Mirror Reporter Contradicts Piers Morgan on Phone Hacking at U.K. Tabloid

By Jonathan Browning - Dec 21, 2011 6:48 PM GMT+0700

A former reporter at the Daily Mirror U.K. tabloid contradicted evidence given by CNN broadcaster Piers Morgan, saying that phone hacking took place on a daily basis at the newspaper’s show business desk.

James Hipwell, the former “City Slicker” columnist who went to jail for using stock tips to manipulate the market, told the U.K. inquiry into press standards that phone hacking took place when Piers Morgan edited the newspaper.

“It seemed to be a generally accepted method to get a story,” Hipwell testified today. In the second half of 1999, “I’d go as far as to say it happened every single day.”

Piers Morgan, the host of CNN’s “Tonight” program and the editor of Trinity Mirror Plc (TNI)’s Daily Mirror between 1995 and 2004, yesterday told the inquiry that he wasn’t involved with phone hacking when he oversaw the tabloid.

The British government set up the inquiry after revelations that journalists at News Corp.’s News of the World hacked into voice-mail messages of murdered schoolgirl Milly Dowler. Rupert Murdoch’s company shut the Sunday tabloid and abandoned its bid for full control of British Sky Broadcasting Group Plc (BSY) in July after the practice was shown to be widespread.

Morgan was very close to the show business desk, Hipwell said. “It was very unlikely he didn’t know what was going on,” the former reporter said. “Nothing that really happened on that desk, happened without Piers knowing about it.”

‘Acknowledged Liar’

Desmond Browne, a lawyer for Trinity Mirror, told the inquiry that Hipwell was “an acknowledged liar.” The company “does not accept” Hipwell’s testimony, he said.

Nick Fullager, a spokesman for Trinity Mirror didn’t immediately return calls seeking comment.

The inquiry, led by Judge Brian Leveson, previously heard testimony that phone hacking may have extended to other tabloids, including News Corp. (NWSA)’s Sun, the Daily Mirror and the Daily Mail & General Trust Plc’s Mail on Sunday. News Corp. has admitted liability in some cases, while the other publishers have denied the claims.

Hipwell was convicted in 2005 of creating a “misleading impression” about share values by encouraging readers to invest in companies he held stakes in.

U.K. police are separately investigating phone hacking and bribes to law enforcement officers by journalists at the News of the World. A 52-year-old Metropolitan Police officer was arrested today as part of the probe.

To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

Read more...

Deutsche Telekom Dividend Payouts Under Pressure After AT&T Deal Failure

By Cornelius Rahn - Dec 21, 2011 3:25 PM GMT+0700

Deutsche Telekom AG’s failure to sell its T-Mobile USA unit to AT&T Inc. (T) for $39 billion may put pressure on the German company to reduce shareholder payouts after next year, investors said.

With the collapse of the deal, stakeholders will miss out on the Bonn-based company’s plan to use the proceeds to repurchase 5 billion euros ($6.5 billion) in stock, cut debt, and receive an 8 percent stake in AT&T. Spending on improving T- Mobile’s network and acquiring spectrum may cost as much as $9 billion, said RBC Capital Markets analyst Jonathan Atkin.

That may detract from Chief Executive Officer Rene Obermann’s efforts to contain damage from the European debt crisis on consumer and corporate spending and to return the region to growth. Spanish rival Telefonica SA (TEF) last week became the first former phone monopoly in Europe to cut a dividend forecast, sparking similar cuts at Telekom Austria AG. (TKA) Obermann yesterday wouldn’t commit to dividend levels beyond 2012.

“They won’t fiddle with the dividend right away, but it’s after that where it gets interesting,” said Andreas Mark, a fund manager at Union Investment in Frankfurt, which manages about 170 billion euros including Deutsche Telekom and AT&T shares. “They’re facing the prospect of having to put in money in the medium term.”

Deutsche Telekom confirmed its shareholder returns program through 2012, including an annual dividend of at least 70 euro cents and buybacks totalling 1.2 billion euros over three years.

Bandwidth Demand

Phone companies worldwide are facing increasing costs for network build-outs and upgrade as the use of smartphones such as Apple Inc. (AAPL)’s iPhone to download movies and pictures surge. That has put to test executives’ decisions on how they use the cash generated from phone services.

Deutsche Telekom’s stock has a yield of 7.9 percent, in line with the average for European telecommunications companies, according to data compiled by Bloomberg. Madrid-based Telefonica, even after the lowered 2012 dividend forecast, still yields 12.4 percent, one of the highest in the industry.

Deutsche Telekom today rose 1.2 percent in Frankfurt trading to 8.94 euros as of 9:14 a.m., valuing the company at 38.6 billion euros.

Slump Accelerates

European governments and consumers are trimming spending to help weather the region’s debt crisis, which started in Greece in 2009. Deutsche Telekom controls the country’s biggest phone company, Hellenic Telecommunications Organizatio SA. (HTO)

Deutsche Telekom aims to return its European business, which also encompasses countries such as Poland, Romania and Hungary, to growth by 2013. It has also promised to benefit from data-traffic growth in the region by rolling out faster wireless and fixed-line infrastructure.

The phone company has concentrated on cost cuts to limit the impact of declining sales on profit across its markets. The revenue slump is set to accelerate to 4.8 percent this year after 3.4 percent last year, according to analysts surveyed by Bloomberg.

“In the current conditions, achieving growth is very, very difficult, that’s why the shares need another attractor,” Obermann said yesterday. Deutsche Telekom “has been a stable provider of payouts in recent years, that’s important for long- term shareholders. And we need those long-term shareholders because the transformation of the company is a task for generations.”

Cash Injections

AT&T and Deutsche Telekom on Dec. 19 agreed to abandon this year’s largest acquisition after deciding that opposition by U.S. regulators would be too difficult to surmount. The deal would have created a new leader in the U.S. wireless market ahead of Verizon Wireless. The German phone company will receive a breakup package including $3 billion in cash, wireless frequencies and a roaming agreement.

With no realistic buyer for T-Mobile in sight, other forms of combinations are the more likely way forward in coming years for the business, said Bruno Lippens, a fund manager at Pictet Asset Management in Geneva, which holds about 14 million Deutsche Telekom shares. That would probably require cash injections and may weigh on Deutsche Telekom’s free cash flow, or operating cash flow minus capital spending, he said.

“If you’re looking for a plan B now you’ll probably have to invest more in this business,” Lippens said. “And if you don’t have the cash available because you are allocating it to fiber in Germany, and dividends -- and you probably need to do something in Greece as well -- then it just adds to this whole list of strategic priorities that the management has.”

Sprint Talks

Still, Deutsche Telekom has more room to manoeuvre on dividends than Telefonica and Telekom Austria because it pays out a lower ratio of its free cash flow to investors, Union Investment’s Mark said.

If the company does trim shareholder returns in coming years, it will probably skip share buybacks before cutting the dividend, he said. An alternative would be limiting investments in German and European infrastructure, said the fund manager.

Before Deutsche Telekom agreed on the deal with AT&T, it had also held talks with Sprint Nextel Corp. (S), people with knowledge of the matter said in March. Sprint remains a potential suitor for T-Mobile in the future, analysts say.

“The other alternatives at the time didn’t look nearly as attractive to all stakeholders, including the customers, including the U.S. agenda, the national broadband plan,” Obermann said during an interview, when asked whether it would have been wiser to forge a linkup with Sprint instead of AT&T. “We have to take the proceeds now and move on and make the best out of the situation.”

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

Read more...

RIM Gains After Reports Microsoft, Nokia, Amazon Considered Takeover Bids

By Douglas MacMillan and Danielle Kucera - Dec 21, 2011 6:35 PM GMT+0700

Research In Motion Ltd. (RIM) surged as much as 12.6 percent in German trading after reports said Microsoft Corp. (MSFT) and Nokia Oyj (NOK1V) mulled a joint bid, while Amazon.com Inc. (AMZN) considered buying the maker of the BlackBerry smartphone.

