Business Confidence in Germany Advances for First Time Since June: Economy

By Gabi Thesing - Nov 24, 2011 5:43 PM GMT+0700

German business confidence unexpectedly rose for the first time in five months in November, defying Europe’s worsening debt crisis.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 106.6 from 106.4 in October. Economists expected a decline to 105.2, according to the median of 40 forecasts in a Bloomberg News survey.

“Although downside risks certainly remain, doomsday is not around the corner,” said Andreas Rees, chief German economist at UniCredit Markets and Investment Banking in Munich. “A recession, and especially a deep and nasty one, is not in the pipeline.”

German unemployment remains near a two-decade low, supporting consumer spending and helping to offset the impact of waning demand for the country’s exports across the 17-nation euro region. Still, concerns that Europe’s largest economy is not immune to the escalating debt crisis were stoked yesterday when Germany failed to get bids for 35 percent of the 10-year bonds it offered for sale.

The euro rose about a quarter of a cent after Ifo’s report before retreating to trade little changed at $1.3375 at 11:40 a.m. in Frankfurt. The benchmark DAX Share Index (DAX) gained 1.3 percent. Ifo said its gauge of the current situation held steady at 116.7 while an index of executives’ expectations climbed to 97.3 from 97.

‘Robust Condition’

Hans-Peter Keitel, the president of Germany’s BDI industry federation, said on Nov. 21 that a recession is unlikely as industrial companies are in “robust condition” with “well filled” order books.

Adidas AG Chief Executive Officer Herbert Hainer said on Nov. 3 that Europe’s debt crisis won’t halt growth in the sporting-goods market and forecast higher earnings next year as the company expands in Russia and China.

The German economy expanded 0.5 percent in the third quarter, more than the 0.3 percent achieved in the second, with growth driven almost solely by domestic demand, a final reading from the Federal Statistics Office showed today.

U.K. economic growth also accelerated in the third quarter as stock-building and government spending offset weak consumer spending and business investment, the Office for National Statistics confirmed today in London.

Global Slowdown

The Bank of England has nevertheless reduced its 2012 growth forecast, predicting an annual rate of about 1.4 percent in the fourth quarter next year, as Europe’s debt crisis contributes to a global slowdown.

Taiwan today cut its forecasts for this year and next after the island’s economy expanded at the slowest pace since 2009 last quarter.

The European Commission on Nov. 10 slashed its euro-region growth estimate for next year to 0.5 percent from 1.8 percent, citing the debt crisis. In Germany, growth may slow to 0.8 percent in 2012 from 2.9 percent in 2011, the Brussels-based commission projected.

Some 18 months after Greece was first bailed out by euro- area nations, governments are still struggling to find a lasting solution to a crisis that has toppled five elected governments and is now engulfing Italy and Spain.

‘Uncertain Situation’

Germany’s 10-year bond yield climbed to 2.23 percent today from 1.91 percent on Nov. 21 as investors start to doubt the country’s haven status.

The turmoil has prompted companies such as Deutsche Lufthansa AG (LHA) to scale back capacity to counter an anticipated slowdown. Infineon Technologies AG (IFX), Europe’s second-largest maker of semiconductors, on Nov. 16 forecast a steeper decline in full-year sales than analysts estimated.

German manufacturing output contracted for a second month in November and investor confidence dropped to a three-year low.

“The longer this uncertain situation persists, the larger the worries that the debt crisis will spread to the real economy,” Norbert Steiner, CEO of K+S AG, Europe’s largest maker of potash, said earlier this month. “Psychology plays an important role.”

Some companies are counting on U.S. and emerging-market sales to offset the drop in European demand.

Bayer AG (BAYN), Germany’s largest drugmaker, said Nov. 16 it expects sales in Asia to grow more than 60 percent by 2015 as it builds local factories and sales networks. Bayerische Motoren Werke AG Chief Financial Officer Friedrich Eichiner earlier this month predicted “double-digit” percentage sales growth next year in the U.S.

ECB Stimulus

While the European Central Bank has extended the use of its unconventional tools, such as offering banks unlimited cash for more than a year and purchasing the bonds of debt-strapped governments, policy makers have rejected calls to counter the crisis by printing money. The central bank, which will publish its latest economic projections in December, earlier this month forecast a “mild recession” in the euro area.

“It’s obviously bitter for Germany that the main trading partner is heading for a massive slump,” said Jens Kramer, an economist at NordLB in Hanover. “However, the recovery has put the economy on a broader foundation, so stronger domestic demand should help insulate Germany somewhat.”

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Tata Names Mistry as Ratan Successor

By Rajhkumar K Shaaw and Siddharth Philip - Nov 24, 2011 6:01 PM GMT+0700

Tata Sons Ltd. said board member Cyrus P. Mistry will succeed Ratan Tata as chairman next year, a surprise choice that ends more than a year of speculation over who would run India’s biggest business group.

Mistry, 43, whose family is the single biggest shareholder of the group will assume the role of deputy chairman and take over as head of the group in December 2012, according to an e- mailed statement from the company yesterday. Tata in August 2010 set up a five-member panel to find a successor to Ratan, who will retire after two decades running the Mumbai-based company.

In Mistry, Tata has picked an insider who belongs to the same Parsi community as the founders and whose family owns 18 percent of the group holding company. Mistry, largely unknown outside his father’s construction business, will have a year to raise his profile under the guidance of Ratan Tata, the architect of the group’s emergence as a global company through his acquisitions of Corus Group and Jaguar Land Rover. (TTMT)

“He’s sort of an enigma,” said U.R. Bhat, managing director of Dalton Capital Advisors India Pvt. in Mumbai. “He has phenomenally big shoes to fill. We don’t know whether he has the right credentials.”

Mistry, who was part of the search panel, withdrew himself when he became a candidate, said group spokesman Debasis Ray.

Billionaire Father

Mistry, an engineer from the Imperial College of Science, Technology and Medicine in London, began working for the company Shapoorji Pallonji & Co., controlled by his father, billionaire Shapoorji Pallonji Mistry, in 1991. Cyrus, an Irish national, did his masters in management from the London Business School.

“I am aware that an enormous responsibility, with a great legacy, has been entrusted to me,” Mistry said in an e-mailed statement yesterday. “I will undertake to legally dissociate myself from the management of my family businesses to avoid any issue of conflict of interest.”

Mistry declined to comment for this report, according to spokesman Ray.

Tata makes cars from the $73,700 Jaguar XJ to the $2,800 Nano, produces steel, salt and grows tea served at the Tata- owned Boston Ritz Carlton. The group accounts for almost 5 percent of India’s gross domestic product.

Tata Steel Ltd. (TATA), which acquired Corus Steel for $12.8 billion in India’s biggest overseas acquisition in 2007, added 0.8 percent to 385.60 rupees at the close of trading in Mumbai. Tata Consultancy Services Ltd. (TCS), the group’s biggest unit by market value, advanced 2.8 percent, the most since Oct. 24, to 1,091.80 rupees. Tata Motors Ltd., which owns the Jaguar and Land Rover brands, rose 2.8 percent.

Shapoorji Pallonji Shares

Forbes & Co. (FG), part of the Shapoorji Pallonji group, gained 6.7 percent, the most since August 2010, to 426.40 rupees at the close of trading in Mumbai. Gokak Textiles Ltd. (GTEX), a yarn maker also controlled by the group, surged 16 percent, its biggest gain since November 2010, to 56.3 rupees. India’s benchmark Sensitive Index advanced 1 percent.

“One of the main decisions they will have to communicate to the market is if they want to keep growing by buying other businesses,” said Walter Rossini, who helps manage 200 million euros ($267 million) in Indian equities at Aletti Gestielle SGR SpA. “I think they will focus more on efficiency and productivity.”

The Tata group has more than 100 operating companies with 31 listed on the Indian stock exchanges and total revenue of $83.3 billion in the year ended March 31, 2011, according to its website. Overseas revenue accounted for 58 percent of the total, or $48.3 billion. The group companies together employ more than 425,000 people.

