Most U.S. Stocks Fall as Europe Offsets Bank, Tech Rally

By Inyoung Hwang - Aug 21, 2012 4:00 AM GMT+0700

Most U.S. stocks fell, after the Standard & Poor’s 500 Index rose to its highest level since April, as investor concern about Europe’s debt crisis overshadowed a rally in technology and financial companies.

Best Buy Co. lost 10 percent after saying its founder declined an offer from the board to conduct due diligence and go to shareholders with his buyout offer. Apple Inc. (AAPL) jumped 2.6 percent to its highest price ever, pacing a technology rally. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) added at least 1.1 percent as financial companies recovered from early losses.

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Traders work on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

7:36

Aug. 20 (Bloomberg) -- Adam Parker, U.S. equity strategist at Morgan Stanley, talks about the outlook for the U.S. stock market. He speaks with Linzie Janis on Bloomberg Television's "Street Smart." (Source: Bloomberg)

8:24

Aug. 20 (Bloomberg) -- James Bianco, president of Bianco Research LLC, Brian Angerame, a portfolio manager at Legg Mason Inc.'s ClearBridge Advisors, and Gina Martin Adams, an equity strategist at Wells Fargo Securities LLC, talk about Federal Reserve policies and their investment strategies. They speak with Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)

10:18

Aug. 20 (Bloomberg) -- Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc, discusses investment strategy and the outlook for the Standard & Poor's 500 Index. He talks with Deirdre Bolton, Julie Hyman, Alix Steel and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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An employee cuts lumber for customers at a Lowe's Cos. store in the Brooklyn borough of New York. buyout offer. Lowe’s Cos. fell 4.2 percent after missing analysts’ profit predictions and cutting its earnings forecast. Photographer: Victor J. Blue/Bloomberg

The S&P 500 (SPX) was almost unchanged at 1,418.13 at 4 p.m. in New York, within a point of a four-year high set in April. The gauge fell 0.4 percent earlier as Germany’s Bundesbank stepped up its criticism of the European Central Bank’s bond-buying program. The Dow Jones Industrial Average lost 3.56 points, or less than 0.1 percent, to 13,271.64. Seven stocks fell for every five declining on U.S. exchanges, with volume at 4.9 billion shares, 23 percent below the three-month average.

“We’re at a pretty formidable technical resistance here,” Michael Strauss, who helps oversee about $26 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut, said in a telephone interview. “The Bundesbank does have a hard problem with this,” he said, referring to the ECB’s bond-buying program. “Germany is being put in the position as being the lender of last resort in Europe.”

The S&P 500 last week capped its longest stretch of weekly gains since January 2011 as economic reports beat forecasts and Germany backed the ECB’s bond-buying plan. Trading volume and volatility have dropped this month as vacationing traders await policy clues from the Federal Reserve’s summit at the end of the month and an ECB meeting in September.

‘Stability Risks’

Government bond purchases “entail significant stability risks,” the Bundesbank said in its monthly report today. The ECB’s governing council may decide at its next gathering to set yield limits on each country’s debt, Spiegel magazine reported yesterday, without saying where it got the information. The ECB said the council has not discussed any plan to target the bond yields and that “it is absolutely misleading to report on decisions,” a bank spokesman said in an e-mailed statement.

Reports in the U.S. this week will show that combined purchases of new and existing houses increased to a 4.89 million annual rate in July from a 4.72 million pace in June, according to the median forecasts in surveys of economists before releases from the National Association of Realtors on Aug. 22 and the Commerce Department the next day. Bookings for long-lasting goods may have climbed the most this year, a release from the Commerce Department will show Aug. 24, according to the median estimate.

Jackson Hole

The Fed will on Aug. 22 release minutes from the Aug. 1 meeting of the Federal Open Market Committee, when policy makers declined to initiate a third round of monetary stimulus, a policy known as quantitative easing. The S&P 500 has rallied 11 percent since June 1 on speculation the central bank may signal more easing at the Kansas City Fed’s annual conference on Aug. 30 to Sept. 1 in Jackson Hole, Wyoming.

The 13 percent rally in the S&P 500 this year through Aug. 17 has lifted the gauge to its highest level ever compared with strategists’ forecasts, a sign that the best may be over for U.S. equities in 2012.

