Economic Calendar

Tuesday, November 29, 2011

Yahoo Bid Said to Be Weighed by Thomas H. Lee With No Final Decision Made

By Brian Womack and Douglas MacMillan - Nov 29, 2011 9:34 PM GMT+0700

Private-equity firm Thomas H. Lee Partners is considering a bid for Yahoo! Inc., the Internet company that’s exploring strategic options, two people with knowledge of the matter said.

The Boston-based firm hasn’t made a final decision on whether it will make an offer for Yahoo, said the people, who asked not to be identified because the matter isn’t public.

Thomas H. Lee Partners joins a growing list of companies that are sizing up offers for Yahoo. Private-equity firm Silver Lake is working with Microsoft Corp. (MSFT) to bid for a minority stake in Yahoo, two other people familiar with the matter said. Andreessen Horowitz, a venture-capital firm, may join the Silver Lake-led group, another person said.

Yahoo, based in Sunnyvale, California, is exploring strategic options after firing Chief Executive Officer Carol Bartz, who faltered in a drive to repel competition from Google Inc. (GOOG) and Facebook Inc. Yahoo’s advisers asked that bids be submitted this week, people close to the situation have said.

Robin Weinberg, a spokeswoman for Thomas H. Lee Partners, declined to comment.

Thomas H. Lee Partners’ other investments include Dunkin’ Brands Group Inc. and Clear Channel Communications. (CCMO)

Yahoo gained 1.4 percent to $15.57 at 9:31 a.m. New York time. The shares were down 7.7 percent this year before today. Microsoft, based in Redmond, Washington, slipped 0.3 percent to $24.80. Before today, the shares had fallen 11 percent this year.

Other Bidders

Private-equity firm TPG Capital has signed a non-disclosure agreement to size up a possible bid, people close to the company have said. KKR & Co. and Blackstone Group LP (BX) are among other private-equity firms considering bids, people with knowledge of the matter said last month.

Microsoft, rebuffed in a 2008 attempt to buy all of Yahoo, would join other investors to safeguard its Web-search partnership with Yahoo and bridge any financing gap a buyout would require, people have said. 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.

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 the company owns. With a holding of about 40 percent, Yahoo is Alibaba’s biggest investor.

Bloomberg LP, the parent company of Bloomberg News, is an investor in Andreessen Horowitz.

The New York Times reported yesterday that Silver Lake is working with Microsoft to submit an offer for a stake in Yahoo. Reuters previously reported that Thomas H. Lee Partners is weighing a bid.

To contact the reporter on this story: Brian Womack in San Francisco at

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


Chips Cheaper Than Rice Balls Spur Billions in Losses as IPad Rises: Tech

By Tim Culpan and Jun Yang - Nov 29, 2011 4:06 PM GMT+0700

Apple Inc. (AAPL)’s iPad is the bane of computer-memory makers, worsening the industry’s losses as consumers choose the hand-held device that uses about 75 percent fewer of the chips than a typical laptop.

Elpida Memory Inc. (6665), Hynix Semiconductor Inc. and other makers of dynamic random-access memory, the most common chip in computers, lost a combined $14 billion in the past three years, according to Bloomberg calculations. That comes after the $37 billion that researcher DRAMeXchange estimates they spent building factories in a bet on continued growth in the industry.

DRAM prices plunged to a record low this month after PC shipments missed analyst forecasts and iPad sales reached a record 11.1 million. As the faltering global economy and Thailand floods curb PC production, some DRAM manufacturers may not have enough money to mimic Samsung Electronics Co. (005930)’s profitable diversification into specialty chips for smartphones, tablet devices and servers.

“DRAM makers invested too much, and they bet heavily that growth of the computer industry would always continue,” said Chen Liway, an industry analyst at Polaris Securities Co. in Taipei. “That would have been OK if the iPad had never come along.”

Apple, Microsoft

PC shipments were hit last quarter by the popularity of tablets like the iPad, researchers Gartner Inc. and IDC said last month. PC shipments climbed 3.2 percent to 92 million units, compared with an earlier projection for 5.1 percent growth, Stamford, Connecticut-based Gartner said. IPad sales in the same period exceeded computer shipments by Dell Inc. (DELL), the world’s No. 3 seller.

Apple has sold about 40 million iPads since the product’s debut last year, generating $25.3 billion in revenue. Apple may sell a record 20 million iPads globally during the holiday quarter, according to Forrester Research Inc. (FORR) in Cambridge, Massachusetts.

Elpida and other DRAM makers bet that new versions of Microsoft Corp. (MSFT)’s Windows and a stable global economy would drive demand for their chips. Instead, Windows sales fell 8 percent in the three months ending Dec. 31, 2008, missing Microsoft’s forecast for 10 percent growth; the global financial crisis hit the following year; and Apple released the iPad in April 2010.

Lowest Prices

Manufacturers lost money on the DRAM business in three of the past four years, according to Bloomberg data. DRAM prices fell 32 percent in the third quarter, the most in almost three years, according to Bloomberg Industries data.

“Prices will keep falling,” said Alvin Lim, an associate director at Fitch Ratings in Seoul. “I don’t think there will ever be a meaningful recovery.”

DRAM is the most common chip used in computers and speeds up processing by temporarily storing data. Slowing growth in the PC industry, which buys 65 percent of all DRAM output according to Bloomberg Industries, and less memory requirements for newer versions of Windows will prompt a record slowdown in demand, Englewood, Colorado-based IHS Inc.’s iSuppli said in August.

Growth in DRAM per PC will drop to 35 percent after next year following 48 percent average growth for the past 25 years, iSuppli said.

Prices of benchmark DDR3 2-gigabit DRAM chips fell 61 percent this year to a record-low 71 cents on Nov. 21, according to Taipei-based TrendForce Corp.’s DRAMeXchange, the researcher and largest spot market for the chips.

‘Rice Ball’

Elpida, Japan’s largest memory-chip maker, will lose money this year and next, according to the average of 18 analysts’ estimates compiled by Bloomberg. Manufacturers like Elpida, which spent $3.8 billion on factories in the past four years, must keep churning out chips to generate enough cash to cover debt payments, pushing prices down even further.

“Elpida is using the state-of-the-art production technology, yet the finished products are sold for half the price of a rice ball,” Yukio Sakamoto, chief executive officer of the Tokyo-based company, told investors last month.

Elpida’s shares fell 1 percent to 390 yen at the close of trading in Tokyo today, taking losses for the year to 59 percent. The benchmark Nikkei 225 (NKY) added 2.3 percent, stemming losses to 17 percent for the year.

PC unit sales may decline 8 percent next year because of the recent floods in Thailand, where at least 40 percent of the world’s computer disk drives are made, Kevin Chang, a technology analyst with Fitch Ratings Ltd. in Taipei, said in a Nov. 23 statement. The original projection was for 5 percent growth.

“Lower DRAM orders will have a negative impact on memory- chip prices,” Chang said.

Flash Demand

Suwon, South Korea-based Samsung, the world’s biggest semiconductor maker, will post 2.3 trillion won ($1.98 billion) profit from DRAM this year, according to Shinhan Investment Corp. in Seoul. That’s because Samsung sells twice as many specialty DRAM chips, where margins are higher, as commoditized chips used in PCs, Shinhan said in an Oct. 25 report.

The company also supplies up to 64 gigabytes of NAND flash memory for every iPad, compared with about half a gigabyte of DRAM. Demand for NAND flash -- which saves photos, videos and software permanently -- will climb 49 percent in the five years to 2015 while the DRAM market will be little changed, according to iSuppli.

“The specialty chip market may look like sacred ground to smaller companies because Samsung is so dominant,” said Park Hyun, a Seoul-based analyst at Tong Yang Securities Inc. “Over time, they will increasingly try to switch to specialty products.”

Jason Kim, a Seoul-based spokesman for Samsung, declined to comment when contacted by phone on the company’s plans for its chip business.

Hynix (000660), Winbond

Icheon, South Korea-based Hynix, the second-largest DRAM supplier, and Boise, Idaho-based Micron Technology Inc. (MU), the fourth-largest, also are increasing supply of NAND flash, helping both companies return to profitability last year after losses the two previous years.

“We’re quite positive about flash,” Fitch’s Lim said. “If smaller companies had both DRAM and flash, they could have offset the weakness in one market.”

Winbond Electronics Corp., (2344) a Taiwanese memory maker that posted losses in seven of 10 years through 2009, exited the computer DRAM business last year in favor of specialty DRAM for TVs and mobile phones. That helped the company post its largest annual profit since 2000.

Elpida is following a similar path, spending the last two years developing versions of DRAM used in smartphones that it expects to ship to clients next quarter, Sakamoto told investors last month.

“Some are making profits moving into specialty DRAM,” Chen said. “For others, it may be too late as they don’t have the money or the technology to make the switch.”