‘Astute Observations’

“I have been impressed with the quality and caliber of his participation, his astute observations and his humility,” Ratan Tata said about Mistry in the statement. “I will be committed to working with him over the next year to give him the exposure, the involvement and the operating experience to equip him to undertake the full responsibility of the group on my retirement.”

Ratan Tata’s step-brother Noel was among the likely candidates to take over as chairman, the Economic Times reported on Nov. 11.

‘Jury Still Out’

“Obviously the jury is still very much out,” on Mistry’s abilities, said Andrea Goldstein, who studied the Tata Group as a senior economist at the Organization of Economic Cooperation and Development in Paris. “He’s very young, which could be very good - so he’s being groomed to take this position. Let’s see if he’s ready to do that.”

Mistry and the Tatas follow the Zoroastrian religion and belong to the small Parsi community, which originated in Persia and found sanctuary centuries ago in India. The Tata group was founded by Ratan’s great grandfather Jamsetji Nusserwanji Tata, who started a textile-trading business in 1868 and then built the country’s first steel mill and hydroelectric plant. He also built The Taj Mahal Palace & Tower hotel in Mumbai, which was damaged in the November 2008 terrorist attacks.

Ratan made his first purchase overseas in February 2000 when he paid $407 million for U.K.-based Tetley Group -- the biggest by an Indian company at that time. He followed with 65 more mergers or purchases in India and abroad, totaling more than $20 billion, the most by any Indian group, according to the group’s website.

Mistry will be the second person outside the Tatas to lead the group, according to the company’s website.

“I have known him since he was a baby,” Parmeshwar Godrej, a board member of Godrej Properties Ltd. and wife of billionaire Adi Godrej, said in a phone interview yesterday. “The whole family is very shy and reserved. I’m sure he will do a great job.”

To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Arijit Ghosh at aghosh@bloomberg.net

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Germany Rejects Euro Bonds After Auction

By Brian Parkin - Nov 24, 2011 6:02 PM GMT+0700

German Economy Minister Philipp Roesler rejected calls for Chancellor Angela Merkel to back joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.

Newspaper editorials, analysts and opposition politicians stepped up bids for Merkel to shift from an incremental approach after the government sold a fraction of the bonds it auctioned yesterday.

“As the crisis deepens with yesterday’s bond auction, the veil has been torn off Merkel’s policy of muddling through,” Sebastian Dullien, a senior fellow at the European Council on Foreign Relations in Berlin, said in a telephone interview. “It’s only got us closer to the end-game, either the breakup of the euro or euro bonds. The strategy has failed.”

Merkel has so far backed a focus on debt reduction and closer economic coordination, calling for a revision in European Union treaties that threaten to bog down in a multiyear negotiation, as core euro economies risk succumbing to the contagion that began in Greece in 2009.

“The flop shows that bunds are losing their sex-appeal as an extremely secure investment,” Germany’s Handelsblatt business newspaper said in a commentary today. “This shows the crisis has reached the entire euro-zone core. France, Finland, the Netherlands and Austria have to pay more interest for their bonds than just a few months ago.”

Bunds Decline

German bunds fell a second day. The 10-year bund yield rose as much as 10 basis points, or 0.1 percentage point, to 2.25 percent, the highest since Oct. 28 and was at 2.19 percent at 11 a.m. London time. Bids at yesterday’s auction of 10-year securities amounted to 3.889 billion euros ($5.2 billion), out of a maximum target for the sale of 6 billion euros.

Handelsblatt said the shortfall was a “wake-up call” for Merkel’s government which opposes both issuing bonds for the entire 17-member euro region and allowing the ECB to buy unlimited amounts of euro nation bonds.

The German government today stood by its rejection of any common bonds for the euro bloc following a report in Bild newspaper that Merkel’s coalition is concerned it may have to agree to euro bonds under certain conditions. The newspaper didn’t say where it got the information.

“We say ‘no’ to euro bonds,” Roesler, who is also vice chancellor, said today in parliament. “A transfer union would be wrong because it would mean German taxpayers pick up the costs. Euro bonds are wrong because they would mean a rise in interest rates for Germany.”

Fiscal Union Needed

That contrasted with Handelsblatt’s view. “The ECB remains the only investor that can keep down the interest rates of bonds from euro states in the short-term,” Handelsblatt said. “In the long-term, there’s no getting around the necessity of creating fiscal union with at least partial euro bonds.”

The Frankfurter Allgemeine Zeitung newspaper said that while the low demand for German bunds was “no reason to panic” it shows that “around 2 percent interest for investors in these uncertain times is simply not enough.”

“Pressure is growing on Merkel,” said Die Welt newspaper. “Up until now she managed to steer the nation through the crisis so that the people didn’t really notice the turbulence.”

Merkel now faces a “moment of truth” in the crisis as her opposition to ECB bond purchases and euro bonds “is being challenged,” Die Welt said.

German opposition parties ratcheted up calls for euro bonds. Frank-Walter Steinmeier, parliamentary leader of the Social Democratic Party in parliament, said on Nov. 21 that his party wants euro bonds as part of a solution to the crisis.

Greens Want Euro Bonds

“A model using euro bonds that links European bonds to a reform program is the better alternative,” Juergen Trittin, a co-leader of the opposition Greens party, said in an N24 television interview today.

In Paris, the French government underlined calls for giving the ECB a bigger role in fighting the crisis.

“What’s not working is confidence and that’s what we must restore,” French Foreign Minister Alain Juppe said today in an interview on France Inter radio. “I hope that reflection will move forward that the ECB should have an essential role to restore confidence.”

Merkel meets today with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France, followed by a news conference scheduled for 2 p.m. Paris time.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

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

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European Stocks Gain After German Business Confidence Increases

By Adam Haigh - Nov 24, 2011 7:22 PM GMT+0700

European stocks rose, snapping their longest stretch of losses since August, after a report showed German business confidence unexpectedly increased in November. U.S. index futures advanced.

BHP Billiton Ltd. (BHP), the world’s biggest mining company, led gains in the shares of commodity companies, as copper and nickel prices climbed. Arkema SA (AKE) rallied 10 percent after analysts upgraded their recommendations on the shares following its plan to sell its vinyl business.

The benchmark Stoxx Europe 600 Index climbed 1.1 percent to 222.67 at 12:08 p.m. in London. The gauge had tumbled 7.1 percent over the past five days as soaring bond yields in Italy, Spain and France compounded concern that the region’s leaders are struggling to control the debt crisis.

“We still see some ‘bright-ish’ spots in all the doom and gloom that surrounds us,” said Annalisa Piazza, a strategist at Newedge Group in London. “Today’s report clearly shows that activity is not going to collapse any time soon in the main European (UKX) economy.”

The Ifo Institute’s business climate index, based on a survey of 7,000 executives, increased to 106.6 this month from 106.4 in October. That beat the median forecast of 105.2 in a Bloomberg News survey.

Futures on the Standard & Poor’s 500 Index expiring in December gained 0.9 percent to 1,170.4, signaling U.S. stocks may halt a six-day slump (SPX) when trading reopens tomorrow. The market is closed today for Thanksgiving and will end at 1 p.m. in New York tomorrow. Futures on the Dow Jones Industrial Average added 87 points, or 0.8 percent, to 11,321.

Euro Bonds

Germany’s coalition government is concerned it may have to agree to the issuing of euro bonds under certain conditions, Bild reported without saying where it obtained the information.

One such condition is the European Union’s consent to tighten its stability pact, Bild said in an e-mailed preview of an article published today.

“There are signs that the German government’s position on common bond issuance is becoming more favorable,” Steven Major, the global head of fixed income research at HSBC Holdings Plc in London, wrote in a report today.

The Stoxx 600 has slumped 19 percent this year as the debt crisis that began in Ireland and Greece spread to the euro area’s major economies and led to calls for bond purchases by the European Central Bank as one way of containing contagion. The ECB was said to buy government debt over the past several days.

Non-Conventional Tools

“Only a massive intervention from the ECB could potentially eradicate liquidity fears,” said Claudia Panseri, the head of equity strategy at Societe Generale SA in Paris. “Intervention from the ECB is not imminent. We believe the market needs to get worse before all the non-conventional tools are used.”

