Economic Calendar

Wednesday, December 7, 2011

Jive IPO Gets Boost From Billion-Dollar Cloud Deals

By Peter Elstrom - Dec 7, 2011 8:59 PM GMT+0700

Jive Software Inc. has every reason to lift its initial public offering price after billion-dollar cloud-computing acquisitions led by SAP AG and Oracle Corp.

Jive, a social-networking software maker, said last week it aims to raise as much as $117 million in an IPO that would value it at up to $573 million. That was before SAP’s (SAP) agreement Dec. 3 to buy SuccessFactors Inc. for $3.4 billion, or 52 percent more than its value before the offer. Six weeks earlier, rival Oracle snagged RightNow Technologies Inc. for $1.5 billion.

SAP is paying 11.7 times SuccessFactors’ sales over the past 12 months. At a similar ratio, Jive would be valued at more than $800 million. Software makers are paying up for targets that charge fees to access applications online, rather than licensing programs for desktops. Jive’s IPO may get a boost as investors try to benefit from a shift to cloud services, a market that Gartner Inc. says may reach $148.8 billion in 2014.

“Everybody is looking around and saying, ‘Where can I play that trend?’” said Jeff Richards, a partner at GGV Capital in Menlo Park, California, which was a venture investor in SuccessFactors. (SFSF) “Jive has achieved some scale and is an up-and- coming area.”

Cloud Shift

Jive’s software lets company employees collaborate on projects and communicate with customers. The company counts NetApp Inc., Avon Products Inc., Yum! Brands Inc. and Nike Inc. among its clients. Revenue has surged in the past three years as workers seek the kind of social-networking features they get from Facebook Inc. and Twitter Inc. for corporate use.

Some of the world’s biggest technology companies, including Microsoft Corp., Hewlett-Packard Co. and International Business Machines Corp., are moving to the so-called cloud, where customers can save money by renting software delivered over the Web and accessing it anywhere, instead of installing it on their own machines. The global market for cloud services was about $68.3 billion in 2010, according to Gartner.

Jive began offering its product on a subscription basis starting in 2007. The company lets customers install software on their own premises or have it hosted offsite. In its prospectus, the company said that its subscription model “provides financial visibility through renewable revenues and cash flows.”

Jive, based in Palo Alto, California, plans to sell 8.33 million shares for $8 to $10 apiece, with stockholders offering an additional 3.37 million shares, according to the Nov. 30 filing. The final pricing is expected on Dec. 13.

If Jive were to seek a valuation of $800 million, it would have to sell shares at about $14 apiece.

Crop of IPOs

At least three other U.S. companies that sell software as a service have registered for IPOs since August. ExactTarget Inc., a provider of e-mail marketing services, filed in November, three months after rival Eloqua Ltd. Bazaarvoice Inc., whose software helps companies communicate with their customers, announced IPO plans in August.

SuccessFactors, which makes software used to manage employee performance, has more than 3,500 customers and 15 million subscribers in 168 countries.

Jive’s sales in the nine months through September climbed 73 percent from the same period a year earlier to $54.8 million.

Still, like SuccessFactors, Jive is losing money as it invests in growth. Sales and marketing costs rose 55 percent in the first three quarters from a year earlier, and the company’s net loss almost doubled to $38.1 million.

Tolerating Losses

Investors will put up with losses as long as Jive and other cloud companies keep expanding and meet analysts’ revenue predictions, said Brenon Daly, an analyst at research firm The 451 Group in San Francisco. Responsys Inc., a provider of marketing software, forecast fourth-quarter sales last month that trailed estimates, pushing the stock down 24 percent the next day.

“The investment community is saying, ‘We will help underwrite your business with the understanding that you’re going to make all your numbers,’” Daly said.

Ana Andreescu, a spokeswoman for Jive, declined to comment, citing the pre-IPO quiet period.

The global market for social customer-relationship management software, where Jive competes with companies such as Inc. (CRM), will jump to $1 billion in 2012 from $625 million last year, according to Gartner. Other rivals include software giants Microsoft and IBM, as well as Lithium Technologies Inc., a startup based in Emeryville, California.

‘Very Nice Exits’

Sequoia Capital, which profited earlier this year from Linkedin Corp.’s IPO, stands to benefit the most if Jive’s value rises. The Menlo Park-based venture firm paid $57 million for a stake that would be worth about $170 million at the high end of the expected offering. Kleiner Perkins Caufield & Byers paid $40 million for a stake worth about $67 million at that price.

The acquisitions by Oracle (ORCL) and SAP, the largest maker of business-management software, may also help other cloud-based startups fetch higher prices, said Kris Duggan, chief executive officer of business-software startup Badgeville Inc., also based in Menlo Park. Until recently, Salesforce was the only acquirer, he said.

“People thought for a long time was the only game in town,” Duggan said. “Now it’s everybody. You can create some very nice exits.”

To contact the reporter on this story: Ari Levy in San Francisco at

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


OpenTable’s Collapsing Shares Signal Anxiety Over New Competitors: Retail

By Danielle Kucera - Dec 7, 2011 12:01 PM GMT+0700

OpenTable Inc. (OPEN), the restaurant- reservation service that went public during the worst of the recession and saw its market value triple by the end of 2010, is reeling as investors lose their appetite for the stock.

The company’s shares have tumbled 67 percent from a record $115.62 in April amid a continued slow economy, a sluggish effort to enter the European market, and domestic competition from newer, cheaper services such as Livebookings Ltd. Google Inc., which recently purchased restaurant guide Zagat Survey LLC, is also casting a shadow over OpenTable’s shares.

“Expectations have come down materially,” said Clayton Moran, a Delray Beach, Florida-based analyst at Benchmark Co. who has a hold rating on the shares. “Growth has now decelerated, and you’ve had these added competitive concerns.”

Shares of San Francisco-based OpenTable, which went public in May 2009 at $20, trade at 46 times earnings, even after the stock’s recent declines. That’s a higher valuation than 96 percent of companies in the Standard & Poor’s 500 Index, according to data compiled by Bloomberg. The shares are at an especially “lofty” valuation considering that the company hasn’t yet proved it has a plan to maintain its market leadership, said Justin Patterson, an analyst at Morgan Keegan & Co. in Nashville, Tennessee.

Online Reservation Market

The company dominates the market for reservations in the U.S., with more than 16,000 restaurant subscribers, and may reach 20,000 in 2012, Moran said. Eatery owners pay for OpenTable’s computer system, which lets them manage table inventory and maintain a profile of customers who have dined there, on top of other fees.

Those owners include A.J. Gilbert, who runs San Francisco’s Luna Park, a restaurant serving modern American food that costs about $20 for a dinner entree. He estimates that OpenTable brings in about 60 percent of his restaurant’s reservations. Those bookings come at a price. Gilbert paid $2,351 on his last monthly OpenTable bill.

“The market is ready for some price competition,” he said. “OpenTable has kind of stumbled into this monopoly. They support their product really well. They’re just really expensive.”

Well, not really, according to Matthew Roberts, chief executive officer of OpenTable. For every $1 OpenTable charged in fees for logged reservations, diners spent an average of $43 in North America last year, he said.

Considering Alternatives

That argument is hard to make to restaurants trying to shave costs in challenging economic times. One alternative may be Livebookings, Europe’s largest online restaurant-reservation provider, which started a free service in the U.S. last month that lets restaurants enable online reservations on their own websites and Facebook pages.

OpenTable estimates it has signed up 64 percent of reservation-taking restaurants in San Francisco. The company may be hitting a wall in pushing beyond that level in the city, as well as in its other key markets such as New York, Washington and Chicago, Patterson said.

Roberts disagrees. “We’re not seeing that we’re running into any kind of wall relative to growth,” he said last month on Bloomberg Television. The company estimates it has signed on 37 percent of the 35,000 reservation-taking restaurants it has identified as its potential market in North America.

The Google Question

The question is, what will Google do? Its September takeover (GOOG) of Zagat, the review service known for its burgundy- colored restaurant guides, has already contributed to OpenTable’s share price decline. If Google decides to use Zagat to start a restaurant-booking service, OpenTable would face competition from the world’s largest Internet-search provider.

As it stands now, the company benefits from Google. In August, OpenTable said that 5 percent to 10 percent of traffic on its site comes from Mountain View, California-based Google and other affiliates, including Zagat and Yelp Inc.