RIM “turned down takeover overtures” from Amazon because it wanted to fix its shortcomings independently, Reuters reported yesterday. That was followed by a Wall Street Journal article that said Microsoft and Nokia “flirted with the idea of making a joint bid” in recent months. Both cited unidentified people familiar with the matter.

Microsoft looked at the option of making a joint bid with Nokia for RIM, according to a person with knowledge of the matter who asked not to be identified because the talks were private. The proposal, which included Nokia taking on RIM’s hardware business, was discussed in an informal manner and wasn’t taken to the board level, the person said.

Before the reports, RIM stock had tumbled to its lowest level in almost eight years. Last week, the company disclosed a delay in a new generation of BlackBerrys designed to fuel a rebound, adding to challenges that include lost market share and a tablet device that bombed with shoppers. The 78 percent plunge (RIMM) in RIM’s shares this year before today leaves it vulnerable to an approach from suitors, said Sameet Kanade, an analyst at Northern Securities Inc.

Shares Surge

“At this valuation, it is a strong acquisition target,” said Kanade, who is based in Toronto and rates RIM a “speculative buy.” He doesn’t own the stock.

RIM shares rose as high as the equivalent of $14.21 in German trading today. Yesterday, RIM advanced as much as 11 percent to $13.85 in late U.S. trading after closing at $12.52 in New York. Amazon.com and Microsoft were little changed in Frankfurt today. Nokia increased as much as 4.2 percent to 3.80 euros in Helsinki.

Jamie Ernst, a spokeswoman for Waterloo, Ontario-based RIM, declined to comment, as did Mary Osako, a spokeswoman for Seattle-based Amazon, and Peter Wootton, a spokesman for Redmond, Washington-based Microsoft. Nokia doesn’t comment on rumor or speculation, said Doug Dawson, a spokesman for the Espoo, Finland-based company.

RIM trades at 2.83 times trailing 12-month earnings, the lowest of any communications-equipment maker with a market capitalization greater than $1 billion, according to data compiled by Bloomberg.

‘Takeover Noise’

“There is only one clear beneficiary of the current takeover noise: the excessively de-rated RIM shares,” Alexander Peterc and Alexandre Faure, analysts at Exane BNP Paribas, said in a note today.

The status of discussions between Microsoft and Nokia was unclear, according to the Wall Street Journal. Amazon hired an investment bank to review a possible deal with RIM, but didn’t make a formal offer, Reuters said.

Microsoft and Nokia might be able to use RIM in their rivalry with Apple Inc. (AAPL), the largest smartphone maker. Amazon is also vying with Apple in the tablet market.

Nokia started selling the 420-euro Lumia 800, its first device running Microsoft’s Windows Phone software, in November in Europe. Nokia Chief Executive Officer Stephen Elop teamed up with Microsoft to compete with advanced touchscreens from Apple and vendors of handsets using Google Inc.’s Android system.

Mats Nystroem, a Stockholm-based analyst at SEB Enskilda, said an acquisition of RIM would make more sense for a company such as Amazon than for Microsoft and Nokia.

“Microsoft is pushing Windows through Nokia, why would they include another operating system from RIM that is inferior and not competitive?” he said in a phone interview. “For those companies, like Amazon, needing to strengthen their intellectual property position, RIM could be part of the puzzle.”

To contact the reporters on this story: Douglas Macmillan in New York at dmacmillan3@bloomberg.net; Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

Read more...

Oracle Declines After Sales, Profit Miss Estimates

By Aaron Ricadela - Dec 21, 2011 5:23 PM GMT+0700

Oracle Corp. (ORCL) dropped in German trading after the second-largest software maker reported sales and profit that missed analysts’ estimates, hurt by slower demand for databases, applications and computer servers.

Profit before some costs in the fiscal second quarter ended Nov. 30 was 54 cents a share, on revenue excluding certain items of $8.81 billion, the company said in a statement yesterday. Analysts had projected profit of 57 cents on sales of $9.23 billion, the average of estimates compiled by Bloomberg.

Oracle, based in Redwood City, California, and other business-software companies are taking longer to close deals as companies gird for slow economic growth in the U.S. and the possibility of a recession in Europe next year, said Rick Sherlund, an analyst at Nomura Holdings Inc. New software licenses, an indicator of future revenue, rose less than Sherlund projected, and sales of hardware acquired through the Sun Microsystems deal fell more than expected.

“The economy got a little harder for them,” Pat Walravens, an analyst at JMP Securities in San Francisco, said in an interview on Bloomberg Television’s “Bloomberg West.” “In that situation you need to manage your sales force a little more carefully. They were not doing that this quarter.” Walravens has a “market outperform” rating on Oracle shares.

Share Price Drop

The stock declined as much as 9.6 percent to the equivalent of $26.54 in German trading and was down 8.3 percent as of 10:40 a.m. in Frankfurt. Rival SAP AG (SAP), the biggest software maker, dropped as much as 4.1 percent to 40.78 euros.

Yesterday, Oracle tumbled as low as $26.10 in extended U.S. trading. Before the report, they had gained 1.9 percent to $29.17 at the close in New York. The stock has declined 6.8 percent this year. The company also said it will buy back as much as $5 billion in stock.

Sales excluding certain items in the current quarter, which ends in February, will increase 1 percent to 5 percent from a year earlier, co-President Safra Catz said on a conference call yesterday. On average, analysts were predicting sales growth of 7.4 percent to $9.46 billion. Profit before some costs will be 55 cents to 58 cents a share, compared with analysts’ average 59-cent estimate.

In the second quarter, new software license sales rose 2.5 percent to $2.05 billion, compared with the $2.28 billion Sherlund estimated in a Dec. 15 research note.

Sales of hardware obtained in last year’s $7.4 billion acquisition of Sun Microsystems declined to $953 million, missing the $1.06 billion in revenue estimated by Sherlund, who is based in New York and has a “buy” rating on the shares.

Spending ‘Pullback’

Net income in the second quarter rose 17 percent to $2.19 billion, or 43 cents a share, Oracle said in the statement.

In the third quarter, software license sales will be unchanged to 10 percent higher, and hardware sales will decline 5 percent to 15 percent, Catz said.

“This is indicative of some pullback in general enterprise IT spending,” said Josh Olson, an analyst at Edward Jones & Co. in Des Peres, Missouri. Technology spending next year could be constrained among European companies, government customers and banks, said Olson, who rates Oracle shares “buy.” “They’re going to feel the brunt of that.”

Customers are adding more layers of management approval for technology purchases, including some chief executive officers getting involved, Catz said yesterday. That’s slowing down the closing of contracts, she said. In response, Oracle has added new “deal management” procedures to monitor signings and make sure the necessary approvals are in place.

Oracle’s Acquisitions

“We’ll have a much more normal next quarter,” she said.

The effect of the declining value of the euro against the dollar also is hurting sales. Excluding the effect of currency fluctuations, revenue this quarter would increase 3 percent to 7 percent, Catz said.

Jason Maynard, an analyst at Wells Fargo Securities, said in a Dec. 19 report that corporate spending on hardware and software may fall 8 percent in the first quarter, a steeper drop than the average 7.3 percent average decline during the quarter in the past 10 years.

To help blunt the impact of a possible slowdown in software sales growth, Oracle CEO Larry Ellison has snapped up more than 70 companies in a $40 billion buying spree to add programs that help large corporations manage human resources and operations. The company has been using the acquisitions to build up its cloud business, meant to appeal to customers that are seeking to save money by letting them access computing power over the Internet.

Public Cloud

On Oct. 24, Oracle said it would buy online customer- service software company RightNow Technologies Inc. for $1.5 billion. Earlier that month, the company unveiled its Public Cloud service, which will run its database software and more than 100 new applications called Fusion in its data centers for customers.

Oracle, the largest database-software maker, is using the Sun acquisition to develop computer servers -- including high- end Exadata and Exalogic machines -- that run its database and applications. Still, its lower-priced systems using Intel Corp. chips are losing ground to competitors.