To contact the reporters on this story: Tim Culpan in Taipei at; Jun Yang in Seoul at

To contact the editor responsible for this story: Michael Tighe at


Stocks, Commodities Gain as Treasuries Fall on U.S. Confidence

By Michael P. Regan and Rita Nazareth - Nov 29, 2011 10:23 PM GMT+0700

Nov. 29 (Bloomberg) -- David Gaud, a Hong Kong-based senior portfolio manager of Edmond de Rothschild Asset Management, talks about Asian stocks and investment strategy. Gaud also discusses Europe's sovereign debt crisis. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Nov. 28 (Bloomberg) -- Sean Egan, president of Egan-Jones Ratings Co., talks about the agency's decision to cut Italy’s credit rating. Italy’s credit rating was cut to BB from BB+ by Egan-Jones as the euro-region’s third-largest economy struggles to manage its debt amid record borrowing costs and a slowing economy. Egan, speaking on Bloomberg Television's "InBusiness with Margaret Brennan," also discusses the rating firm's analysis of Jefferies Group Inc. (Source: Bloomberg)

Stocks and commodities rose for a second day as U.S. consumer confidence increased by the most since 2003 and European finance ministers prepared to discuss efforts to tame the region’s debt crisis. Treasuries fell and the euro resumed gains.

The Standard & Poor’s 500 Index added 0.9 percent to 1,202.64 at 10:23 a.m. in New York and the Stoxx Europe 600 Index rose 0.7 percent. The euro climbed 0.2 percent to $1.3343 after earlier erasing a gain of as much as 0.9 percent. The S&P GSCI gauge of 24 commodities gained 1.1 percent. Ten-year U.S. Treasury yields increased six basis points to 2.04 percent.

U.S. stocks extended early gains (SPX) as the Conference Board’s consumer-sentiment gauge increased to 56 from a revised 40.9 in October as Americans grew more optimistic about jobs and income prospects. Europe’s efforts to expand its bailout fund to 1 trillion euros ($1.3 trillion) is falling short, forcing renewed consideration of a role for the European Central Bank in halting bond-market turmoil, two officials familiar with the discussions said.

“The economic reports have shown that the U.S. has been insulated from all the noise coming out of Europe,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “Consumers are not really bothered by that, at least not yet,” he said.

Rally Extended

The S&P 500 snapped a seven-day slump yesterday, rallying 2.9 percent for its largest gain in a month, after Thanksgiving- weekend retail sales rose to a record and speculation grew that European leaders would increase efforts to fight the region’s debt crisis.

AMR Corp., the parent of American Airlines, tumbled 83 percent after filing for bankruptcy as it failed to secure cost- cutting labor agreements.

The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, declined 0.4 percent.

Among European stocks, Remy Cointreau jumped 3.1 percent after France’s second-biggest distiller predicted “a substantial increase” in full-year earnings. Colruyt SA, Belgium’s largest discount-food retailer, tumbled 9.4 percent after reporting worse-than-estimated fiscal first-half profit.

----With assistance from Adria Cimino in Paris, Will Hadfield and Daniel Tilles in London. Editor: Michael P. Regan

To contact the reporters on this story: Michael P. Regan in New York at; Rita Nazareth in Sao Paulo at

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


European Stocks Advance Before Euro-Area Ministers Meet on Debt Crisis

By Corinne Gretler - Nov 29, 2011 10:26 PM GMT+0700

European stocks advanced for a third day before euro-area finance ministers meet to discuss insuring a portion of bonds issued by debt-stricken countries and as U.S. consumer confidence unexpectedly rose in November.

BASF SE and K+S AG pulled a gauge of chemical makers higher, rising more than 2 percent. IG Group (IGG) Holdings Plc rallied the most since 2010. Colruyt SA, Belgium’s biggest discount-food retailer, plunged to a five-year low after reporting worse-than-estimated fiscal first-half profit.

The Stoxx Europe 600 Index advanced 0.8 percent to 231.75 at 3:25 p.m. in London. The Stoxx 600 rallied 3.8 percent yesterday amid speculation the euro area’s policy makers are intensifying their efforts to contain the region’s debt crisis.

“The finance-minister meeting today will be observed carefully,” said Trung-Tin Nguyen, a hedge-fund manager at TTN AG in Zurich. “There is hope, along with increasing pressure, for indicative measures to be implemented. The Italian auction went better than expected, so that gives the market support as well.”

Finance ministers from the 17-member monetary union meet in Brussels today to debate using their bailout fund, the European (SXXP) Financial Stability Facility, to insure sovereign debt with guarantees.

President Barack Obama said agreeing on a sufficient response to Europe’s problems is of “huge importance” to the U.S., after meeting yesterday with European Union President Herman Van Rompuy and European Commission President Jose Barroso.

Euro-Area Integration

“We’ve got a stake in their success, and we will continue to work in a constructive way to try to resolve this issue in the near future,” Obama said at the White House after the annual U.S.-EU summit. Barroso said that “no one in Europe” is discussing a breakup and that “everybody is speaking” of further integration among euro-area states.

Italian 10-year bonds fell, pushing yields for the benchmark securities toward euro-era records as the country sold 7.5 billion euros ($10 billion) of debt maturing in 2014, 2020 and 2022.

In the U.S., consumer confidence climbed in November by the most in more than eight years as Americans grew more upbeat about employment and income prospects. The Conference Board’s index increased to 56 from a revised 40.9 reading in October, the biggest monthly gain since April 2003, figures showed today. The gauge, at a four-month high, exceeded the most-optimistic forecast (RCO) in a Bloomberg News survey of economists.

Benchmark Indexes

National benchmark indexes rose in 15 of the 18 western- European markets. France’s CAC 40 Index added 0.5 percent, the U.K.’s FTSE 100 Index climbed 0.3 percent and Germany’s DAX Index rose 0.9 percent.

BASF, the world’s largest chemical company, climbed 2.5 percent to 50.78 euros after the company raised its sales target for the end of this decade as Chief Executive Officer Kurt Bock laid out his strategy after seven months in charge.

K+S, Europe’s biggest potash supplier, increased 2.3 percent to 39.20 euros. The company will develop a Canadian mineral deposit that it acquired this year.

IG Group jumped 9.5 percent to 474.9 pence, the biggest rally since July 2010, after forecasting first-half revenue of more than 193 million pounds ($301 million), at least 23 percent higher than a year earlier.

G4S Plc (GFS), the world’s largest security company, rose 2.7 percent to 245.7 pence after Alex Magni, an analyst at HSBC Holdings Plc upgraded the stock to “overweight” from “neutral.”

Remy Cointreau, Oriflame

Remy Cointreau SA, the maker of Remy Martin cognac, climbed 3 percent to 61.98 euros after the company forecast “a substantial increase” in full-year earnings. Remy Cointreau also posted first-half current operating profit that jumped 27 percent to 106.2 million euros, topping analysts’ estimates.

Oriflame Cosmetics SA (ORI), the Swedish maker of cosmetics, surged 7.1 percent to 207.90 kronor after Svenska Handelsbanken AB raised the company’s shares to “buy” from “accumulate.”

Balfour Beatty Plc (BBY) jumped 4.9 percent to 241.1 pence as its Parsons Brinckerhoff unit won a 104 million-pound five-year contract from Qatar’s government.

Colruyt plunged 9.6 percent to 26.76 euros after reporting a steeper-than-estimated drop in fiscal first-half profit as its expansion in France turned unprofitable because of price cuts and accelerated store openings. The company said its forecast (COLR) for full-year profit close to last year’s 338 million euros “remains a challenge.”

Lloyds, KBC Groep

Lloyds Banking Plc dropped 2.2 percent to 23.15 pence and KBC Groep NV (KBC) fell 7.3 percent to 8.28 euros. Raiffeisen Bank International AG (RBI) retreated 1.2 percent to 16.20 euros as a gauge of European banks was the worst performer of the 19 industry groups in the Stoxx 600.

The European Central Bank failed to fully offset the extra liquidity created by its bond purchases for the first time in seven months, a sign of mounting tension among euro-area banks.

Transocean Ltd. (RIG), the world’s largest offshore oil driller, slumped 7.2 percent to 39.83 Swiss francs after announcing it will sell shares to help refinance its acquisition of Aker Drilling ASA.

To contact the reporter on this story: Corinne Gretler in Zurich at

To contact the editor responsible for this story: Andrew Rummer at


U.S. Stocks Rise as Consumer Confidence Surprises

By Rita Nazareth - Nov 29, 2011 10:19 PM GMT+0700

Nov. 29 (Bloomberg) -- David Gaud, a Hong Kong-based senior portfolio manager of Edmond de Rothschild Asset Management, talks about Asian stocks and investment strategy. Gaud also discusses Europe's sovereign debt crisis. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

U.S. stocks rose, after the biggest gain in a month for the Standard & Poor’s 500 Index, as the biggest increase since 2003 in a gauge of American consumer confidence bolstered optimism in the world’s largest economy.