“If we were to get any sense that Google was going to remove the uncertainty of it potentially doing reservations directly, it would help the stock,” Moran said.

In the meantime, a sluggish economy isn’t helping OpenTable’s prospects. An unemployment rate hovering around 8.6 percent means people may choose to dine out less, weighing on revenue. Last year, 48 percent of OpenTable’s sales came from fees it charged restaurants for seating each individual diner.

The company increased revenue just 1.7 percent in this year’s second quarter from the prior period, and sales were also little changed sequentially in the third quarter. Revenue will rise 7 percent to $36.7 million in the last three months of this year compared with the third quarter, according to the average analyst estimate compiled by Bloomberg. By comparison, OpenTable sales jumped 25 percent in the fourth quarter of 2010 from the previous period.

New Cities

The company needs to find new business in cities such as Dallas where it hasn’t yet established itself, Patterson said. International expansion has also taken longer than expected, Moran said. The company hasn’t identified what the next growth driver will be if the effort doesn’t turn around, he said.

Livebookings is its largest rival, with about 9,000 restaurant subscribers, mostly in Europe, while OpenTable logged 7,629 in its international markets, including Germany, Japan and the U.K., in the third quarter.

OpenTable bought its way into the European market in 2010 with the acquisition of, a restaurant-reservation service then based in London, for $55 million. The company is making Toptable’s website more user-friendly and expects it to start generating more growth in the U.K. in the second half of 2012, Roberts said.

“There’s nothing that we’ve learned that indicates London should be any different than Manhattan or San Francisco,” Roberts said in an interview.

To contact the reporter on this story: Danielle Kucera in San Francisco at

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


Zynga Gets Pre-IPO Boost From Game-Engrossed ‘30 Rock’ Star Alec Baldwin

By Andy Fixmer and Douglas Macmillan - Dec 7, 2011 12:01 PM GMT+0700

Zynga Inc. has Alec Baldwin to thank for giving its “Words With Friends” word game a publicity boost.

Baldwin, star of NBC’s “30 Rock,” was so engrossed in the Scrabble-like game that he got ejected from an American Airlines flight for refusing to stop playing it on a mobile device.

“Flight attendant on American reamed me out 4 playing WORDS W FRIENDS while we sat at the gate, not moving,” Baldwin, 53, said in a post to Twitter Inc.’s microblogging service yesterday after the incident.

Zynga, which plans to sell shares in an initial public offering, is the biggest maker of games on Facebook Inc. Still, it’s less well understood by many of the investors targeted by its IPO marketing effort, currently under way, said Michael Pachter, an analyst at Wedbush Securities. Baldwin’s American Airlines flap may raise Zynga’s profile, he said.

“This is phenomenal for Zynga,” said Pachter, who’s based in Los Angeles. “The problem for Zynga with investors has been that the average portfolio manager doesn’t relate to their games. This definitely helps change their perception.”

Zynga took up Baldwin’s cause with Twitter posts featuring the phrase, “#LetAlecPlay.” “Words With Friends” is Zynga’s sixth most popular game, according to

Baldwin was removed from a flight traveling to New York from Los Angeles, the actor said on his Twitter account. The airline said on Twitter that it’s investigating the incident. American Airlines parent AMR Corp. (AMR) filed for bankruptcy protection from creditors on Nov. 29.

‘Baldwin 1, American 0’

“He loves WWF so much that he was willing to leave a plane for it, but he has already boarded another AA flight,” Matthew Hiltzik, a spokesman for Baldwin, said in a statement.

Adam Isserlis, a spokesman for San Francisco-based Zynga, declined to comment beyond the company’s posts on Twitter.

“Words With Friends” was created by Newtoy Inc., a McKinney, Texas-based game developer acquired by Zynga in December 2010. A version of the game with advertising is free on Apple Inc. (AAPL)’s AppStore, while a commercial-free version costs $2.99.

Zynga is seeking to raise as much as $1 billion in the biggest IPO by a U.S. Internet company since Google Inc.’s debut. The “Let Alec Play” graphic features a scoreboard saying, “A Baldwin 1, American Air 0.”

To contact the reporters on this story: Andy Fixmer in Los Angeles at; Douglas Macmillan in New York at

To contact the editors responsible for this story: Anthony Palazzo at; Tom Giles at


European Stocks Decline After Germany Rejects Combining Euro Bailout Funds

By Adria Cimino - Dec 7, 2011 9:42 PM GMT+0700

European stocks dropped after Germany rejected combining the current and permanent euro-area rescue funds and expressed pessimism over the outcome of a European Union summit this week.

Metro AG (MEO), Germany’s biggest retailer, declined. Airline shares fell after the International Air Transport Association forecast a 49 percent decline in industry profits in 2012. Randgold Resources Ltd. (RRS) led a rally in gold-mining companies. Verbund AG (VER), Austria’s biggest utility, added 3.6 percent after Morgan Stanley raised its recommendation on the stock.

The benchmark Stoxx Europe 600 Index dropped 0.9 percent to 239.65 at 2:40 p.m. in London, after earlier gaining as much as 1.2 percent. The gauge last week posted its biggest rally since November 2008 as central banks lowered the interest rate on dollar funding and China reduced its reserve ratio for banks. The Stoxx 600 slipped 0.3 percent yesterday after Standard & Poor’s put 15 euro-area nations on review for a potential downgrade.

“This once again highlights the difficulties European leaders are having in reaching agreement,” said Benoit Peloille, equity market strategist at Natixis. “Combining the two funds would have allowed them to rapidly attain the sufficient power to fight contagion. The rejection by Germany complicates matters.”

‘No Change in Sequence’

Germany said it opposes any change in the agreed sequence in which the the region’s bailout funds will be used. It stands by the current agreement that the permanent European Stability Mechanism will take over from the European Financial Stability Facility by the middle of next year, a German government official told reporters in Berlin today on condition of anonymity because the negotiations are private.

The statement followed a report in the Financial Times that said officials are negotiating a plan to run the EFSF even after the ESM starts operations. The proposal is part of a bigger rescue effort they will discuss at the EU summit in Brussels tomorrow and Dec. 9. Enhancing International Monetary Fund’s support is another measure being debated.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will push for rewriting EU treaties to tighten control of national budgets. This move won the backing of U.S. Treasury Secretary Timothy F. Geithner, who urged governments to work with central banks to erect a “stronger firewall” to end the debt crisis.

ECB Interest Rate

At its meeting tomorrow, the European Central Bank will cut its benchmark interest rate to 1 percent from 1.25 percent, according to the median estimate of economists surveyed by Bloomberg News.

Germany sold 4.09 billion euros ($5.5 billion) of five-year notes to yield 1.11 percent. The nation got bids for 8.67 billion euros. German bonds advanced after the auction.

Greek Prime Minister Lucas Papademos received parliamentary approval for the 2012 budget, a financial plan that aims to nearly halve the deficit shortfall from a debt writedown and ensure Greece remains a member of the euro area.

Metro slid 2.6 percent to 31.04 euros, extending yesterday’s 14 percent loss. The stock was cut to “sell” from “neutral” at Citigroup Inc. The stock also was downgraded at banks including Deutsche Bank AG (DBK) and JPMorgan Chase & Co. after Metro yesterday forecast declines in sales and earnings this year.

ING Group Slides

ING Groep NV (INGA), the biggest Dutch financial-services company, dropped 7.3 percent to 5.84 euros. The company plans to take a charge of as much as 1.1 billion euros ($1.5 billion) as lower interest rates and stock markets hurt a U.S. annuity business the firm is winding down.

A gauge of European banks was the worst performer of the 19 industry groups in the Stoxx 600. Societe Generale SA, the second-biggest French lender, slipped 3.4 percent to 19.59 euros.

International Consolidated Airlines Group SA, the holding company of British Airways and Spain’s Iberia, declined 2.9 percent to 149.80 pence as pilots at its Iberia unit planned to go on strike later this month, Efe newswire reported.

Separately, IATA said the airline industry’s profits next year will fall 49 percent, more than it had predicted previously. Deutsche Lufthansa AG (LHA), Europe’s second-biggest airline, declined 2.9 percent to 9.21 euros while SAS AB (SAS), the Scandinavian flag carrier, slipped 2.2 percent to 9.05 kronor in Stockholm.

Verbund, ICAP

Verbund climbed 3.6 percent to 19.68 euros. Morgan Stanley raised its shares to “overweight” from “equal weight.”

