Yahoo Names PayPal’s Scott Thompson New CEO

By Brian Womack and Heather Perlberg - Jan 4, 2012 9:54 PM GMT+0700

Yahoo! Inc. (YHOO), the Internet company exploring strategic options, appointed Scott Thompson chief executive officer, four months after firing Carol Bartz for failing to drive a turnaround.

Thompson was most recently president of EBay Inc. (EBAY)’s PayPal unit, Sunnyvale, California-based Yahoo, the largest U.S. Web portal, said today in a statement.

The new CEO will need to boost visitors to Yahoo’s sites and attract more advertisers amid competition from Google Inc. (GOOG) and Facebook Inc., while dealing with strategic decisions. Yahoo has considered options including divestitures. Microsoft Corp. and private-equity firms TPG Capital and Silver Lake have signed non-disclosure agreements to help size up a possible bid, people close to the companies said last year.

“It’s probably a slight negative because I think the best outcome for Yahoo would be an all out takeover by Microsoft,” said Brett Harriss, an analyst at Gabelli & Co. in Rye, New York, who recommends buying the shares. “Hiring a new CEO makes the sale of the whole company unlikely.”

Yahoo, founded in 1994 by Jerry Yang and David Filo, fell 0.9 percent to $16.13 at 9:31 a.m. New York time. The stock lost 3 percent last year.

As San Jose, California-based PayPal’s president, Thompson contributed to an increase of the payment service’s users to more than 100 million, helping it close in on a goal of revenue as high as $7 billion by 2013, compared with $3.4 billion in 2010.

‘Surprising Choice’

PayPal’s services help retailers and individuals exchange funds for purchases or payments, even without a credit card. Thompson, who has run the business since January 2008, also engineered the company’s expansion to online daily deals and mobile payments.

“It’s a surprising choice,” said Ken Sena, an analyst at Evercore Partners Inc. (EVR) in New York who has an “equalweight” rating on Yahoo. “Scott has a great track record in payments and has proven an effective executive at PayPal and has major tech chops and international experience, but as content company, which Yahoo has increasingly become, his experience is kind of lacking.”

Thompson may play a role in extracting value from Yahoo’s international assets. Aside from its main Internet portal business, Yahoo (YHOO) has stakes in Asian companies that some investors, including Third Point LLC, have said are undervalued. Yahoo holds about 40 percent of Alibaba Group Holding Ltd (ALIBABZ)., China’s biggest e-commerce company. Yahoo estimated the stake was worth about $14 billion on a pretax basis in October.

‘Range of Opportunities’

Thompson’s primary focus will be on the “core business,” and he will work closely with the board on the company’s strategic review, Chairman Roy Bostock said in the statement.

“As part of this process, Yahoo is considering a wide range of opportunities for the company’s business, as well as specific investments or dispositions of assets,” Bostock said.

In her less than three years as CEO, Bartz reduced costs with job cuts and formed a search partnership with Microsoft Corp. Still, Yahoo failed to make much headway in the U.S. advertising and search markets.

During the second quarter, Bartz’s last full three-month period as CEO, Yahoo reported revenue that fell short of estimates as her overhaul of the U.S. sales force made it harder to close deals and slowed growth in display advertising.

In early September, Bostock fired Bartz over the phone, kicking off a wave of takeover speculation. Tim Morse, who had been chief financial officer, became interim CEO. The company initiated a strategic review “to position the company for future growth.”

Jack Ma

Yahoo drew interest from multiple parties after announcing the review, according to a memo to employees in September.

That included Jack Ma, chief executive officer of Alibaba Group, who said in October he was interested in buying Yahoo. Private-equity firms TPG Capital and Silver Lake signed non- disclosure agreements to help size up a possible bid for Yahoo, people close to the companies said in November.

Microsoft signed a non-disclosure agreement as well, a person briefed on the matter has said. KKR & Co. and Blackstone Group LP (BX) also were among the private-equity firms considering possible bids, people with knowledge of the matter said in October. Also, Google was considering providing financing for an acquisition of Yahoo by another company or a group of bidders, according to another person who has been briefed on the matter.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Heather Perlberg in New York at hperlberg@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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U.S. Stocks, Euro Retreat on Europe Debt Concerns

By Stephen Kirkland and Lynn Thomasson - Jan 4, 2012 10:19 PM GMT+0700

Stocks (SXXP) fell, pulling the Dow Jones Industrial Average down from the highest level since July, as UniCredit SpA’s plan to sell shares fueled concern European banks need to raise capital and U.S. factory orders trailed estimates. The euro weakened, while copper retreated.

The Dow slipped 0.4 percent to 12,353.75 and the Standard & Poor’s 500 Index lost 0.6 percent as of 10:17 a.m. in New York. The Stoxx Europe 600 Index (SXXP) slipped 0.7 percent as UniCredit, Italy’s largest bank, slumped 12 percent. Portugal’s two-year note yield extended declines after borrowing costs dropped at a bill sale. The euro depreciated 1 percent to $1.2926. Copper slid 1.8 percent, while oil fluctuated.

UniCredit said it will sell new shares in a 7.5 billion- euro ($9.8 billion) offer to strengthen its capital position. The European Central Bank reported overnight deposits from financial institutions rose to an all-time high and Luxembourg Prime Minister Jean-Claude Juncker said the European Union is facing a recession of unknown scope. U.S. factory orders increased 1.8 percent in November, trailing the median economist forecast for 2 percent growth.

“The euro-zone is in a long term adjustment process,” Neil Mellor, a strategist at Bank of New York Mellon Corp. in London, said in a report. “Whether certain member states will be prepared to stick it out for the long run should they ride out the liquidity crisis relatively unscathed remains to be seen.”

The S&P 500 retreated from a two-month high as financial shares, the worst-performing industry in 2011, lost 1.4 percent as a group to lead declines. Citigroup Inc. and Bank of America Corp. fell more than 2 percent after surging at least 4.3 percent yesterday.

European Banks

Banks lost 1.7 percent to lead declines in the Stoxx 600. UniCredit tumbled to the lowest level on a closing basis since 1992 as the bank said it will sell shares at 1.943 euros each, offering two for every one held. Vestas Wind Systems A/S (VWS), the world’s biggest wind-turbine maker, plunged 18 percent after cutting its sales forecast.

Next Plc sank 3.7 percent, leading a gauge of retailers lower, as the U.K.’s second-largest seller of clothing reported “disappointing” holiday revenue and forecast slack profit growth next year.

The yield on Portugal’s two-year note dropped 152 basis points. The government sold 1 billion euros of three-month bills at average yield of 4.346 percent, down from 4.873 percent at a previous auction. Germany’s 10-year debt yield was little changed at 1.90 percent, after climbing to 1.94 percent. The government sold 4.06 billion euros of bonds, after getting bids for 5.14 billion euros, more than the maximum sales target of 5 billion euros, at an average yield of 1.93 percent.

Spanish Bonds

The yield on Spain’s 10-year bonds rose 11 basis points, sending the difference in yield with bunds 11 basis points wider. Spanish Prime Minister Mariano Rajoy’s government may apply for loans from the European Union’s rescue fund and the International Monetary Fund to help restructure the country’s financial industry, Expansion reported, citing unidentified people with knowledge of the matter.

Spain has no plans to seek external help to fund its overhaul of the industry, said Carmen Martinez Castro, the deputy minister for communication.

The euro weakened 0.8 percent against the yen. The yen strengthened against all but three of its 16 most-traded peers.

Euro-area banks parked 453.2 billion euros with the Frankfurt-based ECB yesterday, up from 446 billion euros the previous day. That’s the highest since the euro’s introduction in 1999. Banks are depositing excess cash back with the ECB at the overnight rate of 0.25 percent, incurring a loss rather than lending it for more elsewhere.

Record Low

Hungary’s forint fell to as weak as 320.33 against the euro, a record, on speculation that a resumption in talks with the IMF and the European Union on financial assistance will be delayed. The EU currently has no plans to resume aid talks with Hungary, European Commission spokesman Olivier Bailly said yesterday. The BUX Index (BUX) of stocks (SXXP) lost 1.6 percent.