Equity strategists at the biggest investment banks forecast an average 16 percent rally in European stocks through the end of next year, according to the average of 10 estimates in a Bloomberg News survey.

U.K. gross domestic product rose 0.5 percent from the previous quarter, when it increased 0.1 percent, the Office for National Statistics said today in London. The figure matched a previous estimate and the median forecast in a Bloomberg News survey of 32 economists.

German GDP

Germany’s economy rebounded in the third quarter, driven by consumer and company spending, the Federal Statistics Office in Wiesbaden said today.

Private consumption expanded 0.8 percent from the second quarter and company investment in plant and machinery jumped 2.9 percent. Gross domestic product advanced 0.5 percent from the previous three months, the office said, confirming an initial estimate published on Nov. 15. That was an acceleration from the 0.3 percent growth in the second quarter.

Portugal’s credit rating was cut to below investment grade by Fitch Ratings due to the country’s rising debt level and weakening economy. The long-term rating was lowered one level to BB+ from BBB- with a negative outlook, Fitch said.

BHP Billiton rose 2.4 percent to 1,782.5 pence. Rio Tinto Group advanced 2.9 percent to 3,071 pence. Copper, nickel and tin climbed on the London Metal Exchange.

Dexia SA (DEXB) rallied 29 percent to 34.8 euro cents, for an increase of 46 percent in the last two days. The Belgian lender has still lost 86 percent of its value this year after its breakup became inevitable last month as concern over its European sovereign-debt holdings caused its short-term funding to evaporate. Dexia was once the world’s largest lenders to municipalities.

Arkema, Dixons

Arkema jumped 9.7 percent to 49.63 euros. JPMorgan Chase & Co. upgraded the shares to “overweight” from “neutral.”

Dixons Retail Plc (DXNS), the U.K.’s largest electronics retailer, climbed 8.8 percent to 10.18 pence, the biggest increase in 11 weeks, after reporting a first-half loss that was smaller than analysts’ estimates.

Raiffeisen Bank International AG (RBI), eastern Europe’s third- biggest lender, rose 6 percent to 15 euros after reporting a third-quarter profit that beat analysts’ forecasts. Net income fell to 130 million euros from 311 million euros a year earlier, according to a statement today. The average estimate of nine analysts surveyed by Bloomberg called for a profit of 99 million euros.

Cable & Wireless Worldwide Plc (CW/) gained 4 percent to 14.77 pence as Liberum Capital advised buying the stock, citing the recent slump in its share price.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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

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Stocks, Euro Rise on Gain in German Confidence

By Stephen Kirkland and Shiyin Chen - Nov 24, 2011 7:48 PM GMT+0700

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Nov. 24 (Bloomberg) -- Pranay Gupta, chief investment officer for Asia Pacific at ING Investment Management in Hong Kong, talks about the European debt crisis and its implications for global stock markets. Gupta also discusses the U.S. economy and budget deficit. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Nov. 24 (Bloomberg) -- George Feiger, chief executive offer of Contango Capital Advisors Inc., a San Francisco-based wealth management firm, talks about the impact of the eurozone crisis on U.S. financial markets and his investment strategy. Feiger speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

European stocks rose for the first time in six days and the euro rebounded against the dollar after German business confidence unexpectedly increased. German bonds declined, while commodities gained.

The Stoxx Europe 600 Index added 1 percent at 12:45 p.m. in London, climbing from a seven-week low. Standard & Poor’s 500 futures jumped 0.9 percent. U.S. markets are closed today for Thanksgiving. The Nikkei 225 Stock Average sank 1.8 percent after S&P signaled it may be getting closer to lowering Japan’s sovereign grade. The euro strengthened 0.4 percent to $1.339, while the yield on Germany 10-year bond rose five basis points. Copper added 0.8 percent and oil advanced 0.7 percent.

German business confidence increased for the first time in five months in November, defying Europe’s worsening debt crisis. S&P said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden. More than $4 trillion has been erased from the value of equities worldwide this month as rising borrowing costs in the euro-area stoked concern the debt crisis will derail economic growth.

“We still see some ‘bright-ish’ spots in all the doom and gloom that surrounds us,” Annalisa Piazza, an strategist at Newedge Group in London, wrote in a report. “Today’s report clearly shows that activity is not going to collapse any time soon in the main EMU economy.”

Five shares advanced for every one that fell on the Stoxx 600. The measure yesterday slumped to the lowest close since Oct. 4. Germany’s DAX Index rallied 1.6 percent, halting an eight-day retreat.

Earnings Top Estimate

Raiffeisen Bank International AG gained 6 percent after eastern Europe’s third-biggest lender reported profit that topped analyst estimates. Dixons Retail Plc jumped the most since May, jumping 9.3 percent after the U.K.’s largest electronics retailer reported a smaller first-half loss (DXNS) than analysts had predicted.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 106.6 from 106.4 in October. Economists expected a decline to 105.2, according to the median of 40 forecasts in a Bloomberg News survey.

Germany’s business confidence is “surprisingly stable for the time being,” Markus Steinbeis, head of equity portfolio management at the Unterfoehring, Germany-based unit of Pioneer Investments KGmbH, which oversees about $221 billion globally, said in a phone interview. Macro-economic data in Germany. “Sideways movement from the current levels is the most likely scenario for the year-end.”

Euro Strengthens

The S&P 500 fell for a sixth day yesterday to the lowest level since Oct. 7. The market will reopen for shortened trading tomorrow, closing at 1 p.m.

The euro strengthened 0.2 percent against the pound. The yen climbed 0.4 percent to 77.04 per dollar.

Ten-year German yields advanced as much as 12 basis points to 2.26 percent. Two-year note yields increased three basis points to 0.48 percent.

Germany’s coalition government is concerned it may have to agree to issuing euro bonds under certain conditions, such as tightening the stability pact, Bild reported without saying where it got the information.

The yield on 10-year Spanish bonds fell eight basis points to 6.56 percent, while similar-maturity Italian debt yields rose four basis points to 7.01 percent. The cost of insuring European government debt fell from a record, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments declining three basis points to 374.5.

Portugal Downgrade

Portugal’s bonds fell, with 10-year note yield climbing 74 basis points to 12.05 percent after Fitch Ratings cut the nation’s credit rating one step to BB+, the highest junk status, with a negative outlook.

Oil climbed to $96.86 a barrel in New York, after having dropped 1.9 percent yesterday. Nickel futures increased 1 percent and tin climbed 0.9 percent.

The MSCI Emerging Markets Index rallied 0.7 percent, snapping a seven-day decline, the longest slump since 2009. The Hang Seng China Enterprises Index climbed 1 percent in Hong Kong after the Chinese central bank lowered reserve-ratio requirements for some rural lenders. India’s Sensex rose 1 percent and South Africa’s All-Share Index jumped 1.1percent.

-- With assistance from Julie Cruz in Frankfurt, Emma Charlton, John Deane, Will Hadfield, Adam Haigh and Michael Shanahan in London. Editors: Stephen Kirkland, Stuart Wallace

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net

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

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German Business Confidence May Fall to Low

By Gabi Thesing - Nov 24, 2011 2:44 PM GMT+0700

German business confidence probably fell to a 20-month low in November as the euro area’s worsening debt crisis threatens to tip the economy into recession.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, will drop to 105.2 from 106.4 in October, the median forecast of 40 economists in a Bloomberg News survey shows. That would be the lowest since March 2010. The institute releases the report at 10 a.m. in Munich today.

Growth in Europe’s largest economy may slow to a near standstill next year as the worsening turmoil curbs demand in the 17-nation currency bloc, Germany’s biggest export market, the Bundesbank said Nov. 21. The crisis, which is heading for its third year, has prompted companies such as Deutsche Lufthansa AG (LHA) to scale back capacity to counter an anticipated slowdown.

“The trend is down, which is not surprising,” said Tobias Blattner, an economist at Daiwa Capital Markets in London. “However, even though we may have a quarter of negative growth, I definitely don’t see a recession in Germany. The order books are still full and the economy is solid. Domestic demand will have to cushion some of the export falloff.”