The company’s share of the worldwide server market declined to 6 percent in the third quarter, from 6.5 percent a year earlier, while Dell Inc. gained, market researcher IDC said.

Ellison told analysts on yesterday’s call that Oracle’s hardware business could expand by the fiscal fourth quarter, which ends in May. Sales of Exadata, Exalogic and other high-end systems could reach $1 billion annually by the end of the fiscal year.

“Then we plan to double those sales again next fiscal year,” he said.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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

Read more...

Euro Erases Gains After ECB Allots More Loan to Banks Than Was Forecast

By John Detrixhe - Dec 21, 2011 8:38 PM GMT+0700

Play Video

Dec. 21 (Bloomberg) -- Simon Derrick, chief currency strategist at Bank of New York Mellon Corp, discusses the European Central Bank's refinancing operations and the consequences for the euro. He talks with Linzie Janis on Bloomberg Television's "First Look." (Source: Bloomberg)

Play Video

Dec. 21 (Bloomberg) -- Emma Marcegaglia, head of Italian employers’ lobby Confindustria, discusses labor rules and the European Central Bank's refinancing operations and bond purchases. She speaks with Bloomberg's Flavia Rotondi in Milan. (Source: Bloomberg)

Play Video

Dec. 21 (Bloomberg) -- Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong, talks about her forecast for Japan's yen. She also discusses the euro, yuan, and Australian and New Zealand dollars. She speaks with John Dawson, Rishaad Salamat, Mia Saini, and David Ingles on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

The euro fell against most of its major peers amid concern that European Central Bank measures to support its banking sector may drive down borrowing costs for governments while weakening the value of the region’s currency.

The 17-nation currency erased its advance after the ECB said it had awarded 489 billion euros ($637 billion) in 1,134- day to banks, more than the 293 billion euros forecast by economists, as investors bet the euro-region debt crisis is far from done. Asian currencies strengthened, led by South Korea’s won, as housing data in the U.S. beat economists’ estimates, brightening the export outlook.

“Long-term, there’s been no real change to the picture of the euro, it should be trending lower,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, said in a telephone interview. “Some of the things that are near-term positives for the markets are actually very negative for the currency, particularly when it comes to further loosening of policy, regardless of how it’s done.”

The euro fell 0.4 percent to $1.3036 as of 8:25 a.m. New York time after climbing as much as 0.9 percent after the ECB announcement. Europe’s shared currency fell 0.3 percent to 101.55 yen. The dollar weakened 0.1 percent to 77.88 yen.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Read more...

Asia Stocks Rise Second Day on U.S. Data, China Industry Support

By Jonathan Burgos and Yoshiaki Nohara - Dec 21, 2011 6:04 PM GMT+0700

Asian stocks (MXAP) rose for a second day, with a benchmark index set for the biggest gain in almost three weeks, as China pledged support for exporters and small businesses and after improved U.S. and German economic data.

Honda Motor Co. (7267), the Japanese carmaker that gets about 44 percent of its sales from North America, advanced 2.4 percent in Tokyo on speculation shipments will rise amid signs the U.S. economy is improving. Onesteel Ltd., the second-worst performer in the MSCI Asia Pacific Index this year, jumped 7.1 percent after Goldman Sachs Group Inc. named it among top Australian stock picks for next year. Mining and energy stocks gained as oil and copper prices climbed.

“The U.S. is showing it’s fairly robust in terms of not being dragged down to the extent of European economies,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “The question is, given we are coming into a holiday period, how sustainable those gains are going to be over the next week or so.”

The MSCI Asia Pacific Index advanced 2.2 percent to 113.38 as of 8:02 p.m. in Tokyo, with almost nine shares rising for each that fell. The gauge dropped to a three-week low on Dec. 19 after North Korean leader Kim Jong Il died and Fitch Ratings said it may cut the credit ratings of European nations.

Trading volumes were below the 30-day average for all major markets in the region except India, according to data compiled by Bloomberg.

Japan’s Nikkei 225 Stock Average (NKY) increased 1.5 percent, while South Korea’s Kospi Index jumped 3.1 percent. Australia’s S&P/ASX 200 rose 2.1 percent. Hong Kong’s Hang Seng Index gained 1.9 percent.

U.S. Rebound

The Hang Seng China Enterprises Index added 2.2 percent after Premier Wen Jiabao pledged to provide capital support for small and medium-sized companies affected by the nation’s slowing economic growth. The Shanghai Composite Index slipped 1.1 percent, erasing gains of as much as 1 percent.

Futures on the Standard & Poor’s 500 Index (SPX) rose 0.4 percent today. The index advanced 3 percent in New York yesterday after housing starts in November rose to the most since April 2010 and payrolls increased in 29 states.

Shares of Asian exporters advanced. Honda gained 2.4 percent to 2,325 yen. Samsung Electronics Co., South Korea’s biggest exporter of devices such as mobile phones and semiconductors, climbed 4.5 percent to 1.057 million won in Seoul. James Hardie Industries SE (JHX), a maker of building materials that counts the U.S. as its biggest market, added 1.8 percent to A$6.66.

Shipping Alliance

Stocks also gained as concern about Europe’s debt crisis eased after Spain sold 5.64 billion euros ($7.38 billion) of bills, more than the maximum target, and German business confidence unexpectedly grew.

Shipping stocks advanced on speculation a new alliance formed by Mitsui O.S.K. (9104) Lines Ltd., Hyundai Merchant Marine Co., Neptune Orient Lines Ltd. and three other lines on the Asia- Europe trade route will help stem a decline in rates.

Mitsui O.S.K., Japan’s second-biggest freight carrier by sales, increased 1.8 percent to 288 yen in Tokyo. Hyundai Merchant Marine, South Korea’s No. 2, jumped 4.5 percent to 25,400 won in Seoul. Neptune Orient Lines Ltd, Southeast Asia’s largest container carrier, gained 3.6 percent to S$1.15.

Worst Performers

The MSCI Asia Pacific Index slumped 19 percent this year year through yesterday. Utilities were the worst performing industry in the gauge as Japan’s nuclear-power producers tumbled after the worst nuclear accident in 25 years engulfed Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. Tepco, as the utility is known, is the worst performer on the gauge, followed by OneSteel (OST), Australia’s second-biggest producer of the metal.

OneSteel, which tumbled 75 percent this year through yesterday, increased 7.1 percent to 68 Australian cents. Goldman Sachs recommended investors “buy” the stock, saying the company may benefit from a potential loosening of monetary policy in China.

The Asia-Pacific index’s drop this year compared with a 1.3 percent decline by the S&P 500 and a 14 percent slide by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.4 times estimated earnings on average, compared with 12.6 times for the S&P 500 and 10.4 times for the Stoxx 600.

Commodity Stocks

Raw-material producers and energy companies advanced today after commodity prices rallied on the improving outlook for the U.S. and Europe and after Wen’s pledge of support for Chinese producers. China is the world’s biggest consumer of copper.

BHP Billiton Ltd. (BHP), which counts China’s as its No. 1 market, climbed 3 percent to A$35.13. Jiangxi Copper Co., China’s biggest producer of the metal, rose 1.9 percent to HK$16.84 in Hong Kong.

Among stocks that dropped, Tepco sank 9.8 percent to 211 yen in Tokyo. The utility may be effectively nationalized, the Yomiuri newspaper reported, citing an unidentified person familiar with the plan. The company denied the report.

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

Read more...

U.S. Futures Retreat After ECB Loans

By Rita Nazareth - Dec 21, 2011 8:08 PM GMT+0700

Play Video

Dec. 21 (Bloomberg) -- John Taylor, founder of currency-hedge fund FX Concepts LLC, talks about the European Central Bank's refinancing operations and the consequences for the euro. The ECB will lend euro-area banks a record amount for three years in its latest attempt to keep credit flowing to the economy during the sovereign debt crisis. Taylor, speaking with Sara Eisen on Bloomberg Television’s “InsideTrack,” also discusses the prospects for a U.S recession in 2012.(Source: Bloomberg)

Play Video

Dec. 21 (Bloomberg) -- Ellen Braitman summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

U.S. stock futures erased earlier gains as optimism faded about the European Central Bank’s plan to lend euro-area banks a record amount for three years.