The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong lost 1.6 percent and the Shanghai Composite Index (SHCOMP) fell 1.4 percent, in its first day of trading for the year. China’s home prices fell for a fourth month in December and Premier Wen Jiabao said business conditions may be “relatively difficult” this quarter. Benchmark indexes gained more than 1 percent in Thailand and Indonesia.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

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

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SNB Hildebrand’s Wife Defends Dollar Trades

By Klaus Wille - Jan 4, 2012 10:42 PM GMT+0700
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Philipp Hildebrand, president of the Swiss National Bank during a news conference at the Bellevue Palace hotel in Bern, Switzerland on Dec, 15, 2011. Photographer: Gianluca Colla/Bloomberg

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Jan. 4 (Bloomberg) -- Bank Sarasin & Cie. AG, the Basel, Switzerland-based private bank, said it fired an employee who passed data on currency trades by the family of Swiss National Bank Chairman Philipp Hildebrand to a political opponent. The data allegedly showed the sale of 500,000 Swiss francs for dollars by Hildebrand's wife on Aug. 15. Matthias Wabl reports from Zurich on Bloomberg Television's "The Pulse" with Maryam Nemazee. (Source: Bloomberg)

Swiss central bank President Philipp Hildebrand will tomorrow break his silence on currency trading by his wife after a U-turn by officials led to the release of an internal report on the transactions and rules governing them.

Hildebrand, 48, will “comment on the last days’ events and respond to questions,” the Swiss National Bank (SNBN) said in an e- mailed statement from Zurich today, calling some media reports “partly incorrect.” It also released a report by PricewaterhouseCoopers LLP conducted last year, saying the transactions by the president and his spouse were in line with central bank rules that were also disclosed today.

With its move, the Swiss National Bank yielded to growing pressure by local media alleging that the central banker may have used insider knowledge to his advantage. Two out of three currency transactions that were investigated more closely and conducted last year were cleared, while one dollar purchase carried out by Kashya Hildebrand without her husband’s knowledge was seen as “delicate” by investigators.

The affair cuts to the core of Swiss politics and finance. Kashya Hildebrand’s currency purchase came about three weeks before the Swiss National Bank rattled investors by imposing a ceiling on the franc for the first time in three decades. In addition, Bank Sarasin, a Basel-based private bank, said it fired an employee who passed data on the trades to Christoph Blocher, vice president of the Swiss People’s Party, who last year called on Philipp Hildebrand to resign after the SNB’s currency transactions led to a record loss.

Dollar Transactions

On Aug. 15, Kashya Hildebrand spent 400,000 francs to buy $504,000 without informing her husband first. He was only told of the transaction on the following day and instructed Bank Sarasin only to act on his orders in future, according to the report. In March, he had carried out a currency transaction worth 1.1 million francs, following a Swiss property sale.

The Bank Sarasin (BSAN) employee, who wasn’t named, worked in information technology and passed the data to a lawyer, who then arranged a meeting with Blocher on Nov. 11, the bank said.

The employee went to Zurich’s police on Jan. 1 and admitted criminal misconduct, according to the statement.

Criminal Complaint

Weltwoche magazine said that the Bank Sarasin employee has filed a criminal complaint against Hildebrand for alleged insider trading. An official for the state prosecutor in the Swiss canton of Zurich declined to comment on whether the prosecutor received a complaint.

Philipp Hildebrand was first informed about the allegations on Dec. 15, the day the central bank left the benchmark interest rate at zero and maintained its franc cap of 1.20 versus the euro. He then fully disclosed details about his own and his family’s bank accounts.

The PricewaterhouseCoopers probe was commissioned by the SNB Bank Council, the central bank’s supervisory body, who made a statement on Dec. 23, exonerating Hildebrand and his family.

Kashya Hildebrand, a former hedge fund employee, said in a statement published on Swiss Television’s 10 vor 10 program late yesterday that she purchased dollars because “it was at a record low and almost ridiculously cheap” at the time.

‘Very Surprised’

“The day after the dollar purchase, the SNB’s general counsel was informed for the sake of transparency, and there were no objections to the transaction,” she said. “That’s why I am very surprised about the current interest in the matter.”

Kashya Hildebrand was born in Rawalpindi, Pakistan, to a Pakistani father and an American mother. At the age of four, she moved to the U.S. and later worked for hedge fund Moore Capital Management in New York, where she met her future husband, according to Tages-Anzeiger. After moving to Switzerland, Kashya Hildebrand focused on the art business, opening galleries in Zurich, New York and Geneva. The couple has one daughter and live in Zurich.

Philipp Hildebrand joined the SNB’s governing board in 2003 after being chief investment officer at Zurich-based Vontobel Group and Union Bancaire Privee in Geneva. He became SNB president in January 2010.

Billionaire entrepreneur Blocher, 71, helped to transform the Swiss People’s Party from an agrarian group to a populist anti-immigrant party. He was ousted from the Cabinet in 2007.

After the central bank amassed a record loss of $21 billion in 2010 through foreign-currency actions aimed to fight deflation and help exporters, Blocher said Hildebrand should resign, calling the moves “senseless speculation.”

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

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

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Stocks in U.S. Decline as Factory Orders Trail Economists’ Estimates

By Ksenia Galouchko and Nikolaj Gammeltoft - Jan 4, 2012 10:15 PM GMT+0700

U.S. stocks fell, after yesterday’s rally, as factory orders trailed economists’ estimates and concern grew that European banks may need to raise more capital amid the region’s sovereign debt crisis.

Bank of America Corp. (BAC) slumped 3.1 percent as financial shares dropped the most among 10 groups in the Standard & Poor’s 500 Index. Yahoo! Inc. lost 2 percent after appointing Scott Thompson of PayPal as chief executive officer. EBay Inc., which owns PayPal, tumbled 3.9 percent. TiVo Inc. (TIVO) rose 8.9 percent after settling a patent lawsuit over digital video recorders with AT&T Inc.

The S&P 500 slid 0.5 percent to 1,270.39 at 10:14 a.m. New York time. The Dow Jones Industrial Average declined 37.12 points, or 0.3 percent, to 12,360.26 today.

“For most of the manufacturing and industrial data we can expect to see some surprises like this going forward," Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said in a phone interview. "The market weakness today is a little bit of a reaction to strong gains from yesterday. Our belief is that the U.S. economy continues along a steady recovery path."

The S&P 500 lost 0.04 point to 1,257.60 in 2011, the smallest annual change since 1947. The benchmark gauge for U.S. equities surged 14 percent from last year’s lowest level on Oct. 3 through Dec. 30 as better-than-estimated economic data fueled optimism the world’s largest economy can shrug off concern over Europe’s sovereign-debt crisis. Stocks rallied 1.6 percent yesterday, sending the Dow to the highest level since July, amid signs that manufacturing output is increasing from China to Australia and America.

U.S. equities extended losses as bookings for factory goods rose 1.8 percent after a revised 0.2 percent drop the prior month, data from the Commerce Department showed today in Washington. Economists in a Bloomberg survey had estimated a 2 percent increase, according to the median forecast.

UniCredit Share Sale

Global stocks fell earlier as UniCredit SpA, Italy’s largest bank, said it will sell new shares in a 7.5 billion-euro ($9.8 billion) offer to strengthen its capital position. The European Central Bank reported overnight deposits from financial institutions rose to an all-time high and Luxembourg Prime Minister Jean-Claude Juncker said the European Union is facing a recession of unknown scope.

Germany sold 10-year bonds today, getting more bids than the amount for sale and kicking off a competition for financing that may determine whether euro-area leaders can preserve the single currency.

Financial shares fell as European lenders tumbled. Bank of America dropped 3.1 percent to $5.62, for the biggest decline in the Dow. JPMorgan Chase & Co. (JPM) lost 1 percent to $34.38.

Yahoo dropped 2 percent to $15.96. The Internet company that is exploring strategic alternatives appointed Thompson chief executive officer, four months after firing Carol Bartz for failing to drive a turnaround. EBay slipped 3.9 percent to $30.12.

TiVo rallied 8.9 percent to $9.72. AT&T agreed to pay at least $215 million to settle the patent lawsuit. TiVo, a pioneer in the market for set-top boxes that can record a TV program and play it back at the same time, had lost customers to offerings from TV-service providers including AT&T. TiVo accused those companies of using its patented time-warp technology.

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

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Stocks Retreat in Europe Amid Debt Concern; Vestas, UniCredit Lead Decline

By Corinne Gretler - Jan 4, 2012 10:10 PM GMT+0700

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Jan. 4 (Bloomberg) -- Kevin Gardiner, head of global investment strategy at Barclays Wealth, talks about investment strategy and the outlook for equities and bonds. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

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Jan. 4 (Bloomberg) -- Steen Jakobsen, chief economist at Saxo Bank A/S, discusses the outlook for the global economy, Federal Reserve policy disclosures and China. He speaks with Linzie Janis and Linda Yueh on Bloomberg Television's "Countdown." (Source: Bloomberg)

European stocks (SXXP) retreated from a five-month high as UniCredit (UCG) SpA’s rights offer boosted concern that banks will need to raise more capital to weather the region’s debt crisis.

