal trial, defense lawyers showed jurors evidence that their client had met with Cohn and Loeb in July 2008 in an attempt to explain Rajaratnam’s trades in Goldman Sachs stock in September and October of 2008.

Jurors in Rajaratnam’s trial also heard a telephone conversation, secretly wiretapped on Sept. 24, 2008, in which Rajaratnam tells Horowitz he had gotten a phone call saying “something good may happen to Goldman.” Prosecutors said Rajaratnam was referring to a tip from Gupta that Warren Buffett’s Berkshire Hathaway Inc. would invest $5 billion in Goldman Sachs.

Kevin McGrath, a lawyer for the SEC, told Rakoff at a Nov. 8 hearing that the agency wanted to question under oath a “long list of witnesses,” including Gupta, Rajaratnam’s two brothers as well as Goldman Sachs and Procter & Gamble board members and current and former employees of both companies.

‘Don’t Bill Rajaratnam’

During the hearing, Gupta’s lawyer, Gary Naftalis, mistakenly said his is the only law firm representing Rajaratnam. After he was prompted by a partner sitting next to him, Naftalis corrected himself, telling Rakoff he meant to say his firm represents Gupta.

“I wouldn’t send the bill to Mr. Rajaratnam,” Rakoff said. “I don’t think he’ll pay -- at least not these days.”

Rakoff is the judge who on Nov. 8 ordered Rajaratnam to pay a record $92.8 million penalty in an earlier case filed against him by the SEC. The fine, which was the largest ever imposed by the agency on an individual in an insider-trading case, came on top of an order that he pay a $10 million fine and forfeit $53.8 million as part of his criminal sentence.

The cases are U.S. v. Gupta, 11-cr-00907, and SEC v. Gupta, 11-cv-07566, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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NY Steakhouse Waiters Stole Card Data, DA Says

By Tiffany Kary - Nov 19, 2011 12:01 PM GMT+0700

Waiters at Smith & Wollensky, the Capital Grille and other New York area restaurants copied customers’ credit cards and passed them on to a crime ring that bought luxury goods, prosecutors said.

The midtown Manhattan dining room at Smith & Wollensky, the steakhouse chain, is where 81-year-old billionaire Warren Buffett, the chief executive officer of Berkshire Hathaway Inc., takes the winner of his annual charity auction for lunch.

Charges against 28 people were announced yesterday by Manhattan District Attorney Cyrus Vance Jr.’s office. The crimes allegedly occurred from April 2010 to this month and involved at least 50 American Express account holders, the prosecutors said.

Merchandise from outlets such as Chanel, Bloomingdale’s and Bergdorf Goodman, including $1 million worth of watches, was sometimes sold on the Internet, according to prosecutors.

Vance said the case was far from unique.

“Every day, hardworking New Yorkers find themselves the victims of identity theft -- their financial information stolen from ATMs, from Internet transactions, from financial institutions and from retailers,” he said in the statement.

Waiters used credit-card skimming devices to steal account numbers, then passed on the information to Luis Damian Jacas, who oversaw the operation, the district attorney alleged.

The restaurants also included Wolfgang’s Steakhouse and JoJo Steakhouse in Manhattan and Morton’s the Steakhouse in Stamford, Connecticut, Vance’s office said.

Also charged were about 10 “shoppers” who were given forged credit cards and sometimes drivers’ licenses, using them at Neiman Marcus, Cartier, Hermes of Paris, Burberry, Jimmy Choo and Starbucks, authorities said.

Shopping trips were made in Manhattan, Westchester County, Nassau County, Florida, Boston and Chicago, the DA’s complaint said. Some goods were sold online and others to individuals, the prosecutors said.

The district attorney charged members of the group with 172 counts of crimes that included conspiracy, enterprise corruption and grand larceny, according to the statement.

The case is People v. Jacas, New York State Supreme Court, New York County (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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Murdoch Sells 3.6 Million News Corp. Shares

By Edmund Lee - Nov 19, 2011 6:18 AM GMT+0700

News Corp. (NWSA) Chairman and Chief Executive Officer Rupert Murdoch sold 3.6 million shares of the media company’s Class A shares, according to a regulatory filing today.

Murdoch sold the shares for about $61.7 million, according to prices in the filing. Prior to the sale, Murdoch held 12.8 million Class A shares based on the company’s most recent proxy statement filed in September.

Jack Horner, a News Corp. spokesman, declined to comment.

News Corp. fell 1.8 percent to $16.32 at the close in the New York. The shares are up 12 percent this year.

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

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

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Obama Puts U.S. Approach to China on New Path

By Margaret Talev - Nov 19, 2011 12:40 PM GMT+0700
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President Barack Obama, second left, walks with Indonesian President Susilo Bambang Yudhoyono, center, his wife Kristiani, left, Japanese Prime Minister Yoshihiko Noda, third right, and South Korean President Lee Myung-bak, second right, to attend a gala dinner at ASEAN Summit in Nusa Dua, Bali, on Nov. 18, 2011. Photographer: Dita Alangkara/AP

President Barack Obama’s pivot toward Asia is shifting the U.S. approach to China by teaming up with its neighbors to press the world’s second-largest economy to “play by the rules.”