Shares have climbed 2.1 percent above the average projection of 1,389 from 13 firms from Morgan Stanley to JPMorgan tracked by Bloomberg. That’s the biggest premium on record for this time of year, according to data going back to 1999. Estimates by strategists in August have come true for the last three years, with the S&P 500 rising 11 percent on average through December, the data show.

‘Core Fundamentals’

“The core fundamentals are not really a reason to be long stocks,” said Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc, in an interview on Bloomberg Television’s “In the Loop” with Deirdre Bolton. “Core fundamentals, earnings and revenue growth have deteriorated to a great extent.”

Phone and consumer discretionary companies posted the biggest declines out of 10 groups in the S&P 500, falling more than 0.5 percent.

Best Buy erased 10 percent for the biggest decline in the S&P 500 to $18.16. The retailer’s board proposed that founder Richard Schulze, beginning in January, be allowed to take his buyout offer to shareholders, should the board decide to reject any definitive proposal to acquire shares. Schulze didn’t accept the proposal, according to Best Buy.

Lowe’s Tumbles

Lowe’s Cos. tumbled 5.8 percent to $26.26. The second- largest U.S. home-improvement retailer reported second-quarter earnings that trailed analysts’ estimates as comparable-store sales fell. Adjusted earnings per share were 65 cents. Analysts had projected 70 cents. The retailer cut its full-year profit forecast to $1.64 a share from a projection of $1.83 a share in May.

Waste Management Inc. (WM) decreased 3 percent to $34.60 after Barron’s reported the trash handler may be poised to fall as much as 15 percent because of operating performance. Garbage volume has been little changed to down for years because of conservation, recycling and slow industrial growth, Barron’s said.

Corinthian Colleges Inc. (COCO) slipped 1.2 percent to $2.42. The for-profit college operator forecast revenue in the first quarter will be no more than $405 million, missing the average analyst estimate of $406.4 million.

Financial stocks rose 0.3 percent after dropping as much as 0.3 percent earlier. Bank of America, the second-largest U.S. bank by assets, climbed 1.9 percent to $8.15. JPMorgan, the biggest bank in the nation by assets, added 1.1 percent to $37.37.

Apple Soars

Technology stocks increased 0.3 percent. Hewlett-Packard Co. soared 2.9 percent to $20.09 for the biggest gain in the Dow.

Apple, the world’s most valuable company, advanced 2.6 percent to $665.15. The company’s market value reached $623.52 billion, higher than Microsoft Corp.’s record of $620.6 billion, according to Howard Silverblatt, senior index analyst at S&P, in a note today. The iPhone and iPad maker surpassed $600 billion in market value last week on speculation that production has started on a smaller version of the iPad tablet as well as a new television product.

Facebook Inc. (FB), the operator of the world’s largest social- networking service, jumped 5 percent to $20.01 after falling last week to a record low that was close to half the stock’s initial public offering price of $38 in May.

Health-care stocks added 0.3 percent as a group. Coventry Health Care Inc. (CVH) surged 20 percent to $42.04. Aetna Inc. (AET), a health insurer, will pay $42.08 a share for the medical-care provider in cash and stock, the companies said in a statement today. Aetna’s shares climbed 5.6 percent to $40.18.

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

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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Banks Use $1.77 Trillion to Double Treasury Purchases

By Cordell Eddings and Daniel Kruger - Aug 21, 2012 1:43 AM GMT+0700

The gap between U.S. bank deposits and loans is growing at the fastest pace in two years, providing lenders with more funds to buy bonds and temper the biggest sell-off in Treasuries since 2010.

As deposits increased 3.3 percent to $8.88 trillion in the two months ended July 31, business lending rose 0.7 percent to $7.11 trillion, Federal Reserve data show. The record gap of $1.77 trillion has expanded 15 percent since May, the biggest similar-period gain since July, 2010. Banks have already bought $136.4 billion in Treasury and government agency debt this year, more than double the $62.6 billion in all of 2011, pushing their holdings to an all-time high of $1.84 trillion.

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A statue of the Albert Gallatin, the 4th Secretary of the Treasury, from the north patio of the U.S. Treasury Building. Photographer: Pablo Martinez Monsivais/AP Photo

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A flag waves over the U.S. Treasury building in Washington. Photographer: Chip Somodevilla/Getty Images

Faced with a slowing U.S. economy, unemployment above 8 percent for more than three years and regulations forcing them to hold more and higher-quality assets, banks are lending at below pre-recession levels. The bond purchases help explain why even after rising this month, Treasury 10-year note rates are about half the 3.5 percent median forecast of 43 economists in a Bloomberg survey a year ago.