Oracle Corp. (ORCL) tumbled 10 percent after the second-largest software maker reported sales and profit that missed analysts’ projections. Research In Motion Ltd. (RIM) surged 8.3 percent on reports that Microsoft Corp. (MSFT) and Nokia Oyj were considering a joint bid and Amazon.com Inc. had made separate overtures to buy the BlackBerry maker.

Standard & Poor’s 500 Index futures expiring in March decreased 0.3 percent to 1,232.7 at 8:06 a.m. New York time. The benchmark gauge yesterday rallied 3.1 percent, its biggest gain of the month. Dow Jones Industrial Average futures lost 12 points, or 0.1 percent, to 12,019 today.

The ECB awarded 489 billion euros ($645 billion) in 1,134- day loans, the most ever in a single operation and more than economists’ median estimate of 293 billion euros in a Bloomberg News survey.

Benchmark gauges rose yesterday as better-than-estimated housing starts added to expectations the world’s largest economy will weather Europe’s debt crisis. Yesterday’s gain trimmed this year’s decline in the S&P 500 to 1.3 percent. The measure was still down 9 percent from this year’s high in April amid concern that Europe’s crisis may slow down the global economy.

RIM (RIMM) Surges

RIM surged 8.3 percent to $13.56. It “turned down takeover overtures” from Amazon because it wanted to fix its shortcomings independently, Reuters reported yesterday. That was followed by a Wall Street Journal article that said Microsoft and Nokia “flirted with the idea of making a joint bid” in recent months. Both cited unidentified people familiar with the matter.

Oracle tumbled 10 percent to $26.26. Business-software companies are taking longer to close deals as companies gird for slow economic growth in the U.S. and the possibility of a recession in Europe next year, said Rick Sherlund, an analyst at Nomura Holdings Inc.

The head of the world’s biggest bond fund said he sees a more than one in three chance that the euro zone will break apart and trigger a financial crisis akin to the one that devastated the global economy in 2008.

‘Sudden Stop’

“It would be the equivalent of a sudden stop” in which financial markets seized up, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. in Newport Beach, California, said. “It would be really, really messy.”

Anyone expecting the so-called January effect to turn shares of smaller U.S. companies into market leaders may end up waiting in vain, according to Steven G. DeSanctis, a strategist at Bank of America Merrill Lynch.

“We do not think we will see a January effect occur in the remainder of this month or next month,” DeSanctis wrote yesterday in a report.

Smaller companies have only kept pace with larger ones since the end of October. In past years, they rallied during the period in anticipation of further gains in January. Price swings linked to concern that the U.S. and European economies are faltering explain why the effect is unlikely to surface, according to DeSanctis, a small-cap stock specialist based in New York.

In January, small caps beat large caps 73 percent of the time since 1926, according to his analysis of figures from the University of Chicago’s Center for Research in Security Prices. The percentage is the highest for any month of the year. Small caps also had their best monthly performance in January, with an average gain of 4 percent, DeSanctis wrote.

To contact the reporter on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net

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

Read more...

Italian GDP Contracts, Signaling New Recession

By Chiara Vasarri and Lorenzo Totaro - Dec 21, 2011 6:09 PM GMT+0700

The Italian economy contracted in the third quarter, signaling the country may have entered its fifth recession since 2001 as the government adopts new austerity measures that will further weigh on growth.

Gross domestic product declined 0.2 percent from the second quarter, when it expanded 0.3 percent, national statistics institute Istat said in Rome today. It was the first contraction since the final three months of 2009 and matched the median forecast in a survey of 23 economists by Bloomberg News.

Consumer spending declined 0.2 percent from the second quarter, with investment contracting 0.6 percent. Exports grew 1.6 percent in the quarter, while imports fell 1.1 percent.

Prime Minister Mario Monti’s government faces a final vote as soon as tomorrow on its 30 billion-euro ($39 billion) emergency budget plan that aims to shield Italy from the region’s debt crisis and bring down record borrowing costs. The measures, which seek to balance the budget in 2013, mark the third austerity package this year and the spending cuts and tax increases likely deepened the contraction in the final quarter.

“Italy technically entered a recession as we expect an even more marked contraction in the fourth quarter of minus 0.6 percent,” said Chiara Corsa, Milan-based economist at UniCredit SpA. “Looking at today’s data, they show that the main drag came from domestic demand, both consumptions and investments.”

Weak Data

Household spending declined 0.2 percent from the second quarter, while imports fell 1.1 percent. Investments slipped 0.6 percent.

Confindustria, the nation’s employers lobby, forecast last week that GDP, which has trailed the euro-region average for more than a decade, will contract 1.6 percent next year. The group predicted that the euro area’s third-largest economy will shrink every quarter until the second half. A contraction in the final three months of this year would mark the second quarterly contraction, the technical definition of a recession.

“We are already in a recession, look at the numbers, we are in recession,” Development Minister Corrado Passera said on Dec. 15 when Confindustria presented its report. The economy is “worse” than the government expected when it came to power a month ago, he said.

Recent data offer evidence of the country’s economic decline. Industrial orders dropped 1.6 percent in October from the previous month while industrial production fell 0.9 percent over the same period, a Dec. 20 report showed. Unemployment jumped to a 17-month high of 8.5 percent in October, with youth unemployment topping 29 percent.

Plant Closing

Fiat SpA (F), the country’s biggest manufacturer, closed its Termini Imerese plant in Sicily last month as part of a plan to reduce costs and improve productivity at its Italian facilities as sales of its cars in Italy slump. Fiat agreed with unions to pay 21 million euros to support early retirement for 640 of the workers.

Monti, who took office a month ago as head of an unelected government of non-politicians, is seeking to show investors he can tame a 1.9 trillion-euro debt, bigger than that of Spain, Greece, Portugal and Ireland combined. Concern about Italy’s ability to finance its borrowing is sapping demand for Italian bonds and forcing the country to offer record returns to attract investors. The Treasury paid 6.47 percent at a sale of five-year debt on Dec. 14, the highest since 1997 and almost three times what Germany last paid to borrow for 10 years.

U.K. Deficit

Elsewhere in Europe, Britain’s budget deficit narrowed more than economists forecast in November as tax revenue eased and the government’s fiscal squeeze restrained spending. Net borrowing excluding support for banks fell to 18.1 billion pounds ($28.5 billion) from 20.4 billion pounds a year earlier.

Bank of England policy makers said the pace of their bond purchases is close to the market’s capacity as some signaled further stimulus might be needed next year to weather Europe’s sovereign debt crisis, according to the minutes of their Dec. 7- 8 meeting released today.

In Asia, Japan’s exports fell and the central bank lowered its assessment of the economy for a second straight month. Shipments dropped a more-than-expected 4.5 percent in November from a year earlier, a Ministry of Finance report showed today.

In the U.S., the National Association of Realtors releases revised existing home sale data and the Mortgage Bankers Association publishes a report on weekly mortgage applications.

With European governments struggling to find a lasting solution to a debt crisis that has increased sovereign borrowing costs and pushed economies from Italy to Greece and Portugal into recession, the European Central Bank has introduced a menu of measures designed to avert a credit crunch.

ECB Lending

The ECB said today it will lend euro-area banks more than economists forecast for three years in its latest attempt to keep credit flowing to the economy during the crisis. The Frankfurt-based ECB awarded 489 billion euros in 1,134-day loans, more than economists’ median estimate of 293 billion euros in a Bloomberg News survey.

With concern about Italy’s solvency on the rise, the country’s lenders are becoming increasingly dependent on the ECB to find funding. UniCredit SpA and Intesa Sanpaolo SpA are among Italian banks that will use bonds guaranteed by Italy as collateral for loans from the ECB, two people with knowledge of the matter said yesterday.