During a trip that began in Hawaii Nov. 11, Obama has announced steps to expand trade and military cooperation with Asia-Pacific nations that share U.S. concerns over China’s currency and intellectual property policies and territorial claims. Obama met with Chinese Premier Wen Jiabao today in Bali, the final leg of the journey.

“U.S. pressure on China has intensified,” said Tim Condon, Singapore-based head of Asian research at ING Groep NV (INGA), adding that the shift has “startled” the Chinese. “China can’t ignore the U.S. stance. The only question is how they interpret it.”

The administration’s foreign policy strategy is being refocused on Asia as Obama wraps up wars in Afghanistan and Iraq, and two and a half years after he announced an effort to step up engagement in the Muslim world and on Mideast peace negotiations that largely have fizzled.

Obama has said repeatedly throughout the trip that he is not pursuing a containment strategy against China and that his emphasis is on creating U.S. jobs. Even with signs that the U.S. recovery is accelerating -- the Standard & Poor’s 500 Index has risen 11 percent since the beginning of October -- the nation’s unemployment rate has hovered at or above 9 percent for more than two years.

Obama-Wen Meeting

Today’s meeting between Obama and Wen came at Wen’s request and they spoke about currency and business practices, White House National Security Adviser Tom Donilon told reporters in Bali. Donilon said the discussions “briefly” touched on the South China Sea, where territorial disputes have raised tensions between China and its neighbors.

“This has nothing to do with isolating or containing anybody,” Donilon said of the U.S. strategy in Asia.

Obama has set a goal of doubling U.S. exports to $3.14 trillion a year by the end of 2014 and he said Asia is key to that goal. The U.S. this year has exported more to the Pacific Rim than to Europe, Commerce Department figures show.

While on the Indonesian Island of Bali, Obama took part in an event highlighting at $21.7 billion order for Boeing Co. (BA) for 230 of its 737 aircraft from Indonesian carrier Lion Air, a record deal for the Chicago-based plane maker.

China ‘Rules’

In a news conference in Canberra, Australia, on Nov. 16, Obama said that it is “mistaken” to say the U.S. fears China or is seeking to isolate the world’s most populous nation.

“The main message that I’ve said not only publicly but also privately to the Chinese is that with their rise comes increased responsibilities,” he said. “It’s important for them to play by the rules of the road.”

At the Asia-Pacific Economic Cooperation summit in Honolulu on Nov. 12, Obama announced the U.S. and eight other countries - - not including China -- agreed to complete a Trans-Pacific Partnership trade accord within a year. Two-way trade between the U.S. and those nations totaled $171 billion last year, compared with $457 billion with China and $181 billion with Japan.

Obama said the U.S. welcomes additional participants as long as they commit to terms on currency, intellectual property protections, tariffs and market access -- points of friction between the U.S. and China.

More Leverage

While Obama and his advisers say the U.S. will continuing engaging China directly on issues of concern, the president’s strategy is aimed at increasing leverage.

“This is not simply a matter of the United States, again, raising these issues bilaterally,” Deputy National Security Adviser Ben Rhodes said.

The U.S. also moved to increase its military footprint in the region with an announcement that as many as 2,500 Marines will be stationed in northern Australia and a promise to strengthen Philippines naval defenses.

The enhanced U.S. presence may serve as a counterweight to China as it asserts territorial rights to the oil-rich South China Sea that are disputed by other Asian nations.

The Philippines and Vietnam, which have awarded exploration contracts in disputed areas to Exxon Mobil Corp. (XOM), Talisman Energy Inc. (TLM) and Forum Energy Plc (FEP), reject China’s claims over much of the sea.

‘Stabilizing Force’

Ricky Carandang, a spokesman for Philippine President Benigno Aquino, told reporters in Bali that the U.S. presence “bolsters our ability to assert our sovereignty over certain areas” and will serve as a “stabilizing force.”

While in Bali as the first U.S. president to participate in the East Asia Summit, Obama made an unscheduled announcement that he’ll send Secretary of State Hillary Clinton to Myanmar next month, the first visit of the chief U.S. diplomat to that country in more than a half century.

That also puts pressure on China, said Willy Lam, an adjunct professor of history at Chinese University in Hong Kong.

Myanmar’s government is “hedging its bets” by seeking to expand beyond Chinese patronage, Lam said.

Myanmar, an important gateway for China to the Indian Ocean, suspended China’s construction of a $3.6 billion dam in September and its Myanmar’s new defense minister recently visited Vietnam in what Lam said was interpreted as a “snub” for Chinese officials.

‘Very Worried’

Now China “is very worried about whether Washington might want to ‘steal’ its client,” Lam said.

The reaction of Chinese leaders to Obama’s Asia-Pacific tour has been muted. President Hu Jintao, at APEC, said the region should be one where there is active cooperation between the world’s two biggest economies. When the U.S.-Australia defense arrangement was unveiled, China’s foreign ministry said it needed to be studied to assess their benefit for the region.

Obama administration officials, who briefed reporters on condition of anonymity in Bali, said that the Chinese government was supportive overall because they want stability on their borders and greater integration with the international community.

Doug Paal, vice president for studies at the Carnegie Endowment for International Peace, a policy research center in Washington, said that “it is more in line with China’s interests to display a cool reaction” to Obama’s steps.