Yahoo! Inc. climbed 2.3 percent as two people with knowledge of the matter said private-equity firm Thomas H. Lee Partners is considering a bid. Hewlett-Packard Co. gained 2.5 percent after RBC Capital Markets raised its recommendation for the computer maker. Tiffany & Co. slumped 8.8 percent after the world’s second-largest luxury jewelry retailer cited “weaknesses” in sales in Europe and the eastern U.S.

The S&P 500 advanced 0.8 percent to 1,201.67 at 10:17 a.m. New York time, after the benchmark gauge gained 2.9 percent yesterday. The Dow Jones Industrial Average increased 95.86 points, or 0.8 percent, to 11,618.87 today.

“The economic reports have shown that the U.S. has been insulated from all the noise coming out of Europe,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “Consumers are not really bothered by that, at least not yet. We expect the data to be good. It’s going to be fits and starts, but they continue to move along the right direction in Europe.”

The S&P 500 yesterday snapped a seven-day decline amid speculation European leaders will boost efforts to end the debt crisis. The benchmark gauge for American equities was still down 4.9 percent in November through yesterday as a measure of financial shares tumbled 10 percent.

Biggest Since 2003

The Conference Board’s index increased to 56 from a revised 40.9 reading in October, the biggest monthly gain since April 2003, figures from the New York-based private research group showed today. The gauge, at a four-month high, exceeded the most-optimistic forecast in a Bloomberg News survey of economists.

Demand for Italy’s 2014 bonds was 1.5 times the amount on offer, up from 1.35 times at the previous auction. Finance ministers are meeting to thrash out details on how to boost the European Financial Stability Facility.

Yahoo gained 2.3 percent to $15.70. Thomas H. Lee Partners joins a growing list of companies that are sizing up offers for Yahoo. Private-equity firm Silver Lake is working with Microsoft Corp. to bid for a minority stake in Yahoo, two other people familiar with the matter said. Andreessen Horowitz, a venture- capital firm, may join the Silver Lake-led group, another person said.

Hewlett-Packard added 2.5 percent to $27.19. The company was raised to “outperform” from “sector perform” at RBC Capital Markets. The 12-month share-price estimate is $32.

Thailand Floods

Seagate Technology Plc jumped 6.1 percent to $16.96. The company forecast higher sales than analysts had estimated, saying it withstood flooding in Thailand better than much of the disk-drive industry.

Research In Motion Ltd. rose 6.4 percent to $17.54. The BlackBerry maker was raised to “market perform” from “underperform” at Stanford C. Bernstein & Co., which said shareholder activism may lead to management change or a takeover.

Tiffany dropped 8.8 percent to $67.14. The company reiterated its forecast for an annual sales gain in the “high- teens” in percentage terms, after reporting a 21 percent jump in third-quarter revenue, according to a statement today. Tiffany also said a key measure of profitability shrank because it sold more higher-priced jewelry that yields a lower gross margin.

AMR Corp.

American Airlines parent AMR Corp. filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S.

With the filing, American became the final large U.S. full- fare airline to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air- mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. Chairman Gerard Arpey will retire and be replaced by Thomas Horton, AMR said.

Facebook Inc. is considering raising about $10 billion in an initial public offering that would value the world’s largest social-networking site at more than $100 billion, a person with knowledge of the matter said. The company may file for the IPO before the end of the year, said the person, who asked not to be identified because the deliberations are private.

The S&P 500 will probably be stuck in a 250-point range next year as Europe’s debt crisis offsets optimism about U.S. earnings, according to JPMorgan Chase & Co.

‘Inside-Range Year’

The benchmark index for U.S. equities will most likely fluctuate between 1,100 and 1,350, forming an “inside-range year” by staying roughly within the band seen this year, said Michael Krauss, JPMorgan’s New York-based head of technical research. He sees a 12 percent chance of an economic recession that would push the S&P 500 as low as 800. The odds of the index rising to 1,500 because of progress on the crisis or stimulus from central banks are 8 percent, Krauss said.

“The markets now are like ships caught in the treacherously stormy seas of headline risk,” Krauss wrote in a note to clients yesterday. “It will be difficult for equities to sustain back above the 1,300-1,350 trendlines, as long as the European sovereign debt crisis and recession lurks in the background. Similarly, it will be tough to move below strong 1,075-1,100 clustered support, as long as the U.S. avoids an economic recession, earnings stay elevated, and investors remain defensively positioned.”

To contact the reporter on this story: Rita Nazareth in Sao Paulo at

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


Italy Pays More Than 7% at Bond Auction

By Lorenzo Totaro - Nov 29, 2011 7:14 PM GMT+0700

Nov. 29 (Bloomberg) -- Robin Marshall, director of fixed income at Smith & Williamson Investment Management, talks about today's Italian bond auction which saw the debt-laden nation paying above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts. Marshall speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

Nov. 29 (Bloomberg) -- Bob Parker, senior adviser at Credit Suisse Asset Management, talks about investing in emerging debt and the euro-zone sovereign crisis. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

Nov. 29 (Bloomberg) -- Steen Jakobsen, chief economist at Saxo Bank A/S, talks about efforts to resolve the European sovereign-debt crisis. He speaks from Hellerup, Denmark, with Owen Thomas and Linda Yueh on Bloomberg Television's "Countdown." (Source: Bloomberg)

Italy was again forced to pay above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts when it sold 7.5 billion euros ($10.1 billion) in bonds today, short of the maximum target for the auction.

The Rome-based Treasury sold 3.5 billion euros of a new three-year bond, 2.5 billion euros of 2022 bonds and 1.5 billion euros in 2020 bonds, just shy of the top range of 8 billion euros for the sale. The 2014 note yielded 7.89 percent, the highest since September 1996 for a three-year bond and up from 4.93 percent when similar-maturity debt was sold last month.

“Italy is paying a considerable premium for its debt and today’s auction confirmed the recent trend,” Annalisa Piazza, an economist at Newedge Group in London, said in a note. “If we want to look at the ‘bright’ side, the Italian Treasury managed to allocate a big size of its debt today.”

The surge in Italian yields to near euro-era records, even as the European Central Bank backstops the nation’s bonds, is fueling investor concern about the sustainability of a debt load bigger than Spain, Greece, Ireland and Portugal combined. The Italian auction came as euro-region finance chiefs gather in Brussels to try to advance their latest plan for ending the two- year-old debt crisis.

Bond Yields

Italy’s 10-year benchmark bond pared gains after the auction, the yield climbing 10 basis points to 7.36 percent at 12:50 p.m. Rome time. The yield difference with German bunds widened to 505 basis points, and Italy’s two-year note yield rose 4 basis points to 7.14 percent. The euro was at $1.3383 compared with $1.3320 yesterday.

The Treasury sold the 2022 bond to yield 7.56 percent, up from 6.06 percent when the security was last sold Oct. 28, and auctioned the 2020 bond at 7.28 percent, up from 5.47 percent the last time it was sold on Sept. 13. Demand for the 2014 bond was 1.5 times the amount sold, while the bid-to-cover for the 2022 bond was 1.34 times. That compared respectively with 1.35 times and 1.27 times at the Oct. 28 auction. Today marked the third auction in a week when Italy paid pay more than 7 percent.

“These are hopelessly unsustainable yields and reflect the panic that is enveloping the euro zone,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mailed note.

Competing Auctions

Italy this week was competing with debt sales in Belgium, France and Spain of as much as 10 billion euros. Belgium sold 1.02 billion euros of three-month and six-month treasury bills, less than initially planned even as demand rose. The nation paid 2.438 percent for the 6-month debt, the highest in three years. Both France and Spain sell bonds on Dec. 1.

Finance ministers from the 17-member euro region meet today in Brussels to thrash out details on how to boost the financial muscle of its bailout fund before an EU summit on Dec. 9 and stop contagion to the EU’s core. Government bond yields for both Germany and France, Europe’s two largest economies, climbed last week as a German bond auction failed to get bids for 35 percent of the 10-year debt on offer.

“It looks like contagion is spreading to core countries” in Europe, Union Economic and Monetary Affairs Commissioner Olli Rehn said on Nov. 25.

Monti’s Moves

Italian Prime Minister Mario Monti is planning to announce measures to cut the 1.9 trillion-euro debt before he attends his first EU summit since becoming sworn in on Nov. 16. Italy’s new government may reinstate property taxes, overhaul the tax system and pension rules, and modify labor laws, Monti, who is also finance minister, told Parliament in Rome earlier this month.

The jump in Italian yields has come even with the ECB trying to shore up demand for the nation’s debt. The ECB started buying Spanish and Italian debt on Aug. 8 to try to tame borrowing costs after the 10-year yield had surged to euro-era record of 6.4 percent. After falling to under 5 percent around mid-August, the Italian 10-year yield resumed rising and reached a new record of 7.48 percent on Nov. 9.