The plan, which is part of Monti’s budget package, allows the Treasury to offer guarantees for bonds issued by banks in order to give them access to ECB liquidity.

To contact the reporters on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net.

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net

Read more...

RIM Advances on Reports It May Have Been Acquisition Target

By Douglas MacMillan and Danielle Kucera - Dec 21, 2011 6:35 PM GMT+0700

Research In Motion Ltd. (RIM) surged as much as 12.6 percent in German trading after reports said Microsoft Corp. (MSFT) and Nokia Oyj (NOK1V) mulled a joint bid, while Amazon.com Inc. (AMZN) considered buying the maker of the BlackBerry smartphone.

RIM “turned down takeover overtures” from Amazon because it wanted to fix its shortcomings independently, Reuters reported yesterday. That was followed by a Wall Street Journal article that said Microsoft and Nokia “flirted with the idea of making a joint bid” in recent months. Both cited unidentified people familiar with the matter.

Microsoft looked at the option of making a joint bid with Nokia for RIM, according to a person with knowledge of the matter who asked not to be identified because the talks were private. The proposal, which included Nokia taking on RIM’s hardware business, was discussed in an informal manner and wasn’t taken to the board level, the person said.

Before the reports, RIM stock had tumbled to its lowest level in almost eight years. Last week, the company disclosed a delay in a new generation of BlackBerrys designed to fuel a rebound, adding to challenges that include lost market share and a tablet device that bombed with shoppers. The 78 percent plunge (RIMM) in RIM’s shares this year before today leaves it vulnerable to an approach from suitors, said Sameet Kanade, an analyst at Northern Securities Inc.

Shares Surge

“At this valuation, it is a strong acquisition target,” said Kanade, who is based in Toronto and rates RIM a “speculative buy.” He doesn’t own the stock.

RIM shares rose as high as the equivalent of $14.21 in German trading today. Yesterday, RIM advanced as much as 11 percent to $13.85 in late U.S. trading after closing at $12.52 in New York. Amazon.com and Microsoft were little changed in Frankfurt today. Nokia increased as much as 4.2 percent to 3.80 euros in Helsinki.

Jamie Ernst, a spokeswoman for Waterloo, Ontario-based RIM, declined to comment, as did Mary Osako, a spokeswoman for Seattle-based Amazon, and Peter Wootton, a spokesman for Redmond, Washington-based Microsoft. Nokia doesn’t comment on rumor or speculation, said Doug Dawson, a spokesman for the Espoo, Finland-based company.

RIM trades at 2.83 times trailing 12-month earnings, the lowest of any communications-equipment maker with a market capitalization greater than $1 billion, according to data compiled by Bloomberg.

‘Takeover Noise’

“There is only one clear beneficiary of the current takeover noise: the excessively de-rated RIM shares,” Alexander Peterc and Alexandre Faure, analysts at Exane BNP Paribas, said in a note today.

The status of discussions between Microsoft and Nokia was unclear, according to the Wall Street Journal. Amazon hired an investment bank to review a possible deal with RIM, but didn’t make a formal offer, Reuters said.

Microsoft and Nokia might be able to use RIM in their rivalry with Apple Inc. (AAPL), the largest smartphone maker. Amazon is also vying with Apple in the tablet market.

Nokia started selling the 420-euro Lumia 800, its first device running Microsoft’s Windows Phone software, in November in Europe. Nokia Chief Executive Officer Stephen Elop teamed up with Microsoft to compete with advanced touchscreens from Apple and vendors of handsets using Google Inc.’s Android system.

Mats Nystroem, a Stockholm-based analyst at SEB Enskilda, said an acquisition of RIM would make more sense for a company such as Amazon than for Microsoft and Nokia.

“Microsoft is pushing Windows through Nokia, why would they include another operating system from RIM that is inferior and not competitive?” he said in a phone interview. “For those companies, like Amazon, needing to strengthen their intellectual property position, RIM could be part of the puzzle.”

To contact the reporters on this story: Douglas Macmillan in New York at dmacmillan3@bloomberg.net; Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

Read more...

European Stocks Pare Gains on ECB Loans

By Adam Haigh - Dec 21, 2011 7:54 PM GMT+0700

European stocks fell, erasing earlier gains, as euro-area lenders sought more funds from the European Central Bank than economists had predicted. U.S. index futures declined while Asian shares rose.

SAP AG (SAP) lost 4.6 percent as Oracle Corp. reported sales and profit that missed analysts’ estimates, hurt by slower demand for databases, applications and computer servers. Carrefour SA (CA) slid 4.2 percent as retailers retreated.

The Stoxx Europe 600 Index dropped 0.5 percent to 237.36 at 12:53 p.m. in London. The gauge reversed an earlier rally of as much as 1.4 percent as the ECB provided more three-year loans to euro-area banks than economists had forecast in the central bank’s latest attempt to keep credit flowing to the economy during the sovereign-debt crisis.

“It’s another slight shrug of the shoulders,” said Richard Hunter, the London-based head of equities at Hargreaves Lansdown Plc. “The underlying story hasn’t changed with Europe’s debt crisis. The hope is that this money finds its way back into sovereign debt in the new year.”

The Frankfurt-based ECB awarded 489 billion euros ($640 billion) in 1,134-day loans, more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which it will lend at the average of its benchmark rate over the term of the loans. They start tomorrow.

U.S., Asian Shares

Futures on the Standard & Poor’s 500 Index expiring in March slipped 0.2 percent today, while the MSCI Asia Pacific Index rallied 2.1 percent.

The Stoxx 600 gained 2 percent yesterday, its biggest advance since Nov. 30, as German business confidence unexpectedly rose for a second month. The benchmark measure has still lost 13 percent this year amid mounting concern that policy makers will fail to stop at least one member of the euro area from defaulting.

German Chancellor Angela Merkel’s government reduced its planned bond sales next year to 250 billion euros, compared with 270 billion euros proposed in the budget and 283 billion euros that it sold this year. The federal government will sell 170 billion euros in bonds and 80 billion euros in shorter maturities, the Frankfurt-based Federal Finance Agency said as it presented the provisional bond calendar for 2012.

The head of the world’s biggest bond fund said he sees a more than one-in-three chance that the euro area will break apart and trigger a financial crisis akin to the one that devastated the global economy in 2008.

‘Sudden Stop’

“It would be the equivalent of a sudden stop” in which financial markets seized up, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. in Newport Beach, California, said. “It would be really, really messy.”

European Union leaders will hold a summit on Jan. 30 to discuss jobs and economic growth, EU President Herman Van Rompuy said.

“I’m preparing this meeting intensively,” Van Rompuy said in a video message posted on the EU’s website. “It will be focused on jobs, and that’s a big challenge in a context where zero growth is expected in most of our economies. In some of them, there will even be a recession.”

In the U.S., a report from the National Association of Realtors will show that purchases of previously-owned homes increased to a 5.05 million annual rate in November from 4.97 million the prior month, according to the median forecast of 71 economists surveyed by Bloomberg News.

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

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

Read more...

Wall Street Revenue Falls in ‘Year to Forget’

By Michael J. Moore - Dec 21, 2011 12:00 PM GMT+0700

Some of Wall Street’s biggest firms signaled optimism in October after posting their worst trading and investment-banking period since the financial crisis. Now, analysts say the fourth quarter may have been worse.

Fixed-income trading revenue at U.S. banks may fall 12 percent from the third quarter, minus accounting adjustments, while equities drop 10 percent and investment-bank revenue will probably be unchanged, David Trone, an analyst at JMP Securities, wrote in a Dec. 16 report.

Some analysts had expected a rebound after the third quarter was the worst for trading and investment banking since 2008, when the collapse of real estate markets contributed to a worldwide credit crunch. Now many are looking ahead to 2012 after investors stayed on the sidelines amid concern that the European debt crisis would lead to a global slowdown.

“We’re in a difficult environment,” Brad Hintz, an analyst at Sanford C. Bernstein & Co., said yesterday on Bloomberg Television’s “In The Loop” program. “I really don’t think anyone’s going to be focusing on the earnings of these firms. They’re really going to be focusing forward.” Hintz is a former Morgan Stanley treasurer.