German Slowdown

Ifo’s gauge of the current situation may decrease to 115 from 116.7, while an index measuring executives’ expectations probably fell to 96 from 97, the survey of economists shows.

Some 18 months after Greece was first bailed out by euro- area nations, governments are still struggling to find a lasting solution to a crisis that has toppled five elected governments and is now engulfing Italy and Spain.

The European Commission on Nov. 10 cut its euro-region growth forecast for next year to 0.5 percent from 1.8 percent, citing the debt crisis. In Germany, growth may slow to 0.8 percent next year from 2.9 percent in 2011, the Brussels-based commission projected.

While the German economy expanded 0.5 percent in the third quarter, growth was driven almost solely by domestic demand, a final reading from the Federal Statistics Office showed today.

Manufacturing output contracted for a second month in November and investor confidence dropped to a three-year low.

Schaeffler AG, the roller-bearing maker that controls Continental AG (CON), said on Nov. 22 that revenue growth in the fourth quarter may be restrained because of slowing demand for machine parts in Europe. Infineon Technologies AG (IFX), Europe’s second-largest maker of semiconductors, on Nov. 16 forecast a steeper decline in full-year sales than analysts estimated.

‘Uncertain Situation’

“The longer this uncertain situation persists, the larger the worries that the debt crisis will spread to the real economy,” Norbert Steiner, CEO of K+S AG, Europe’s largest maker of potash, said earlier this month. “Psychology plays an important role.”

Still, some companies are counting on U.S. and emerging- market sales to offset the drop in European demand.

Bayer AG (BAYN), Germany’s largest drugmaker, said Nov. 16 it expects sales in Asia to grow more than 60 percent by 2015 as it builds local factories and sales networks. Bayerische Motoren Werke AG Chief Financial Officer Friedrich Eichiner earlier this month predicted “double-digit” percentage sales growth next year in the U.S.

While the European Central Bank has extended the use of its unconventional tools, such as offering banks unlimited cash for more than a year and purchasing the bonds of debt-strapped governments, policy makers have rejected calls to counter the crisis by printing money. The central bank, which will publish its latest economic projections in December, earlier this month forecast a “mild recession.”

“It’s obviously bitter for Germany that the main trading partner is heading for a massive slump,” said Jens Kramer, an economist at NordLB in Hanover. “However, the recovery has put the economy on a broader foundation, so stronger domestic demand should help insulate Germany somewhat.”

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Euro Rebounds Before German Data

By Shiyin Chen - Nov 24, 2011 3:08 PM GMT+0700

Play Video

Nov. 24 (Bloomberg) -- George Feiger, chief executive offer of Contango Capital Advisors Inc., a San Francisco-based wealth management firm, talks about the impact of the eurozone crisis on U.S. financial markets and his investment strategy. Feiger speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

European stocks rose for the first time in six days and the euro rebounded from a six-week low against the dollar before data on German business confidence. Asian shares dropped, led by Japanese equities.

The Stoxx Europe 600 Index gained 0.7 percent at 8:01 a.m. in London, climbing from a seven-week low. Standard & Poor’s 500 futures gained 0.7 percent, after a six-day slump in the U.S. stocks gauge. The Nikkei 225 Stock Average sank 1.8 percent after S&P signaled it may be getting closer to lower Japan’s sovereign grade. The euro strengthened 0.3 percent to $1.3375, while South Korea’s won slid to a six-week low. Copper added 0.7 percent in London and oil advanced 0.5 percent in New York.

Data today may show a gauge of business confidence in Germany slipped for a fifth month after earlier figures showed consumer and company spending drove a third-quarter rebound in the economy. The nation’s 10-year yields jumped yesterday after bids at a sale of securities repayable in January 2022 fell 35 percent short of the 6 billion euros ($8 billion) on offer. S&P said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden.

“Investors have already discounted a significant part of risk as we know it,” Mark Konyn, chief executive officer of RCM Asia Pacific Ltd., said in a Bloomberg Television interview. Today’s business confidence data “will be a key litmus test, in terms of what happened yesterday on the auction,” he said.

Stocks Rebound

About five shares climbed for every one that fell on the Stoxx 600, which snapped a five-day, 7.1 percent drop. The measure yesterday slumped to the lowest close since Oct. 4. Germany’s DAX Index rallied 1.3 percent, halting an eight-day retreat.

S&P 500 futures expiring in December signal U.S. stocks may halt a six-day slump that dragged the benchmark index down to the lowest level since Oct. 7. The market will be closed today for the Thanksgiving holiday and trading will end at 1 p.m. tomorrow.

The Ifo institute’s business climate index for Germany fell to 105.2 in November, a 20-month low, according to the median forecast of economists in a Bloomberg News survey. Private consumption expanded 0.8 percent from the second quarter and company investment in plant and machinery jumped 2.9 percent, the Federal Statistics Office in Wiesbaden said today.

Gross domestic product advanced 0.5 percent from the previous three months, the office said, confirming an initial estimate published on Nov. 15. That was an acceleration from the 0.3 percent growth notched in the second quarter.

The euro recouped some of the 1.2 percent slump yesterday, when German 10-year yields climbed 23 basis points and the cost to insure European government debt rose to a record. Bunds extended declines today, driving yields higher by as much as 10 basis points to 2.25 percent.

Yen, Won

The yen traded at 74.16 per dollar, paring gains of as much as 0.4 percent, after Takahira Ogawa, director of sovereign ratings at S&P said Japan’s finances are getting “worse and worse” every day. The won retreated 0.6 percent to 1,158.80 per dollar, after touching 1,160.50 earlier, the lowest level since Oct. 14. Taiwan’s dollar declined 0.1 percent to NT$30.438 against its U.S. counterpart, also a fifth day of losses.

The MSCI Asia Pacific Index slipped 0.3 percent, after earlier dropping as much as 0.7 percent to the lowest intraday level since Oct. 6. The gauge tumbled 1.8 percent yesterday, when Japan’s markets were closed for a holiday.

JFE Holdings Inc. retreated 1.7 percent after the Nikkei newspaper reported the steelmaker is reducing its production target. HTC Corp. (2498) sank 6.9 percent to a 16-month low in Taipei after the company cut its revenue forecast as much as 23 percent. The smartphone maker had earlier forecast growth of 20 percent to 30 percent. Hanwha Chemical Corp. dropped 4.7 percent after it said quarterly profit fell 24 percent.

Three-month copper gained 0.7 percent to $7,290.25 a metric ton on the London Metal Exchange, pacing an advance among raw materials. Nickel futures increased 1.2 percent and tin climbed 2 percent. Oil for January delivery added 0.5 percent to $96.63 a barrel in New York, after having dropped 1.9 percent yesterday.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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Japan ‘May Be’ Close to a Downgrade: S&P

By Aki Ito - Nov 24, 2011 1:43 PM GMT+0700

Standard & Poor’s said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, an indication it may be preparing to lower the nation’s sovereign grade.

“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said in an interview. Asked if that means he’s closer to cutting Japan, he said it “may be right in saying that we’re closer to a downgrade. But the deterioration has been gradual so far, and it’s not like we’re going to move today.”

A reduction in S&P’s AA- rating would be a setback for Noda, who took office in September and has pledged to both steady Japan’s finances and implement reconstruction from the nation’s record earthquake in March. It’s unrealistic for Japan to think it can escape the debt woes that have engulfed nations overseas unless it can control its finances, according to Ogawa.

While Japan has enjoyed borrowing costs at global lows for its debt, the International Monetary Fund said in a report released on its website yesterday there’s a risk of a “sudden spike” in yields that could make the debt level unsustainable. Developed nations are struggling to retain investor confidence in their bonds after borrowing deepened with the global recession and financial crisis. Germany yesterday failed to get sufficient bids to sell all of the 10-year securities it offered to sell.