Italy’s relatively low budget deficit and a primary surplus mean the country can sustain the higher borrowing costs for some time, the Bank of Italy said on Nov. 2. Even if yields on “all new issues of government securities” started to increase on Jan. 1 by 2.5 percentage points, debt would still decline to 115.5 percent of GDP in 2014. Should economic growth also come to a standstill in the next three years, debt would “stabilize at just over 120 percent of GDP,” the central bank said.

Debt Restructuring

New York University economist Nouriel Roubini wrote in the Financial Times today that Italy will be forced to restructure its debt to avoid a default, because the country won’t be able to generate a big enough primary surplus for the government to meet its debt-reduction targets.

The International Monetary Fund denied yesterday a report in Italy’s La Stampa newspaper saying it’s discussing a rescue plan of as much as 600 billion euros to support Italian efforts to restore investor confidence.

Italy, whose economic growth has trailed the euro-region average for more than a decade, may contract 0.5 percent next year, the Organization for Economic Cooperation and Development said yesterday in its semi-annual outlook. The OECD called for Monti to take decisive action” to meet the target of a balanced budget in 2013.

Moody’s Investors Service said in a report yesterday that the probability of multiple defaults by euro-area countries is no longer negligible.

To contact the reporter on this story: Lorenzo Totaro in Rome at

To contact the editor responsible for this story: Craig Stirling at


U.S. Home Prices Decline More Than Forecast

By Alex Kowalski - Nov 29, 2011 9:18 PM GMT+0700

Residential real estate prices dropped more than forecast in the year ended September, showing the industry at the center of the 2008 financial crisis continues to struggle.

The S&P/Case-Shiller index of property values in 20 cities dropped 3.6 percent in September from the same month in 2010 after decreasing 3.8 percent in the year ended August, the group said today in New York. The median forecast of 32 economists in a Bloomberg News survey projected a 3 percent decrease.

Unemployment at 9 percent, tight lending standards and a looming supply of distressed properties that may drag down home values further will probably keep hurting housing demand into next year. Sliding prices have left some people with loans that exceed the value of their properties, preventing them from boosting spending on other goods and services.

“We continue to expect home prices to fall through mid- 2012,” said Anika Khan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We still have an oversupply of existing homes, and distressed transactions continue to drive down home prices.”

Stock futures held earlier gains after the report as demand increased at Italy’s debt sale and finance ministers meet to discuss the credit crisis. The contract on the Standard & Poor’s 500 Index expiring next month climbed 0.2 percent to 1,193.9 at 9:17 a.m. in New York.

Survey Results

Estimates in the Bloomberg survey for the price change ranged from declines of 2.7 percent to 3.9 percent. The Case- Shiller index is based on a three-month average, which means the September data were influenced by transactions in July and August.

The year-over-year decline in September was the smallest in seven months.

Home prices adjusted for seasonal variations fell 0.6 percent in September from the prior month, the biggest decrease since March, after falling 0.3 percent in August. Unadjusted prices also decreased 0.6 percent from August as 17 of 20 cities showed declines. Only Washington, New York and Portland, Oregon, showed gains.

Atlanta, Las Vegas and Phoenix posted new post peak lows in September, the report showed.

The year-over-year gauge provides better indications of trends in prices, according to the S&P/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index.

Broad-Based Drop

Eighteen of the 20 cities in the index showed a year-over- year decline, led by a 9.8 percent drop in Atlanta.

Detroit showed the biggest year-over-year increase, with prices rising 3.7 percent in the 12 months to September. Property values in Washington were up 1 percent.

Nationally, prices decreased 3.9 percent in the third quarter from the same time in 2010. They increased 0.1 percent from the previous three months before seasonal adjustment and dropped 1.2 percent after taking those changes into account.

A pipeline of seized properties threatens to weigh on prices even more as a temporary halt on foreclosures stemming from faulty seizures comes to an end. In the third quarter, U.S. lenders started foreclosures on more homes, the first increase in a year, as bank moratoriums that clogged the pipeline abated.

“Housing market activity remained very weak,” minutes from the Federal Open Market Committee’s Nov. 1-2 meeting showed last week. “The large overhang of foreclosed and distressed properties along with limited demand in an environment of uncertainty about future home prices and tight underwriting standards for mortgage loans” weighed on the market, it said.

New-Home Sales

Builders, which are competing with the 3.33 million unit glut of previously owned homes, sold fewer new houses in the U.S. than forecast in October, Commerce Department data showed yesterday. Demand is on pace to reach 301,000 this year, less than the 323,000 homes sold in 2010, which marked the fewest sales since data-keeping began in 1963.

“We’re in a market that’s quite fragile,” Ara Hovnanian, chairman and chief executive officer of Hovnanian Enterprises Inc. (HOV), said during a Nov. 9 investor conference. “While delinquency rates have taken a little dip, on the whole, there is nothing that says that foreclosures are going to change dramatically over the near term, however you define that.”

============================================================                1-months 3-months  1-year  2-years  3-years                earlier  earlier  earlier  earlier  earlier ============================================================ US Composite-20  -0.64%    0.35%   -3.59%   -3.18%  -12.17% ------------------------------------------------------------ Washington DC     1.17%    3.13%    0.98%    4.07%   -1.02% Portland          0.14%    1.17%   -5.68%   -9.10%  -19.79% New York          0.08%    1.89%   -2.57%   -2.80%  -11.34% Phoenix          -0.21%   -0.47%   -6.48%   -8.27%  -28.31% Detroit          -0.54%    5.36%    3.65%    0.49%  -18.85% Dallas           -0.57%    0.54%   -0.81%   -3.39%   -4.52% Miami            -0.65%    0.27%   -3.99%   -6.59%  -21.76% Chicago          -0.76%    2.49%   -5.03%  -10.32%  -19.85% San Diego        -0.77%   -0.86%   -5.36%   -0.67%   -6.34% ============================================================                1-months 3-months  1-year  2-years  3-years                earlier  earlier  earlier  earlier  earlier ============================================================ Boston           -0.77%   -0.05%   -1.20%   -0.79%   -4.09% Denver           -0.81%   -0.42%   -1.48%   -3.09%   -4.21% Los Angeles      -0.81%   -0.98%   -4.20%   -0.02%   -8.96% Charlotte        -0.88%   -1.09%   -2.57%   -6.18%  -13.78% Minneapolis      -0.88%    2.14%   -7.35%   -8.46%  -18.54% Seattle          -1.09%   -1.36%   -6.53%   -8.96%  -21.54% Cleveland        -1.24%   -0.12%   -3.08%   -4.89%   -8.46% Las Vegas        -1.45%   -1.95%   -7.29%  -10.51%  -36.13% San Francisco    -1.46%   -1.25%   -5.88%   -0.70%   -8.46% Tampa            -1.53%   -0.83%   -6.69%  -10.66%  -25.62% Atlanta          -5.93%   -7.99%   -9.78%  -13.72%  -21.77% ============================================================ NOTE: The S&P/Case-Shiller (R) Home Price Indices are constructed from data on sales of individual properties.  With this method, changes in the index are derived only from actual changes in selling prices of individual properties. 

To contact the reporter on this story: Alex Kowalski in Washington at

To contact the editor responsible for this story: Christopher Wellisz at


Brazil’s Inflation Target May Be Nearer After Agency Changes Price Index

By Andre Soliani and Ye Xie - Nov 29, 2011 10:33 PM GMT+0700

A change in the way Brazil gauges inflation will help the central bank near its targets, enabling it to keep cutting interest rates, said Guilherme Figueiredo, hedge fund director at M. Safra & Co.

Figueiredo’s fund trimmed its 2012 inflation forecast to 5.35 percent from 5.65 percent, after the national statistics agency yesterday released new weightings for items in its benchmark IPCA price index, he said.

Yields on interest rates futures show investors expect the central bank to cut the overnight rate for a third straight time by a half-point to 11 percent this week. While the re-weighting of the IPCA index will help policy makers bring inflation closer to their 4.5 percent target for 2012, Figueiredo doesn’t see the changes speeding up bank President Alexandre Tombini’s policy of “moderate” interest rate cuts.

The new weights “give the central bank more room to continue cutting interest rates,” Figueiredo, who manages $1.5 billion, said in a phone interview from Sao Paulo.

He called the changes in the index “legitimate” because they were based on a survey that shows adjustments in consumers’ spending patterns. “Coincidently, it took weight from items that had bigger price increases,” Figueiredo said.

Slowing Down

The central bank has cut interest rates as the European debt crisis threatens to crimp global growth. Economists in a Nov. 25 central bank survey cut their 2011 Brazil economic growth forecast to 3.1 percent, from the previous week’s forecast of 3.16 percent, according to the median estimate of about 100 economists. At the end of August, analysts were predicting growth of 3.79 percent.