Paal, who served as Asia director for the White House National Security Council under President George H.W. Bush, said the Chinese government doesn’t want to acknowledge internally or publicly that “it is facing a greater threat” of pushback from the U.S. and other nations.

To contact the reporter on this story: Margaret Talev in Bali at mtalev@bloomberg.net; Michael Forsythe in Beijing at mforsythe@bloomberg.net

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

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Markets Face Tough Week With Debt Talks in US, Europe

By: Patti Domm
CNBC Executive News Editor
Investor attention will swing between the U.S. and Europe as politicians on both sides of the Atlantic struggle with debt and deficits that hang like a threatening pendulum over markets.

Getty Images

In the week ahead, the Congressional "super committee" is likely to come down to the final hour as it tries to find $1.2 trillion in budget deficits in time for a vote Wednesday.

Investor expectations are low that the bipartisan "super committee" will be able to put aside differences on taxes and spending cuts and come up with the full amount of reductions.

Goldman Sachs analysts handicapped the stock market's reaction to the committee's progress, warning the S&P 500 could lose 10 percent if the super committee fails to agree on reductions. If, as the analysts expect, the committee finds all, or at least part with the balance coming in automatic cuts, then the market would likely trade in the 1200 to 1250 range that it is in now, they said.

European officials, meanwhile, have so far failed to convince markets that they have a plan to stem the contagion from their sovereign debt crisis.

Italian, French and Spanish bond yields were under pressure in the past week as markets looked for definitive action from European leaders. Instead, German and French officials continued to publicly disagree over whether the European Central Bank should take on a bigger role and monetize debt. ECB President Mario Draghi Friday warned political leaders that they must find a solution.

"They need to start printing money," said Kevin Ferry of Cronus Futures. "The ECB has to realize Bundesbank or not, the German public is not necessarily on the hook for printing enough euros to get support back."

Ferry said the problem can be dealt with, but the European periphery countries are adopting austerity measures that cut growth, impairing their ability to pay their debt even more. "They've got to find a way to buy (German Chancellor Angela) Merkel and her political people some cover," he said. "If they would just step up. I think they need to monetize it."

Spain was headed to weekend elections, where it was expected the conservative Peoples Party would win in a landslide. Italy's new technocrat Prime Minister Mario Monti formed a new government this past week.

Growth Spurt

U.S. economic reports in the week ahead could continue to show improvement, possibly continuing to set up the fourth quarter as the fastest growing in the last year and a half. There are durable goods, jobless claims, and personal income and spending reports in the Thanksgiving-holiday shortened week. In the past week, several economists raised their fourth-quarter forecasts to 3 percent or more.

This coming week is also the official start of the holiday shopping season, a key time for retailers and an important measure of economic activity. More stores are opening on Thanksgiving Day this year in the hopes of getting a bigger share of the sales from the Black Friday rush.

While the U.S. economy looks better and feels a bit better, there were clear signs of fraying around the edges in credit markets, signaling tighter financial conditions. Swap spreads, watched as metrics for credit risk, widened dramatically to some 2008 and 2009 levels in the past week. The spread between the 2-year swap and 2-year Treasury note yield, for instance, widened to over 52 basis points, signaling concern as it crossed 50 basis points. That spread, which hit spring 2009 levels, narrowed again as markets traded more calmly on Friday.

"You have to be concerned. There is a probability that's hard to assess that we could have another post-Lehman type period if things in Europe spin out of control," said Ed Keon, portfolio manager with Quantitative Management Associates. Keon said he is buying stocks — he's overweight on high quality U.S. stocks and emerging market equities, but underweight on European names.

"If you were just looking at the U.S. economic data and the third-quarter earnings data, you'd say stocks look pretty cheap here. But because you cannot dismiss the possibility of things in Europe dragging us down into global depression, you can't get that enthusiastic," Keon said.

"I think the odds are low, but nobody knows what the odds of that are," he said.

Analysts have been worried that as European bond yields rise, borrowing costs become unsustainable. This week, Spain paid nearly 7 percent to issue 10-year notes, and Italy's 5-year and 10-year yields rose above 7 percent several times. The concern is also that the strain adds to pressure on European banks, which are big holders of European sovereign debt. The ECB reports how much debt it bought in the past week on Monday.

David Ader, chief Treasury strategist at CRT Capital, said the Treasury market's current yield range reflects the better U.S. data at the same time concerns about Europe are driving buyers into the bond market. He noted that in the past week foreign central banks bought up $31.7 billion in Treasury securities, the fifth biggest week ever. The 10-year Treasury bond finished the week with a yield of 2.012 percent, lower on the week.

"If we were trading just U.S. events, yields would be 35, 40 basis points higher, at least in the 10-year," Ader said, adding that the interbank lending market is showing clear sings of duress.

"The whole bloody thing worries me," Ader said. "The central banks of the world can provide the liquidity ... that doesn't mean everything is fine and well."

Fed Ahead

The Fed on Tuesday is expected to release the minutes of its last meeting, which will be scrutinized by investors for any discussion of what might trigger more easing. Fed officials, in a number of speeches in the past week, spoke on both sides of the easing issue. Chicago Fed President Charles Evans, the lone dissenter at the last meeting, told a meeting at the Council on Foreign Relations this week that 9 percent unemployment requires action. "We ought to be behaving like there's a really big problem out there," he said.