ICAP Plc (IAP), the biggest broker of transactions among banks, fell 5.1 percent to 348 pence. The stock was cut to “equal weight” from “overweight” at Morgan Stanley.

Carillion Plc (CLLN), a British construction and services company, jumped 6.1 percent to 344 pence. The company said it expects its debt to drop below 100 million pounds ($156 million) by end of the year, beating its earlier target of 125 million pounds. The stock was raised to “buy” from “hold” at Collins Stewart Hawkpoint Plc.

Zodiac Aerospace (ZC), the world’s second-biggest maker of aircraft seats, added 1.4 percent to 62.08 euros. The stock was raised to “outperform” from “neutral” at Exane BNP Paribas. (BNP)

To contact the reporter on this story: Adria Cimino in Paris at

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


Stocks Decline on Dimming EU Summit Hopes

By Nikolaj Gammeltoft - Dec 7, 2011 9:32 PM GMT+0700

Dec. 7 (Bloomberg) -- Scott Clemons, chief investment strategist at Brown Brothers Harriman & Co., talks about the outlook for the U.S. economy and investment strategy. Clemons speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

U.S. stocks fell, following a two-day advance for the Standard & Poor’s 500 Index, amid growing pessimism that European leaders will reach agreement on measures to ease the debt crisis at a summit this week.

The S&P 500 lost 0.5 percent to 1,252.66 at 9:31 a.m. New York time. The benchmark gauge for American equities rose 1.1 percent over the previous two sessions.

“Markets reflect that it’s pretty high stakes in Europe,” Charles Reinhard, who helps oversee about $1.7 trillion as deputy chief investment officer at Morgan Stanley Smith Barney LLC in New York, said in a telephone interview. “It’s important that Europe is able to integrate fiscal policy, shore up the banks and that monetary policy eases.”

Stock futures pared gains after a German government official said the country rejects proposals to combine the current and permanent euro-area rescue funds. It is already decided that the permanent European Stability Mechanism will take over from the current rescue fund at an appointed time, a German official said on condition of anonymity. Germany will oppose any attempt to change that, the official said.

The ECB may announce a range of measures tomorrow to stimulate bank lending, said three euro-area officials with knowledge of policy makers’ deliberations. Options on the table include loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer-term loans, said the officials, who spoke on condition of anonymity.

Rewriting Treaties

German Chancellor Angela Merkel and French President Nicolas Sarkozy will argue for rewriting European Union treaties to tighten control of national budgets at the meeting in Brussels tomorrow and on Dec. 9.

The S&P 500 has struggled to make any headway this year, rising less than 0.1 percent (SPX), as the euro area’s debt crisis spread to the 17-nation currency’s larger economies. Still, the gauge is the only major developed equity market of 24 tracked by Bloomberg that hasn’t fallen this year.

Never before has the euro influenced U.S. stocks as much as this year, a sign that American equities aren’t going anywhere until Europe’s credit crisis is solved.

The link between the Dow average and swings in the currency reached a record on Dec. 2, according to data compiled by Bloomberg. The so-called correlation coefficient showing how much two markets rise and fall in tandem hit 0.85, the highest level since the euro was founded in 1999, data on 60-day rolling averages show. A reading of 1 means assets are moving in lockstep.

Highest Rating

International investors awarded the U.S. its highest rating in more than two years on optimism that the world’s largest economy will weather the financial crisis in Europe and avoid a recession in 2012, according to a Bloomberg poll.

More than two in five of those surveyed -- 41 percent -- identify the U.S. as among the markets that will perform best over the next year. That’s up from less than one in three who felt that way in September and is the biggest percentage for the U.S. since the survey began in October 2009. It’s also almost double that of the next two top-rated markets, Brazil and China, according to the quarterly Bloomberg Global Poll conducted on Dec. 5-6 of 1,097 investors, analysts and traders who are Bloomberg subscribers.

“We are hopeful that increasingly loose monetary policy across the globe can result in a reacceleration of growth for export-driven companies in the U.S. by the second half” of next year,’’ said Scott Migliori, the San Francisco-based chief investment officer for the U.S. at RCM, which has about $128.2 billion in assets under management. “Any resolution of global growth concerns and/or clarity on post-election policy in the U.S. could result in a significant re-rating of U.S. equities towards the year end, even in the face of decelerating profit growth.”

To contact the reporter on this story: Nikolaj Gammeltoft in New York at

To contact the editor responsible for this story: Michael P. Regan at


Stocks Checked by Euro Crisis, As Earnings Beat Expectations

By Whitney Kisling, Nikolaj Gammeltoft and Inyoung Hwang - Dec 7, 2011 9:47 PM GMT+0700

Never before has the euro influenced U.S. stocks as much as this year, a sign that American equities aren’t going anywhere until Europe’s credit crisis is solved.

The link between the Dow Jones Industrial Average and swings in the currency reached a record on Dec. 2, according to data compiled by Bloomberg. The so-called correlation coefficient showing how much two markets rise and fall in tandem hit 0.85, the highest level since the euro was founded in 1999, data on 60-day rolling averages show. A reading of 1 means assets are moving in lockstep.

Speculation about whether Greece, Ireland and Portugal will avoid default is drowning out results from companies such as Akron, Ohio-based Goodyear Tire & Rubber Co. and Target Corp. in Minneapolis. While record earnings (SPX) and an improving economy should be pushing the Dow toward its October 2007 record of 14,164.53, they’re not because Europe is overshadowing the good news, said Kevin Rendino, a money manager at New York-based BlackRock Inc.

“What’s getting in the way is a bunch of politicians and a bunch of budget deficits,” Rendino, whose firm oversees $3.3 trillion, said in a telephone interview yesterday. “It’s all we think about. It’s all we talk about. It’s incredibly frustrating because in the U.S., we have a bunch of highly profitable businesses, an OK economy, companies sitting on a bunch of cash and earning as much as they ever have,” he said.

“And everyone is sitting on their hands because they’re waiting to see what happens in Europe.”

Biggest Rally

Signs of cooperation among governments pushed the Dow average (INDU) to its biggest daily gain since March 2009 last week. The announcement on Nov. 30 that the Federal Reserve would join five central banks in a program to make it easier for lenders to obtain dollars helped the Dow rally 7 percent in the five days ending Dec. 2, following the largest drop for a Thanksgiving week since 1932. The euro increased 1.2 percent against the dollar during the period, data compiled by Bloomberg show.

The Dow declined 76.10 points, or 0.6 percent, to 12,074.03 at 9:46 a.m. in New York today. The euro slipped 0.3 percent to $1.3363.

Recession Concern

Concern Europe’s debt crisis would trigger a global recession sent investors to the relative safety of the U.S. currency and Treasuries in the third quarter, dragging equity markets in 37 of the 45 countries in the MSCI All-Country World Index into bear markets, or declines of 20 percent from a peak. The Standard & Poor’s 500 Index dropped 19 percent between April 29 and Oct. 3 before paring the decrease to 7.7 percent. It’s up 0.1 percent for 2011.

“Money managers are getting whipped around,” Donald Selkin, the New York-based chief market strategist at National Securities Corp., said in a telephone interview. Selkin, a 35- year Wall Street veteran, helps manage about $3 billion. “We’re not going to set new stock highs even with these strong corporate profits, so obviously something is holding us back and that’s the crisis in Europe.”

Correlation between U.S. stocks and Europe’s currency has increased along with concern about the bailout championed by German Chancellor Angela Merkel and French President Nicolas Sarkozy. The Dow and euro have moved in the same direction 72 percent of the time in 2011, compared with 49 percent for the 11 previous years, data compiled by Bloomberg show.

Investor Toll

The swings have taken a toll on professional investors. Less than 24 percent of 542 categories of funds tracked by Morningstar Inc. have topped (GT) their benchmark indexes this year, the fewest since at least 1999. A Hedge Fund Research Inc. index of industrywide performance has fallen 3.4 percent in 2011. It’s only the third annual loss since 1990 and the biggest decline since 2008, when it plunged 19 percent, according to data from the Chicago-based firm.

Improving economic reports from the U.S. government haven’t always translated into higher stocks. October industrial production rose 0.7 percent, beating the median estimate of 0.4 percent in a survey of economists by Bloomberg, the Fed said on Nov. 16. The S&P 500 dropped 3.3 percent in the two days before a Nov. 18 confidence vote on Italian Prime Minister Mario Monti.