UniCredit, Italy’s largest lender, slid to the lowest since March 2009 after setting a 43 percent price discount for the rights offer. Vestas Wind Systems A/S (VWS), the world’s biggest wind- turbine maker, slumped 18 percent after cutting its revenue and profit forecasts. Next Plc (NXT) dropped 3.7 percent as the U.K.’s second-largest clothing retailer reported sales that missed analyst estimates.

The benchmark Stoxx Europe 600 Index (SXXP) fell 0.5 percent to 249.72 at 3:09 p.m. in London. The measure rose to the highest level since Aug. 3 yesterday after a report showed that U.S. manufacturing expanded in December at the fastest pace in six months. The gauge lost 11 percent last year.

“The European debt crisis has never really abated,” said John Plassard, director at Louis Capital Markets SA in Geneva. “Even though 2011 ended relatively well, 2012 remains at risk. States will have to find 800 billion euros in the financial markets this year, so we should have a lot of market volatility ahead of us, at least during the first half.”

National benchmark indexes fell in all of Europe’s 18 western markets, except Iceland. France’s CAC 40 Index dropped 1 percent, the U.K.’s FTSE 100 Index (UKX) slipped 0.5 percent and Germany’s DAX Index lost 0.7 percent.

Bond Auctions

Germany and Portugal sold bonds today, kicking off a competition for finance that may determine whether euro-area leaders can preserve the single currency.

Germany got bids for 5.14 billion euros ($6.7 billion) of 10-year bunds at an auction, more than the maximum sales target of 5 billion euros. The debt agency accepted bids for 4.06 billion euros at an average yield of 1.93 percent. Portugal’s borrowing costs fell at a sale of 1 billion euros of three-month bills.

The offers will be followed by auctions from Greece, Italy and Spain later in the month as common-currency members commence sales that may reach 262 billion euros in the first quarter and 865 billion euros in 2012, according to Deutsche Bank AG forecasts.

Spain has no plans to seek external help to fund its overhaul of the financial industry, said Carmen Martinez Castro, the deputy minister for communication. She denied a report in Expansion newspaper that the government is considering seeking loans from the European rescue facility and the International Monetary Fund as part of its plans to make banks clean up their balance sheets.

U.S. Economy

In the U.S., a Commerce Department report showed that factory orders (TMNOCHNG) climbed in November by the most in four months. Bookings rose 1.8 percent after a revised 0.2 percent drop the prior month. The median projection of 57 economists in a Bloomberg survey called for a 2 percent increase.

A gauge of banks was the worst performer (SXXP) of the 19 industry groups in the Stoxx 600.

UniCredit tumbled 11 percent to 5.63 euros as the bank said it will sell shares at 1.943 euros apiece to raise 7.5 billion euros. The rights offer is a 43 percent discount to yesterday’s closing price, excluding the value of rights.

Banco Santander SA (SAN) slid 4.4 percent to 5.76 euros as new stock sold last month to bolster capital at Spain’s biggest lender started trading in Madrid. Santander raised 1.94 billion euros in December by swapping non-listed preferred securities sold to retail customers in 2009 for newly-issued stock that can be accounted as core capital.

Portuguese Banks Slide

Banco Comercial Portugues SA (BCP) and Banco Espirito Santo SA (BES) retreated 7.3 percent to 13.9 euros cents and 6.7 percent to 1.25 euros, respectively, in Lisbon.

Euro-area banks parked 453.2 billion euros with the European Central Bank yesterday, up from 446 billion euros the previous day. That’s the highest since the euro’s introduction in 1999.

Vestas sank 18 percent to 57.05 kroner after cutting its earnings forecasts and saying it will announce a significant change to its corporate structure on Jan. 12.

Vestas now expects sales of about 6 billion euros for 2011, down from the 6.4 billion euros it forecast on Oct. 30, which itself was a reduction from 7 billion euros. Sean McLoughlin, an analyst at HSBC Holdings Plc, cut the stock to “underweight” from “neutral.”

Retailers Retreat

Next dropped 3.7 percent to 2,641 pence after it reported sales that missed analyst estimates as growth in online revenue failed to offset lower store sales during a period that included the peak Christmas holiday season.

Larger rival Marks & Spencer Group Plc (MKS) sank 2.2 percent to 310.2 pence. Home Retail Group Plc (HOME), the owner of Homebase outlets in the U.K., slumped 4.3 percent to 90.2 pence.

Electricite de France SA slid 4.6 percent to 18.34 euros. The utility will have to invest between 10 billion and 15 billion euros to bring safety standards at its French reactors into line with recommendations from national nuclear safety watchdog ASN, Les Echos reported, citing unidentified ASN and EDF officials.

Audika (ADI) Groupe declined 3.6 percent to 13.11 euros after lowering its 2011 sales forecast, saying the “very unfavorable” economic outlook led some clients to wait before buying its hearing aids. The shares were downgraded to “reduce” from “neutral” at Oddo Securities.

Swiss rival Sonova Holding AG (SOON) slumped 3.2 percent to 94.55 Swiss francs.

Qiagen NV (QGEN), the German biotechnology company, increased 3.1 percent to 11.20 euros as Tycho Peterson, an analyst at JPMorgan Chase & Co. raised the stock to “overweight” from “neutral.”

Egide (GID) SA, the producer of ceramic packages that protect electronic systems used by the U.S. Air Force, surged 17 percent to 6.70 euros as revenue in 2011 rose. The increase was the biggest in two months.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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

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IBM Promotes Di Leo, Van Kralingen as CEO Makes First Changes

By Beth Jinks and Ville Heiskanen - Jan 4, 2012 12:01 PM GMT+0700

International Business Machines Corp. Chief Executive Officer Virginia “Ginni” Rometty named Bruno Di Leo as sales chief and Bridget Van Kralingen as head of consulting, her first promotions after taking over Jan. 1.

Di Leo’s title will be senior vice president of sales and distribution, IBM (IBM) said yesterday in a memo to employees. He was previously general manager of IBM’s growth markets unit, while Van Kralingen was formerly the general manager of IBM’s North America sales and distribution unit.

Rometty, the first woman at the helm in IBM’s 100-year history, is starting to form her management team after taking the reins from Sam Palmisano. By expanding in areas such as emerging markets, cloud computing and analytics, she’s trying to meet a goal of adding $20 billion in new revenue between 2010 and 2015. Analysts on average estimate IBM will report $107.2 billion in sales for 2011.

“They make sure that people understand all aspects of the company as part of the management mentoring process,” Laura D. Tyson, a business professor at the University of California, Berkeley, said in a phone interview before the promotions were announced. “They develop their own talent, and my sense is that it’s done in a collegial or camaraderie fashion -- as opposed to a very competitive, intense sort -- to keep the team together.”

Van Kralingen is replacing Frank Kern, who is retiring after 35 years at the Armonk, New York-based company. IBM also appointed James Bramante senior vice president of the growth markets unit.

IBM rose 1.3 percent to $186.30 yesterday at the close in New York.

Van Kralingen, the new senior vice president of IBM Global Business Services, the company’s consulting unit, is a South African who has led turnarounds in global business services in northeast Europe, IBM said.

Di Leo, a native of Peru, joined IBM in 1975 as a software engineer. His replacement, Bramante, will be based in Shanghai with the elevated title of senior vice president as IBM seeks to boost its growth markets unit to 30 percent of sales by 2015.

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net; Ville Heiskanen in New York at vheiskanen@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Google Demotes Chrome in Rankings After Paid Bloggers Promoted Web Browser

By Jordan Robertson - Jan 4, 2012 12:01 PM GMT+0700

Google Inc. (GOOG) demoted its Chrome browser in Web-search rankings after an advertising effort for the tool ran afoul of its own rules governing paid promotions.

The company is “taking manual action to demote” Chrome and lower its ranking for at least 60 days, Mountain View, California-based Google said yesterday in an e-mailed statement.

Google’s remarks came in response to blog posts that made favorable remarks about the Chrome browsing tool and said they were sponsored by Google, said Aaron Wall, founder of SEOBook.com, which trains marketers on how to improve search results. Google said it didn’t give a green light to the campaign, which it said stemmed from efforts to buy online ads.

“We have consistently avoided paid sponsorships, including paying bloggers to promote our products, because these kind of promotions are not transparent or in the best interests of users,” Google said. “We’re now looking at what changes we need to make to ensure that this never happens again.”

Helping users distinguish between authentic endorsements and advertising is central to what search engines do, and Google has punished websites it accuses of manipulating results to present paid content as original thought.

“People were outraged and cursing about it,” Wall said of online discussion that began last week. “They were saying it was an insane double standard and crazy.”

Essence Digital, an Internet-advertising company that has worked with Google to promote Chrome, posted a statement online to offer “context on what happened.”