‘Comprehensive’ Plan

S&P has had Japan on a negative outlook since April. Ogawa said the nation needs a “comprehensive approach” to containing its debt burden, which the government projects will exceed 1 quadrillion yen ($13 trillion) in the year through March as the nation pays for reconstruction.

The yen pared gains after Ogawa’s remarks and traded at 77.15 against the dollar as of 3:23 p.m. in Tokyo. Yields on Japan’s benchmark 10-year government bond rose to as high as 0.98 percent today from the previous close of 0.965 percent before the nation’s markets shut yesterday for a holiday. The Nikkei 225 Stock Average dropped 1.8 percent to 8,165.18, its lowest close since March 2009.

“The events in Europe show us that when you lose market confidence at some point, the situation deteriorates fast,” Ogawa said. “Politicians need to act with the understanding that they’re running out of time” to fix the nation’s finances. “If you don’t act early, it’ll become even more difficult” to maintain market trust, he said.

Tax Increase

Japan’s lower house of parliament today approved legislation that would add an additional 2.1 percent levy to an individual’s annual payment. Lawmakers revised the government’s proposal to extend the period of the measure to 25 years, from 10 years, to help pay for earthquake rebuilding. The measure takes effect in 2013.

“Just because this passes doesn’t mean that it’s positive for public finances,” Ogawa said. “Politicians are squabbling over the minute details, while avoiding what’s most important.”

While Japan’s policy makers have signaled they will double the nation’s sales tax from 5 percent by around 2015, a bill has yet to be enacted.

Moody’s Investors Service cut the nation’s debt rating by one step to Aa3 on Aug. 24. S&P lowered Japan to AA- in January. Fitch Ratings also has Japan at AA- with a negative outlook.

“Absent an offsetting effect from more rapid growth, debt dynamics could deteriorate precariously,” the IMF said in a report published on its website. “Once confidence in sustainability erodes, authorities could face an adverse feedback loop between rising yields, falling market confidence" and "a more vulnerable financial system," it said.

Politically, Noda is struggling to find solutions that the opposition political parties will accept, said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute Inc.

‘‘This shows how political compromises can hinder what needs to be done for the economy,’’ Kumano said.

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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China Signals Growth Concern in Credit Boost

By Bloomberg News - Nov 24, 2011 1:59 PM GMT+0700

China widened efforts to support cash-strapped companies in Zhejiang and rural areas hit by a credit squeeze that’s slowing the second-largest economy just as Europe’s debt crisis saps export demand.

The People’s Bank of China cut the reserve ratio for more than 20 rural credit cooperatives nationwide by half a percentage point, according to an announcement from its Hangzhou branch in Zhejiang, where small businesses have complained about lack of access to credit. Bank of America Merrill Lynch predicts officials will lower the ratio for large commercial banks early in 2012.

Evidence is mounting that growth has moderated in the economy that’s led the global expansion, with home sales falling 25 percent last month and a report yesterday signaling manufacturing may shrink the most in almost three years. Premier Wen Jiabao has pledged to “fine tune” policy as needed.

“The unexpectedly sharp drop in China’s flash PMI for November, if corroborated by other indicators, is likely to push policy makers to go beyond policy ‘fine-tuning’ to outright easing,” said Mark Williams, a London-based Asia economist at Capital Economics Ltd. “Confirmation that the People’s Bank has lowered reserve requirements for some banks is likely to be only the start.”

The “flash” reading for the manufacturing PMI reported by HSBC Holdings Plc and Markit Economics yesterday was 48, under the 50 level that’s the border between expansion and contraction.

Stocks Retreat

The MSCI Asia Pacific Index was down 0.4 percent at 3:58 p.m. Tokyo time after Standard and Poor’s said that Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden. That may indicate that the ratings company is preparing to lower the nation’s sovereign grade, at AA- with a negative outlook since April.

“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said in an interview.

A German government debt auction overnight stoked concern that an untrammeled European crisis will impair the global recovery. Investors failed to bid for 35 percent of the securities on offer from Germany, the largest economy in Europe.

Elsewhere in Asia, Hong Kong is scheduled to report October trade figures today, and Taiwan releases its second estimate for gross domestic product in the third quarter, previously calculated at a 3.37 percent year-on-year gain.

Belgium, Brazil

Belgium, considered a bellwether for the western European economy, may report business confidence slid in November to its lowest level since 2009, when the global economy was pulling out of the recession caused by the American mortgage-market collapse. Brazil may report its unemployment rate fell to 5.9 percent in October, according to the median estimate in a Bloomberg News survey, signaling sustained growth in emerging markets.

The Chinese central bank’s move yesterday reduces the percentage of deposits the cooperatives are required to park with the central bank to 16 percent, a “normalization” after an increase a year ago, the Hangzhou branch said in its statement yesterday. The extra 0.5 percentage point requirement had penalized lenders that failed to meet lending targets in rural areas, and was imposed after a check carried out each November, it said.

In another sign of China’s shift, the central bank on Nov. 11 said local-currency lending was 586.8 billion yuan ($92 billion) in October, exceeding September’s 470 billion yuan and higher than the 500 billion yuan median estimate in a Bloomberg News survey.

Injecting Liquidity

The PBOC has also injected greater liquidity into the market for loans between banks, through open market operations that have depressed interbank rates, Goldman Sachs Group Inc. economists wrote in a note to clients last week. Further tools will include a slower pace of currency appreciation and looser fiscal policy, Goldman analysts said.

Policy makers may have to cut the reserve ratio for commercial banks if financial institutions’ yuan positions decline further the rest of the year, said Wang Tao, a Beijing- based economist at UBS AG.

Financial institutions’ yuan positions, accumulated from central bank purchases of their foreign exchange, fell 24.9 billion yuan in October, a PBOC report showed this week. The measure is an indication of capital flows.

Credit Squeeze

The central bank said in yesterday’s statement that it will continue to implement prudent monetary policy, promote “reasonable growth” in credit and money supply, and guide financial institutions to increase support to rural areas and small companies.

The city of Wenzhou in Zhejiang has been the focus of complaints by small businesses that they face a credit squeeze after the government tightened monetary policy to cool inflation and the property market. More than 80 businessmen in Wenzhou have disappeared, committed suicide or declared bankruptcy to avoid repaying debts to informal lenders since April, the state- run Xinhua News Agency reported in September.

Wenzhou’s 400,000 businesses are facing financial hardship because of rising costs, soaring black market interest rates and a sudden credit squeeze, according to Zhou Dewen, head of a small business association in Wenzhou. Similar problems are happening across China because private enterprises rely on underground borrowing rather than banks to operate, he said.

National and local leaders have since announced moves to help small firms, including offering easier access to bank loans, a cap on private-lending interest rates in Wenzhou and a crackdown on loan sharks that use violence.

Meanwhile, Europe’s sovereign-debt woes threaten to undermine exports, which rose the least in almost two years in October, and evidence of a weakening property market may slow domestic demand.

To contact Bloomberg News staff for this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Microsoft Is Said to Sign Non-Disclosure Agreement With Yahoo

By Brian Womack, Serena Saitto and Dina Bass - Nov 24, 2011 12:01 PM GMT+0700

Microsoft Corp. (MSFT), the largest software company, has signed an agreement that lets it take a closer look at Yahoo! Inc.’s financial information to help it consider financing a bid, a person briefed on the matter said.

Yahoo’s advisers asked that bids be submitted next week, said two other people, who asked not to be identified because the talks are private. Bidders are likely to offer to buy only a minority stake in Yahoo, as they haven’t arranged financing for a full takeover, the people said. Microsoft may help finance a bid and not try to buy Yahoo outright, two people said.

Private-equity firms TPG Capital and Silver Lake also signed non-disclosure agreements to help size up a possible bid for Sunnyvale, California-based Yahoo, people close to the companies have said. Microsoft would join other investors to safeguard its Web-search partnership with Yahoo and bridge any financing gap a buyout would require, people have said.

Frank Shaw, a spokesman for Redmond, Washington-based Microsoft, and Dana Lengkeek, a spokeswoman for Yahoo, declined to comment.

Yahoo has asked interested parties to sign the NDA to receive management presentations and more access to confidential financial information.