‘Schizoid’ Markets

“The last four months, it’s just schizoid,” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees more than $39 billion, said in a telephone interview. “How do you position your portfolios in this thing? For a lot of stock pickers, they throw up their hands because they say, ‘I’m trying to find good stocks within the market and the key driver is, is the euro-zone going to hang together or fall apart?’”

Corporate profits that topped analyst estimates for a record 11th straight quarter have done little to quell investor fears about Europe. While quarterly earnings for S&P 500 companies from Goodyear to Target (TGT) and Motorola Mobility Holdings Inc. have been 4.6 percent higher than analysts projected, shares tumbled on days when European headlines dominated.

Goodyear said Oct. 28 that third-quarter income topped analysts’ estimates as higher prices helped sales rise the most of any quarter. While the largest U.S. tiremaker advanced 4.9 percent that day, it lost 8.4 percent over the next two after then-Greek Prime Minister George Papandreou said he would put a European Union agreement on financing for Greece to a referendum. The S&P 500 lost 5.2 percent during the stretch.

Target Profit

Target, the second-largest U.S. discount retailer, climbed as much as 3.4 percent on Nov. 16 after posting third-quarter profit that topped analysts’ estimates. It ended that day down 0.5 percent. The S&P 500 slumped 1.7 percent after Fitch Ratings said that further turmoil in Italy, Portugal and Spain poses a “serious risk.”

“Picking stocks is very tricky now,” Ned Gray, chief investment officer for global and international value equity at Delaware Investments, said in a Dec. 6 telephone interview. His firm manages more than $160 billion in assets. “The policy- making in the euro-zone is leading everything,” he said. “The macro risk-on, risk-off decision is the only one that seems to matter.”

Unprecedented Swings

Equity markets have seen unprecedented swings this year, exacerbated by global economic concerns. The S&P 500 has moved an average 1.7 percent each day since July 2011, compared with 0.8 percent daily in the nine years before September 2008, when Lehman Brothers Holdings Inc. collapsed, according to data compiled by Bloomberg. The Dow alternated between gains and losses of more than 400 points on four days in August this year, the longest streak ever.

Because heightened volatility leads to correlated markets, investors should focus on finding stocks that have smaller swings and improving fundamental criteria, according to Birinyi Associates Inc. While Europe’s debt crisis is overshadowing profit reports today, those stocks will be more likely to outperform their benchmarks, according to Birinyi.

“Correlation is a function of volatility, significant volatility,” Laszlo Birinyi, president of the stock market research and money management firm, said in a Dec. 6 phone interview. “Ultimately it’s another handicap that you have to overcome, so investors will have to do what they always do but do more of it. You have to recognize that the market’s not at your back, so to outperform, you want to pick a stock that’s not as much a function of the market as other stocks are.”

Default Speculation

Eight of the Dow’s 10 biggest daily drops this year were driven by speculation about Greece defaulting or Europe’s debt crisis leading to another global recession, according to Bloomberg closing market stories.

“Whether it’s risk on or risk off today, correlations today to things that wouldn’t have even been on our radar screen five years ago are much higher,” John Canally, who helps oversee about $340 billion as an economist and investment strategist at LPL Financial Corp. in Boston, said in a telephone interview. “That’s something that the individual investor’s got to keep in mind,” he said. “It’s all a proxy for risk in Europe, which in turn is a proxy for whether or not we’re going to have another Lehman.”

To contact the reporters on this story: Whitney Kisling in New York at; Nikolaj Gammeltoft in New York at; Inyoung Hwang in New York at

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


Bloomberg News Responds to Bernanke Criticism

By Bloomberg News - Dec 7, 2011 6:01 AM GMT+0700

Federal Reserve Chairman Ben S. Bernanke said in a letter to four senior lawmakers today that recent news articles about the central bank’s emergency lending programs contained “egregious errors.”

While Bernanke’s letter and an accompanying four-page staff memo posted on the Fed’s website didn’t mention any news organizations by name, Bloomberg News has published a series of articles this year examining the bailout. The latest, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” appeared Nov. 28.

“Bloomberg stands by its reporting,” said Matthew Winkler, editor-in-chief of Bloomberg News.

Here is a point-by-point response to the Fed staff memo.

From Fed memo: “These articles have made repeated claims that the Federal Reserve conducted ‘secret’ lending that was not disclosed either to the public or the Congress. No lending program was ever kept secret from the Congress or the public. All of the programs were publicly announced when they were initiated, and information about all lending under the programs was publicly released -- both on a weekly basis through the Federal Reserve’s public balance sheet release and through detailed monthly reports to Congress, both of which were also posted on the Federal Reserve’s website.”

Response: Bloomberg’s Nov. 28 story about Fed lending reported that the central bank published regular reports on the scope of borrowings from the discount window and other emergency or temporary programs. The loans were described as “secret” because the amounts, names of borrowers, dates and, often, interest rates weren’t disclosed. The stories reported that the Fed’s rationale for keeping the loans secret was to prevent bank runs.

From Fed memo: “The Federal Reserve took great care to ensure that Congress was well-informed of the magnitude and manner of its lending.”

Response: Bloomberg’s story said Congress wasn’t fully apprised of the details of the Fed’s efforts. “We were aware emergency efforts were going on,” U.S. Representative Barney Frank, who served as chairman of the House Financial Services Committee, said in the Nov. 28 story. “We didn’t know the specifics.” Other members of Congress on both sides of the aisle also said they weren’t aware of the details.

From Fed memo: “Congress was well informed of the volume of borrowing by large banks. For instance, the monthly reports showed the daily average borrowing during the month in the aggregate for the five largest discount window borrowers, the next five, and the rest. Similar information was also provided for lending at the emergency facilities.”

Response: Because the Fed didn’t provide the names of borrowers, it was impossible to add up how much each bank received across all the programs. Nor did the Fed release these figures in aggregate form for each institution when it released data under the Dodd-Frank Act or Bloomberg’s Freedom of Information Act requests.

In fact, the Fed released separate databases on each of the programs, and several of the databases identified borrowers by the name of the subsidiary that got the loan. None of the releases showed how much money each borrower was in debt to the Fed on specific dates.

Bloomberg built a database to combine subsidiaries with their parent companies and to add the total loans outstanding by each institution across all programs. Bloomberg undertook this project in the belief that a full accounting of the Fed’s lending efforts was possible only by tallying what each company borrowed across all programs.

From Fed memo: “One article asserted that the Federal Reserve lent or guaranteed more than $7.7 trillion during the financial crisis. Others have estimated the amounts to be $16 trillion or even $24 trillion. All of these numbers are wildly inaccurate.

“The inaccurate and misleading estimates could be based on several errors, including double-counting.”

Response: Bloomberg News reported that Fed lending peaked at $1.2 trillion, a figure that didn’t include any double- counting. Instead of adding all the outstanding Fed loans to get a large number, Bloomberg used peak loan amounts that were outstanding on a single day. On the day after the Nov. 28 story, the Fed published that $1.2 trillion figure, affirming Bloomberg’s calculation.

The $16 trillion number cited by the Fed may refer to a Government Accountability Office report of July 21, 2011, that used a different methodology. Bloomberg built its database to show amounts outstanding, while the GAO tallied cumulative loans. For example, if a bank borrowed $1 billion overnight for 100 nights, Bloomberg would say the bank had a $1 billion balance at the Fed for 100 days; the GAO would say the bank borrowed $100 billion. The former is a more useful economic measurement.

The programs included in Bloomberg’s examination of Fed lending were: the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, discount window, Primary Dealer Credit Facility, Term Auction Facility, Term Securities Lending Facility and single- tranche open market operations.

From Fed memo: “Other inaccuracies may occur if total potential lending is counted as actual lending.”

Response: In a March 31, 2009, story, Bloomberg News tallied the potential commitments of the Fed using as sources statements the central bank made and its weekly balance sheet. The amount, $7.77 trillion, was never characterized by Bloomberg as money lent by the Fed, though other commentators have mistakenly used it in that context. Rather, Bloomberg has said that that amount represents what the Fed “lent, spent or committed” or the total of all “guarantees and lending limits.” Bloomberg has been careful to characterize this number as total commitments, not loans that went out the door.