Essence Digital said that Google didn’t authorize a campaign to pay for sponsored blog posts. Google only agreed to buy online video ads, Essence Digital said. The company apologized to Google.

Matt Isaacs, CEO of Essence Digital, declined to elaborate.

To contact the reporter on this story: Jordan Robertson in San Francisco at jrobertson40@bloomberg.net

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

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Groupon’s Shares Tumbling Below IPO Price Reflects Daily-Deal Peril: Tech

By Ari Levy and Danielle Kucera - Jan 4, 2012 12:01 PM GMT+0700

Groupon Inc. (GRPN)’s shares, which have fallen below the company’s initial public offering price, show that both merchants and investors are having second thoughts about the nascent daily-deal industry.

About half the businesses that have offered an online deal- of-the-day in the past aren’t planning to do so again in the next six months, according to a survey published on Jan. 2. The study, by Susquehanna Financial Group and daily-deal aggregator Yipit, showed that merchants were concerned about a low rate of repeat business from new customers gained through such offers.

“The risk factors are enormous” for daily-deal companies, said Sucharita Mulpuru, an analyst at Forrester Research Inc. in Cambridge, Massachusetts. “Their cost of merchant acquisition is going to get higher over time.”

To keep growing, the industry, which researcher BIA/Kelsey estimates may more than double to $4.17 billion by 2015, will probably agree to charge businesses less. Groupon, in fact, said in a June IPO filing that offering merchants more favorable terms may cut into its profits.

Margins are already shrinking. The amount of billings Groupon booked as revenue narrowed to 37 percent in the third quarter from 42 percent in the prior period and 44 percent in the first quarter. Groupon attributes the decline to getting into new products, such as travel and event tickets.

On a day when most company stocks rose, Chicago-based Groupon fell 6.6 percent yesterday to $19.27 after the release of the Susquehanna and Yipit survey, which collected data from more than 100 merchants. By contrast, the Nasdaq Composite Index rose 1.7 percent. Groupon’s decline was the stock’s second drop below the $20 IPO (GRPN) price since its Nov. 3 debut.

Merchant Feedback

Groupon is the biggest Internet-deal provider, delivering discounts on restaurants, hotels, spa treatments, and other goods and services. Rivals include Washington-based LivingSocial and Seattle-based Amazon.com Inc., and Groupon also lists Google Inc. and Microsoft Corp. as competitors in its prospectus.

While 80 percent of the survey’s respondents were satisfied with daily-deal companies, about 52 percent of merchants said they’re not planning to offer a discount through such sites in the next six months.

“People are scrutinizing it a little more because of all the merchant feedback,” said Herman Leung, a Susquehanna analyst based in San Francisco. He has a “neutral” rating on Groupon’s stock. “About 76 percent of the merchants plan to do zero or one deal over the next six months. They’re seeing sufficient demand on their own as the economy is getting better.”

Julie Mossler, a spokeswoman for Groupon, declined to comment.

Small Business Market

Groupon created the online daily-deal market in 2008 and in the first three quarters of 2011 featured deals from more than 190,000 merchants worldwide, according to its prospectus. That leaves plenty of room for growth, as there were 5.9 million businesses with employees in the U.S. alone in 2009, according to the U.S. Small Business Administration.

Brendan Lewis, a spokesman for LivingSocial, said that even within the Susquehanna and Yipit survey, the numbers are encouraging.

“It shows the vast majority of merchants who have run deals are happy with their experience, and nearly half plan to run another deal in the immediate future,” Lewis said in an e- mail. “You’d be hard-pressed to find an 80 percent satisfaction rate among merchants for any other marketing channel in use today.”

Still, LivingSocial put off its IPO plans last year as Groupon and other Internet companies faced turbulent debuts in the public markets. The company instead lined up $400 million in private funding at a valuation of about $6 billion, a person with knowledge of the matter said in December.

Post-IPO Scrutiny

Staying private has allowed LivingSocial to shore up its finances without the scrutiny of the public markets. Groupon, meanwhile, has been criticized for its ballooning marketing expenses (GRPN), which have led to rising losses.

The company has more than 10,000 employees, up from 37 in June 2009. It spent $613.2 million on marketing in the first nine months of last year, resulting in a net loss of $238.1 million. Marketing costs will increase in the coming months as stores become less inclined to offer Groupons because they aren’t seeing users return, Mulpuru said.

“It’s been like a marketing blitzkrieg that’s grown the business to the size that it is,” Mulpuru said. “They were using investor money to subsidize these offers for so long. Then what merchants start recognizing is, ‘We’re just not getting new customers.’”

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@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

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Refinancing Race to Dominate Third Year of Euro Crisis

By Patrick Henry - Jan 4, 2012 5:59 PM GMT+0700

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Jan. 4 (Bloomberg) -- Julian Callow, head of international economics at Barclays Capital, talks about the European debt crisis and Federal Reserve disclosures. He talks with Linzie Janis and Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

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Jan. 4 (Bloomberg) -- Kevin Gardiner, head of global investment strategy at Barclays Wealth, talks about investment strategy and the outlook for equities and bonds. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

Germany sold 4.1 billion euros ($5.3 billion) of bonds today, kicking off a competition for finance that may determine whether euro-area leaders can preserve the 13-year-old single currency.

Portugal, forced to seek an EU-led rescue in May, borrowed 1 billion euros selling bills repayable in April. Auctions from Greece, Italy and Spain follow later in the month as common currency members commence sales that may reach 262 billion euros in the first quarter and 865 billion euros in 2012, according to Deutsche Bank AG forecasts. Italy’s 10-year borrowing cost (GBTPGR10) is 6.95 percent, up from a 2011 average of 5.35 percent, while Spain’s 5.42 percent is down from 5.44 percent last year.

The push to solve the debt crisis now in its third year continues with a Jan. 9 Franco-German summit in Berlin. European Union finance chiefs convene in Brussels on Jan. 23, with government leaders gathering a week later. Greece, meantime, is still seeking final agreement to write off at least half of its debts in a so-called private-sector involvement agreement.

“This will definitely be a challenging quarter,” Nick Matthews, a senior economist at Royal Bank of Scotland Group Plc in London, said by e-mail. “There are a lot of political meetings and a number of decisions to be made and a number of implementations that need to be successfully concluded. The most pressing one will be the Greek PSI. Implementation is one of the key words for the first quarter, and refinancing is the other.”

Recession Risk

The European woes are compounded by an economy that’s edging toward recession as governments toughen budget cuts to contain the fiscal crisis, undermining consumer demand. The European Commission reduced its 2012 growth forecast by more than half to 0.5 percent in November. The euro has for the first time recorded two consecutive annual losses against the dollar.

“The solution to the euro-area’s problems is a long, drawn-out process, as it involves structural reforms and fiscal consolidation,” said Mohit Kumar, head of European interest- rate strategy at Deutsche Bank in London. “Leaders will strive to move toward that road, but given the varying political and economic interests, it will be an uncertain road.”

Euro countries face stiff competition for investors as governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year. Led by Japan’s $3 trillion and $2.8 trillion for the U.S., the amount coming due for the Group of Seven nations plus Brazil, Russia, India and China is up from $7.4 trillion a year ago, according to data compiled by Bloomberg.

Short-Term Funds

Bill auctions saw Belgium sell almost 2.4 billion euros of three- and six-month treasury bills yesterday at its lowest borrowing costs in 18 months. In the Netherlands, 2.99 billion euros of 85-day bills were sold at a yield of zero, while France sold 8.7 billion euros of bills at yields ranging from 0.023 percent for 84-day securities to 0.136 percent for 315-day debt.

Germany got bids for 5.14 billion euros of 10-year bunds at its auction, more than the maximum sales target of 5 billion euros, the Bundesbank said. The debt agency accepted bids for 4.06 billion euros at an average yield of 1.93 percent. Portugal’s three-month borrowing cost declined to 4.346 percent at today’s sale, down from 4.873 percent at a Dec. 7 auction.

Longer-term borrowing remains out of reach for Greece, Ireland and Portugal, the three euro states that received rescue packages after 10-year yields topped 7 percent.

The yield premium investors demand to lend to Italy rather than Germany for a decade is about 500 basis points, almost five times the five-year average, though two-year yields have dropped to about 4.66 percent from above 7.6 percent in November. Spanish two-year yields are 3.52 percent, after surpassing 6 percent on Nov. 25.

ECB Bridge

Spain and Italy have benefited from the support of the European Central Bank, which began buying government bonds in May and has purchased 211.5 billion euros of the securities so far. The ECB also loaned banks a record 489 billion euros for three years on Dec. 21 to avert a credit crunch sparked by the debt crisis.