Fed officials have said they would consider a third quantitative easing program, if needed. The last program, QE2, ended in June and involved the purchase of $600 billion in Treasury securities. This time, the Fed is expected to focus on mortgages, in an effort to drive mortgage rates lower.

"They're discussing all kinds of policy options and scenarios, and they've been talking a lot with Europe. Unlike 2008, they have more time but fewer tools. It will be interesting to see what scenarios they are discussing," said Diane Swonk, chief economist at Mesirow Financial.

The Dow in the past week fell 2.9 percent to 11,796, and the S&P 500 was down 3.8 percent at 1215. The Nasdaq declined nearly 4 percent to 2572. The worst performers were financial stocks, down 5.6 percent for the week. Materials stocks, affected by commodities prices, were down about the same. Natural gas was among the biggest losers in commodities, down more than 7 percent on the week, while silver was down 6.5 percent. The euro was down 1.7 percent on the week, finishing Friday at 1.3524.

Brian Dolan of Forex.com said the euro could be very vulnerable to a further decline to 1.30/1.31 if it gets down to 1.34.

"We've got the U.S. holiday. We could bounce around in a range in the next week ... there's a tendency to be major breakouts around U.S. holidays" in both directions, he said.

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Ozon Targets $1 Billion in Sales in Bid to Be Amazon of Russia

By Xu Wang and Zachary Tracer - Nov 19, 2011 4:22 AM GMT+0700

Ozon.ru, a company aiming to be the Amazon.com Inc. (AMZN) of Russia, expects to increase sales more than fivefold to $1 billion within five years as the online retailer expands its distribution network.

Revenue will grow more than 35 percent in 2011, up from $140 million in 2010, Chief Executive Officer Maelle Gavet said in an interview in New York this week. “We expect our revenue to reach $1 billion in three to five years,” she said.

Ozon raised $100 million in September from investors, including the Baring Vostok Private Equity Fund and Rakuten Inc. (4755), the largest e-commerce company in Japan. The Moscow-based company is using the money to build its own delivery network, as local Russian postal service is slow and shoppers prefer to pay cash when they receive goods, Gavet said.

The challenge is reaching consumers in a nation spanning 6.5 million square miles (17 million square kilometers), more than any other country. Ozon plans to add 3,000 sites where customers can pick up orders by the end of 2013, reaching every Russian city with more than 50,000 residents. The company currently has 1,100 pickup points and an 8,000-square-foot shipping center in Tver, between Moscow and St. Petersburg.

Most competitors in the online-shopping market are fellow Russian companies, including food retailer Utkonos.ru and Holodilnik.ru, a consumer-electronics site. KupiVIP.ru, a Moscow-based shopping site for discount fashion brands, raised $55 million this April from investors such as including Accel Partners and Russia Partners.

Amazon.com, the world’s largest Internet retailer, hasn’t established a Russian-language site.

“All the big online retailers are looking at how to enter the Russian market,” Gavet said. She declined to discuss if Amazon had talked with Ozon about a partnership or acquisition.

The Internet penetration rate is relatively low in Russia and the market will keep growing, Gavet said. Only 15 percent to 20 percent of the Internet users have made an online purchase.

“Within Internet users, you have a big chunk of people who can convert to online shopping,” she said.

To contact the reporters on this story: Xu Wang in New York at xwang206@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net

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

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American Apparel, American Equity, Hecla, Level 3: U.S. Equity Preview

By Inyoung Hwang - Nov 19, 2011 5:50 AM GMT+0700

Shares of the following companies may have unusual moves in U.S. trading on Nov. 21. Stock symbols are in parentheses, and prices are as of 5 p.m. in New York.

American Apparel Inc. (APP) : The Los Angeles-based owner young-adult retail chain said that Tom Casey, who was appointed as acting president in October 2010 to improve the company’s operations and finances, has resigned.

American Equity Investment Life Holding Co. (AEL US): The board of the underwriter of annuity and insurance products boosted its annual dividend to 12 cents a share from 10 cents and authorized a buyback of as many as 10 million shares over the next two years.

Hecla Mining Co. (HL) climbed 0.5 percent to $6. The precious-metals miner said work at the Lucky Friday mine has been halted after an accident hospitalized two contractors.

Level 3 Communications Inc. (LVLT) declined 1.5 percent to $19.04. The broadband-services provider filed to sell 50.5 million shares of stock from holder Temasek Holdings Ltd.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net.

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

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Asian Stocks Decline for Third Week on Europe, China Concerns

By Jonathan Burgos - Nov 19, 2011 5:47 AM GMT+0700

Asian stocks declined for a third- straight week, with the regional benchmark index within a percent of erasing October’s gains, amid concern about China’s property sector and evidence that Europe’s debt crisis is infecting major economies.

HSBC Holdings Plc (HSBA) and Commonwealth Bank of Australia led declines among lenders amid concern about contagion in Europe as Spain holds a general election this weekend. China Overseas Land & Investment Ltd. (688), the biggest mainland developer listed in Hong Kong, slid 6.9 percent after home prices in 33 Chinese cities dropped and the country’s banking regulator said loans to developers may sour. BHP Billiton Ltd. (BHP), the world’s biggest mining company, fell 4.4 percent as copper futures dropped for a third week.