Twelve analysts cut earnings estimates (GS) for Goldman Sachs Group Inc. in the past four weeks and 14 trimmed theirs for JPMorgan Chase & Co. (JPM), according to data compiled by Bloomberg. Goldman Sachs, which gets the majority of its revenue from trading, may post its lowest annual net income after preferred dividends since 1998 and the least revenue since 2005, Roger Freeman, a Barclays Capital analyst, said in a note titled “Another Year to Forget.”

Trading Revenue

Trading revenue at the five biggest Wall Street banks -- JPMorgan, Goldman Sachs, Bank of America Corp. (BAC), Citigroup Inc. and Morgan Stanley -- may drop from a year earlier for the sixth time in seven quarters. Trading and investment-banking revenue fell 47 percent in the third quarter from the first three months, excluding accounting adjustments.

Richard Staite, an analyst at Atlantic Equities in London, said a weak fourth quarter and the sovereign debt crisis in Europe will “rapidly” turn market attention to the banks’ outlooks for next year.

“Goldman and Morgan Stanley (MS) will struggle to paint an upbeat picture of 2012,” Staite wrote in a note this month. “With no sign of a clear solution to the problems in Europe and a deteriorating economic backdrop, it will be hard for the pure investment banks to predict the timing of any upturn.”

Goldman Sachs Chief Executive Officer Lloyd C. Blankfein, 57, said last month that global growth will “snap back” faster than most forecasters expect. He said he didn’t know when that will happen.

JPMorgan’s Dimon

JPMorgan CEO Jamie Dimon, 55, said at an investor conference this month that revenue at the investment bank will probably be unchanged or down from the third quarter. He said that the decline may be cyclical.

“I don’t think you should look at the business and say, ‘OK that’s permanent.’ It’s not permanent,” Dimon said on Dec. 7. “We service a lot of investors. Those investors are going to have twice as much money 10 years from now than they have today to invest. And they’re going to need to invest their money.”

Financial firms globally have announced plans this year to eliminate more than 200,000 jobs. New York-based Morgan Stanley, the sixth-biggest U.S. bank by assets and owner of the world’s largest brokerage, said last week it will cut about 1,600 jobs in the first quarter of next year.

Compensation Declines

Firms are also cutting pay. Annual compensation on Wall Street may fall 27 percent to 30 percent from a year earlier, making it the lowest level since 2008, according to New York- based recruitment firm Options Group. Bonuses on average may drop 35 percent to 40 percent, Options Group said.

The Standard & Poor’s 500 Financials Index (S5FINL) has fallen 20 percent this year, led by Bank of America’s 61 percent plunge. Goldman Sachs, Morgan Stanley and Citigroup have all fallen at least 45 percent, while JPMorgan has dropped 24 percent.

Bank of America Chief Financial Officer Bruce Thompson said in October that the markets had been better that month than in August and September. Morgan Stanley CFO Ruth Porat said the challenging credit-markets conditions had “hopefully started to moderate.” Porat and Dimon indicated the fourth quarter environment would probably depend on macroeconomic developments, such as progress from European leaders on responding to the region’s debt crisis.

Average daily equity-trading volume on the largest U.S. exchanges is down 11 percent from the third quarter. Dollar volume of high-yield corporate bonds has declined 26 percent from a year earlier, while volume of investment-grade bonds dropped 7.5 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Sluggish Activity

“Despite a rise in equity prices, trading and investment banking activity has remained sluggish so far in the fourth quarter,” Glenn Schorr, an analyst at Nomura Holdings Inc., wrote this week in a note to investors. “With the usually slower holiday season coming, we see little sign that activity will pick up as we close out 2011.” He rates Goldman Sachs, Citigroup (C) and JPMorgan as “buys.”

Trading volume, an indicator of performance, may not correlate directly with firms’ revenue because banks make money on changes in the value of the securities they hold and transaction fees that may not be related to volume.

Spokesmen for the five banks declined to comment or didn’t return requests for comment.

Banks’ trading-revenue decline may be mitigated by the lack of inventory losses that were seen in the third quarter, Trone said. Trone is the top-rated analyst covering JPMorgan this year, according to data compiled by Bloomberg.

Credit Trading

The ten largest global investment banks saw combined net losses of about $850 million in their credit-trading units within fixed income in the third quarter, compared with positive revenue of $2.7 billion a year earlier, according to industry consultant Coalition Ltd.

Yields on global corporate bonds relative to similar- maturity Treasuries rose 100 basis points to 263 basis points in the third quarter, Bank of America Merrill Lynch index data show. The average spread has risen 14 basis points this quarter.

Credit trading, along with mortgages, is “very weak,” Staite wrote. Interest rates accounted for almost half of all third-quarter fixed-income trading revenue, according to Coalition data. Staite wrote that may stay the strongest area.

Jefferies Group Inc. (JEF), the New York-based investment bank that’s been expanding its advisory and fixed-income businesses, reported yesterday that trading revenue dropped about 31 percent from a year earlier.

Trading throughout the year was held back by “investors’ reluctance to take risks in transactions in the face of abject political and economic uncertainty,” Jefferies CEO Richard Handler, 50, said during a conference call with investors. “2012 is a new year.”

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

Read more...

Gingrich Leads Revolt Against Judges

By Greg Stohr - Dec 21, 2011 12:00 PM GMT+0700

Newt Gingrich, who says as president he would ignore U.S. Supreme Court rulings he dislikes, has plenty of company among Republican candidates in vowing to blow up long-held premises of constitutional law.

Rick Perry is calling for judicial term limits. Michele Bachmann says she would invite a confrontation with the court over abortion. Ron Paul would bar federal judges from hearing many cases involving abortion, same-sex marriage and religion.

Almost a half century after Richard Nixon campaigned against Supreme Court criminal-law rulings, Republican presidential candidates have ratcheted their criticisms of the judiciary to new levels in the 2012 campaign, sometimes drawing rebukes from prominent lawyers in their own party.

In advance of the Jan. 3 Iowa caucuses, the candidates are moving beyond objections to individual judges and rulings and telling voters that they want to cut back the authority of the government’s third branch and assert the supremacy of the president and Congress on social issues.

“Republicans are starting to unite around the idea that we’ve got to do something structurally to bring the courts back within the bounds established by the Constitution,” says Robert George, a constitutional law professor at Princeton University in New Jersey. George questioned the candidates at a Sept. 6 forum in South Carolina.

Voters’ Concerns

Reining in the judiciary is not an issue that tops voters’ concerns in public opinion polls. Still, it may have particular resonance in Iowa, where social conservatives last year unseated three state Supreme Court justices who supported a 2009 decision allowing same-sex marriage. Gingrich backed the effort and a charitable group he founded helped provide financing for the campaign, R.C. Hammond, Gingrich’s spokesman, said.

The former House speaker and co-leader in primary national polls with former Massachusetts Governor Mitt Romney, Gingrich is making the judiciary a central campaign issue. He told reporters in a Dec. 10 conference call he is “fed up with elitist judges imposing secularism on the country and basically fundamentally changing the American Constitution.”

As evidence, the former Georgia congressman points to a 2002 appeals court decision barring public-school teachers from leading the Pledge of Allegiance with the words “under God” and a June decision by a San Antonio judge barring student-led prayer at a high school graduation. Both rulings were unanimously reversed on appeal.

’Anti-American’

Gingrich says judges who issue “anti-American” decisions should have to defend themselves before Congress -- or face arrest if they fail to appear to do so. He says he would impeach those judges and potentially abolish their courts.

Some of Gingrich’s proposals are drawing fire from fellow Republicans. Two of former President George W. Bush’s attorneys general, Michael Mukasey and Alberto Gonzales, last week told Fox News that mandatory congressional testimony on rulings would threaten judicial independence. Mukasey, who has informally advised Romney, called Gingrich’s approach “outrageous.”