Third-quarter Brazilian business confidence fell to its lowest level since the start of 2009.

The yield on the interest-rate future contract due January 2013 fell nine basis points, or 0.09 percentage point, to 9.68 percent yesterday on speculation that the changes will rein in inflation, which has exceeded the 6.5 percent upper limit of the government’s target range since April.

The yield on the contract rose one basis point to 9.69 percent at 1:20 p.m. Brasilia time after inflation, as measured by the IGP-M price index, rose more than analysts expected.

Rate Horizon

Itau Unibanco Holding SA, Latin America’s biggest bank by market value, estimates the new weights for the IPCA will reduce next year’s inflation by half a percentage point to 5.25 percent.

The impact of the statistical change increases the chance that the central bank will step up the pace of rate cuts at some point, the bank said in an e-mailed report to clients.

Goldman Sachs Group Inc. may trim its 2012 inflation forecast by as much as 0.3 percentage point to 4.9 percent, Paulo Leme, the bank’s head of emerging markets, wrote in a note to clients.

To be sure, Leme said the statistical change is neutral for the central bank’s policy because it doesn’t alter the “determinants” of inflation.

“The economy is slowing faster than anticipated and the risk of negative external shocks is rising,” Leme said in the note to clients. The central bank “may end up lengthening the easing cycle.”

Breakeven rates, the difference between yields on 2015 inflation-linked and fixed rate bonds, show traders are betting on average inflation of 5.55 percent over the next four years, down from 6.197 percent at the end of September.


The weights published yesterday are not final and may be adjusted, said Eulina Nunes, coordinator of the IPCA index at the Rio de Janeiro-based statistics agency, IBGE.

The agency reviews the weight of items in its basket every five years to better reflect family consumption patterns detected by its surveys, she said. The weighting of cable TV and consumer electronic goods will increase in the consumer-price basket, while that of cigarettes will decline, Nunes said.

Following the new weightings, Espirito Santo Investment Bank may also trim its 2012 inflation forecast by 30 basis points to 5.6 percent, chief economist Jankiel Santos said in a phone interview from Sao Paulo.

“The change in methodology is justifiable and is part of the game,” Santos said. Brazil isn’t manipulating the inflation figures, he said.

‘Flight Plan’

The central bank won’t alter its strategy of reducing rates by half a point based on the new criteria, said Andre Perfeito, chief economist at Sao Paulo-based Gradual Investimentos. He expects policy makers to lower the key rate to 10 percent by March.

“They already had a flight plan and will stick to it,” Perfeito said.

Analysts were initially expecting the update to the consumer price-basket to trim inflation by as much as 0.2 percentage point, Deputy Finance Minister Nelson Barbosa said Nov. 22.

“Since people typically begin to switch out of the products with the most inflation and use other products, the goods that saw a bigger price increase are reduced in the index,” Barbosa said yesterday. “That’s why it typically causes a reduction in inflation,” he said.

To contact the reporter on this story: Andre Soliani in Brasilia at; Ye Xie in New York at

To contact the editor responsible for this story: David Papadopoulos at; Joshua Goodman at


Corning, GameStop, Inhibitex, RIM, United Continental: U.S. Equity Movers

By Lu Wang - Nov 29, 2011 10:30 PM GMT+0700

Shares of the following companies are having unusual moves in U.S. trading. Stock symbols are in parentheses and prices are as of 10:05 a.m. in New York.

AMR Corp. (AMR) plunged 85 percent to 25 cents for the biggest retreat in the Russell 1000 Index. American Airlines’ parent filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S. Rivals gained. United Continental Holdings Inc. (UAL) added 5 percent to $17.40. Delta Air Lines Inc. (DAL) rose 2.7 percent to $7.63. JetBlue Airways Corp. (JBLU) climbed 3.3 percent to $3.80.

Central European Distribution Corp. (CEDC) surged 40 percent, the most in the Russell 2000 Index, to $4.75. Russian Standard Corp. reported a 9.9 percent stake in the vodka producer.

Corning Inc. (GLW) slipped 10 percent to $13.31 for the biggest intraday decline since May 2010. The maker of glass for flat-panel televisions cut its fourth-quarter sales forecast for its Gorilla Glass and said it expects earnings to drop more than estimated.

Dillard’s Inc. (DDS) dropped 4.3 percent to $47.57 after sinking as much as 4.4 percent, the most intraday since Nov. 11. The Arkansas-based department-store chain was cut to “neutral” from “buy” at Sterne Agee & Leach Inc., which cited margin erosion concerns and cut its 12-month price estimate to $47 a share from $58.

Hillenbrand Inc. (HI) rose 3.5 percent to $21.87 and climbed to $22.46 earlier, the highest intraday price since July 26. The coffin maker said profit is fiscal 2012 will be at least $1.82 a share, more than the average analyst estimate of $1.77.

GameStop Corp. (GME) rose 3 percent to $23.03 and increased to $23.07 earlier, the highest intraday price since Nov. 16. The world’s largest video-game retailer may find its best hope with a private equity buyer as short sellers boost their bearish wagers against the company to the highest level in America, according to Robert W. Baird & Co. and Sterne Agee & Leach Inc.

Inhibitex Inc. (INHX) jumped 15 percent to $13.10 and advanced to $13.25 earlier, the highest intraday price since it went public in June 2004. The biopharmaceutical company said a clinical trial of its INX-189 hepatitis C treatment in combination with ribavirin showed an “increase in antiviral activity.”

Idenix Pharmaceuticals Inc. (IDIX) , which is also developing a hepatitis treatment, rose 8.5 percent to $7.70.

Research In Motion Ltd. (RIM) jumped 7.1 percent to $17.65 and climbed 7.6 percent earlier, the most intraday since Oct. 5. The BlackBerry maker was raised to “market perform” from “underperform” at Stanford C. Bernstein & Co., which said shareholder activism may lead to management change or a takeover.

Seagate Technology Plc (STX) gained 5.9 percent to $16.94 and advanced to $17.20 earlier, the highest intraday price since Nov. 16. The world’s largest maker of computer disk drives forecast higher sales than analysts estimated.

Western Digital Corp. (WDC) , also a maker of computer drives, rose the most in the Standard & Poor’s 500 Index, climbing 4.7 percent to $27.79.

Susser Holdings Corp. (SUSS) fell 8.7 percent to $22.97 and slumped 9.5 percent earlier, the most intraday since Feb. 24. The operator of convenience stores in Texas, New Mexico and Oklahoma said it will offer 3.5 million shares, raising money to build new facilities and for general corporate purposes including debt reduction.

Thor Industries Inc. (THO) declined 4.4 percent to $23.28 after reaching $22.25 earlier, the lowest intraday price since Oct. 4. The recreational-vehicle maker reported first- quarter earnings of 41 cents a share, missing the average analyst estimate by 1 cent.

Tiffany & Co. (TIF) slid 9.7 percent to $66.45 and tumbled as much as 13 percent, the most intraday since January 2008. The world’s second-largest luxury jewelry retailer forecast fourth-quarter earnings of at most $1.58 a share, missing the average analyst estimate of $1.63 a share. The company cited “continued short-term economic challenges” and “recent sales weaknesses” in Europe.

Transocean Ltd. (RIG) fell 5.8 percent to $43.30 and slipped to $43.02 earlier, the lowest intraday price since June 2010. The world’s largest offshore driller said it would sell shares to help refinance its acquisition of Aker Drilling ASA.

To contact the reporter on this story: Lu Wang in New York at

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


American Airlines’ AMR Corp. Files Bankruptcy

By Phil Milford and Mary Schlangenstein - Nov 29, 2011 9:07 PM GMT+0700

Nov. 29 (Bloomberg) -- Jeff Kauffman, managing director of equity research at Sterne Agee & Leach Inc., talks about the bankruptcy filing by AMR Corp., parent of American Airlines. AMR filed for Chapter 11 protection today after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S. Kauffman speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

American Airlines parent AMR Corp. filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S.

With the filing, American became the final large U.S. full- fare airline to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air- mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan.

“It’s painful but probably necessary,” John Strickland, an aviation analyst at JLS Consulting in London, said today in a telephone interview. “They will have to go through the whole process that their peers have gone through.”

Job and flight reductions are likely in the future as AMR seeks to reduce expenses, Chief Executive Officer Thomas Horton said today on a conference call. Horton, 50, most recently AMR’s president, replaced Gerard Arpey, 53, who retired. Normal flight schedules will continue on American and its American Eagle regional unit for now, along with the airline’s frequent-flier program, the company said.

The board’s vote to file for bankruptcy was unanimous, Horton said. AMR was determined to avoid Chapter 11 in the years after the 2001 terrorist attacks, as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. American later watched as rival carriers combined, giving them larger route networks that were more attractive to lucrative corporate travel customers.