“There will be pressure on European banks as the crisis drags on and that might have some global impact,” said Yoji Takeda, who manages about $1.1 billion at RBC Investment Management (Asia) Ltd. in Hong Kong. “China is trying to fine- tune its monetary policy to orchestrate a soft-landing, but at the same time they want to see lower property prices.”

The MSCI Asia Pacific Index dropped 2.7 percent to 114.20 this week, extending a three-week decline to 8.4 percent, as bond yields in Italy and Spain surged near the 7 percent threshold that led Greece, Ireland and Portugal to seek bailouts.

Hong Kong’s Hang Seng Index declined 3.4 percent this week, while China’s Shanghai Composite Index fell 2.6 percent. Japan’s Nikkei 225 (NKY) Stock Average fell 1.6 percent. Australia’s S&P/ASX 200 dropped 2.8 percent.

India’s Sensitive Index slumped 2.1 percent, the most among the Asia-Pacific indexes, as the rupee dropped against the dollar for a third week as Europe’s worsening debt crisis prompted investors to favor safer assets such as the dollar.

U.S. Debt

Stocks declined this week as Fitch Ratings said the creditworthiness of U.S. banks will deteriorate if Europe’s debt crisis spreads beyond the Europe’s five most-troubled nations. In the U.S., Republicans and Democrats on a congressional committee are struggling to find a compromise before a Nov. 23 deadline to produce a U.S. deficit-cutting plan.

HSBC, Europe’s largest bank, fell 4 percent to HK$59.25 in Hong Kong. Commonwealth Bank, Australia’s No. 1 lender, retreated 3.8 percent to A$47.73 in Sydney and was the biggest drag on a measure of financial companies in the Asia-Pacific index. Standard Chartered Plc (STAN), a London-based bank that makes most of its revenue in emerging markets, declined 7.5 percent to HK$159.40.

Political Turmoil

The sovereign-debt crisis has stirred political turmoil across Europe, with Italy and Greece replacing their leaders this month. Spain may speed up the timetable for forming a new government after the election on Nov. 20 so the first Cabinet meeting can be held on Dec. 23, ABC reported, citing officials in the People’s Party it didn’t name.

Exporters to Europe also dropped after the Bank of England said on Nov. 16 Britain’s economy faces a “markedly weaker” outlook and Spain cut its economic forecast.

Esprit Holdings Ltd., the clothier that counts Europe as its biggest market, tumbled 8.5 percent to HK$9.10 in Hong Kong. Canon Inc. (7751), the camera maker that gets about 32 percent of sales from Europe, dropped 2.5 percent to 3,350 yen in Tokyo. Mazda Motor Corp. (7261), the Japanese carmaker most dependent on Europe, declined 2.8 percent to 137 yen.

‘High Risk’

Chinese property developers and lenders fell as a government report showed home prices fell in 33 of 70 cities monitored by the government in October. The China Banking Regulatory Commission told lenders last week to step up debt restructuring for struggling local government financing vehicles and cut “high-risk” loans to developers, a person with knowledge of the matter said.

China Overseas Land sank 6.9 percent to HK$12.38. China Resources Land Ltd. (1109), a state-owned developer, slumped 5.3 percent to HK$10.70. Industrial & Commercial Bank of China (1398) Ltd., the nation’s biggest lender, dropped 8.3 percent to HK$4.44.

Gauges of raw material and energy producers led declines among the 10 industry groups in the MSCI Asia Pacific as copper futures decreased for a second week and a six-week rally in crude oil fizzled out.

BHP Billiton fell 4.4 percent to A$36.13 in Sydney. Rio Tinto Group, the world’s second-biggest mining company by sales, slid 3.4 percent to A$67.05. Cnooc Ltd. (883), China’s largest offshore oil producer, dropped 3.8 percent to HK$14.82 in Hong Kong.

Olympus Rebounds

Among stocks that advanced, Olympus Corp. (7733) jumped 36 percent to 625 yen in Tokyo on speculation the optical-equipment maker that admitted to hiding losses tied to acquisitions for decades may avoid delisting. The gain pared to 75 percent its decline in the five weeks after its ousted President Michael C. Woodford called for an investigation into the company’s past acquisitions.

“Not many people will dare to buy the shares with the risk of delisting, but some investors in short positions were buying back the shares,” said Kiyoshi Ishigane, a senior strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees the equivalent of $84 billion. “Some people who believe the company won’t be delisted are buying the shares.”

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net

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

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S&P 500 Completes Worst Week in Two Months

By Rita Nazareth - Nov 19, 2011 1:39 AM GMT+0700

Play Video

Nov. 18 (Bloomberg) -- Dean Curnutt, chief executive officer of Macro Risk Advisors LLC, talks about his investment strategy. Curnutt also discusses Congress's deficit-reduction supercommittee and Europe's sovereign debt crisis. He speaks with Adam Johnson and Deirdre Bolton on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Play Video

Nov. 18 (Bloomberg) -- Jeffrey Kleintop, chief market strategist at LPL Financial Corp., talks about the outlook for U.S. stocks and holiday spending. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Enlarge image

The S&P 500 swung between gains and losses as investors watched developments in Europe. Photographer: Scott Eells/Bloomberg

U.S. stocks rose, with the Standard & Poor’s 500 Index trimming its worst weekly drop since September, as better-than-forecast growth in a gauge of leading indicators fueled optimism the economy will weather Europe’s debt crisis.