“Bank deposits continue to explode and in turn they continue to buy Treasuries as the economy loses momentum, inflation is trending down, Europe continues to hang over our heads and political uncertainty reigns” said Michael Mata, a money manager in Atlanta at ING Investment Management Americas, which oversees about $160 billion. “There is no reason for interest rates to climb in any meaningful way any time soon.”

Borrowing Rises

While the gap has narrowed to $1.75 trillion as of Aug. 8 as lending of $7.12 trillion trailed $8.87 trillion in deposits, the gap is more than 17 times the $100 billion average in the decade before credit markets seized up, Fed data show.

Commercial and industrial lending reached a peak of $1.61 trillion in October 2008, a month after the bankruptcy of Lehman Brothers Holdings Inc. As the credit crisis deepened, loans tumbled to $1.2 trillion two years later, before recovering to $1.46 trillion Aug. 1.

The recent rise isn’t keeping up with record bank deposits as savings of U.S. households have risen to 4.4 percent of incomes as of June from 1.7 percent in 2007, the data show.

“Every bank is looking for a way to increase their yield,” said Mike Pearce, president of Bank of The West in Grapevine, Texas, whose company has been purchasing government securities after deposits grew faster than loans in 2010 and 2011. Instead of earning the Federal Funds rate of zero to 0.25 percent on the deposits, its bond holdings are yielding about 3.25 percent, he said.

Seeking Safety

Bank Treasury holdings reached $500 billion, the highest since June 2011, even with interest rates minus inflation for benchmark 10-year notes of 0.38 percent, compared to the average of 1.26 percent over the past decade.

Yields on 10-year Treasury notes rose 15 basis points, or 0.15 percentage point, last week to 1.81 percent. The price of the 1.625 percent security maturing in August 2022 declined 1 12/32, or $13.75 per $1,000 face value, or 98 9/32. The yield was little changed to 1.81 percent today.

They increased from a record low 1.379 percent on July 25 as investors became more optimistic about the economy. The U.S. added 163,000 jobs last month, a government report showed Aug. 3, more than the 100,000 projected by analysts. Sales at U.S. retailers increased 0.8 percent, more than the 0.3 percent forecast and following a 0.5 percent slide in June, Commerce Department data released Aug. 14 showed.

Rate Forecast

The benchmark notes will yield 1.60 percent by the end of September, below June’s projection of 1.90 percent, median estimates in separate Bloomberg surveys show. The year-end forecast fell to 1.65 percent from 2.1 percent.

Banks may be forced into more risky assets and lending practices if yields continue to hover about record low levels, said David Hendler, an analyst at financial research firm CreditSights Inc. in New York. Their net interest margin, a measure of lending profitability, has declined to 3.52 percent, the lowest since 2009, according to FDIC data.

“It doesn’t pay to be aggressive right now if you are a bank, but continuing to buy bonds near these levels is not sustainable in the long run,” Hendler said in an Aug. 14 telephone interview.

The Federal Reserve said in its quarterly survey of senior loan officers, released Aug. 6, that “domestic banks, on balance, continued to report having eased their lending standards across most loan types over the past three months.” Lending standards for large and medium-sized firms loosened, while those for small business were little changed for the fourth consecutive period.

Recession Legacy

Wall Street’s five biggest banks are off to their worst start in four years. JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley had combined first-half revenue of $161 billion, down 4.5 percent from 2011 and the lowest since $135 billion in 2008. The firms blamed the decline on low interest rates and a drop in trading and deal-making.

Low government bond yields are a legacy of the credit crisis that caused more than $2 trillion in write downs and losses at global financial institutions, according to data compiled by Bloomberg.

After cutting its target rate for overnight loans between banks in 2008 to a range of zero to 0.25 percent, the Fed under Chairman Ben S. Bernanke bought $2.3 trillion of Treasury and mortgage-related debt to reduce market interest rates and stimulate the economy.

The central bank owned $1.66 trillion of Treasuries as of August, ahead of China’s $1.16 trillion.

Extra Deposits

Investors are more willing to accept low yields “when you have large demand from the Fed as well as natural demand from banks,” said Matthew Duch, a fixed-income money manager at Calvert Investments, which oversees more than $12 billion in assets. “Are bonds where banks want to be right now? No, but given the uncertainty over regulation, the economy and still weak loan demand in the market it’s the best of lots of bad options,” he said.