“We require a bridge to support the markets and that has to come from the ECB,” said Kumar at Deutsche Bank.

Among the risks facing the euro-area bond issuers this quarter is the “heavy auction calendar” for sovereign bonds, RBS’s Matthews said in a toe to clients

“There’s a debate out there to what extent the ECB operations will support sovereign bond markets,” he wrote. “It’s very important to help stabilize the situation.”

On the political side, leaders must complete a second bailout for Greece, which includes 130 billion euros of public funds, before the country redeems 14.4 billion euros of bonds on March 20. EU leaders have scheduled another summit for March 1- 2. The region’s finance ministers plan to meet four times in the first quarter, ending with an informal session in Copenhagen on March 30. Denmark holds the six-month rotating EU presidency.

Greek Writedowns

The European Commission, the EU’s executive arm, said yesterday that private-sector involvement in the Greek plan must be concluded before governments can sign off.

Greece’s creditors are resisting pressure from the International Monetary Fund to accept bigger losses, three people with direct knowledge of the discussions said last month. Lenders want the 70 billion euros of new bonds the government will issue in return for existing securities to carry a coupon of about 5 percent, said the people, who declined to be identified because the negotiations are private.

Germany is studying a proposal to write down 75 percent of Greek government bonds held by private creditors as part of a planned debt swap to ensure greater debt sustainability, Greek news website Euro2day.gr reported on Jan. 2, without citing anyone. The German government declined to comment on the report.

To contact the reporter on this story: Patrick Henry in Brussels at phenry8@bloomberg.net

To contact the editor responsible for this story: Mark Gilbert at magilbert@bloomberg.net

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SNB Chief’s Wife Defends Dollar Trades

By Klaus Wille and Giles Broom - Jan 4, 2012 5:10 PM GMT+0700

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Jan. 4 (Bloomberg) -- Bank Sarasin & Cie. AG, the Basel, Switzerland-based private bank, said it fired an employee who passed data on currency trades by the family of Swiss National Bank Chairman Philipp Hildebrand to a political opponent. The data allegedly showed the sale of 500,000 Swiss francs for dollars by Hildebrand's wife on Aug. 15. Matthias Wabl reports from Zurich on Bloomberg Television's "The Pulse" with Maryam Nemazee. (Source: Bloomberg)

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Philipp Hildebrand, chairman of the Swiss National Bank. Photographer: Daniel Acker/Bloomberg

The wife of Switzerland’s central bank president defended currency transactions she made last year as Bank Sarasin (BSAN) fired an employee after information on the trades leaked to a political opponent of her husband.

Kashya Hildebrand, a former hedge fund employee, broke her silence on the affair late yesterday by saying that she bought “almost ridiculously cheap” dollars in August to run her art gallery in the center of Zurich. Her husband, Philipp, has yet to comment on the matter.

“My interest in the dollar purchase was motivated by the fact that it was at a record low and almost ridiculously cheap,” Swiss Television’s 10 vor 10 program cited Kashya Hildebrand as saying in a statement late yesterday. She also said that she had worked in the financial industry for 15 years through 1999 before becoming an art dealer and “felt comfortable with this transaction.”

The affair cuts to the core of Swiss politics and finance. Kashya Hildebrand’s trades came about three weeks before the Swiss National Bank (SNBN) rattled currency markets by imposing a ceiling on the franc for the first time in three decades. In addition, Bank Sarasin, a Basel-based private bank, said it fired an employee who passed data on the trades to Christoph Blocher, vice president of the Swiss People’s Party, who last year called on Philipp Hildebrand to resign after the SNB’s currency transactions led to a record loss.

Dollar Purchases

While Kashya Hildebrand argued that the purchase was business-related, Tages-Anzeiger newspaper today said that the money for the dollar purchase came from the sale of a holiday home in Gstaad, Switzerland, citing a person close to Philipp Hildebrand. Weltwoche magazine said today that the SNB President had personally given the orders on currencies.

On Aug. 15, he had spent 400,000 francs to buy $504,000, the Swiss magazine reported, citing bank statements. On Oct. 4, after the currency cap was imposed, he sold them, reaping a gain of 75,000 francs, according to Weltwoche.

Silvia Oppliger, a spokeswoman at the SNB in Zurich, declined to comment. The central bank wouldn’t say whether Philipp Hildebrand will give a statement.

Sarasin Employee

Bank Sarasin late yesterday said it fired an employee who passed data on currency trades by the Hildebrand family to Blocher, a political opponent.

The employee, who wasn’t named, worked in information technology and passed the data to a lawyer, who then arranged a meeting with Blocher on Nov. 11, the bank said in the statement, citing the former employee. Livio Zanolari, a spokesman for Blocher, declined to comment.

The employee went to Zurich’s police on Jan. 1 and admitted criminal misconduct, according to the statement.

Philipp Hildebrand was informed about the allegations on Dec. 15, the day the central bank left the benchmark interest rate at zero and maintained its franc cap of 1.20 versus the euro. He then fully disclosed details about his own and his family’s bank accounts, according to government spokesman Andre Simonazzi.

Two separate investigations, by government officials and by PricewaterhouseCoopers LLP, concluded that “there was no evidence of transactions that misused confidential information or breached SNB regulations,” Simonazzi said.

‘Very Surprised’

The PricewaterhouseCoopers probe was commissioned by the SNB Bank Council, the central bank’s supervisory body, who made a similar statement on Dec. 23, exonerating Hildebrand and his family. The central bank declined to publish its rules on disclosure obligations by executives and their families, saying that these regulations are only for internal use.

Kashya Hildebrand said that 70 percent to 80 percent of financial transactions at her art gallery are in dollars.

“The day after the dollar purchase, the SNB’s general counsel was informed for the sake of transparency, and there were no objections to the transaction,” she said. “That’s why I am very surprised about the current interest in the matter.”

Kashya Hildebrand was born in Rawalpindi, Pakistan, to a Pakistani father and an American mother. At the age of four, she moved to the U.S. and later worked for hedge fund Moore Capital Management in New York, where she met her future husband, according to Tages-Anzeiger. After moving to Switzerland, Kashya Hildebrand focused on the art business, opening galleries in Zurich, New York and Geneva. The couple has one daughter and live in Zurich.

Philipp Hildebrand joined the SNB’s governing board in 2003 after being chief investment officer at Zurich-based Vontobel Group and Union Bancaire Privee in Geneva. He became SNB president in January 2010.

Billionaire entrepreneur Blocher, 71, helped to transform the Swiss People’s Party from an agrarian group to a populist anti-immigrant party. He was ousted from the Cabinet in 2007.

After the central bank amassed a record loss of $21 billion in 2010 through foreign-currency actions aimed to fight deflation and help exporters, Blocher said Hildebrand should resign, calling the moves “senseless speculation.”

To contact the reporters on this story: Klaus Wille in Zurich at kwille@bloomberg.net; Giles Broom in Geneva at gbroom@bloomberg.net

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

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Santorum, Romney Leading in Iowa Caucuses, Paul Projected Third

By John McCormick and Lisa Lerer - Jan 4, 2012 1:03 PM GMT+0700

Former U.S. Senator Rick Santorum of Pennsylvania and former Massachusetts Governor Mitt Romney were running a close race for first place in Iowa’s Republican presidential nominating caucuses.

Santorum and Romney were separated by just dozens of votes as counting neared an end early today, with U.S. Representative Ron Paul of Texas finishing a close third.

Santorum claimed 24.6 percent of the vote, Romney 24.5 percent and Paul 21.1 percent, according to the Associated Press, with 99 percent of the precincts reporting.

Because of the closeness of the contest, all three would claim their own strengths as they carried their contest to New Hampshire’s primary election on Jan. 10.

“Thank you so much Iowa,” Santorum told supporters, as final votes were being counted. “By standing up and not compromising, by standing up and being bold and leading, leading with that burden and responsibility you have to be first, you have taken the first step of taking back this country.”

Romney, in comments to supporters in Iowa early today, reflected the closeness of the vote in offering congratulations to Santorum and Paul for their showings.

“We don’t know what the final vote tally is going to be, but congratulations to Rick Santorum. This has been a great victory for him,” Romney said. “We also feel it’s been a great victory for us here.”

“Ron Paul has had a great night,” he continued. “All three of us will be campaigning very hard to make sure that we restore the heart and soul of the entire nation.”

‘Three Winners’

There were “ essentially three winners,” Paul told supporters late last night in Iowa. “We’re going to go on. This momentum is going to continue and this movement is going to continue.”

The top trio were followed, in order, by former U.S. House Speaker Newt Gingrich with 13 percent, Texas Governor Rick Perry with 10 percent and U.S. Representative Michele Bachmann of Minnesota with 5 percent.