Hewlett-Packard Co. (HPQ) rose 2.5 percent after adding Relational Investors LLC’s Ralph Whitworth to its board. Boeing Co. (BA) gained 2 percent after winning a provisional order for 230 planes from Lion Air. Salesforce.com Inc. (CRM), the largest maker of online customer-management software, lost 10 percent as billings missed some estimates.

The S&P 500 advanced 0.3 percent to 1,220.24 at 1:38 p.m. New York time after falling 0.4 percent earlier. It has retreated 3.4 percent this week. The Dow Jones Industrial Average increased 59.52 points, or 0.5 percent, to 11,830.25. November options on U.S. stocks and indexes expire today.

“Until we have some sense of stability in Europe, the volatility we have seen in the markets will continue,” Mark Bronzo, who helps manage $24 billion at Security Global Investors in Irvington, New York, said in an e-mail. “Better economic growth in the U.S. will provide support for the markets and potentially set the stage for a nice rally if and when Europe does stabilize.”

The S&P 500 fluctuated earlier as investors watched developments in Europe’s debt crisis. The Conference Board’s index of U.S. leading indicators climbed more than forecast in October, signaling the world’s largest economy will keep growing in 2012. The U.S. economy may end 2011 expanding at its fastest pace in 18 months as analysts increase their forecasts for the fourth quarter.

Boosting Forecasts

Economists at JPMorgan Chase & Co. in New York now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent. Macroeconomic Advisers in St. Louis increased its forecast to 3.2 percent from 2.9 percent at the start of November, while Morgan Stanley boosted its outlook to 3.5 percent from 3 percent.

“The next big catalyst for the stock market will probably be a growing appreciation that not only is the U.S. economy not recessing, but U.S. economic growth is actually accelerating,” James Paulsen, who helps oversee about $333 billion as chief investment strategist at Minneapolis-based Wells Capital Management, said in an e-mail.

Stocks erased gains earlier today as Deutsche Presse- Agentur reported that Germany’s Foreign Ministry said the nation was considering the possibility of “orderly defaults” beyond Greece. The euro snapped a four-day slump as European Central Bank purchases pushed down Italian and Spanish bond yields and speculation grew that the International Monetary Fund may play a larger role in fighting the debt crisis.

Joining the Board

Hewlett-Packard jumped 2.5 percent to $27.98. Whitworth, whose Relational Investors 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. The stock retreated 35 percent this year through yesterday.

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

Boeing added 2 percent to $67.43. The commitment consists of 201 of the new 737 MAX model, which features upgraded engines, and 29 extended-range 737-900s. President Barack Obama attended a signing ceremony today for the deal in Indonesia, which coincided with a summit of Southeast Asian leaders.

Salesforce.com tumbled 10 percent to $113.25. Billings rose 29 percent in the fiscal third quarter from a year earlier, said Pat Walravens, an analyst at JMP Securities LLC, who has an “outperform” rating on the shares. That missed his 33 percent growth estimate. The figure is seen as a benchmark of momentum at the company, whose shares had climbed more than 10 percent in the past six weeks before today.

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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Urban Outfitters Losing Fans With Fashions

By Ashley Lutz - Nov 19, 2011 12:38 AM GMT+0700

Urban Outfitters was Louis Redondo’s favorite store for fashionable hats and T-shirts five years ago. Today, he says he’d be embarrassed to wear its bright, striped sweaters and flared velvet pants for anything except a Halloween costume.

“I used to walk out of there with my bags stuffed full of clothing,” said Redondo, a 30-year-old technical writer from Jersey City, New Jersey, who now shops at Hennes & Mauritz AB stores. “It was definitely my primary source. Today I’d just look comical if I shopped there -- I’d be laughed at.”

“Bizarre” and “lackluster” fashions at its namesake stores may be why Philadelphia-based Urban, which also operates Anthropologie and Free People, is losing investors’ confidence, said Pamela Quintiliano, a New York-based analyst at Oppenheimer & Co. The shares have slid 27 percent this year, the biggest drop among U.S. specialty apparel retailers except for Aeropostale Inc. (ARO)

“This is a fashion issue, plain and simple,” Chief Executive Officer Glen Senk said on a conference call to discuss earnings Nov. 14. “We need more compelling product.”

The missteps come on top of accusations of style plagiarism and cultural insensitivity that have alienated some customers this year. The lowest consumer confidence since March 2009 is making it harder for retailers to get shoppers into their stores at all.

Senk, long considered an excellent judge of fashionable merchandise assortments, is shaking up his management team to reverse declining earnings.

Slow-Moving Inventory

Net income has dropped for the past four quarters and the chain has boosted discounts to clear slow-moving inventory. Comparable retail segment net sales at the Urban Outfitters brand, which accounted for 46 percent of revenue last year, were flat in the third quarter after gains of 1 percent in the first two quarters of the year. Total inventories jumped 27 percent.

Urban’s shares dropped 0.1 percent to $26.15 at 12:28 p.m. in New York.

“The fashions, once their greatest strength, are simply off, and their reputation as the trendiest place to go is sliding,” Quintiliano said in a telephone interview. “Urban is just throwing stuff at a wall and seeing what sticks with consumers.”