Banks have “very conservative” balance sheets, JPMorgan Chief Executive Officer Jamie Dimon said in a July 13 conference call with analysts. The bank lent out $700 billion of its $1.1 trillion in deposits in the second quarter. “That would generally be considered totally conservative,” Dimon said.

JPMorgan increased the Treasury and government agencies portion of their available-for-sale credit portfolio to $11.743 billion as of June 30, from $8.351 billion at the start of the year, according to a filing with the Securities and Exchange Commission on Aug. 9.

Added Incentive

“We get a lot of deposits in,” he said. “The extra deposits of $423 billion, plus equity, plus some other net liabilities, give us $522 billion that’s not being lent out that we have to invest.”

The global supply of the highest-quality securities, as measured by ratings companies, is poised to fall by as much as $4 trillion. Reforms such as the Dodd-Frank financial-overhaul law and global regulations set by the Bank for International Settlements require institutions to hold more top-graded debt.

Lenders have an added incentive to buy Treasuries after the Basel Committee on Banking Supervision proposed rules in 2011 that banks increase available capital to bolster the cushion against potential losses and better measure and control their risk. Treasuries’ safety and liquidity makes them suitable capital under regulations designed to prevent a repeat of the global financial crisis.

Wrong Direction

Loans are being damped by the slow recovery. Gross domestic product expanded at a 1.5 percent annual rate in the second quarter after a revised 2 percent gain in the prior three months, below the average of 2.6 percent since 1982, the Commerce Department said on July 27.

The share of U.S. households viewing the economy as heading in the wrong direction rose to 45 percent in August, the highest since November, from 36 percent in July, the Bloomberg Consumer Comfort survey showed today. The monthly expectations gauge dropped to minus 22 from minus 11. The weekly Bloomberg Consumer Comfort Index fell to minus 44.4 in the period ended Aug. 12, the lowest since January, from minus 41.9.

Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year, according to the commerce department’s report on GDP.

Stimulus Pledge

Fed policy makers said Aug 1 they would provide more monetary stimulus “as needed.”

“There’s all sorts of good long-term developments that are occurring on household balance sheets, but you sense the Fed would like them to be not quite as thrifty and instead put a little more money to work,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “But that’s not going to happen without salary incomes rising.”

That explains the gap between deposits and lending, said Jeffrey Caughron, a partner at Baker Group LP in Oklahoma City who advises community banks on more than $30 billion of investments.

“It’s a function of inherently weak demand for loans and that relates to inherently weak demand in the economy,” he said. “Consumers, households, businesses: they’re paying down debt, they’re saving money, they’re not borrowing. They don’t have an appetite.”

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net

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

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Asian Stocks Advance as China Moves to Ease Cash Crunch

By Jonathan Burgos - Aug 21, 2012 10:54 AM GMT+0700

Asian stocks rose, with the regional benchmark index heading for a three-month high, as China moved to alleviate a cash crunch and ahead of U.S. reports that are expected to show the world’s biggest economy is improving.

Samsung Electronics Co. (005930), the world’s No. 1 mobile-phone maker by sales, gained 1.3 percent in Seoul. Asia Pacific Breweries Ltd. jumped 4.8 percent in Singapore after Heineken NV raised its offer for a controlling stake in the maker of Tiger beer. PICC Property & Casualty Co. advanced 5.8 percent in Hong Kong after China’s biggest non-life insurer posted higher first- half earnings.

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The Woodside Petroleum Ltd. logo is displayed atop the company's headquarters in Perth. Photographer: Ron D'Raine/Bloomberg

The MSCI Asia Pacific Index (MXAP) added 0.5 percent to 121.36 as of 12:47 p.m. in Tokyo, heading for its highest close since May 8. About five shares rose for every three that fell in the gauge. The measure advanced in the past three weeks on expectations China will ease monetary policy and amid signs the U.S. economy is strengthening.

“U.S. economic data has been better, with the housing sector turning around,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion in assets. “Eventually, Asian exports will rebound. Asian equities aren’t overvalued after recent gains and Chinese equities are dearth cheap. China’s economic slowdown remains a key concern.”

U.S. Reports

China’s nation’s central bank stepped up reverse-repurchase operations today to ease a cash crunch, injecting 150 billion yuan ($24 billion) using seven-day contracts and a further 70 billion yuan via 14-day agreements, according to a trader at a primary dealer required to bid at the auctions. That’s the biggest injection since July 3.