From Fed memo: “The articles make no mention that the emergency loans and other assistance have generated considerable income for the American taxpayers. As reported in the Annual Report of the Board of Governors, alongside the Board’s audited financial statements, the emergency lending programs have generated an estimated $20 billion in interest income for the Treasury. Moreover, in 2009 and 2010, the Federal Reserve returned to the taxpayers over $125 billion in excess earnings on its operations, including emergency lending. These amounts have been publicly announced and are reflected in the Office of Management and Budget’s financial statements for the government and have been verified by the Federal Reserve’s independent outside auditors.”

Response: In an Aug. 22 story, “Wall Street Aristocracy Got $1.2 Trillion in Fed’s Secret Loans,” Bloomberg wrote: “The Fed has said it had ‘no credit losses’ on any of the emergency programs, and a report by the Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.”

The Nov. 28 story quoted Fed officials saying almost all of the loans were repaid that there had been no credit losses.

From Fed memo: “The articles discuss lending made to large banks but never note that Federal Reserve lending programs went far beyond such institutions -- all in furtherance of supporting the provision of credit to U.S. households and businesses. Literally hundreds of institutions borrowed from the Federal Reserve -- not just large banks. The TAF had some 400 borrowers and the discount window some 2,100 borrowers. The TALF made more than 2,000 loans, while the commercial paper funding facility provided direct assistance to some 120 American businesses.”

Response: Bloomberg reported in Aug. 22 and Nov. 28 stories that the Fed programs extended beyond large banks. The Aug. 22 story mentioned borrowings by Plano, Texas-based Beal Financial Corp. and Jacksonville, Florida-based EverBank Financial Corp.

Bloomberg reported in the Nov. 28 story that the six largest U.S. banks accounted for 63 percent of the average borrowings by all U.S. financial institutions from the Fed, even though these firms only represented half of industry assets. Bloomberg also created an interactive website that allows users to chart Fed borrowings by more than 400 firms. The smallest detailed there is Wood & Huston Bancorporation Inc., which had $5 million outstanding on Feb. 12, 2009. The graphic can be found here.

From Fed memo: “The articles also fail to note that the lending directly helped support American businesses by providing emergency funding so that they could meet weekly payrolls and on-going expenses. The Commercial Paper Funding Facility, for example, provided support to businesses as diverse as Harley- Davidson and National Rural Utilities, when the usual market mechanism for their day-to-day funding completely dried up.”

Response: Bloomberg’s interactive graphic details Commercial Paper Funding Facility borrowings by non-bank borrowers, including Harley-Davidson Inc. and National Rural Utilities Cooperative Finance Corp. A Dec. 2, 2010, story, “Fed May Be ‘Central Bank of the World’ After UBS, Barclays Aid,” mentioned Harley-Davidson and General Electric Co., the largest non-bank borrower from the commercial-paper program.

From Fed memo: “The articles fail to mention altogether that one facility, the TALF, supported nearly 3 million auto loans, more than 1 million student loans, nearly 900,000 loans to small businesses, 150,000 other business loans and millions of credit card loans.”

Response: Bloomberg didn’t include TALF in its examination of the Fed’s rescue of the banking system because that program didn’t cater primarily to banks.

From Fed memo: “The articles misleadingly depict financial institutions receiving liquidity assistance as insolvent and in ‘deep trouble.’”

Response: Bloomberg never described any of the financial institutions mentioned in its bailout stories as insolvent.

The New York Fed’s report on Jan. 14, 2009, called Citigroup Inc.’s financial strength “marginal” and dependent on $45 billion in TARP funding. Citigroup’s Fed borrowing peaked six days later at $99 billion. Other numbers tell a similar story. Morgan Stanley’s borrowing totaled $107 billion on a single day. Royal Bank of Scotland got $84.5 billion from the Fed at about the same time it was taken over by the U.K. government.

The largest banks later had to raise billions of dollars of capital to assuage investor concerns that they might not be solvent, and they took capital injections from the Treasury Department. Former Treasury Secretary Henry Paulson wrote in his book, “On the Brink,” that “our banking system was massively undercapitalized.”

Under the terms of the Fed’s lending programs, the determination of whether a bank is “solvent” is based on the opinions of bank supervisors. These examinations are confidential.

From Fed memo: “Finally, one article incorrectly asserted that banks ‘reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.’ Most of the Federal Reserve’s lending facilities were priced at a penalty over normal market rates so that borrowers had economic incentive to exit the facilities as market conditions normalized, and the rates that the Federal Reserve charged on its lending facilities did not provide a subsidy to borrowers.”

Response: As noted in the Nov. 28 Bloomberg article, the $13 billion figure was based on a metric banks regularly report called the net interest margin -- the difference between what they earn on loans and investments and their borrowing expenses. Those expenses include interest paid to the Fed for their loans.

To calculate how much banks stood to make, Bloomberg multiplied their tax-adjusted net interest margins by their average Fed debt during reporting periods in which they took emergency loans. The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, according to data compiled by Bloomberg. The calculation by Bloomberg excluded loans from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility because that cash was passed along to money-market funds.

The Fed says it charges a “penalty rate” that would be above rates typically seen in a normal market. That rate became cheaper when borrowing costs surged during the financial crisis.

Bloomberg’s Nov. 28 story contained the following paragraph: “The Fed says it typically makes emergency loans more expensive than those available in the marketplace to discourage banks from abusing the privilege. During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg.”

Editors: Robert Friedman, John Voskuhl

To contact the editor responsible for this story: Amanda Bennett at


Stocks Climb Before European Summit

By Stephen Kirkland - Dec 7, 2011 7:10 PM GMT+0700

Dec. 7 (Bloomberg) -- Huang Yiping, the Hong Kong-based chief economist for emerging Asia at Barclays Capital, talks about Europe's sovereign debt crisis and its implications for economies in the region and in Asia. Huang also discusses China central bank monetary policy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Dec. 7 (Bloomberg) -- Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, talks about the European debt crisis, its implications for financial markets and his investment strategy. European Union leaders plan to meet Dec. 8-9 in Brussels to end a crisis that led to bailouts of Greece, Ireland and Portugal, and now threatens to engulf Italy. Grant speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Stocks and U.S. index futures rose on speculation that European leaders will agree on steps to ease the debt crisis at a summit tomorrow. German bonds rebounded after bids exceeded the target at an auction.

The Stoxx Europe 600 Index jumped 0.3 percent at 7:05 a.m. in New York, after gaining as much as 1.2 percent. Standard & Poor’s 500 Index futures increased 0.4 percent. The yield on the German five-year note fell five basis points to 1.05 percent, with Portugal’s two-year yield dropping after borrowing costs declined at a government sale of three-month bills. The euro slid 0.2 percent to $1.3375, reversing an earlier advance.

Germany got bids for 8.67 billion euros ($11.6 billion) of five-year notes at an auction today, more than the maximum sales target of 5 billion euros, the Bundesbank said. Officials are negotiating a bigger rescue effort to discuss at the European summit, the Financial Times reported yesterday. Stocks (MXWD) pared gains and the euro declined against the dollar after a German government official said the country rejects proposals to combine the current and permanent euro-area rescue funds.

“There appears to be growing market confidence that European politicians will come up with something substantial,” said James Knightley, a senior economist at ING Bank NV in London. “There are still plenty of question marks over how the leveraging up of the rescue funds will be achieved.”

The MSCI All-Country World Index climbed 0.3 percent. Three shares advanced for every two that fell in Europe’s Stoxx 600.

The gain in U.S. futures indicated the S&P 500 will increase for a third day. The 10-year Treasury note yield rose for the third day, increasing one basis point to 2.10 percent.

The euro depreciated against 13 of its 16 major peers, losing 0.2 percent versus the yen.

‘Under Pressure’

“The euro has come back under some pressure after the reports of a German official dampening down expectations of an agreement on the rescue fund coming out of the EU summit,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London.

The yield on the German 10-year bund fell six basis points. The Portuguese two-year note yield dropped 73 basis points. The government issued bills due March 2012 at an average yield of 4.873 percent, down from 4.895 percent at a previous auction on Nov. 16. Italian 10-year bond yields declined six basis points.

The cost of insuring against default on European government and bank debt fell. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments dropped five basis points to 320, while the Markit iTraxx Financial Index of contracts linked to the senior bonds of 25 banks and insurers declined 18 basis points to 249.