Urban’s earlier successes may have made the chain too bold in choosing fashions that have gotten ahead of shoppers’ tastes, offering bell-bottom pants while consumers still are seeking skinny styles, said Christine Chen, a San Francisco-based analyst at Needham & Co.

Style Resistance

“There will always be some resistance to new styles and most people don’t overhaul their wardrobes overnight,” Chen said in a telephone interview. “Most likely people will transition and adopt a boot-cut pant before they are comfortable enough to try a bolder style.”

Urban also has offered baggy tops, like tunics, which are better suited for skinny jeans, alongside loose bell bottoms, Chen said.

Many aspects of Urban Outfitters are “confusing,” such as the range of products and prices, said Vincent Quan, an associate professor at New York’s Fashion Institute of Technology who also consults retail chains on merchandising. At a recent trip to an Urban store, Quan saw a $150 dress displayed alongside a $59 one, he said.

Faux Pas

“This is a faux pas in today’s retail market,” Quan said. “Customers have come to expect that similarly priced items will be grouped together and that they won’t have to dig around to find out a cost.”

Adding to the earnings woes is a spate of bad publicity, triggering a backlash from many of its target shoppers in their teens and 20s.

In May, jewelry designer Stevie Koerner accused Urban Outfitters on her website of copying her “The World of Love Series,” which featured U.S. states cast in silver with cut- outs of hearts.

Users on Twitter, including singer Miley Cyrus, accused Urban of stealing and tried to start a boycott. Urban responded on its website that it would continue to sell the jewelry, saying that the idea of state-shaped necklaces wasn’t unique to Koerner and that several sellers on the craft website Etsy sold similar designs.

Navajo Nation

In June, the Navajo nation sent Urban a letter demanding that the company pull the Navajo name from a line of purses, t- shirts and underwear meant to evoke American Indian culture, and a petition on the website change.org asking the retailer to remove the clothing gathered more than 16,000 signatures.

A search of the word “Navajo” on the retailer’s website returns no items, and pieces previously in the collection are now simply labeled as “printed.”

The company said earlier this month that David McCreight, a former Under Armour Inc. executive, was appointed CEO of Anthropologie Group, and Charles Kessler, formerly of Coach Inc. and Abercrombie & Fitch Co., would be chief merchandising officer for the namesake brand. Stephen Murray, former global president of Urban Outfitters, left his post in April after a year on the job.

A spokeswoman, Sara Goodstein, said the company declined to comment.

Urban’s problems are more about the “headwinds” working against them, such as an overcrowded apparel market and a sluggish economy, than the company’s actions, said Linda Tsai, a senior analyst at ITG Investment Research. The chain’s net income has increased every year since its fiscal 2007.

“Fashion missteps happen to everyone sometimes,” Tsai said in a telephone interview. “While apparel has sometimes struggled, we’ve seen success in their accessories, outerwear and shoes.”

Needham’s Chen said Urban has “some of the best merchants” and is likely to rebound.

“They’ve had some mishaps, but this is not a turnaround situation,” Chen said.

To contact the reporter on this story: Ashley Lutz in New York at alutz8@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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Supercommittee Seeks Path on Deficit Amid Republican Skepticism

By Steven Sloan and Heidi Przybyla - Nov 19, 2011 4:49 AM GMT+0700
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Congressional supercommittee member Rep. Chris Van Hollen (D-MD), center, is surrounded by reporters after leaving at House Democratic caucus meeting at the U.S. Capitol November 18, 2011. Photographer: Chip Somodevilla/Getty Images

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Nov. 18 (Bloomberg) -- U.S. Representative David Schweikert, an Arizona Republican, talks about prospects for Congress's debt-cutting supercommittee to reach an agreement by Nov. 23. Members of the supercommittee are seeking a path forward on stalled talks even as some Republican lawmakers cast doubt on whether any accord with tax increases could pass the House of Representatives. Schweikert speaks with Peter Cook on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Members of the supercommittee are seeking a path forward on stalled deficit-reduction talks even as some Republican lawmakers cast doubt on whether any accord with tax increases could pass the House of Representatives.

A bipartisan group of panel members met today as the Nov. 23 deadline draws near with little sign that Republicans are budging on their anti-tax stance or that Democrats will agree to major changes to entitlement programs.

“We are painfully, painfully aware of the deadline that is staring us in the face,” Republican co-chairman Jeb Hensarling told reporters this morning.

“The word is today that they may not get to some kind of agreement,” Representative Jim Jordan of Ohio said on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “It would be difficult” to win passage of a plan that includes more taxes, said Jordan, head of the fiscally conservative Republican Study Committee.

Republicans yesterday offered a $643 billion deficit- reduction package, a Republican leadership aide said today. Democrats found the offer unacceptable because it didn’t do enough to raise revenue, according to a Senate Democratic leadership aide. Both aides spoke on condition of anonymity because they weren’t authorized to discuss the negotiations.

Fallback Plan

The Republican aide said the offer was intended as a fallback as the panel looks for $1.2 trillion in deficit cuts before the deadline. The party’s proposal included $640 billion in spending cuts and interest savings, and $3 billion in increased revenue from ending a tax break for corporate jet travel; it didn’t cut entitlement programs such as Social Security, Medicare and Medicaid that Democrats are trying to protect, the aide said.