‘Stronger Company’

“You would expect a leaner, stronger company to emerge from bankruptcy,” Chris Logan, an analyst at Echelon Research & Advisory LLP, said today by telephone. “As they are in Chapter 11, it will be more easy to demand concessions from the labor force.”

American was engaged in negotiations with unions for all of its major work groups as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.

The airline and leaders of its pilots’ union were scheduled to meet with federal mediators on Dec. 6 to provide an update on contract talks that stalled two weeks ago. The two sides hadn’t set a date to resume negotiations since Allied Pilots Association leaders declined to send a Nov. 14 contract offer to union members for a vote, saying it “clearly” would be rejected.

2003 Concessions

American’s pilots, flight attendants, mechanics and baggage handlers wanted to use the contract talks to regain some of the $1.6 billion in annual concessions they gave in 2003 to help the company avoid bankruptcy.

AMR shares have plunged 79 percent this year and analysts including Philip Baggaley of Standard & Poor’s have warned the company could face a cash crisis during the next 12 months without new labor agreements.

Among the company’s largest unsecured creditors listed in court papers was Wilmington Trust Corp., trustee for holders of $460 million in 6.25 percent convertible senior notes due in 2014.

The bankruptcy filing included AMR American Eagle Holding Corp., AMR’s regional airline that ferries passengers from smaller cities to hub airports. A spinoff of American Eagle is on hold, Horton said. AMR’s lead counsel is Weil, Gotshal & Manges LLP and its financial adviser is Rothschild Inc.

Bond Sale

AMR on Sept. 27 sold $725.7 million of 10-year bonds backed by aircraft to refinance maturing debt. The company paid the highest interest rates since 2009 to raise the cash.

The 8.625 percent notes due in October 2021 fell 2.5 cents to 96 cents on the dollar as of 8:20 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

American had blamed higher labor costs, as well as benefits that have increased more slowly than expected from business ventures with partners across the Atlantic and Pacific, in part for its failure to return to profit. The airline also has a fleet of older, less fuel-efficient planes that put it at a disadvantage when fuel prices rise.

“Airlines still face that fundamental issues of cost levels versus achievable revenues in the market place,” Strickland, the JLS analyst, said. “Higher fuel prices and the weaker U.S. economy would have given them the final push.”

‘Every Confidence’

International Consolidated Airlines Group SA, a U.K.-based joint venture partner with AMR that owns British Airways and Spain’s Iberia, said it has “every confidence in the future of American Airlines” and looks forward to working with Horton.

AMR said in July it would buy 460 single-aisle jets -- 260 from Airbus SAS and 200 from Boeing Co. (BA) -- in the industry’s biggest-ever order. The orders remain “rock solid,” Horton said today.

“When we’re completed with this process, our company will be competitive and poised to grow and prosper and go out and capitalize on these aircraft orders,” he said.

Boeing said it has “no reason to doubt” that the order remains pivotal to AMR.

“We anticipate as part of American’s reorganization that new, fuel-efficient airplanes will be a key part of their ongoing success,” Mark Hooper, a spokesman for the Chicago- based planemaker, said in an e-mailed statement.

Mail Pilot

American Airlines was formed from companies including Robertson Aircraft Corp. of Missouri, which employed Charles A. Lindbergh as a mail pilot, according to the carrier’s website. The companies began consolidating in 1929 and became American Airlines in 1934.

Company stock began trading in 1939, and during World War II, half of American’s planes flew for the Air Transport Command. American pioneered nonstop transcontinental service in 1953 and 20 years later was the first major airline to hire a woman pilot, according to its website.

The case is In re AMR Corp. (AMR), 11-15463 U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware at; Mary Schlangenstein in Dallas at

To contact the editor responsible for this story: John Pickering at


Apple’s Rivals Try to Swipe Holiday Sales From IPad With Cheaper Tablets

By Olga Kharif and Cliff Edwards - Nov 29, 2011 12:00 PM GMT+0700

Samsung Electronics Co. (005930) and Lenovo Group Ltd. (992) are joining Inc. (AMZN) in selling low-priced tablets this holiday season, stepping up efforts to grab sales from Apple Inc.’s market leading iPad.

More than two dozen devices, including Samsung’s Galaxy Tab 7.0 Plus, Lenovo’s IdeaPad A1 and Barnes & Noble Inc. (BKS)’s Nook Tablet, are selling at a 30 percent to 80 percent discount to the iPad, which starts at $499.

Manufacturers of these tablets are also adding features that previously had been only available on more expensive models, pitting the devices more directly against the iPad, as well as posing a challenge to e-readers and netbooks.

Their aim is to narrow Apple’s lead in a market that could reach $77.4 billion by 2015, up from $9.6 billion last year, according to researcher Gartner Inc. In the third quarter, Apple (AAPL) saw its dominant share of the tablet market slip as devices running on Google Inc. (GOOG)’s Android software gained ground.

“Customers will be price sensitive,” Charlie Wolf, an analyst at Needham & Co., said in an interview. “But there has to be functionality along with the low price to make these things sell. From the competitive perspective, all of them are inferior to the iPad. But some of these cheaper tablets will take share from the iPad.”

Sub-$400 IPad

To fend off the competition, Apple should offer the iPad at a lower price, analysts from Goldman Sachs said in a report this month.

“A sub-$400 iPad 2 with 8GB of capacity could further limit the competitive prospects of Android tablet vendors in 2012 and attract more cost-sensitive consumers,” the report said. It could also help Apple compete with lower-cost rivals whose devices now offer an array of features.

Samsung’s new $349 Galaxy Tab 7 can be used as a remote control for devices in the home. Lenovo added an always-on GPS capability to its $199 IdeaPad A1. Archos’s $349 10-inch G9 tablet has a built-in stand and a customized video store with full high-definition playback.

Amazon’s Kindle Fire, which comes with access to the company’s digital books and videos, could grab up to 20 percent of prospective iPad buyers during the Christmas quarter, Wolf said.

“Some consumers who would have bought an iPad will buy a Kindle,” Wolf said. “The iPad could lose a half a million in unit sales because of the Kindle.” Wolf expects Apple to sell 12.5 million iPads during the holiday quarter. Amazon will sell 5 million Kindle Fires this quarter, JPMorgan Chase & Co. (JPM) said in a recent note.

Strong Start for IPad

Still, the iPad remains one of the top items on holiday shopping lists. Piper Jaffray Cos. analyst Gene Munster said yesterday that based on observations, Apple’s stores sold 14.8 iPads per hour on Black Friday, up 68 percent from last year.

In a separate report by Piper Jaffray, a survey of teens showed that 11 percent mentioned an Apple product at the top of their wish lists, up from 7 percent in 2008. Among Apple’s products, the iPhone and iPad were the most popular.

Personal computer makers, faced with slumping sales, have joined the tablet battle by offering devices at different sizes and prices. The average selling price of a tablet fell 10 percent in the past year, while the average price of a smartphone rose 20 percent, said Neil Mawston, director of global wireless at research firm Strategy Analytics Inc.

Android on the Rise

By dropping prices, Apple’s rivals have gained market share. Android-powered tablet computers accounted for 27 percent of global sales during the three-month period ending in September, jumping from 2.3 percent a year earlier, Strategy Analytics said in October. Samsung, the biggest seller of Android tablets, accounted for about 9 percent of the overall market. The iPad’s share fell to 67 percent from 96 percent.

“Customers and businesses love lower-cost devices,” Mawston said. “As prices come down, the entry-level market will grow.”

The shift to low-cost tablets could mean the death within a few years of computing categories such as netbooks and e- readers, Mawston said.

“At some point in 2012, the black-and-white e-reader is going to start to look a little bit dated,” he said. “And the tablet market is crushing the netbook market.”

Already, for every 10 tablets sold this year, researcher Canalys said five netbook or notebook computer sales are lost. Netbook sales will drop 13 percent this year, to 34 million units, Canalys said.

E-book reader sales are expected to rally through the holiday season, even amid pressure from tablets. E-reader shipments will reach 27 million units this year, more than double last year’s 12.8 million units shipped, according to researcher IDC.

Best of Both Devices

In the long term, manufacturers may develop hybrid devices that offer features of both a tablet and an e-reader, according to a report from Juniper Research. For example, a device could have a high-resolution screen for watching videos that is also designed to minimize eyestrain while reading books.

“Hybrid displays could signal the end for dedicated eReaders,” the report said.

More low-cost tablets will be unveiled at the Consumer Electronics Show in January. Many of them will use the latest update of Android, named Ice Cream Sandwich. That version of the software, the first to be designed for both phones and tablets, may encourage developers to write more applications for the platform and increase competition in the tablet market.

“There will be a price war,” said Frederic Balay, vice president of marketing for tablet maker Archos. “Hopefully, it won’t bastardize the price seriously.”