Reports in the U.S. this week will show that combined purchases of new and existing houses increased to a 4.89 million annual rate in July from 4.72 million in June, according to the median forecast in surveys of economists before releases from the National Association of Realtors tomorrow and the Commerce Department the next day. Bookings for long-lasting goods may have climbed the most this year, a release will show Aug. 24, according to economist estimates.

Asian exporters gained. Samsung Electronics rose 1.3 percent to 1.3 million won in Seoul. Toyota Motor Corp., the world’s biggest carmaker, advanced 1.1 percent to 3,280 yen in Tokyo. Nintendo Co., the maker of Wii game consoles, increased 2.1 percent to 8,950 yen.

South Korea’s Kospi Index rose 0.5 percent, while Taiwan’s Taiex Index climbed 1 percent. Australia’s S&P/ASX 200 Index gained 0.7 percent and Japan’s Nikkei 225 Stock Average (NKY) added 0.1 percent. Hong Kong’s Hang Seng Index slipped 0.1 percent and China’s Shanghai Composite Index advanced 0.6 percent.

Cash Injection

Futures on the Standard & Poor’s 500 Index rose less than 0.1 percent today. The underlying gauge yesterday closed little changed at 1,418.13. Trading volume and volatility have dropped this month as traders await policy clues from the Federal Reserve’s summit at the end of the month and a European Central Bank meeting in September.

Government bond purchases “entail significant stability risks,” Germany’s Bundesbank said in its monthly report yesterday. The ECB’s governing council may decide at its next gathering to set yield limits on each country’s debt, Germany’s Spiegel magazine reported Aug. 19, without saying where it got the information. The ECB council hasn’t discussed any plan to target the bond yields, a central bank spokesman said in an e- mailed statement.

Asia Pacific Breweries climbed 4.8 percent to S$53 in Singapore after Heineken boosted its bid for Fraser & Neave Ltd.’s stake in the Southeast Asian brewer to S$5.6 billion ($4.5 billion). Trading in the stocks was halted on Aug. 17 before announcements on the bid, and the city’s stock market was closed yesterday.

PICC Property

PICC Property & Casualty jumped 5.8 percent to HK$9.31. First-half net income climbed 24 percent from a year earlier to 6.53 billion yuan ($1 billion), the Beijing-based insurer said in a statement to the Hong Kong stock exchange yesterday.

Of the 444 companies in the Asia-Pacific index that have reported quarterly earnings since July 1, and for which Bloomberg has estimates, about 54 percent have failed to meet projections, according to data compiled by Bloomberg.

The MSCI Asia Pacific Index retreated 6.4 percent from a Feb. 29 high through yesterday amid concern China’s economy is slowing and Europe’s debt crisis is deepening. Stocks on the measure were valued at 12.6 times estimated earnings on average, compared with 13.7 times for the Standard & Poor’s 500 Index and 11.7 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

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

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

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Apple Reaches Record U.S. Market Value on IPhone Optimism

By Adam Satariano - Aug 21, 2012 11:01 AM GMT+0700

Dale de la Rey/AFP/Getty Images

An Apple store in Hong Kong.

Apple Inc. (AAPL) set a U.S. record for market value yesterday, surpassing the high mark reached by Microsoft Corp. (MSFT) during the Internet heyday, on optimism the next version of the iPhone will meet strong demand.

The shares of Cupertino, California-based Apple rose 2.6 percent to $665.15 at the close in New York, for a market value of $623.5 billion. That overtook Microsoft’s $616.3 billion closing market capitalization on Dec. 27, 1999, according to data compiled by S&P Dow Jones Indices LLC.

Apple is preparing to introduce the next version of the iPhone on Sept. 12 in what will be a design overhaul of its top- selling product, two people with knowledge of the company’s plans said last month. The next iPhone “could be the most impactful product upgrade in Apple’s history” and the company will probably sell as many as 250 million units over the life of the device, according to analysts at FBR Capital Markets.

“With the iPhone they have successfully created a strong customer following in an absolutely enormous marketplace,” Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co., said yesterday. “They have captured the hearts and minds of consumers.”

Apple gets about 70 percent of its profit from the iPhone, Sacconaghi said. The company’s stock has risen an average of 11 percent in the two months before previous iPhone updates have been released, he said.