Senior aides to House Speaker John Boehner, an Ohio Republican, made the offer yesterday to staff members of Senate Majority Leader Harry Reid, a Nevada Democrat, the Democratic aide said. Democrats didn’t find the offer acceptable, the aide said, and complained about Republicans disclosing it to reporters during the talks.

The offer of about $3 billion in revenue “doesn’t meet any standard of fairness, any standard of common sense,” said Senator John Kerry, a Massachusetts Democrat on the supercommittee.

Divided Over Taxes

“Where the divide is right now is on taxes, whether or not the wealthiest Americans should share in the sacrifice,” Democratic Senator Patty Murray of Washington, the co-chair of the panel, said before supercommittee Democrats met this afternoon.

Earlier today a bipartisan group of five senators on the supercommittee, plus Democratic Representative Chris Van Hollen, met to try to break the logjam.

Republicans are “dug in” on extending the George W. Bush- era tax cuts and lowering the top rates for high earners, Van Hollen, of Maryland, told reporters before the meeting. “Negotiations are continuing, but we’ve made it clear that that doesn’t meet the test of balance.”

“We are going to work as long as it takes to get an agreement,” Democratic Senator Max Baucus, another participant in the meeting, told reporters. Also attending were Kerry and Republican Senators Jon Kyl of Arizona, Pat Toomey of Pennsylvania and Rob Portman of Ohio.

‘Tough Negotiation’

“It’s a tough negotiation,” Kerry said after the meeting.

A bloc of congressional Democrats said they are worried about proposals under discussion, such as lowering the top tax rate to 28 percent from 35 percent or cutting spending by $876 billion. If the deadlock continues past Nov. 23, at least $1.2 trillion in automatic spending cuts could take effect in 2013, split between defense and domestic discretionary programs.

“It looks harder today than it did certainly two weeks ago,” supercommittee member Van Hollen, the top Democrat on the House Budget Committee, told Bloomberg Television today.

A Republican aide said Republicans are no longer demanding a new Democratic proposal to proceed and that Republicans haven’t given up on a bipartisan deal.

The automatic budget-cutting process, known on Capitol Hill as sequestration, was supposed to be the stick to encourage Democrats to agree to entitlement program cuts and Republicans to accept tax increases.

Instead, Democrats who represent districts with many elderly or low-income residents said sequestration is preferable to some options being considered by the supercommittee, such as limiting benefits in programs like Medicare.

Not Worst Thing

“Sequestration is not the worst thing that could happen,” said Representative Keith Ellison, a Minnesota Democrat and co- chairman of the Congressional Progressive Caucus. “Getting a deal where there’s minimal revenue and all cuts on ordinary people, I’d rather see sequestration than that.”

That thinking was echoed in interviews with Democratic Representatives Raul Grijalva of Arizona, Laura Richardson of California, Michael Capuano of Massachusetts, Chaka Fattah of Pennsylvania and Sheila Jackson Lee of Texas.

Richardson said across-the-board cuts are the most equitable way to reduce the deficit by hitting programs favored by both Democrats and Republicans.

“Defense is going to have to pay its fair share,” Richardson said. “I’m not going to be inclined to support further domestic discretionary cuts until I see other groups taking some of the same responsibilities.”

House Republicans

Even if the supercommittee agrees to legislative language that would reduce the deficit by $1.5 trillion over 10 years, the position of these lawmakers reflects the challenge leaders will face shepherding a deal through Congress. Both chambers must pass legislation by Dec. 23 to avoid the cuts. Democratic votes will be needed because many Republicans, especially in the House of Representatives, have signaled opposition to an agreement that includes tax increases or lacks big cuts to entitlement programs.

Hensarling has said Republicans won’t go beyond their offer to raise tax revenue by $300 billion until Democrats offer a plan to address the growth in spending on entitlement programs.

House Democratic leader Nancy Pelosi of California said the “only way we will be able to reach an agreement” is if Republicans accept balance between revenue increases and spending cuts.

Raising Revenue

Democrats have no plans to propose structural changes to entitlement programs unless they are part of a bigger deal that would raise close to $1 trillion in revenue, said a Senate leadership aide. The aide said yesterday the process is deadlocked and neither side wants to declare it dead until next week. The talks are continuing in the hope of a breakthrough, the aide said.

If the supercommittee falters, lawmakers will face a debate this time next year over expiration of the Bush-era tax cuts that President Barack Obama agreed to extend in December 2010. Obama has said he won’t support renewing the tax cuts again for high earners. Congressional Democrats want to apply to deficit reduction the $800 billion in revenue over 10 years that would result from ending tax cuts to those earning more than $200,000 a year and married couples earning more than $250,000.

“If the supercommittee did nothing, you’d have a couple of things happen,” Fattah said. “You’d have the sequestration of funds, but you’d also have the Bush tax cuts go out of existence and that would be another almost $4 trillion in revenue.”

The supercommittee has unique influence because if it agrees to a deficit-reduction proposal, that legislation must be considered on the House and Senate floors and can’t be subjected to amendments or filibusters. Capuano said he would like to “fight it out” over the tax cuts through the regular legislative process next year.

“I didn’t vote for them; I didn’t vote to extend them and I won’t vote to extend them again,” he said.

To contact the reporters on this story: Steven Sloan in Washington at ssloan7@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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