Highest Since 2009

The rate at which London-based banks say they can borrow for three months in dollars rose to the highest level since July 2009 as the euro region’s sovereign debt crisis intensifies. The London interbank offered rate, or Libor, for three-month dollar loans climbed to 0.54000 percent, from 0.53775 percent yesterday, data from the British Bankers’ Association showed.

The European Central Bank said demand for three-month dollar loans jumped after it almost halved the cost of the funds in a concerted action with five other central banks including the U.S. Federal Reserve. The ECB said it will lend $50.7 billion to 34 euro-area banks tomorrow for 84 days at a fixed rate of 0.59 percent. That compares with the $395 million lent in the last three-month offering on Nov. 9 at a rate of 1.09 percent.

The MSCI Emerging Markets Index (MXEF) rose 0.7 percent after falling 1.3 percent yesterday, the most since Nov. 23. The Hang Seng China Enterprises Index (HSCEI) gained 2.2 percent in Hong Kong. Benchmark gauges in Turkey, Thailand, Indonesia and Taiwan added more than 1 percent.

To contact the reporter on this story: Stephen Kirkland in London at

To contact the editor responsible for this story: Stuart Wallace at


Stocks in Europe Pare Gains After Germany Rejects Bailout-Fund Combination

By Adria Cimino - Dec 7, 2011 5:54 PM GMT+0700

European stocks advanced amid speculation that euro-area leaders will agree on enhanced bailout measures for indebted nations and stricter rules for budget control at a summit this week. U.S. index futures and Asian shares also rose.

Banks paced gains with Deutsche Bank AG (DBK) and BNP Paribas SA increasing at least 1.9 percent. Randgold Resources Ltd. (RRS) led a rally in commodity shares as metals prices advanced. Verbund AG (VER), Austria’s biggest utility, added 5.5 percent after Morgan Stanley raised its recommendation on the stock.

The benchmark Stoxx Europe 600 Index climbed 0.5 percent to 243.18 at 10:53 a.m. in London, its third increase in four days. The gauge slipped 0.3 percent yesterday after Standard & Poor’s put 15 euro-area nations on credit-rating review. The December contract the S&P 500 Index added 0.6 percent, while the MSCI Asia Pacific Index jumped 1.3 percent today.

“We’re at the point in Europe where we need to find a path about how we are going to deal with the region and fiscal integration,” said Virginie Maisonneuve, head of global equities at Schroder Investment Management Ltd. in London. With the latest proposals, “we’re closer than we’ve been” to agreeing on stricter budget rules, she said.

The Stoxx 600 last week posted its biggest rally since November 2008 as central banks lowered the interest rate on dollar funding and China reduced its reserve ratio for banks.

Two Bailout Funds

The Financial Times reported that officials are negotiating a bigger rescue effort to discuss at the EU summit in Brussels tomorrow and Dec. 9, including running two separate bailout funds simultaneously. That means the European Financial Stability Facility, the current bailout fund, will not be wound up when the European Stability Mechanism starts next year, the FT said. Enhancing support from the International Monetary Fund is also among measures to be discussed at the meeting.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will push for rewriting EU treaties to tighten control of national budgets. This move won the backing of U.S. Treasury Secretary Timothy F. Geithner, who urged governments to work with central banks to erect a “stronger firewall” to end the debt crisis.

At its meeting tomorrow, the European Central Bank will cut its benchmark interest rate to 1 percent from 1.25 percent, according to the median estimate of economists surveyed by Bloomberg News.

German Debt Auction

Germany sold 4.09 billion euros ($5.5 billion) of five-year notes to yield 1.11 percent. The nation got bids for 8.67 billion euros. German bonds advanced after the auction.

Greek Prime Minister Lucas Papademos received parliamentary approval for the 2012 budget, a financial plan that aims to nearly halve the deficit shortfall from a debt writedown and ensure Greece remains a member of the euro area.

A gauge of European banks gained 1 percent for the second- largest contribution to the Stoxx 600’s advance. Deutsche Bank and BNP Paribas (BNP), the biggest lenders in Germany and France, increased 1.9 percent to 30.22 euros and 2.5 percent to 33.87 euros respectively.

Shares of commodity companies rallied 1.4 percent as copper, lead, nickel, tin and zinc rose on the London Metal Exchange. Randgold Resources jumped 3.4 percent to 6,935 pence. Vedanta Resources Plc added 2.9 percent to 1,117 pence. Xstrata Plc gained 2.2 percent to 1,070.5 pence.

Verbund, ICAP

Verbund climbed 5.5 percent to 20.04 euros. Morgan Stanley raised its shares to “overweight” from “equal weight.”

ICAP Plc (IAP), the biggest broker of transactions among banks, fell 3.7 percent to 352.9 pence. The stock was cut to “equal weight” from “overweight” at Morgan Stanley.

Carillion Plc (CLLN), a British construction and services company, jumped 4.1 percent to 319.1 pence. The company said it expects its debt to drop below 100 million pounds ($156 million) by end of the year, beating its earlier target of 125 million pounds. The stock was raised to “buy” from “hold” at Collins Stewart Hawkpoint Plc.

Zodiac Aerospace (ZC), the world’s second-biggest maker of aircraft seats, added 2.4 percent to 62.71 euros. The stock was raised to “outperform” from “neutral” at Exane BNP Paribas.

Metro AG (MEO), Germany’s biggest retailer, slid 3.7 percent to 30.68 euros, extending yesterday’s 14 percent loss. The stock was cut to “sell” from “neutral” at Citigroup Inc. The stock also was downgraded at banks (SX7P) including Deutsche Bank and JPMorgan Chase & Co. after Metro yesterday forecast declines in sales and earnings this year.

To contact the reporter on this story: Adria Cimino in Paris at

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


Citigroup to Cut 4,500 Jobs on Slumping Revenue

By Donal Griffin and Dakin Campbell - Dec 7, 2011 12:00 PM GMT+0700

Dec. 7 (Bloomberg) -- Michael Holland, chairman of Holland & Co., talks about the U.S. financial services industry. Citigroup Inc. Chief Executive Officer Vikram Pandit will cut about 4,500 jobs in coming quarters as he seeks to trim costs amid slumping revenue. Holland speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Citigroup Inc. Chief Executive Officer Vikram Pandit will cut about 4,500 jobs in coming quarters as he seeks to reduce costs amid slumping revenue and “unprecedented” market conditions.

The lender will take a fourth-quarter pretax charge of about $400 million tied to the reductions, including severance, Pandit said yesterday at an investor conference in New York. Citigroup, the third-biggest U.S. bank by assets, employed (C) about 267,000 people as of Sept. 30, according to a filing.

“Financial services faces an extremely challenging operating environment with an unprecedented combination of market uncertainty, sustained economic weakness in the developed economies and the most substantial regulatory changes we have seen in our lifetimes,” said Pandit, 54. “These trends will likely significantly affect the competitive landscape in the coming years.”

Pandit is cutting staff as the European sovereign-debt crisis persists and banks prepare for regulations on minimum capital levels to take effect, threatening revenue from trading and investment banking. Citigroup said in September it would limit hiring to “critical” jobs to control costs.

“The 4,500 is a drop in the bucket for them, particularly when you consider how big they are and their global scope,” Nancy Bush, an analyst at SNL Financial, a bank-research firm in Charlottesville, Virginia, said in a phone interview. “I’d be suspicious that this may be the tip of the iceberg.”

Financial firms worldwide have cut more than 200,000 jobs this year, up from about 58,000 last year and 174,000 in 2009, according to data compiled by Bloomberg. Bank of America Corp. CEO Brian T. Moynihan said the Charlotte, North Carolina-based lender plans to eliminate 30,000 jobs in the next few years.

‘Overhead Expenses’

“For the banking sector, both investment banking and commercial banking, the overhead expenses are too high,” Gerard Cassidy, an analyst at Royal Bank of Canada in Portland, Maine, said in a phone interview. “The industry needs to do a better job bringing that expense level down to reflect the lower revenues vis-a-vis what they were two or three years ago.”

The 4,500 job cuts announced yesterday amount to 1.7 percent of Citigroup’s workforce on Sept. 30 and would still leave the lender with almost the same amount of staff it had at the end of 2009, when the firm employed about 265,300 people, regulatory filings show.

Pandit is investing in emerging markets such as Brazil, China and India, which now account for more than half of the bank’s profit. Those economies may expand at 6 percent a year through 2015, eclipsing developed markets, which may grow less than 2 percent, Pandit said.