Yahoo, the largest U.S. Web portal, embarked on a strategic review of its options in September after firing Chief Executive Officer Carol Bartz. Under Bartz, the company struggled to stem sales declines or compete with Google Inc. (GOOG) and Facebook Inc.

Microsoft’s Yahoo Deal

Microsoft forged a 10-year agreement to provide search- technology to Yahoo sites under Bartz. The deal was aimed at helping both companies vie with Google, the leader in U.S. search-related advertising.

Yahoo shares were little changed yesterday at $14.94. Microsoft fell 1.3 percent to $24.47.

KKR & Co. and Blackstone Group LP (BX) are among the private- equity firms considering possible bids for Yahoo, people with knowledge of the matter said last month.

Alibaba Group Holding Ltd., China’s biggest e-commerce company, has said it’s interested in acquiring Yahoo, in part to buy back a stake owned by Yahoo. With a holding of about 40 percent, Yahoo is Alibaba’s biggest investor.

DealReporter previously reported that Microsoft signed the NDA.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

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

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Yen Gains as Japanese Stocks, Won Decline on German Bund Auction, Earnings

By Shiyin Chen - Nov 24, 2011 1:10 PM GMT+0700

Play Video

Nov. 24 (Bloomberg) -- Pranay Gupta, chief investment officer for Asia Pacific at ING Investment Management in Hong Kong, talks about the European debt crisis and its implications for global stock markets. Gupta also discusses the U.S. economy and budget deficit. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Play Video

Nov. 24 (Bloomberg) -- George Feiger, chief executive offer of Contango Capital Advisors Inc., a San Francisco-based wealth management firm, talks about the impact of the eurozone crisis on U.S. financial markets and his investment strategy. Feiger speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The yen rose against most of its major peers, while Asian stocks and South Korea’s won declined after a German bund auction fell short of its target and companies including HTC Corp. cut their outlook on earnings.

Japan’s currency added 0.2 percent to 77.14 per dollar at 3 p.m. in Tokyo on speculation the nation’s investors will sell higher-yielding assets. The won slid to a six-week low. The MSCI Asia Pacific Index dipped 0.5 percent and the Nikkei 225 Stock Average fell 1.9 percent. Standard & Poor’s 500 futures rose 0.2 percent, following a six-day slump in the benchmark U.S. stocks gauge. The Markit iTraxx Asia index of debt-default risk headed for the highest close since Oct. 7.

German 10-year yields jumped yesterday after bids at a sale of securities repayable in January 2022 fell 35 percent short of the 6 billion euros ($8 billion) on offer. Data today may show a gauge of business confidence in Europe’s largest economy dropped for a fifth month. HTC, the largest seller of smartphones in the U.S., cut its revenue forecast as much as 23 percent and Hanwha Chemical (009830) Corp. said quarterly profit fell 24 percent.

Investors are “grouping together all euro-area bonds in the same basket,” Pranay Gupta, chief investment officer in Hong Kong at ING Investment Management, said in a Bloomberg Television interview. “Asian earnings expectations still have to come down substantially. There is still another 10 or 20 percent downside in Asia.”

The yen appreciated against 12 of its 16 most actively traded counterparts. It pared gains against the dollar after Standard & Poor’s said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, an indication it may be preparing to lower the nation’s sovereign grade.

Germany’s Economy

The euro climbed 0.1 percent to $1.3359, recouping some of the 1.2 percent slump yesterday, when German yields climbed 23 basis points and the cost to insure European government debt rose to a record.

The Ifo institute’s business climate index for Germany fell to 105.2 in November, according to the median forecast of economists in a Bloomberg News survey. Figures yesterday showed European services and manufacturing output contracted for a third month.

“Germany may be the safest economy but it’s also the only deep pocket in Europe and as the crisis rises it becomes clearer and clearer that the Germans are going to have to pay up,” George Feiger, chief executive officer of Contango Capital Advisors Inc., said in a Bloomberg Television interview from San Francisco. “It’s not surprising that we’re seeing a sell-off and it could well continue for some time.”

Won, Bond Risk

The won retreated 0.6 percent to 1,158.80 per dollar, after touching 1,160.50 earlier, the lowest level since Oct. 14. Taiwan’s dollar declined 0.1 percent to NT$30.438 against its U.S. counterpart, also a fifth day of losses.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased nine basis points to 234 basis points, according to Royal Bank of Scotland Group Plc prices. The gauge is on course for the highest close since Oct. 7, according to data provider CMA. The Markit iTraxx Australia index advanced 10 to 222, which will be the highest level since Oct. 6, according to RBS and CMA.

MSCI’s Asia Pacific Index earlier dropped as much as 0.7 percent, reaching the lowest intraday level since Oct. 6. The gauge tumbled 1.8 percent yesterday, when Japan’s markets were closed for a holiday.

Canon Inc. dipped 1.2 percent in Tokyo, pacing a drop among exporters to Europe. JFE Holdings Inc. retreated 1.7 percent after the Nikkei newspaper reported the steelmaker is reducing its production target. HTC (2498) sank 6.9 percent to a 16-month low in Taipei after the company said revenue this quarter will be little changed from a year earlier. The smartphone maker had earlier forecast growth of 20 percent to 30 percent. Hanwha Chemical dropped 4.7 percent.

China’s Policies

China’s Shanghai Composite Index (SHCOMP) was little changed after six days of declines. The central bank said it is lowering reserve requirements for more than 20 rural cooperative banks by half a percentage point.

“Europe’s debt crisis is still worsening and that’ll pressure local sentiment by scaring investors away from risk assets,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “China’s policies are in the process of being loosened gradually and there won’t be further tightening. But an overall relaxation is still unlikely.”

S&P 500 futures expiring in December signal U.S. stocks (MXAP) may halt a six-day slump that dragged the benchmark index down to the lowest level since Oct. 7. The market will be closed today for the Thanksgiving holiday and trading will end at 1 p.m. tomorrow. Economic data yesterday showed U.S. durable goods orders fell and jobless claims topped forecasts.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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AT&T Runs Low on Options to Get U.S. Approval for T-Mobile

By Scott Moritz, Sara Forden and Serena Saitto - Nov 24, 2011 4:20 AM GMT+0700

AT&T Inc. (T) may be running out of options to win regulatory approval for its proposed $39 billion takeover of T-Mobile USA, forcing AT&T to choose whether to drop the bid or endure months of litigation with the U.S. government.

The Federal Communications Commission took a step toward opposing the deal yesterday, as Chairman Julius Genachowski asked commissioners to send the proposal to an agency judge for a hearing. Agency staff had found the proposed merger would significantly diminish competition and lead to job losses, said an official who spoke on the condition of anonymity.

AT&T may also be losing one possible option for addressing the concerns of the Justice Department, which sued in August to block the deal because it would reduce wireless competition. MetroPCS Communications Inc. (PCS), which has been negotiating to buy assets from AT&T and T-Mobile to become a more viable rival, isn’t interested in customers and spectrum in as many markets as AT&T needs to sell, said two people close to the situation who declined to be identified because the talks are private.

Odds are increasing that Dallas-based AT&T will have a long legal fight if it wants to salvage the deal, said Jeffrey Silva, an analyst at Medley Global Advisors LLC in Washington.

“The FCC and DOJ work hand in hand,” Silva said in a telephone interview. The FCC’s move “shows that AT&T has made no progress in the negotiations with the DOJ.”

Reviewing Options

AT&T said the FCC’s decision was disappointing and that it was “reviewing all options.”

“It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the U.S. economy desperately needs both,” Larry Solomon, an AT&T spokesman, said in a statement.

AT&T, the second-largest U.S. wireless operator, has said the T-Mobile deal would improve customer service because it would boost investments in higher-speed technologies and allow expansion into more rural areas. AT&T also said it needs T- Mobile’s spectrum to serve its 100.7 million customers as an increasing number use data-intensive smartphones.

“The decision disappoints because it doesn’t take into account the deal’s clear advantages for the U.S. market and economy,” said Philipp Kornstaedt, a spokesman for T-Mobile USA’s Bonn-based owner Deutsche Telekom AG. (DTE) “We’re now analyzing the new situation together with AT&T.”