To contact the reporters on this story: Olga Kharif in Portland at; Cliff Edwards in San Francisco at

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


Italian Government Bonds Drop Before Debt Auctions; German Notes Advance

By Emma Charlton - Nov 29, 2011 4:54 PM GMT+0700

Italian bonds fell as the nation prepared to sell debt amid speculation it may again be forced to pay above the 7 percent threshold that prompted Greece, Portugal and Ireland to seek external aid.

Germany’s two-year notes rose before European finance ministers meet today to seek a resolution to the region’s debt crisis. Italy aims to sell as much as 3.5 billion euros ($4.7 billion) of three-year notes, 2.5 billion euros of 2022 debt and 2 billion euros in 2020 securities. The nation paid more than 7 percent at auctions yesterday and on Nov. 25. Belgium will sell bills today.

“The market is waiting to see how successful today’s auction will be,” said Ralf Umlauf, head of floor research at Helaba Landesbank Hessen-Thueringen in Frankfurt. “Normally before auctions the bonds come under pressure. Yesterday we saw good demand for Belgium’s bonds so there’s a good chance to see a normal outcome from the Italian and Belgian auctions today.”

Italy’s 10-year yield climbed 14 basis points, or 0.14 percentage point, to 7.37 percent at 9:50 a.m. London time. The 4.75 percent security due September 2021 fell 0.820, or 8.20 euros per 1,000-euro face amount, to 82.790. Two-year Italian rates rose 13 basis points to 7.23 percent.

Euro-Era Record

The 10-year Italian yield has climbed more than one percentage point this month and more than 2.5 percentage points this year amid concern that the nation’s debt load -- bigger than that of Greece, Spain, Ireland and Portugal combined -- is unsustainable.

Italy’s two-year yield reached a euro-era record of 8.12 percent yesterday as the nation sold 567 million euros of inflation-linked notes. The securities on offer this week are competing with sales of securities in Belgium, France and Spain.

The European Central Bank is said to have begun purchasing Italian and Spanish debt on Aug. 8 to contain a surge in yields. After falling to around 5 percent that week, rates on the bonds climbed above 6.5 percent this month amid speculation that the two nations won’t be able to repay their debts.

“Current Italian yield levels speak for themselves,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “A sustainable level for yields would be about 200 basis points lower than where we are now, so the market’s skepticism is more than justified.”

Stocks Drop

Spain’s 10-year bond yields were little changed at 6.57 percent, while the rate on similar-maturity Belgian debt was four basis points lower at 5.53 percent.

Germany’s 10-year yield was little changed at 2.30 percent. Two-year rates were two basis points lower at 0.43 percent.

The Stoxx Europe 600 Index declined as much as 0.8 percent and the euro was little changed at $1.3338.

Finance ministers from the 17-member monetary union are to meet in Brussels today to debate using their bailout fund, the European Financial Stability Facility, to insure sovereign debt with guarantees.

Agreeing on a sufficient response to Europe’s problems is of “huge importance” to the U.S., President Barack Obama said after yesterday meeting European Union President Herman Van Rompuy and European Commission President Jose Barroso.

Bunds dropped yesterday, pushing the yield to a more than three-month high, as speculation European leaders are moving closer to agreeing on measures to combat the euro area’s sovereign-debt crisis reduced demand for the regions’s safest investments.

German government bonds have returned 6.3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds lost 11 percent, and Belgian debt dropped 5.6 percent.

To contact the reporter on this story: Emma Charlton in London at

To contact the editor responsible for this story: Daniel Tilles at


South African Economy Expanded Less Than Forecast at 1.4% as Exports Slump

By Andres R. Martinez and Gordon Bell - Nov 29, 2011 4:53 PM GMT+0700

Growth in South Africa’s economy, the biggest in Africa, expanded an annualized 1.4 percent in the third quarter, less than economists forecast, as manufacturing and mining output slumped.

Gross domestic product accelerated from 1.3 percent in the second quarter, Statistics South Africa said today in Pretoria. The median estimate in a Bloomberg survey of 20 economists was for the economy to expand 1.8 percent.

“It’s not good news,” Nicky Weimar, an economist at Nedbank Group Ltd., said in a phone interview from Johannesburg today. “Manufacturing was a lot weaker than anybody expected.”

South Africa is struggling to meet employment and economic growth targets as the debt crisis in Europe, which buys about a third of South African manufactured goods, pushes that region close to recession. Finance Minister Pravin Gordhan on Oct. 25 cut his growth forecast for this year to 3.1 percent from 3.4 percent, less than half the 7 percent expansion that the government says is needed to meet its target to create 5 million jobs by 2020.

The rand was at 8.3516 against the dollar as of 11:44 a.m. in Johannesburg from 8.3695 before the data was released. The yield on the R157 government bond, due 2015, slid 2 basis points, or 0.02 percentage points, to 6.98 percent today.

Manufacturing, which accounts for 15 percent of the economy, contracted for a second consecutive quarter, dropping an annualized 1.9 percent in the three months through September. Mining plunged 17.4 percent last quarter compared with a contraction of 4.2 percent in the previous three months, mainly due to strikes in the industry, the statistics office said.

The Reserve Bank has kept the benchmark rate at a 30-year low of 5.5 percent this year to support growth in the face of increasing price pressures. Slower growth and a slump in investors’ risk appetite caused the rand to plunge 21 percent against the dollar this year, the worst-performer of 16 major currencies tracked by Bloomberg.

To contact the reporters on this story: Andres R. Martinez in Johannesburg at; Gordon Bell in Johannesburg at

To contact the editor responsible for this story: Andrew J. Barden at


Corzine Pushed Europe Bet to $11.5 Billion

By Miles Weiss, Cristina Alesci and Matt Leising - Nov 29, 2011 12:58 PM GMT+0700

Jon Corzine bet $11.5 billion on European sovereign debt in his bid to rebuild profits at MF Global Holdings Ltd., almost twice the net amount disclosed to investors, and relied on short-term hedges that left the firm exposed to larger losses if they couldn’t be rolled over.

Corzine, who was chairman and chief executive officer of the futures broker before it went bankrupt last month, overcame resistance from directors, senior traders and risk managers to accumulate the bonds, according to two people with knowledge of the situation. He used the hedges, or offsetting trades, to cut the net risk reported to shareholders to $6.4 billion, according to an Aug. 3 regulatory filing by the company.

A former New Jersey senator and governor, Corzine joined MF Global in March 2010 with a plan to remake the company into an investment bank in the image of Goldman Sachs Group Inc., where he had been co-chairman before entering politics. He repeatedly ratcheted up his wager on the debt of countries including Italy and Spain, booking gains along the way, according to filings. The short-term hedges matured before the bonds, meaning the net amount at risk could increase if investors lost confidence in either European sovereigns or MF Global and new hedges couldn’t be bought.

“If that assumption does not come to pass, their risk mushrooms,” said Matthew Pieniazek, president of Darling Consulting Group, a Newburyport, Massachusetts, firm that advises banks on managing their balance sheets. Hedges that matured along with the bonds would have been prohibitively expensive, he said.

Steven Goldberg, a spokesman for Corzine, and Diana DeSocio, an MF Global spokeswoman, declined to comment for this story.

‘My Personal Responsibility’

There was never any doubt about who engineered the sovereign-debt trade.

“Our positions and the judgment about risk-mediation steps are my personal responsibility,” Corzine, 64, said on an Oct. 25 conference call to answer questions about a record quarterly loss and debt-rating downgrade that sliced the firm’s market value that week by 67 percent, or $410 million, as MF Global slid toward collapse.

The firm’s Oct. 31 bankruptcy filing, the eighth-biggest by a public company in the U.S., led to at least 1,066 workers losing their jobs, disrupted commodities markets and undermined investor confidence in futures brokers. The trustee liquidating MF Global’s broker-dealer said more than $1.2 billion in customer money may be missing, and the company is being investigated by regulators and the U.S. Justice Department.

Missing Funds

About $200 million of the missing funds have been found at JPMorgan (JPM) Chase & Co., the New York Times reported, citing people briefed on the matter that it didn’t identify. MF Global had an overdrawn account at New York-based JPMorgan in its final days, the newspaper said. The funds were transferred before its bankruptcy filing, it said.

Marie Cheung, a spokeswoman for JPMorgan in Hong Kong, declined to comment today.

U.S. investigators are unaware of any missing funds in the U.K., according to a person familiar with the Federal Bureau of Investigation probe of MF Global’s collapse who declined to be identified because the matter isn’t public. Peter Donald, a spokesman for the FBI in New York, didn’t immediately return an e-mail after business hours seeking comment. Kent Jarrell, a spokesman for MF Global trustee James Giddens, declined to comment.