Emerging Markets

“Developed economies are undergoing a long period of deleveraging of consumer, financial, corporate and government balance sheets, which will drive slow growth for years,” Pandit said at the conference sponsored by Goldman Sachs Group Inc. “By contrast, emerging-markets growth is expected to continue, fueled by population growth, the rise of a powerful consumer base in the middle class and a growing share of world trade.”

Citigroup opened 65 branches through the first three quarters of this year, mostly in Asia and Latin America, the bank’s consumer head, Manuel Medina-Mora, said Nov. 16.

Pandit didn’t say where the staff reductions would occur and Jon Diat, a bank spokesman, declined to specify which countries would see the steepest cuts. Pandit has cut more than 100,000 jobs since he became CEO in December 2007 through dismissals and sales of distressed assets and businesses from the New York-based lender’s Citi Holdings unit.

Citigroup slid 0.3 percent to $29.75 yesterday and has dropped 37 percent this year.

Proprietary Trading

Some of the job cuts at Citigroup will come from the firm’s proprietary-trading operations as regulators seek to restrict banks from betting shareholder cash, Pandit said. The firm said in October that it’s closing the Equity Principal Strategies unit, a proprietary-trading operation run by Sutesh Sharma.

Citigroup posted a 74 percent increase in third-quarter profit, aided by a $1.9 billion accounting gain that softened the impact of lower trading and investment-banking revenue. Excluding the accounting figure, the bank’s revenue for the period fell 8 percent to $18.9 billion.

Most of that accounting gain stemmed from a credit- valuation adjustment, or CVA. This required Citigroup to book a gain on the declining value of its debts.

The spreads have tightened this quarter, Pandit said. If the fourth quarter ended on Dec. 5, the bank would post a $200 million negative CVA, compared with a $1.9 billion gain in the previous quarter, he said.

Citigroup’s lending business in its securities and banking operation also would record a loss of about $300 million tied to hedges if the quarter ended on Dec. 5, Pandit said. Hedges are bets that firms make when seeking to curb potential losses on existing positions.

To contact the reporters on this story: Donal Griffin in New York at; Dakin Campbell in San Francisco at

To contact the editor responsible for this story: David Scheer at


China Sees Growing Challenges as Declining Demand Weakens Exports: Economy

By Bloomberg News - Dec 7, 2011 4:13 PM GMT+0700

China sees an increase in domestic costs and a slowdown in overseas demand putting “severe” pressure on its exports next year, a sign that policy makers may have little appetite to allow faster gains in the yuan.

Premier Wen Jiabao’s embrace of higher wages, along with a jump in land and raw-materials prices and a stronger yuan are restraining shipments, the Commerce Ministry said today. While the nation can achieve export gains as long as Europe’s crisis doesn’t deepen, it will need to focus on strengthening links with emerging markets, Wang Shouwen, head of the foreign trade department, said at a briefing in Beijing.

The yuan weakened last month by the most in more than a year, a shift that may stoke the ire of U.S. lawmakers and presidential candidates who see the Asian nation’s competitiveness as a damper on American job growth. China’s surging trade surplus since joining the World Trade Organization a decade ago has helped the country accumulate a record $3.2 trillion in foreign-exchange reserves and made it the U.S.’s largest overseas creditor.

“The room for yuan appreciation is very limited and the currency will have higher volatility,” said Dariusz Kowalczyk, a senior economist with Credit Agricole CIB in Hong Kong. “It seems China is moving to protect its exporters more aggressively, especially as the external environment deteriorates.”

Yuan Reaction

The yuan was little changed, closing at 6.3643 per dollar in Shanghai today, according to the China Foreign Exchange Trade System.

The recent decline in the yuan’s exchange rate is a “good thing,” Chong Quan, the country’s deputy international trade representative, said at the briefing. It shows the currency is responding to market demand and that China is not manipulating the value of the yuan, he said.

Stocks rose from Tokyo to Sydney as investors speculated European leaders will agree on steps to ease the region’s debt crisis at a summit tomorrow.

The MSCI Asia Pacific Index (MXAP) of equities gained 1.5 percent as of 5:15 p.m. Tokyo time, the seventh advance in eight days. Standard & Poor’s 500 Index futures climbed 0.8 percent. South Korea’s won rose to its strongest level in almost a week, strengthening 0.5 percent to 1,125.95 per dollar in Seoul.

Australia Growth

A report today showed Australia’s economy grew faster than estimated last quarter on consumer spending and mining-driven investment, spurring the local currency as investors pared bets on the pace of interest-rate cuts next year.

Gross domestic product rose 1 percent in the three months ended Sept. 30, after growing a revised 1.4 percent the prior quarter, the fastest pace in four years. The median of 24 estimates in a Bloomberg News survey was for 0.8 percent growth.

Industrial production in the U.K. probably fell 0.7 percent in October from a year earlier, according to the median estimate of economists surveyed by Bloomberg News before a report today. Germany, Europe’s largest economy, may say industrial output rebounded 0.3 percent in October from September, when it dropped 2.7 percent, a separate survey of economists showed.

Consumer borrowing in the U.S. probably rose by $7 billion in October, compared with a $7.4 billion jump the previous month, according to the median estimate of economists surveyed by Bloomberg News before the Federal Reserve releases the figures today.

‘Enough’s Enough’

President Barack Obama last month renewed pressure on China’s foreign-exchange policy and trade practices, saying “enough’s enough” on what the U.S. views as too-slow appreciation of the yuan.

Vice President Xi Jinping told former U.S. Treasury Secretary Henry Paulson yesterday that America should “curb its tendency of politicizing economic issues” to improve the environment for trade and economic cooperation, the official Xinhua news agency reported today. Xi also called for a relaxation in U.S. restrictions on technology exports to China and help for Chinese companies wanting to invest in the world’s biggest economy.

China’s export situation is “quite serious” and growth in shipments in November was slower than the previous month, Mofcom’s Chong said after today’s briefing to release a white paper on foreign trade.

Exports rose 10.9 percent last month from a year earlier, according to the median estimate of 32 economists in a Bloomberg News survey. That would follow a 15.9 percent increase in October which was the slowest pace since gains resumed in December 2009 after the global financial crisis, excluding holiday distortions.

Import Slowdown

China’s trade surplus last month dropped to $15.2 billion from $17 billion in October and $22.9 billion a year earlier, a separate survey of economists showed. Import growth likely slowed to 18.8 percent from 28.7 percent in October, according to another poll. The customs bureau is scheduled to release November trade data on Dec. 10.

China’s trade surplus surged after the nation joined the World Trade Organization in December 2001, rising to a record $298 billion in 2008 from $30.4 billion in the year after accession. The excess has since declined and the customs bureau predicted in October it would drop to $170 billion this year.

A moderating surplus and slower capital inflows, reflected in a drop in net purchases of foreign exchange by the nation’s banks, may ease pressure for the yuan to appreciate. It may also push the People’s Bank of China to make further cuts in banks’ reserve requirements to ensure adequate liquidity in the financial system, according to economists at banks including Standard Chartered Plc and UBS AG.

The government may rein in the yuan’s appreciation in 2012 as export growth moderates amid a global slowdown, according to analysts at Capital Economics and Australia & New Zealand Banking Group Ltd.

Gains may be limited to 3 percent, ANZ said in a report yesterday. Mark Williams at Capital Economics now estimates the yuan will end 2012 at 6.2 per dollar from a previous estimate of 6.1.

--Victoria Ruan. With assistance from Shamim Adam in Singapore. Editors: Nerys Avery, Brendan Murray

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at

To contact the editor responsible for this story: Ken McCallum at


India Halts Wal-Mart Entry Amid Protests

By Bibhudatta Pradhan and Andrew MacAskill - Dec 7, 2011 7:22 PM GMT+0700

India suspended its decision to allow overseas retailers including Wal-Mart Stores Inc. (WMT) to open supermarkets, dealing a blow to Prime Minister Manmohan Singh’s efforts to boost foreign investment and end a policy paralysis.

The government reversed its decision amid protests by the opposition and its allies that forced repeated adjournments of parliament for the last two weeks. Both houses resumed today with 10 days left of a crucial session when the government is looking to pass laws including one setting up an anti-graft body.

“This is political suicide on the part of the Congress government,” said Surjit Singh Bhalla, chairman of New Delhi- based Oxus Fund Management. “The only conclusion one can draw is that this government has lost any moral authority to lead. It is completely inexplicable.”