Perry told supporters in Iowa that he is returning to his home state today to reassess the future of his campaign for president. Gingrich and Bachmann pledged to continue their quests.

New Hampshire Next

The six Republicans competing in Iowa completed last-minute campaign stops and appearances on local and national television and radio as the focus of the party’s contest would shift to New Hampshire’s primary voting Jan. 10.

Romney’s campaign said in a news release that it plans to start running television ads in Florida, joining those already airing in Iowa, New Hampshire and South Carolina. It was meant as a show of strength that he can afford to advertise in the first four states to vote in the nominating contest.

Romney plans to head to New Hampshire today and South Carolina later in the week. New Hampshire’s primary is followed by South Carolina’s on Jan. 21, Florida’s Jan. 31.

Romney has consistently led, usually by large margins, in polls of likely voters in the New Hampshire primary. No Republican who has won both Iowa (BEESIA) and New Hampshire has failed to become the party’s nominee.

Gingrich, in an interview on CBS yesterday, said “yes” when asked if he was calling Romney a liar in how he talks to voters on matters as varied as fundraising and policy positions.

‘Ought to be Candid’

“He ought to be candid; I don’t think he’s being candid,” the former U.S. House speaker said. “Do you really want a Massachusetts moderate who won’t level with you to run against Barack Obama, who frankly will just tear him apart?”

Responding on Fox, Romney shrugged off the attack.

“I understand Newt must be very angry and I don’t exactly understand why, but, look, I wish him well,” he said. “It’s a long road ahead. He’s a good guy.”

Looking ahead to the general election, “President Obama is in much better shape today than he was about six months ago,” David Gergen, director of Harvard University’s Center for Public Leadership in Cambridge, Massachusetts, said in an interview on Bloomberg Radio’s “Bloomberg Surveillance.”

Although that doesn’t “mean he is not vulnerable, he is,” Gergen said, adding that the infighting among Republicans has benefitted the incumbent by making him “look a little more presidential.”

“The Republicans need to get a clear front-runner and someone who’s going to be anointed fairly soon if they hope to beat Obama,” Gergen said.

‘Tsunami of Negativity’

On CNN, Gingrich blamed his drop in polls on a “tsunami of negativity” created by millions of dollars in advertising against him. The ads have been paid for by a political action committee backing Romney, as well as by Paul’s campaign.

Romney said Gingrich has had “just as much difficulty” in polls in New Hampshire, where negative advertising hasn’t yet become prominent. He also said he is ready for the more aggressive campaign approach Gingrich has promised.

“If the speaker decides to come after me, why, that’s part of the process,” Romney said on Fox. “If I can’t handle this kind of attack, why, how in the world would I handle the attack that’s going to come from President Obama?”

Romney’s Closing

Romney, 64, made his final Iowa pitch in a Des Moines theater, before a few dozen voters, more than 40 television cameras and a crush of media. Ignoring his Republican rivals, he escalated his attacks against Obama.

“He went on the ‘Today Show’ shortly after being inaugurated and said that, if he’s not able to turn around the economy in three years, he’d be looking at a one-term proposition,” Romney said. “I’m here to collect. He’s out.”

Romney faces a growing challenge from Santorum, 53.

Santorum is urging Republicans not to settle for someone who doesn’t share their beliefs on such issues as ending abortions and cutting government spending just because they think that person can beat Obama this year.

“Ten days ago, the polls said I was going to finish last,” he told a crowd gathered yesterday in the lobby of a hotel in Perry, Iowa. “Polls change; convictions shouldn’t. And that’s what I bring to the equation.”

Republican voters have spent much of the past year searching for a more fiscally and socially conservative alternative to Romney, who has been unable to break a ceiling of roughly 25 percent support in most surveys. Yet after a campaign characterized by the rise and fall of several challengers, none has kept a lead over him.

To contact the reporters on this story: John McCormick in West Des Moines, Iowa at jmccormick16@bloomberg.net; Lisa Lerer in West Des Moines, Iowa at llerer@bloomberg.net

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

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Romney Wins Republican Caucuses in Iowa

By John McCormick and Lisa Lerer - Jan 4, 2012 3:47 PM GMT+0700

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Jan. 4 (Bloomberg) -- Former Massachusetts Governor Mitt Romney scored a narrow win in yesterday's Iowa caucuses, state Republican officials announced, edging out former U.S. Senator Rick Santorum of Pennsylvania by eight votes. Olivia Sterns reports on Bloomberg Television's "Countdown." (Source: Bloomberg)

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Republican presidential candidate, former Massachusetts Gov. Mitt Romney, speaks as his wife Ann Romney and their sons (L-R) Josh, Matt, Craig and Tagg look on at the Hotel Fort Des Moines on the night of the Iowa Caucuses January 3, 2012 in Des Moines, Iowa. Photograph: Win McNamee/Getty Images

The opening contest in the Republican presidential race ended in a near tie between Mitt Romney and Rick Santorum, tangling the path forward as the contest moves to New Hampshire, South Carolina and Florida.

Romney, a former Massachusetts governor and business executive, defeated Santorum, a former U.S. senator from Pennsylvania, by just eight votes in yesterday’s Iowa caucuses, state Republican Chairman Matt Strawn announced early today. Strawn said Romney received 30,015 votes to 30,007 for Santorum. That gave each a little less than 25 percent out of more than 122,000 votes cast.

After running a stealth campaign in Iowa for much of the past year, Romney failed to achieve the decisive victory he sought in the closing days of the caucus campaign. Santorum made up for having the fewest resources of any of Romney’s rivals by campaigning in all of Iowa’s 99 counties in a pickup truck.

Santorum, who emphasized his commitment to social conservative causes, made a late surge in Iowa and managed to sidetrack Romney’s chances of a quick knockout in the nomination race.

U.S. Representative Ron Paul of Texas, who stresses libertarian and pro-state rights positions, ran third with about 21 percent of the vote, according to a tally by the Associated Press. He was about 3,800 votes behind Santorum and Romney.

Other Candidates

The top trio were followed by former U.S. House Speaker Newt Gingrich with 13 percent, Texas Governor Rick Perry with 10 percent and U.S. Representative Michele Bachmann of Minnesota with 5 percent. Perry told supporters in Iowa last night he was returning to Texas today to assess whether to continue his candidacy; Gingrich and Bachmann pledged to continue their quests.

The results revealed a divided party, still undecided over whether to compromise fiscal and social conservative ideology for a candidate -- Romney -- who polls show is better positioned to attract the independent voters needed to beat President Barack Obama in the 2012 general election.

“Thank you so much Iowa,” Santorum told supporters in Iowa early today, before the final result was known. “By standing up and not compromising, by standing up and being bold and leading, leading with that burden and responsibility you have to be first, you have taken the first step of taking back this country.”

Romney, 64, congratulated Santorum, 53, and Paul, 76, in his comments to Iowa supporters, also before the last votes were counted.

‘Great Victory’

“We don’t know what the final vote tally is going to be, but congratulations to Rick Santorum. This has been a great victory for him,” he told supporters. “We also feel it’s been a great victory for us here.”

“Ron Paul has had a great night,” he continued. “All three of us will be campaigning very hard to make sure that we restore the heart and soul of the entire nation.”

Romney got close to the same number of votes he received in his failed 2008 bid for the Republican nomination. In that race, he was backed by 29,949 voters.

Romney lost the caucuses four years ago to former Arkansas Governor Mike Huckabee who was able to consolidate the support of evangelical Christians, a major force in the state’s Republican Party.

Senator John McCain of Arizona ended up winning the 2008 Republican nomination. McCain is set to endorse Romney today, the AP reported, citing unnamed people.

New Hampshire

While not a clear-cut victory for Romney, the Iowa results mean that two of his main opponents in New Hampshire’s Jan. 10 primary will be men who face doubts among many Republicans that they would be strong general-election candidates, polling shows. Santorum and Paul also must show that they can mobilize widespread support in primary contests, where turnout is much larger than in a caucus.

Romney, though, will face a challenge for the more moderate voters in the New Hampshire race from Jon Huntsman Jr.. The former Utah governor skipped Iowa and has focused his campaign on New Hampshire; he held his 150th event in the state yesterday.

No Republican who has won both the Iowa caucuses and the New Hampshire primary has failed to become the party’s presidential candidate.

In his Iowa remarks, Romney attempted to play down the results by stressing the more minimal effort he made in Iowa this year.

“When I ran four years ago we had 42 members of our full- time staff,” he said. “This time we had five.”