Deutsche Telekom shares closed down 2.9 percent to 8.76 euros in Frankfurt. AT&T fell 1.9 percent to $27.55 at the close in New York.

Industry Concentration

FCC officials, during a background briefing with reporters yesterday, disputed AT&T’s claims that the transaction would create jobs and significantly spur the expansion of wireless high-speed Internet. Wireless industry concentration would increase in 99 of 100 markets, the official said.

The FCC’s commissioners may vote on Genachowski’s proposal for a hearing, which is akin to a trial, in the coming days. The administrative law judge presiding over the hearing delivers an initial decision that goes to agency commissioners for a vote.

“The FCC procedure is even farther-reaching than a court trial,” said Herbert Hovenkamp, a professor and antitrust expert at the University of Iowa College of Law. “This is like two tidal waves coming at AT&T, with the second one potentially even larger than the first.”

‘Significant Obstacle’

The order marks the first time since 2002 that the FCC has moved to bring a communications merger to a hearing before an agency judge, Andrew Lipman, a Washington-based partner with Bingham McCutchen LLP, said in an interview yesterday. The last transaction to face such a hearing was EchoStar Communications Corp.’s bid for fellow satellite company DirecTV (DTV), Lipman said. The companies eventually dropped their bid, he said.

“A hearing could go on for six to 12 months,” Lipman said. “It’s certainly a significant obstacle and roadblock.”

The FCC’s move comes as AT&T struggles to address the Justice Department’s objection to the proposed acquisition. AT&T has been trying to sell assets to soothe regulatory concerns that a reduction in nationwide providers to three from four would undermine competition. MetroPCS had emerged as the frontrunner to buy wireless spectrum and customers from AT&T and T-Mobile to bolster its position as a nationwide competitor, people familiar with the matter said last month.

MetroPCS Prospects

MetroPCS’s interest in buying a large chunk of the assets is now declining and Leap Wireless International (LEAP) is emerging as the most interested party in buying those assets, said the two people familiar with the situation. Deutsche Telekom is ready to finance either buyer, said the people.

Leap may be even less likely to replace T-Mobile as a fourth national competitor than MetroPCS. While T-Mobile had 33.7 million wireless subscribers at the end of September, MetroPCS had 9.1 million and Leap had 5.8 million. Leap also has fewer resources to buy assets, with $800 million in cash and short-term investments compared with $2.1 billion for MetroPCS.

Greg Lund, a Leap spokesman, declined to comment on any negotiations with AT&T. Diana Gold, a MetroPCS spokeswoman, didn’t immediately return a phone call for comment.

AT&T has agreed to pay Deutsche Telekom a breakup fee of $3 billion as well as spectrum if the deal collapses for a total package valued at as much as $7 billion.

“Too much money remains at stake for it to concede defeat and drop the deal,” Andrew Gavil, an antitrust professor at Howard University School of Law in Washington, said in an interview. “They’ve locked themselves in to take it to the mat.”

Still, it will be a struggle for AT&T to complete the deal given the increasing number of hurdles, said Stephen Axinn, an antitrust lawyer with Axinn Veltrop & Harkrider LLP in New York.

“The deal is not dead yet, but this is not a good day for AT&T,” Axinn said in an interview. “It becomes much more of a long shot now.”

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net; Michael Shepard at mshepard7@bloomberg.net

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Apple Removes Big Fish Games Subscription Service Days After Approving It

By Adam Satariano - Nov 24, 2011 6:23 AM GMT+0700

Apple Inc. (AAPL) removed Big Fish Games Inc.’s subscription service from its App Store, reversing a move that would have given iPad users access to dozens of video games for a monthly fee.

“We were notified that the app was removed,” said Paul Thelen, founder of Big Fish, a game publisher in Seattle. The app had been available since Nov. 18, he said. “We’re trying to follow up with Apple to try to figure out what happened.”

Thelen said he was surprised by the move because Big Fish had worked with Apple for several weeks to ensure that it met the requirements for recurring monthly charges made through the App Store, a method most commonly used by magazines and newspaper publishers.

“It was officially approved,” Thelen said. Apple had even seen the app's press release before it went out earlier today, he said.

Tom Neumayr, a spokesman for Cupertino, California-based Apple, declined to comment.

The App Store, introduced in 2008, has more than 500,000 applications available for download. Apple, which approves all the software before it becomes available, has faced criticism from developers and rivals such as Google Inc. for the review process. Apple has said the vetting ensures quality. By contrast, applications for Google’s Android operations system don’t go through a screening.

Netflix Model

Big Fish had won approval from Apple to become the first to offer users access to dozens of titles for $6.99 a month. Games have traditionally only been available one at a time, requiring users to download individual applications.

The setup was similar to Netflix Inc. (NFLX)’s streaming application for the iPad. The “Play Instantly” service would give subscribers unlimited access to games such as “Mystery Case Files” and the “Mahjong Towers” series from inside the Big Fish app. The games would be streamed via Wi-Fi to a user’s iPad from Big Fish’s data centers.

In an interview yesterday, Thelen said Apple wasn’t quickly convinced that a monthly fee would work for games.

“It took longer than usual to be approved,” Thelen said yesterday. “They needed to be convinced there’s a reason to charge customers every month.”

Big Fish, founded in 2002, generated $140 million in sales last year, mostly from games downloaded to a personal computer or mobile device. About 75 percent of its players are women over the age of 30, Thelen said.

The company designed the iPad app so it can be easily modified to work on smartphones or tablets running Android, as well as Internet-connected televisions, Thelen said. An Android version should be ready by the first quarter, he said.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Microsoft Said to Sign NDA With Yahoo

By Brian Womack, Serena Saitto and Dina Bass - Nov 24, 2011 5:14 AM GMT+0700

Microsoft Corp. (MSFT), the largest software company, has signed an agreement that lets it take a closer look at Yahoo! Inc.’s financial information to help it consider financing a bid, a person briefed on the matter said.

Yahoo’s advisers asked that bids be submitted next week, said two other people, who asked not to be identified because the talks are private. Bidders are likely to offer to buy only a minority stake in Yahoo, as they haven’t arranged financing for a full takeover, the people said. Microsoft may help finance a bid and not try to buy Yahoo outright, two people said.

Private equity firms TPG Capital and Silver Lake also signed non-disclosure agreements to help size up a possible bid for Sunnyvale, California-based Yahoo, people close to the companies have said. Microsoft would join other investors to safeguard its Web-search partnership with Yahoo and bridge any financing gap a buyout would require, people have said.

Frank Shaw, a spokesman for Redmond, Washington-based Microsoft, and Dana Lengkeek, a spokeswoman for Yahoo, declined to comment.

Yahoo has asked interested parties to sign the NDA to receive management presentations and more access to confidential financial information.

Yahoo, owner of the largest U.S. Web portal, embarked on a strategic review of its options in September after firing Chief Executive Officer Carol Bartz. Under Bartz, the Web company struggled to stem sales declines or compete with Google Inc. (GOOG) and Facebook Inc.

Microsoft’s Yahoo Deal

Microsoft forged a 10-year agreement to provide search- technology to Yahoo sites under Bartz. The deal was aimed at helping both companies vie with Google, the leader in U.S. search-related advertising.

Yahoo was little changed at $14.94 at 4 p.m. in New York. Microsoft fell 1.3 percent to $24.47.

KKR & Co. and Blackstone Group LP (BX) are among private equity firms considering possible bids for Yahoo, people with knowledge of the matter said last month.

Alibaba Group Holding Ltd., China’s biggest e-commerce company, has said it’s interested in acquiring Yahoo, in part to buy back a stake owned by Yahoo. With a holding of about 40 percent, Yahoo is Alibaba’s biggest investor.

DealReporter previously reported that Microsoft signed the NDA.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

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

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JetBlue Said to Win Auction of LaGuardia, Washington Flights

By Mary Schlangenstein and Alan Levin - Nov 24, 2011 4:00 AM GMT+0700

JetBlue Airways Corp. (JBLU) won an auction to add flights at New York’s LaGuardia airport and Reagan airport in Washington, beating rivals that included Southwest Airlines Co. (LUV), two people familiar with the matter said.