The move underscores the failure of Singh’s government to implement economic changes sought by business leaders halfway through its second term. The government faced resistance to its decision to allow foreign direct investment in multibrand retail from two coalition partners, opposition parties and traders, who say the move will wipe out the jobs of small shopkeepers.

Shares Drop

Shares of Pantaloon Retail India Ltd. (PF), the country’s largest retailer, rose 6.3 percent to 198.1 rupees at close in Mumbai. They fell as much as 6.1 percent earlier. Shoppers Stop Ltd. (SHOP) declined 4.9 percent to 349.65 rupees. The benchmark BSE India Sensitive Index advanced 0.4 percent.

The major impact on stocks “happened on Monday because over the weekend everyone already knew this is going to be suspended,” Gautam Duggad, a Mumbai-based analyst with Prabhudas Lilladher Pvt., said in a telephone interview.

Arti Singh, a spokeswoman for Wal-Mart in India, and Mohan Shukla, director of corporate affairs for Carrefour SA in India, did not answer calls to their mobile phones.

Finance Minister Pranab Mukherjee told parliament today the decision is suspended until a consensus is reached. Harsh Mariwala, president of the Federation of Indian Chambers of Commerce, said in a statement today the decision was “deeply disappointing” and “highly regressive.”

In an attempt to kick start an economy that expanded at the slowest pace in two years in the quarter ended Sept. 30, Singh had approved overseas companies including Carrefour (CA) and Tesco Plc (TSCO) to own as much as 51 percent of retailers selling more than one brand, adding riders to benefit the local economy.

Rotting Farm Produce

Singh and Commerce Minister Anand Sharma say the proposals to allow foreign investment in India’s retail sector would check inflation above 9 percent by reducing the amount of farm produce that currently rots before it can be sold and bring better prices for farmers.

The government changed course after Singh’s two biggest allies, Trinamool Congress and the Dravida Munnetra Kazhagam, opposed the policy arguing the move would lead to job losses and hurt small shopkeepers. The main federal opposition Bharatiya Janata Party was also against the steps for the same reasons.

“It is very clear now that the reform process is over until we have a new government, a new prime minister,” said Laveesh Bhandari, a director of Indicus Analytics, an economics research firm in New Delhi. “The government is so weak they will give up on anything.”

Regional Elections

Facing at least five regional elections next year, including one in Uttar Pradesh, India’s most populous state, the government may refrain from taking controversial decisions in the run up to the contests, Bhandari said. Rahul Gandhi, widely expected to lead the ruling party into the 2014 election, may take on a more prominent role campaigning for these states.

The U-turn on retail may allow the government to pass legislation this parliamentary session that will create a new anti-graft agency with enhanced powers, a demand of activists behind nationwide protests that swept the country in August.

Anna Hazare, a social activist who went on a 13-day hunger strike that month, has vowed to resume his rallies if the government fails to pass the bill in the parliamentary session that ends Dec. 22.

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at; Andrew Macaskill in New Delhi at

To contact the editors responsible for this story: Hari Govind at; Peter Hirschberg at


Australia Economy Grew More Than Forecast

By Michael Heath - Dec 7, 2011 8:45 AM GMT+0700

Australia’s economy grew faster than estimated last quarter on consumer spending and business investment, spurring the local currency as investors pared bets on the pace of interest-rate cuts next year.

Gross domestic product advanced 1 percent in the three months through September after a revised 1.4 percent expansion the previous quarter that was the fastest since the first quarter of 2007, a Bureau of Statistics report released in Sydney today showed. The result compared with the median of 24 estimates in a Bloomberg News survey for a 0.8 percent gain.

The report reflects an economy the central bank predicted would accelerate before Europe’s sovereign-debt crisis prompted Reserve Bank Governor Glenn Stevens to lower rates at consecutive meetings for the first time since 2009. After the data, interbank cash futures showed investors reduced the odds for a 50-basis-point rate reduction at the RBA’s Feb. 7 meeting.

“There are still very strong drivers of growth from capital expenditure, and the household sector is still doing well,” Tony Morriss, head of interest-rate research in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ), said in an interview.

The Australian dollar rose after the report, buying $1.0266 at 12:43 p.m. in Sydney from $1.0243 before the data.

Compared with a year earlier, the economy expanded 2.5 percent in the third quarter, today’s report showed. Economists forecast a 1.9 percent year-over-year gain.

Interest-Rate Bets

Yields on interbank cash-rate futures for the next five months climbed, with the April contract gaining 8 basis points to 3.35 percent, the highest level in almost a month.

Household spending rose 1.2 percent in the third quarter, adding 0.7 percentage point to GDP growth, today’s report showed. Non-dwelling construction jumped 24.4 percent, adding 1.5 points, the report showed. Machinery and equipment advanced 6.4 percent, contributing 0.4 point to the expansion.

“The economy is certainly not weak,” said Adam Carr, a senior economist in Sydney at ICAP Australia, Ltd., a unit of the world’s biggest interdealer broker.

China is Australia’s biggest trading partner and its demand for iron ore, coal and energy drove the nation’s terms of trade -- a measure of export prices relative to import prices -- to a record this year.

Mining increased 3.7 percent, adding 0.3 point, today’s report showed.

Mining Boom

Resource projects valued at A$456 billion ($468 billion), driven by companies such as BHP Billiton Ltd. (BHP), have cushioned a slump in manufacturing and services hit by a record currency and subdued consumer spending.

“The strong investment outcomes are further evidence of the massive pipeline of planned investment in Australia,” Treasurer Wayne Swan said in a statement after the data were released.

The report also showed government spending dropped 1.2 percent, subtracting 0.2 point from GDP growth. Imports rose 4.3 percent, subtracting 1 point.

The nation’s household savings ratio rose to 10.1 percent in the three months through September from 9.1 percent in the second quarter, today’s report showed.

“The Australian economy certainly recorded healthy growth,” said Savanth Sebastian, a Sydney-based economist at Commonwealth Bank of Australia (CBA), the nation’s largest lender. “However, the focus for the Reserve Bank is likely to be the uncertain global economic environment and the downside risks emanating from Europe.”

RBA Eases

Stevens, in yesterday’s statement announcing his decision to lower the benchmark rate a quarter percentage point to 4.25 percent, warned of rising risks to global growth.

“The sovereign credit and banking problems in Europe, to which European governments are still seeking to craft a full response, are likely to weigh on economic activity there over the period ahead,” he said.

Australia’s jobless rate fell to 5.2 percent in October as employment gained by 10,100 workers. Government data tomorrow may show unemployment stayed at that level in November, with the number of workers increasing by 10,000, according to the median estimate of 24 economists surveyed by Bloomberg.

To contact the reporter on this story: Michael Heath in Sydney at

To contact the editor responsible for this story: Stephanie Phang at


Asia Stocks Gain on Europe Optimism

By Kana Nishizawa and Toshiro Hasegawa - Dec 7, 2011 7:50 AM GMT+0700

Asian stocks (MXAPJ) rose on speculation the European leaders meeting this week in Brussels will step up efforts to fight the debt crisis to stave off lower national credit ratings that will make funding bailouts more costly.

Nintendo Co., a maker of video-game players that gets 34 percent of its sales in Europe, rose 1.2 percent in Osaka after a report that sales of a handheld game machine will reach target ahead of schedule. Meiji Holdings Co., a Japanese dairy-products producer, gained 3.6 percent after slumping the most since March 15 yesterday on a report radioactive cesium was found in some its products. Hyundai Development Co. (012630), a South Korean builder, rose 3.3 percent after a report the government will announce measures to spur housing markets.

“There is an expectation in the market that Europe will advance measures to overcome the debt issues,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “While there’s a sense of expectation in the market, investors still want to see the results of meetings this week of the European Union and European Central Bank.”

The MSCI Asia Pacific Index (MXAP) rose 0.6 percent to 117.29 as of 9:46 a.m. in Tokyo. All 10 industry groups on the measure gained, with about four stocks advancing for each that dropped.

Japan’s Nikkei 225 Stock Average (NKY) rose 0.8 percent. Australia’s S&P/ASX 200 index gained 0.7 percent after its economy grew more than estimated during the third quarter. South Korea’s Kospi Index advanced 0.5 percent.

To contact the reporters on this story: Kana Nishizawa in Hong Kong at; Toshiro Hasegawa in Tokyo at

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