Turnaround Strategy

Corzine resigned on Nov. 4, and has hired attorney Andrew Levander, a partner in the law firm Dechert LLP whose clients have included money manager Ezra Merkin in litigation tied to Bernard Madoff’s fraud scheme. Neither Corzine nor anyone else at MF Global has been accused of any wrongdoing.

MF Global reported a loss in the four quarters prior to Corzine’s hiring. Central to his strategy for turning the futures broker around, Corzine promised to bulk up principal trading, or the use of the firm’s own capital to make deals for itself and clients. In the latter half of 2010, within months of taking the helm, he started buying the Italian and Spanish bonds, as well as those of Portugal, Ireland and Belgium.

On earnings conference calls with investors, Corzine described the debt, which matured at various points in 2012, as a low-risk way to profit from “dislocations” in Europe’s sovereign-debt market. To limit its risk, MF Global entered into a minimum of $4.9 billion in offsetting wagers that would pay off if the bonds fell in value, filings with the U.S. Securities and Exchange Commission show.

Complicated Disclosure

MF Global’s regulatory filings don’t give dollar amounts for the gross purchases of European sovereign debt or for the hedges. Instead, the investments are shown as percentages of a bigger base of assets, leaving investors to calculate the numbers themselves. Those assets are reported on a market-value basis.

The firm in filings and an October investor presentation disclosed the net amount at risk from its European bonds after hedges. Neither the presentation nor regulatory filings explained that the hedges matured before the bonds and thus would have to periodically be renewed.

MF Global didn’t have any trouble replenishing the hedges through the end of October, when its operations were handed over to trustees, said a person briefed on the matter who asked not to be identified because the information isn’t public. KPMG LLP, whose London office is serving as the special administrator for MF Global’s U.K. unit, said in a Nov. 17 statement that “the overwhelming majority” of the firm’s European sovereign-debt portfolio, along with the related hedges, had been liquidated.

Board Pushback

Although the trades didn’t require pre-approval by the board, directors (MF) later questioned Corzine’s investment, according to a person familiar with the discussions. After challenging the size of the bets and the concentration on a small number of countries, the board set dollar limits on the amount of sovereign debt its chairman could buy. Corzine came back to the board at least once to get the ceiling raised.

At multiple meetings, Corzine reassured directors that the trades would work out, said the person, who asked not to be identified because the discussions were private. Corzine said the European countries he selected wouldn’t default before the bonds matured, and that the market was mis-pricing the debt, according to the person. Underpinning Corzine’s view was the euro zone’s European Financial Stability Facility, which could backstop government short-term debt through June 30, 2013.

Directors’ Dilemma

Some risk managers and traders at MF Global shared the directors’ concerns, according to a former employee with knowledge of the matter. The risk-management department began asking for daily prices of credit-default swaps on sovereign debt to keep track of how the market viewed the underlying bonds, a second person said.

The demise of MF Global, which was spun off from fund manager Man Group Plc in 2007, shows how Corzine’s stature made it hard for the board or underlings to oppose him, even as the crisis in Europe deepened. Directors believed that rejecting the trades would have been an affront to the veteran trader and would have been tantamount to firing him, said the person familiar with the board’s deliberations.

“This was a board that could not possibly have been more expert in exposure to risk, a board with at least as much, if not more, expertise than the CEO,” said Jeffrey Sonnenfeld, senior associate dean at the Yale University School of Management in New Haven, Connecticut, and founder of a nonprofit educational and research institute focused on CEO leadership and corporate governance. “This was an example of people not having the courage to stand up to the CEO.”

Trader at Heart

Even after nine years in politics, Corzine never shook the trading bug. He was a prominent presence on MF Global’s trading floor, frequently leaving corporate meetings to check on the markets, according to one person familiar with the firm. He had a reputation for knowing where prices were minute-by-minute, an unusual level of detail for the CEO of a global financial institution.

“He loved to prowl the trading room,” said Mike Fitzpatrick, a former MF Global oil trader who was recruited by Corzine to work in its principal strategies group, the unit that placed proprietary trades. “I find it hard to believe a trader of Corzine’s experience and longevity didn’t calculate, ‘What’s the worst that could happen?’” said Fitzpatrick, who left MF Global in October 2010.

“It got so far out of hand so fast,” he said.

Poor Risk Management

A lack of internal controls eventually doomed the company after a last-minute purchase of the futures-brokerage unit by Interactive Brokers Group Inc. was scuttled when it couldn’t account for hundreds of millions of dollars in customer funds, Hans Stoll, an Interactive Brokers board member, said in an interview earlier this month.

Poor risk management had hurt MF Global before Corzine’s arrival. The company’s shares fell 40 percent in two days in February 2008 after it lost about $141 million on unauthorized wheat trades by an employee in Memphis, Tennessee.

The company sought to tighten its order-entry systems and created a chief risk officer position to calm shareholders. In September 2010, Corzine brought in Bradley Abelow, his chief of staff as governor, to be MF Global’s chief operating officer. Abelow’s duties included overseeing risk management.

Eye on Costs

The tension between beefing up internal controls and trying to improve earnings surfaced during a conference call in November 2010. Then-Chief Financial Officer J. Randy MacDonald was asked by an analyst about the company’s non-compensation expenses. MacDonald stressed the importance of building the “middleware” and distribution platforms across the brokerage’s businesses, saying the company had “some investments to make.”

As the analyst moved on to his second question, Corzine interrupted: “Make no mistake, we’re looking to produce earnings now, and we are keeping a sharp eye on costs.” He said he was mindful of ensuring the company didn’t “bite too quickly on running up costs in front of revenue growth.”

Abelow couldn’t be reached for comment.

To execute his European debt trade, Corzine used repurchase agreements, a type of transaction that allows investors to finance most or all of the purchase, depending on the securities involved, the length of the deal and the credit quality of the borrower. In earnings calls, the CEO said the firm was seeking to profit from the difference between the yield it received on the European bonds, purchased at a discount to face value, and the interest rates it paid under the repurchase agreements.

Favorable Accounting

After setting up the trade so the bonds and the financing agreements matured on the same dates in 2012, accounting rules dictated that MF Global treat the transaction as a sale rather than a collateralized loan. Those rules meant MF Global had to book all of the profit upfront, rather than recognizing it over the life of the contracts, and kept the assets and liabilities from the trades off of its balance sheet, according to Peter Testaverde, a partner in New York at accounting firm EisnerAmper LLP who does audits of hedge funds and brokerages.

The multiple transactions were conceived as a revenue- generation strategy that would improve the financial results for MF Global’s nascent trading unit, according to the person familiar with the board, who wasn’t authorized to speak publicly.

Complicated Disclosure

MF Global disclosed in a May 20 filing that its net holdings among the five European countries consisted of $6.3 billion in debt at the end of March that had an average maturity of April 2012. The company said in the Aug. 3 filing that its European sovereign portfolio had risen to $6.4 billion of debt with an average maturity of October 2012. In both instances, MF Global said the figures were “net of hedging transactions the company has undertaken to mitigate issuer risk.”

While reporting its net holdings had increased 2 percent, MF Global had expanded its bets to $11.5 billion as of June 30 from $7.64 billion as of March 31, according to data contained in the SEC filings. The firm didn’t quantify its holdings at the end of 2010. The firm’s hedges, known as reverse repurchase agreements, jumped to $4.93 billion at June 30 from $1.08 billion as of March 31, the data show.

Revenue from the European sovereign trades was about $47 million during the fiscal fourth quarter ended March 31, or 16 percent of net revenue, and $38 million, or 12 percent, in the following quarter, according to an October investor presentation.

Beginning of End

“This perspective reinforces our strategic view that diversifying into client dealing and principal trading works to reduce dependence on a single line of business and allowed us to grow revenues even in a difficult environment,” Corzine told analysts during a July 28 conference call.

The deal began to unravel in August when the Financial Industry Regulatory Authority told MF Global to add capital to its U.S. brokerage to back the trades. Then on Oct. 24, Moody’s Investors Service downgraded MF Global to one level above junk status, citing its ongoing inability to meet earnings targets and concern that it wasn’t sufficiently managing risk. The next day, MF Global reported its worst-ever quarterly loss.

By the end of that week, the broker’s credit ratings were cut to junk, its bonds were trading at distressed levels and it had drawn down its entire $1.3 billion revolving credit facility.

Corzine’s strategy may ultimately have proven “very profitable” had the firm been able to hold the trades to maturity, said Josh Galper, the managing principal at Finadium, a Concord, Massachusetts, investment research and consulting firm. The firm’s collapse stemmed from a cash shortage, with trading partners and lenders seeking more collateral after the credit downgrade, rather than actual losses on the bonds, Galper said.

“If MF Global had bought the same trade without leverage, there would have been no issue,” Galper said in an interview.

To contact the reporters on this story: Miles Weiss in Washington at; Cristina Alesci in New York at; Matthew Leising in New York at

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