JetBlue will receive eight pairs of takeoff and landing slots at each of the airports, said the people, who weren’t authorized to comment publicly about the U.S. Transportation Department auction. WestJet Airlines Ltd. (WJA) said it won the auction for eight other slot pairs at LaGuardia.

Federal rules limit flights at both airports, so airlines can expand only by securing slots. LaGuardia International, part of the nation’s busiest aviation market, and Ronald Reagan National are prized by carriers because each is popular with business fliers who typically buy the most-expensive tickets.

“Surprisingly, it does not look like Southwest put in a credible bid for either LaGuardia group,” said Jeff Straebler, an independent aviation analyst in Stamford, Connecticut. “At least for now, it appears that Southwest is satisfied with its position at LaGuardia, given slots it picked up from the AirTran acquisition.”

Southwest, the largest low-fare carrier, had said publicly that it would bid for flights at both airports. Brandy King, a spokeswoman for Dallas-based Southwest, declined to comment today. Southwest had eight daily LaGuardia flights and obtained 20 more when it bought AirTran Holdings Inc. in May, a deal which also gave Southwest 12 daily departures from Reagan.

Delta, US Airways

The airlines bid on slots that Delta Air Lines Inc. (DAL) was required to surrender to win U.S. approval for a trade of the flight spots with US Airways Group Inc. (LCC) at the two airports. The auction may be the biggest for landing rights at LaGuardia and Reagan, according to Sandy Rederer, a principal at consultant Aviation Planning & Finance in Washington.

JetBlue’s winning bids totaled $72 million, while Calgary- based WestJet bid $17.6 million, according to data on a government website. Mateo Lleras, a spokesman for New York-based JetBlue, declined to comment.

JetBlue has as many as 11 daily flights from LaGuardia and nine from Reagan. The airline probably bid more for the Reagan slots because it needs to expand in the Washington area, Straebler said. The airline has the most daily domestic flights from New York’s Kennedy airport.

‘Dark Horse’

“WestJet was always the credible dark horse at LaGuardia, given a strong cash position and its stepping up competition against Air Canada for ‘golden triangle’ traffic -- Toronto, Montreal and Ottawa,” Straebler said. “LaGuardia service to any of these cities will be a nice complement.”

Securing the flight slots was a “once-in-a-lifetime opportunity,” WestJet Chief Executive Officer Gregg Saretsky, said in a statement. “Our ability to serve New York demonstrates we are focused on delivering on our business traveler strategy.”

Other airlines that registered to bid were Frontier Airlines, a unit of Republic Airways Holdings Inc. (RJET); Spirit Airlines Inc.; Allegiant Travel Co. (ALGT); and closely held Sun Country Airlines Inc. Under rules set for the auction, airlines or affiliates already holding a certain amount of slots could not participate.

US Airways and Delta are awaiting approval from the Port Authority of New York and New Jersey to complete the LaGuardia side of the swap, after securing federal consent.

The Transportation Department also approved the Reagan portion, although the U.S. Justice Department has yet to sign off. The airlines have said they hope to close the transaction this year.

Rules set for the auction say the government won’t identify winners until carriers complete the sales, which must be done by Dec. 1. The Transportation Department declined to comment further, spokesman Bill Mosley said in an e-mail.

The exchange would give Atlanta-based Delta 132 more pairs of LaGuardia slots, assuring control of more than half the flights there. US Airways will get 42 pairs at Reagan, $66.5 million in cash and an additional daily route to Sao Paulo and will scale back unprofitable operations at LaGuardia.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Alan Levin in Washington at alevin24@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Bernard Kohn at bkohn2@bloomberg.net

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Harrisburg Bankruptcy Petition Thrown Out

By Steven Church - Nov 24, 2011 4:12 AM GMT+0700

Harrisburg’s bankruptcy case was thrown out by a judge who ruled the city council wasn’t authorized to file the petition for Pennsylvania’s capital.

U.S. Bankruptcy Judge Mary D. France held a hearing today in Harrisburg on whether the council violated state laws last month when a majority opted to file under Chapter 9 of the bankruptcy code. Mayor Linda D. Thompson opposed the filing.

“For Chapter 9 bankruptcy to work, all of the branches of the municipality must be on the same page,” France said. “Therefore I find that city council was not authorized to file the petition on Oct. 11.”

Pennsylvania now will pursue a plan to put Harrisburg into state receivership. On Nov. 18, Governor Tom Corbett’s administration nominated David Unkovic, chief lawyer for the state economic development department, to be receiver for the city. Under state law, Unkovic’s appointment must be approved by a Pennsylvania court.

“We are very happy with the outcome; we were surprised that the judge ruled so quickly,” said Neal Colton, a lawyer for the state with law firm Cozen & O’Connor in Philadelphia. “Hopefully, we will have a receiver appointed and he will be in a position to present a viable plan for the financial recovery of the city of Harrisburg.”

Brad Koplinski, part of the council majority who voted to put Harrisburg into bankruptcy, said he and other members will consider appealing France’s decision.

Act 26

During today’s hearing, France asked lawyers on each side of the case to address whether Pennsylvania’s Act 26 of 2011 is unconstitutional. The law, which prohibits cities of Harrisburg’s size from filing for bankruptcy before July 2012, was cited by bankruptcy opponents including Corbett and Thompson as barring the petition.

The judge found Act 26 was constitutional. She also said the city council didn’t have authority by itself to file the petition, rejecting legal arguments made by the council through its attorney Mark Schwartz.

“The mayor fully deserves what she is going to get” from the receiver being appointed in state court, Schwartz said in an interview after the ruling. “She is going to get somebody who will pick this city’s bones.” Schwartz said he hasn’t been paid for his work for the city.

Harrisburg, a city of 49,500, faces a debt five times its general-fund budget because of an overhaul and expansion of an incinerator that doesn’t generate enough revenue. Guaranteed debt is about $242 million, with $65 million overdue, according to the bankruptcy petition.

‘Good for Bonds’

While market reaction to France’s ruling couldn’t be determined because of inactivity ahead of tomorrow’s Thanksgiving holiday, “it’s a good thing for bonds,” said Alan Schankel, director of fixed-income research at Janney Montgomery Scott LLC in Philadelphia.

There are “four or five clouds hanging over the muni market,” and the risk of a Harrisburg bankruptcy was one that will recede, Schankel said today in a telephone interview. Still, the city will face challenges under state financial oversight, he said.

“Although I think the state process will roll on, there will be bumps in the road,” Schankel said.

Thompson yesterday released a proposed $55.5 million budget for the year that begins in January, which for the first time in two years budgeted debt payments on the incinerator. The budget anticipates that the sale or lease of city assets would generate $93.6 million to make the payments.

Skipped Payments

For the past two years, Harrisburg has skipped payments that the incinerator’s revenue couldn’t cover, sparking lawsuits by Assured Guaranty Ltd. (AGO) and Dauphin County, which met the obligations instead.

Harrisburg, along with Jefferson County, Alabama, and Central Falls, Rhode Island, was one of a group of municipalities that filed for bankruptcy protection this year. Debt defaults by state and local governments have risen to more than $1.3 billion since Sept. 30, more than twice the amount in any of the three previous quarters, according to data from Richard Lehmann, publisher of the Distressed Debt Securities Newsletter in Miami Lakes, Florida.

Harrisburg’s Fraternal Order of Police and the local affiliate of the American Federation of State, County and Municipal Employees, which represents non-professional city workers, also filed objections to the bankruptcy.

The case is In re City of Harrisburg, Pennsylvania, 11-06938, U.S. Bankruptcy Court, Middle District of Pennsylvania (Harrisburg).

To contact the reporter on this story: Steven Church in Wilmington at schurch3@bloomberg.net

To contact the editors responsible for this story: Stephen Farr at sfarr@bloomberg.net; John Pickering at jpickering@bloomberg.net

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