The new iPhone will have a larger screen and thinner body, and is expected to work with faster, long-term evolution wireless networks being introduced by carriers such as Verizon Wireless and AT&T Inc. (T), according to analysts including Piper Jaffray Cos. (PJC)’ Gene Munster.

Smaller IPad

In addition to the iPhone, Apple also plans to introduce a smaller, cheaper iPad by the end of this year, people familiar with the plans said in July.

Apple, already the world’s most valuable company, has surged more than sevenfold since the iPhone debuted in January 2007. The stock has climbed 64 percent this year.

Because Microsoft’s record was set during the Internet boom, when valuations were inflated by predictions that later failed to materialize, a more significant long-term milestone would be if Apple’s market value tops $1 trillion, David Yoffie, a Harvard Business School professor who has written about Apple, said in an interview yesterday.

“We’re in a period now of much more normalcy, which makes Apple’s accomplishments even more impressive,” Yoffie said.

‘Easily Justified’

While the popularity of the iPhone and iPad make it possible that Apple might surpass that $1 trillion mark, it can be difficult for technology companies to sustain a run of successes like Apple has had over the past decade, he said.

“It doesn’t take much to miss a cycle,” Yoffie said. “Right now this valuation is premised on iPhone 5 and a new smaller iPad coming out, and if these are very good or great products then the valuation will be easily justified. If for any reason they have a hiccup on any of these products, then Apple would be vulnerable.”

PetroChina Co. became the world’s first company to be valued at $1 trillion, when the shares almost tripled on its first day of trading in Shanghai in 2007.

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

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

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Facebook Director Stock Sales Top $1 Billion as Lock-Up Expires

By Brian Womack and Ari Levy - Aug 21, 2012 11:01 AM GMT+0700

Facebook Inc. (FB) director Peter Thiel sold most of his stake in the operator of the world’s largest social-networking website, bringing his proceeds to more than $1 billion, after restrictions on insider sales ended.

Thiel, one of Facebook’s earliest investors, sold about 20.1 million shares in the company on Aug. 16 and Aug. 17, raising $395.8 million, according to a filing yesterday with the U.S. Securities and Exchange Commission. Thiel, a venture capitalist and hedge-fund manager, had already generated $640.1 million in sales during the initial public offering.

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Facebook Inc. director Peter Thiel. Photographer: Jin Lee/Bloomberg

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With an investment of $500,000 in 2004, Thiel is one of the biggest beneficiaries of Facebook’s gain before going public. Later backers haven’t fared as well, with the stock losing almost half its value since the IPO amid signs that the company’s growth is slowing and concerns that more insiders will exit their stakes. The sales disclosed yesterday were tied to a plan adopted on May 18, Facebook’s first day of trading.

“As of last May, he had basically handed over discretion about these sales,” said Stephen Diamond, associate professor of law at Santa Clara University.

Jeremiah Hall, a spokesman for Thiel, and Ashley Zandy, a spokeswoman for Facebook, declined to comment.

Facebook last week unlocked 271.1 million shares, the first of five insider-sale restrictions scheduled during the company’s first year as a public company. Another 1.44 billion shares will be freed up through November.

Shares in Menlo Park, California-based Facebook rose 5 percent to $20.01 at the close in New York yesterday.

Accel Distribution

Another Facebook investor, Accel Partners, distributed more than 50 million shares to investors in the venture capital firm’s funds on Aug. 16, according to another filing yesterday.

Thiel’s sale, at prices from $19.27 to $20.69 a share, represents most of the 27.9 million shares the investor held after the IPO. He still holds more than 5 million shares, and the proceeds don’t reflect underwriter or broker fees.

Thiel freed up extra shares for sale when he converted more than 9 million shares to Class A from Class B, according to a document filed Aug. 10 with the U.S. Securities and Exchange Commission.

As a co-founder of PayPal Inc., he served as chief executive officer until the company was bought by EBay Inc. (EBAY) for $1.5 billion in 2002. Thiel, who’s also a member of the so- called “PayPal Mafia,” used his fortune to start hedge fund Clarium Capital Management LLC and to invest in startups.

One of those startups was Facebook, a social-networking service devoted to college campuses at the time of the investment in 2004. Thiel also participated in a $25 million funding round in 2006 when the company was valued at $500 million.

-- Editors: Reed Stevenson, Tom Giles

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net

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

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