Edward Whelan, another former Bush administration official, said in a blog post on National Review Online that Gingrich’s plan to abolish judgeships is both unconstitutional and “foolish.”

Co-Equal Status

The proposal “threatens to undermine his ability, if he is elected president, to achieve real and readily attainable progress in the war against liberal judicial activism,” wrote Whelan, the president of the Ethics and Public Policy Center in Washington.

Less controversial, at least among the Republican Party base, are calls for the president and Congress to assert co- equal status with the Supreme Court in interpreting the Constitution.

At the Sept. 6 forum, Bachmann said she would support an effort to end abortion rights -- and overturn the landmark 1973 Roe v. Wade decision -- by invoking Congress’ power to enforce the 14th Amendment’s equal protection guarantee.

“If the Supreme Court, by a plurality of the justices, may impose their own personal morality on the rest of the nation, then we are quite literally being ruled by those individuals, as opposed to giving our consent to the people’s representatives,” said Bachmann, a Minnesota representative.

At the same event, Romney said he wasn’t “looking to create a constitutional crisis.” Even so, Romney left open the possibility that Congress and the president might take such a step.

Abortion Restrictions

“It’s reasonable that something of that nature might happen someday,” he said.

Paul would strip federal courts of jurisdiction over certain types of cases, including challenges to state and local abortion restrictions, marriage laws and religious displays.

The Texas representative said last month that legislation he introduced in Congress could have “saved millions of lives” over the past decade by letting abortion restrictions go into effect.

Perry, the governor of Texas, says he would seek a constitutional amendment imposing term limits for newly appointed federal judges. The Constitution says federal judges can keep their seats “during good behavior.”

The calls to limit judicial power stem in part from a re- evaluation of the seminal 1803 Supreme Court decision Marbury v. Madison, in which Chief Justice John Marshall said it is “emphatically the province and duty” of the courts “to say what the law is.”

Judicial Supremacy

Some legal scholars now say that ruling establishes only that the Supreme Court can interpret the Constitution as needed to resolve a legal case. Gingrich has endorsed that reasoning, contending that Presidents Thomas Jefferson, Abraham Lincoln and Franklin Roosevelt all took actions indicating they rejected judicial supremacy.

Gingrich says the notion of judicial supremacy didn’t take hold until 1958, when the high court unanimously ordered Arkansas officials to obey the Brown v. Board of Education school desegregation decision. In a 54-page position paper on his website, Gingrich calls the 1958 decision “factually and historically false.”

Gingrich’s attack on a legal pillar of the civil rights movement is fueling criticism.

“It’s not just that his end proposals are radical,” says Ian Millhiser, a policy analyst at the Center for American Progress Action Fund, an advocacy group in Washington founded by a Democrat. “The intellectual basis of his proposals are shocking.”

Republicans could suffer under Gingrich’s approach. The candidate’s reasoning would mean President Barack Obama could try to ignore the Supreme Court next year, should the justices declare the 2010 health-care law unconstitutional, George said.

“What’s sauce for the goose is sauce for the gander,” George says.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

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

Read more...

Italian Bonds Drop, Euro Pares Rally on ECB Lending; Stocks, Futures Rise

By Michael Shanahan - Dec 21, 2011 6:50 PM GMT+0700

Italian 10-year bonds fell, the euro pared gains and stocks advanced after the European Central Bank said the region’s banks took 489 billion euros ($645 billion) in three-year loans, almost double the amount forecast by economists. U.S. index futures climbed.

Italian yields climbed 27 basis points to 6.84 percent and Spanish bond yields increased 16 basis points to 5.19 percent. The euro was little changed at $1.3098 after appreciating to $1.3175. The MSCI All Country World Index of stocks added 0.3 percent at 11:40 a.m. in London, after earlier gaining 0.8 percent. Standard & Poor’s 500 Index futures increased 0.2 percent, after the stock gauge rallied 3 percent yesterday.

The ECB flooded euro-area lenders with cash as they took up the central bank’s offer of three-year loans as part of its latest attempt to keep credit flowing during the sovereign debt crisis. Economists forecast banks would seek 293 billion euros, according to the median of 14 estimates in a Bloomberg News survey. U.S. data today may show sales of previously owned homes rose in November, after a report yesterday showed housing starts jumped to a 19-month high.

“Whether the auction will help to restore confidence in sovereign borrowers in the euro zone remains to be seen,” Christian Schulz, senior economist at Berenberg Bank AG in London, wrote in a note. “Small banks may be tempted to invest the proceeds of the auction into sovereign bonds, profiting from the huge interest rate differentials. Large banks however, may be much more reluctant and resist pressure to do so.”

The Stoxx Europe 600 Index gained 1 percent, extending yesterday’s 2 percent jump. A measure of banks led the advance, rising 2.4 percent, as Lloyds Banking Group Plc and Barclays Plc climbed more than 3 percent.

Italian banks limited gains in the wider index, with UniCredit SpA and Banca Popolare di Sondrio Scrl dropping at least 1.4 percent.

Sovereign Risk

The cost of insuring against default on sovereign debt fell to the lowest in two weeks, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments declining six basis points to 355.5 basis points.

The gain in S&P 500 (SPX) futures indicated the U.S. stocks measure will extend yesterday’s jump, the biggest gain this month. Sales of previously owned homes in the U.S. probably rose to a 5.05 million annual rate in November from 4.97 million the previous month, economists surveyed by Bloomberg predicted before a report today.

Research In Motion Ltd. advanced 9.8 percent in German trading after the Wall Street Journal said that Microsoft Corp. and Nokia Oyj considered a joint bid for the maker of the BlackBerry smart phone, while Reuters reported that Amazon.com Inc. also considered buying the company. Oracle Corp. (ORCL) dropped 6.5 percent after the second-largest software maker reported sales and profit that missed analysts’ estimates, hurt by slower demand for databases, applications and computer servers.

‘Structural Impediments’

“The U.S. is showing it’s fairly robust in terms of not being dragged down to the extent of European economies, but there remain significant structural impediments,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “There will be significant gains today. The question is, given we are coming into a holiday period, how sustainable those gains are going to be over the next week or so.”

The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, slipped 0.3 percent.

The MSCI Emerging Markets Index (MXEF) rose 2.25 percent. Taiwan’s Taiex Index (TWSE) rallied 4.6 percent, the most since May 2009, after the government said it would allow a state-run fund to buy stocks. South Korea’s Kospi Index (KOSPI) advanced 3.1 percent and the won strengthened 1.3 percent against the dollar, erasing losses earlier in the week sparked by the death of North Korean leader Kim Jong-il. The Australian dollar increased 1.1 percent.

Shanghai Stocks

China’s Shanghai Composite Index (SHCOMP) retreated 1.1 percent, its third consecutive decline, as a gauge of funding availability in the financial system rose, signaling banks were hoarding cash.

The S&P GSCI index of 24 commodities was 0.4 percent higher. Oil in New York jumped 0.5 percent to $97.68 a barrel. Copper climbed 1.1 percent to $7,489 a metric ton and zinc increased 1 percent to $1,886 a ton.

The industry-funded American Petroleum Institute said crude inventories declined 4.57 million barrels last week. An Energy Department report today may show supplies fell 2.13 million barrels, according to a Bloomberg News survey.

To contact the reporter on this story: Michael Shanahan at mshanahan3@bloomberg.net

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net

Read more...

Banks May Flock to ‘Free Money’ as ECB Awards 3-Year Loans

By Gabi Thesing and Rainer Buergin - Dec 21, 2011 3:07 PM GMT+0700

The European Central Bank is set to flood euro-area banks with cheap cash as they flock to its offer of three-year loans today.

Banks will ask the ECB for 293 billion euros ($384 billion) of the 1,134-day funds, according to the median of 14 forecasts in a Bloomberg News survey of economists. Estimates range from 150 billion euros to as much as 600 billion euros. The money will be lent at the average of the ECB’s benchmark rate -- currently 1 percent -- over the period of the loan. Results are due at 11:15 a.m. in Frankfurt and the loans start tomorrow.