Vacation Home

Romney, who owns a New Hampshire vacation home and is well known to its voters from his time as governor of neighboring Massachusetts and his failed 2008 presidential bid, heads to the state having consistently led in polls of likely primary voters. He was backed by 43 percent in a Suffolk University/7NEWS two- day tracking poll of likely voters in the New Hampshire primary released yesterday, while Santorum was at 5 percent.

Paul was second in the poll, with 16 percent, while Huntsman was third with 10 percent.

The New Hampshire contest is followed by primaries on Jan. 21 in South Carolina and Florida on Jan. 31.

Paul’s third-place finish in Iowa followed his prediction late last week that he would finish first or second. He was boosted by drawing in more youthful and independent-minded voters drawn to his anti-war message.

In his speech to Iowa supporters last night, Paul argued that he was among the three winners in the state.

“We will go on,” he said. “We will raise the money. I have no doubt about the volunteers. They are going to be there.”

‘Positive Campaign’

Gingrich, speaking to Iowa supporters last night as it became clear Santorum was vying for the lead, congratulated him for waging a “great positive campaign.” He added that he wished he could say that for “all of the candidates.”

Gingrich was targeted by millions of dollars of negative advertising in Iowa, much of it financed Paul’s campaign and a political action committee supporting Romney.

In vowing to press on, Gingrich said: “There will be a great debate in the Republican Party before we are prepared to have a great debate with Barack Obama.”

Republicans must decide whether they want someone who can change Washington, or a “Massachusetts moderate who in fact will be pretty good at managing the decay,” he said.

Romney has “given no evidence” during his time as governor of “any ability to change the culture or change the political structure,” Gingrich said.

Debates

In New Hampshire, the candidates will face off in two debates, one on Jan. 7 and the next Jan. 8.

The proportion of evangelical voters who participated in the caucuses was roughly similar to four years ago, according to entrance polling. Almost 6 in 10 voters consider themselves evangelical or born-again Christians, the polling showed.

Santorum won just less than a third of that group’s vote, the most of any candidate and helping fuel his surge in the days leading up to the voting.

Caucus participants were also younger and more independent than four years ago, as Paul drew in college students opposed to U.S. military operations in Afghanistan and elsewhere.

Almost two-thirds of the voters said they support the Tea Party movement, according to the polling conducted by Edison Research for the National Election Pool of television networks and the Associated Press.

Romney’s Push

Romney had intensified his efforts in Iowa over the last month as polls showed he could win the caucuses. A skeleton staff was bolstered with workers dispatched from his headquarters in Boston, and he flooded the state’s airwaves with advertising.

Even before the results were announced, Romney was looking past Iowa and on to subsequent states. His campaign said yesterday that it was planning to start advertising in Florida, as it sought to display his national reach and fundraising strength.

The campaign in Iowa demonstrated the power of money spent by so-called Super PACs. Of the estimated $5.8 million spent on television advertising through Dec. 30, $3.7 million financed negative ads, according to the most recent data available from New York-based Kantar Media’s CMAG, a company that tracks advertising. Most of those spots were aimed at Gingrich.

The turnout of more than 122,000 voters for this year’s Republican caucuses exceeded the turnout of about 120,000 in the contest four years ago.

Democrats slightly outnumber Republicans in voter registration in Iowa, while independents outnumber both parties. Four years ago, then-Senator Obama of Illinois defeated then- Senator Hillary Clinton of New York in the Democratic caucuses, a victory that propelled him toward the White House amid turnout that was roughly twice as large as what Republicans saw yesterday. He faced no challenge in the Democratic caucuses last night.

To contact the reporters on this story: John McCormick in West Des Moines, Iowa, at jmccormick16@bloomberg.net; Lisa Lerer in West Des Moines, Iowa at llerer@bloomberg.net

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

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Fed Shows Rate Forecasts, Boosts Transparency

By Caroline Salas Gage and Craig Torres - Jan 4, 2012 12:00 PM GMT+0700

Federal Reserve Chairman Ben S. Bernanke is betting that announcing Federal Reserve officials’ own forecasts for borrowing costs will make monetary policy more effective while also supporting the two-year expansion.

A decision to reveal forecasts for the federal funds rate starting this month represents the biggest step toward openness since Bernanke took office in 2006 promising greater transparency, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. and a former Fed board economist. The central bank didn’t even start announcing changes in interest rates until 1994.

“This is a complete 180-degree shift from the old mysterious-institution approach,” said Ethan Harris, co-head of global economic research at Bank of America Merrill Lynch in New York. “There’s been a steady move toward opening up the central bank to outside scrutiny and trying to explain to the public the logic of what they’re doing.”

The first forecasts will be announced after the Jan. 24-25 meeting of the Federal Open Market Committee, according to minutes of the Dec. 13 gathering released yesterday. That may boost economic growth by delaying expectations for an increase in the benchmark rate, which has been kept close to zero since December 2008, according to Feroli. At the same time, publishing a range of forecasts risks sowing confusion by showing disagreement among policy makers, Harris said.

“It’s a bit awkward -- you’re going to reveal to the public how much uncertainty the Fed itself has about where it’s going,” Harris said.

Additional Accommodation

The minutes said “a number of members indicated that current and prospective economic conditions could well warrant additional policy accommodation.” Those members also decided that “any additional actions would be more effective if accompanied by enhanced communication” about the FOMC’s longer- run economic goals and policy framework.

The decision to publish forecasts “is a part of trying to manage expectations,” said Diane Swonk, chief economist in Chicago at Mesirow Financial Inc., which managed $59 billion as of Sept. 30. “The theory is that if households and companies are convinced that the Fed is not going to tighten too quickly, there is reason to invest now.”

Central bankers in August decided to replace their statement that interest rates would stay near zero for an “extended period” with a date of mid-2013. Bernanke said at his Nov. 2 press conference that the statement “says at least mid-2013” and that “clearly it could well be some point beyond that.”

Stocks maintained gains yesterday after the release of the minutes, buoyed by a report showing that manufacturing in the U.S. expanded at the fastest pace in six months in December. The Standard & Poor’s 500 Index (SPX) rose 1.6 percent to 1,277.06 at the close of trading in New York. The yield on the 10-year Treasury note increased to 1.95 percent from 1.88 percent on Dec. 30.

Danger of Confusion Seen

Some Fed officials voiced concerns at last month’s meeting that publishing the forecasts would “confuse the public,” as there is an “appreciable risk that the public could mistakenly interpret participants’ projections of the target federal funds rate as signaling the Committee’s intention to follow a specific policy path rather than as indicating members’ conditional projections,” according to the minutes.

While “most participants viewed these concerns as manageable,” some Fed officials “did not see providing policy projections as a useful step at this time,” the minutes said.

Releasing the forecasts will also demystify officials’ abilities to predict the economy’s path, according to Ward McCarthy, chief financial economist at Jefferies & Co. in New York.

Risks of Forecasting

“You run the risk of every other forecaster, and that is of making an idiot out of yourself,” McCarthy said.

The increased disclosure may make monetary policy “less flexible” if markets perceive the Fed as committed to a particular path of action, said Christopher Low, chief economist at FTN Financial in New York.

“The Fed is no better at forecasting than the best market economists, none of whom are right all the time,” Low said in an e-mailed response to questions. He said he worries that “it will be harder for the FOMC to change direction quickly if it means there is a risk of embarrassment or diminished credibility when they do so.”

Bernanke has made an unprecedented push for Fed openness as chairman. He has aired his views on monetary policy and the financial crisis in television interviews and taken his message on the road in town hall meetings with ordinary citizens in places such as El Paso, Texas.

Press Conferences

In 2011, the 58-year-old former Princeton University professor began holding press conferences four times a year. The FOMC now publishes forecasts for economic growth, inflation and unemployment four times a year, up from twice during the tenure of Bernanke’s predecessor, Alan Greenspan.

Fed officials have also been considering ways to make more explicit the conditions under which the benchmark federal funds rate would remain near zero. Fed Bank of Chicago President Charles Evans has advocated a promise to keep rates low until either unemployment falls below 7 percent or the medium-term inflation outlook rises above 3 percent, while Charles Plosser of Philadelphia has pushed for an inflation target of 2 percent.

Bernanke said Nov. 2 that the central bank may take new steps to boost growth, including changing the way it communicates its policy goals to the public.

“They have developed a potentially powerful easing tool,” and publishing rate forecasts “is a great move,” said Antulio Bomfim, senior managing director at Macroeconomic Advisers LLC in Washington.

“You can’t be against greater transparency,” said Bomfim, a former senior economist at the Fed. “It’s like motherhood and apple pie.”