“This is basically free money,” said Jens-Oliver Niklasch, a strategist at Landesbank Baden-Wuerttemberg in Stuttgart. “The conditions are unbeatable. Everybody who can will try to get a piece of this cake.”

Europe’s debt crisis has increased the risk of government and bank defaults, making institutions wary of lending to each other and driving up the cost of credit. The ECB is trying to ensure that banks have access to cheap cash for the medium term so that they can keep lending to companies and households. In addition to the longer-term loans, the ECB has widened the pool of collateral banks can use to secure the funds.

The euro rose for a second day amid speculation the ECB’s loans will spur demand for sovereign bonds. The 17-nation currency gained 0.3 percent to $1.3123 at 9 a.m. in Frankfurt.

‘Significant’ Demand

Yields on Italian and Spanish government bonds have dropped since the ECB announced the loans on Dec. 8 as banks buy the securities to use them as collateral. French President Nicolas Sarkozy has suggested banks could use the loans to buy even more government debt.

The ECB’s intention is that banks utilize the funds to refinance themselves, Vice President Vitor Constancio said in a Dec. 19 interview. He predicted “significant” demand as banks face “very high refinancing needs early next year.”

Some 230 billion euros of bank bonds mature in the first quarter of 2012 alone, ECB President Mario Draghi told the European Parliament this week.

“Banks represent about 80 percent of lending to the euro area,” Draghi said. “The banking channel is crucial to the supply of credit.” He predicted banks will experience “very significant funding constraints” for the “whole” of 2012.

Capital Requirements

Banks from the euro region need to refinance 35 percent more debt next year than they did this year, according to a Bank of England study. Lenders have more than 600 billion euros of debt maturing next year, around three quarters of which is unsecured, the study says.

“The good news is that banks won’t have to worry about liquidity for three years,” said Carsten Brzeski, an economist at ING Group in Brussels. “However, it remains to be seen whether the money will filter through to the real economy as the ECB hopes. Many banks still have to increase their capital ratios to meet the Basel III criteria by mid-2012.”

Regulators are forcing European banks to increase buffers so they can cope with future crises. The European Banking Authority earlier this month ordered the region’s financial firms to raise 114.7 billion euros of additional capital to bolster their core Tier 1 ratios to more than 9 percent of risk- weighted assets by the middle of 2012.

Faced with a potential credit crunch, the regulator told banks to raise the money from investors, retained earnings and lower bonuses. Failing that, companies may sell assets, provided the disposals don’t limit overall lending to the “real” economy, the EBA said in a Dec. 8 statement.

‘Lender of Last Resort’

The ECB is focusing on greasing the banking system to fight the debt crisis as it resists calls to increase its bond purchases to reduce governments’ borrowing costs. It will also award 98-day loans today and offer a second three-year loan in February. Banks have the option of repaying them after a year.

With the loans, the ECB is showing it “is the lender of last resort for banks, not for sovereigns,” said Royal Bank of Scotland Group Plc (RBS) economist Silvio Peruzzo.

“This will stabilize the banking sector and is another building block in the ECB’s policy to prevent a much dreaded credit squeeze,” said Jan Holthusen, head of fixed-income research at DZ Bank in Frankfurt. “But it’s just one building block and by itself not decisive.”

To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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

Read more...

ECB Lends Banks $645B, Exceeding Forecast

By Gabi Thesing and Rainer Buergin - Dec 21, 2011 7:27 PM GMT+0700
Enlarge image

Light trails made my passing vehicles are seen in front of a Euro sign sculpture outside the European Central Bank's (ECB) headquarters in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg

Play Video

Dec. 21 (Bloomberg) -- The European Central Bank will lend euro-area banks 489 billion euros ($645 billion) for three years, more than economists forecast, in an effort to keep credit flowing to the economy during the sovereign-debt crisis. Linda Yueh and Maryam Nemazee report on Bloomberg Television's "The Pulse." (Source: Bloomberg)

The European Central Bank will lend euro-area banks a record amount for three years in its latest attempt to keep credit flowing to the economy during the sovereign debt crisis.

The Frankfurt-based ECB awarded 489 billion euros ($645 billion) in 1,134-day loans today, the most ever in a single operation and more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which will be lent at the average of its benchmark interest rate -- currently 1 percent -- over the period of the loans. They start tomorrow.

“It was obviously an offer the banks could not refuse,” said Laurent Fransolet, head of fixed-income strategy at Barclays Capital in London. “It shows the ECB is not out of ammunition and it gives banks security on liquidity for a few years. On the other hand it means banks will rely on the ECB for longer.”

Europe’s debt crisis has increased the risk of government and bank defaults, making institutions wary of lending to each other and driving up the cost of credit. The ECB is trying to ensure that banks have access to cheap cash for the medium term so that they can keep lending to companies and households. In addition to the longer-term loans, the ECB has widened the pool of collateral banks can use to secure the funds.

New Money

Barclays estimates today’s operation will inject 193 billion euros of new money into the system, with 296 billion euros accounted for by maturing loans. The ECB also lent banks $33 billion for 14 days in a regular dollar offering, up from $5.1 billion a week ago, and 29.7 billion euros for 98 days.

The euro jumped half a cent to $1.3198 before retreating to $1.3092 at 1:25 p.m. in Frankfurt.

“More important than the size of the operation is what banks do with this cash,” said Simon Smith, chief economist at foreign-exchange broker FXPro Group Ltd. in London. “The dichotomy between size and use explains why the euro struggled to maintain its initial positive reaction to the news.”

Spanish two-year notes extended a decline, snapping an eight-day gain and sending yields 14 basis points higher to 3.49 percent. Italian notes also dropped, pushing the yield 29 basis points higher to 5.27 percent.

‘Through the Backdoor’

Yields on government bonds in Italy and Spain fell in the days after the ECB announced the loans on Dec. 8 as banks bought the securities to use them as collateral in today’s tender. French President Nicolas Sarkozy has suggested banks could use the loans to buy even more government debt.

Simon Derrick, chief currency strategist at Bank of New York Mellon Corp, said the loans amount to quantitative easing “through the backdoor.”

“What the ECB is doing is providing ultra-cheap money to banks, which in turn are going to be in there buying the sovereign debt up,” Derrick told Linzie Janis on Bloomberg Television’s “First Look” earlier today. “That’s good news in the sense that it’s clearly going to help sovereigns in the near future, but it’s also printing more money. That’s going to start to weigh on the euro over time.”

Martin van Vliet, an economist at ING Group in Amsterdam, said banks are more likely to use the loans to “finance credit to the private sector or to repay maturing bank debt.”

“We doubt whether the money will be used extensively to fund purchases of peripheral debt,” he said.

Refinancing Needs

ECB Vice President Vitor Constancio in a Dec. 19 interview predicted “significant” demand for the loans as banks face “very high refinancing needs early next year.”

Some 230 billion euros of bank bonds mature in the first quarter of 2012 alone, ECB President Mario Draghi told the European Parliament this week.

“Banks represent about 80 percent of lending to the euro area,” Draghi said. “The banking channel is crucial to the supply of credit.” He predicted banks will experience “very significant funding constraints” for the “whole” of 2012.

Banks from the 17-nation euro region need to refinance 35 percent more debt next year than they did this year, according to a Bank of England study. Lenders have more than 600 billion euros of debt maturing in 2012, around three quarters of which is unsecured, the study says.

The ECB is focusing on greasing the banking system to fight the debt crisis as it resists calls to increase its bond purchases to reduce governments’ borrowing costs. Today’s lending exceeded the 442 billion euros awarded in the ECB’s inaugural 12-month loan in 2009.

The ECB said 123 banks shifted a total of 45.7 billion euros into the three-year loan from an existing one-year facility allotted in October. The central bank will offer a second three-year loan on Feb. 28 and borrowers have the option of repaying the funds after a year.

“It’s very significant and very helpful for the banks,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, told Bloomberg Television. “But it’s not going to bring about a turning point in this crisis.”

To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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

Read more...