To contact the reporters on this story: Caroline Salas Gage in New York at csalas1@bloomberg.net; Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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China’s Home Prices Slide Amid Speculation of Reserve Ratio Cut: Economy

By Bloomberg News - Jan 4, 2012 3:42 PM GMT+0700

China’s home prices fell for a fourth month in December after the government reiterated plans to maintain property curbs, according to SouFun Holdings Ltd. (SFUN)

Residential prices dropped 0.25 percent last month from November, said SouFun, the nation’s biggest real estate website owner. Prices slid in 60 out of 100 cities tracked by the company, including all of the country’s 10 biggest cities such as Shanghai and Beijing, it said in an e-mailed statement today.

The government said last month at an annual economic planning meeting that it won’t back away from real-estate industry curbs this year that are damping home sales and pulling down prices. The nation’s financial center of Shanghai and some other Chinese cities have also said they will continue to impose the home purchase restrictions this year.

“Home prices extended the downward falling tendency, but didn’t fall aggressively, because many developers have already achieved sales targets,” said Peter Bai Hongwei, a Beijing- based property analyst at China International Capital Corp., the country’s biggest investment bank. “Property is likely to be the last sector that the government will relax policies this year.”

Average home values nationwide climbed 2.9 percent in December from the same month in 2010 to 8,809 yuan a square meter (10.76 square feet), the slowest year-on-year growth since August, SouFun said.

Evergrande, China Vanke

Evergrande Real Estate Group Ltd. (3333), China’s second-biggest developer, said last month sales rose to 79.1 billion yuan ($12.6 billion) in the first 11 months, exceeding the 2011 target by 11 percent. Sales of China Vanke Co. (000002), the biggest by market value, stood above 100 billion yuan for a second year in 2011, according to the company.

Chinese Premier Wen Jiabao, in a two-day trip to Hunan province yesterday, said business conditions may be “relatively difficult” this quarter and monetary policy will be fine-tuned as needed.

China may avoid a hard landing of its property market because of sustained high economic growth potential and a sufficiently solid financial foundation, the state newspaper Peoples’ Daily reported today citing researchers from a government think tank.

“It’s actually very hard to tell whether China’s property market will succeed a soft landing,” said China International’s Bai, who expects home prices to bottom as early as in the third quarter.

The government has said it will continue to increase the supply of social housing. It plans to start the construction of 7 million homes this year, compared with 10 million in 2011. The completion will at least keep pace with last year’s 5 million units, People’s Daily reported today, citing Feng Jun, a housing ministry official.

Price cuts will “steepen and spread” from major to smaller cities in China in the coming months as developers “strive to maintain a decent sell-through rate,” HSBC Securities Asia Ltd. analysts led by Derek Kwong said in a report today.

A gauge (SHPROP) tracking property shares on the Shanghai stock exchange slipped 1.4 percent at the 3 p.m. local close, in line with the decline in the benchmark.

--Bonnie Cao. Editors: Tomoko Yamazaki, Andreea Papuc

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at bcao4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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European Stocks Fall on Bank-Capital Concern

By Corinne Gretler - Jan 4, 2012 6:50 PM GMT+0700

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Jan. 4 (Bloomberg) -- Steen Jakobsen, chief economist at Saxo Bank A/S, discusses the outlook for the global economy, Federal Reserve policy disclosures and China. He speaks with Linzie Janis and Linda Yueh on Bloomberg Television's "Countdown." (Source: Bloomberg)

European stocks (SXXP) retreated from a five-month high as UniCredit (UCG) SpA’s rights offer boosted concern that banks will need to raise more capital to weather the debt crisis. U.S. futures declined, while Asian shares advanced.

UniCredit, Italy’s largest lender, slid to the lowest since March 2009 after setting a 43 percent price discount for the rights offer. Vestas Wind Systems A/S (VWS), the world’s biggest wind- turbine maker, slumped 15 percent after cutting its revenue and profit forecasts. Next Plc (NXT) dropped 3.5 percent as the U.K.’s second-largest clothing retailer reported revenue that missed analyst estimates.

The benchmark Stoxx Europe 600 Index (SXXP) fell 0.4 percent to 250.01 at 11:49 a.m. in London. The measure rose to the highest level since Aug. 3 yesterday after a report showed that U.S. manufacturing expanded in December at the fastest pace in six months. Standard & Poor’s 500 Index (SPZ1) futures expiring in March lost 0.2 percent today, while the MSCI Asia Pacific Index (MXAP) climbed 1 percent.

“The European debt crisis has never really abated,” said John Plassard, director at Louis Capital Markets SA in Geneva. “Even though 2011 ended relatively well, 2012 remains at risk. States will have to find 800 billion euros in the financial markets this year, so we should have a lot of market volatility ahead of us, at least during the first half.”

Bond Auctions

Germany and Portugal sold bonds today, kicking off a competition for finance that may determine whether euro-area leaders can preserve the single currency.

Germany got bids for 5.14 billion euros of 10-year bunds at an auction, more than the maximum sales target of 5 billion euros. The debt agency accepted bids for 4.06 billion euros at an average yield of 1.93 percent. Portugal’s borrowing costs fell at a sale of 1 billion euros of three-month bills.

The offers will be followed by auctions from Greece, Italy and Spain later in the month as common-currency members commence sales that may reach 262 billion euros in the first quarter and 865 billion euros in 2012, according to Deutsche Bank AG forecasts.

Spanish Prime Minister Mariano Rajoy’s government is considering applying for loans from the European Union’s rescue fund and the International Monetary Fund to finance the restructuring of the country’s financial industry, Expansion reported, citing unidentified people with knowledge of the matter.

U.S. Economy

In the U.S., a Commerce Department report at 10 a.m. New York time may show that factory orders (TMNOCHNG) climbed 2 percent in November after a 0.4 percent drop the previous month, according to the median projection of 57 economists in a Bloomberg survey.

A gauge of banks was the worst performer (SXXP) of the 19 industry groups in the Stoxx 600.

UniCredit tumbled 8.5 percent to 5.80 euros as the bank said it will sell shares at 1.943 euros apiece to raise 7.5 billion euros. The rights offer is a 43 percent discount to yesterday’s closing price, excluding the value of rights.

Banco Santander SA (SAN) slid 4.7 percent to 5.74 euros as new stock sold last month to bolster capital at Spain’s biggest lender started trading in Madrid. Santander raised 1.94 billion euros in December by swapping non-listed preferred securities sold to retail customers in 2009 for newly-issued stock that can be accounted as core capital.

Banco Comercial Portugues SA (BCP) and Banco Espirito Santo SA (BES) retreated 6.7 percent to 14 euros cents and 5 percent to 1.28 euros, respectively, in Lisbon.

Banks Park Funds

Euro-area banks parked 453.2 billion euros with the European Central Bank yesterday, up from 446 billion euros the previous day. That’s the highest since the euro’s introduction in 1999.

Vestas sank 15 percent to 58.90 kroner after cutting its earnings forecasts and saying it will announce a significant change to its corporate structure on Jan. 12.

Vestas now expects sales of about 6 billion euros for 2011, down from the 6.4 billion euros it forecast on Oct. 30, which itself was a reduction from 7 billion euros. Sean McLoughlin, an analyst at HSBC Holdings Plc, cut the stock to “underweight” from “neutral.”

Next dropped 3.5 percent to 2,645 pence after it reported sales that missed analyst estimates as growth in online revenue failed to offset lower store sales during a period that included the peak Christmas holiday season.

EDF, Audika (ADI)

Electricite de France SA slid 4.3 percent to 18.40 euros. The utility will have to invest between 10 billion and 15 billion euros to bring safety standards at its French reactors into line with recommendations from national nuclear safety watchdog ASN, Les Echos reported, citing unidentified ASN and EDF officials.

Audika Groupe declined 1.8 percent to 13.35 euros after lowering its 2011 sales forecast, saying the “very unfavorable” economic outlook led some clients to wait before buying its hearing aids. The shares were downgraded to “reduce” from “neutral” at Oddo Securities.

Swiss rival Sonova Holding AG (SOON) slumped 2.8 percent to 94.90 Swiss francs.

Oil and gas companies advanced, with BP Plc (BP/) gaining 1.2 percent to 476.7 pence and Neste Oil Oyj adding 1.6 percent to 8.43 euros. Premier Oil Plc (PMO), the London-based oil explorer, increased 3.1 percent to 376.7 pence.

Qiagen NV (QGEN), the German biotechnology company, rallied 4.7 percent to 11.38 euros as Tycho Peterson, an analyst at JPMorgan Chase & Co. raised the stock to “overweight” from “neutral.”

Egide (GID) SA, the producer of ceramic packages that protect electronic systems used by the U.S. Air Force, rallied 13 percent to 6.50 euros as revenue in 2011 rose to 26.9 million euros from 24.7 million euros a year earlier.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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

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