China’s Alibaba Said to Consider Reducing Size of Yahoo Acquisition Loan

By Wendy Mock and Mark Lee - Jan 12, 2012 12:10 PM GMT+0700

Alibaba Group Holding Ltd (ALIBABZ). is considering reducing the size of a loan for a potential Yahoo! Inc. (YHOO) acquisition to around $3 billion from the original target of $4 billion in order to use its cash instead, a person familiar with the matter said.

The company is examining a range of funding combinations for various acquisition options related to Yahoo, and a final decision on the size and structure of the loan has not been made, the person said today. Alibaba has about $3 billion in cash, another person said today, declining to be identified because the details are private.

Alibaba and Softbank Corp. (9984) are considering acquisition options related to Yahoo, the largest U.S. Internet portal, three other people familiar with the matter said in December. Yahoo owns about 40 percent of Alibaba, the top e-commerce site in China, and 35 percent of Yahoo Japan Corp.

John Spelich, a Hong Kong-based spokesman for Alibaba, declined to comment when asked about a loan.

Credit Suisse Group AG, DBS Bank Ltd., Deutsche Bank AG and Mizuho Corporate Bank Ltd. are arranging the loan, another three people said on Dec. 15. The banks are seeking to expand the lead lender group to as many as eight because the size of the loan is too large for the four to underwrite themselves.

More lenders will be sought for the lead arranger group, with a particular focus on attracting Chinese banks, even though the size of the loan may be reduced, one of the people said today.

Reuters reported the loan’s potential reduction in the size on Jan. 11.

To contact the reporters on this story: Wendy Mock in Hong Kong at wmock3@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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U.K. Won’t Reserve Spectrum for Everything Everywhere in Frequency Auction

By Jonathan Browning - Jan 12, 2012 3:15 PM GMT+0700

U.K. regulator Ofcom said it will no longer reserve mobile-phone frequencies for Deutsche Telekom AG (DTE) and France Telecom SA (FTE)’s joint venture Everything Everywhere in an auction that may raise as much 2.6 billion pounds ($4 billion).

The regulator will probably only reserve spectrum needed for high-speed wireless Internet for Hutchison Whampoa Ltd. (13)’s Three or a new company to keep four operators in the U.K., Ofcom said today in a statement with revised proposals.

The delayed auction, now scheduled for the end of 2012, will sell frequencies equivalent to three-quarters of the spectrum currently being used by operators. Carriers need the bandwidth to cope with surging data demand as users watch films and surf the Web on smartphones including Apple Inc. (AAPL)’s iPhone and handsets using Google Inc.’s Android system.

“This is a crucial step in preparing for the most significant spectrum release in the U.K. for many years,” Ofcom Chief Executive Officer Ed Richards said. “The proposals published today will influence the provision of services to consumers for the next decade and beyond.”

Ofcom altered its proposals after initially saying it planned to reserve spectrum for Everything Everywhere, the U.K.’s largest operator.

Valuable Low Frequencies

All the companies are seeking access to the valuable 800 megahertz band of low-frequency spectrum that can travel long distances with fewer expensive base stations. Vodafone Group Plc (VOD), based in Newbury, England, and Spain’s Telefonica SA (TEF) are the only operators in the U.K. to hold low-frequency airwaves. The regulator also increased the amount of spectrum that Three needs to buy.

The number of U.K. operators fell to four from five after France Telecom and Deutsche Telekom merged their British units to form Everything Everywhere, an operator bigger than Telefonica’s O2 unit and Vodafone in the country. The market may consolidate further without intervention from the regulator, Three had said.

The auction has been delayed for more than two years as the regulator faced legal challenges. Vodafone and O2 previously opposed restrictions on the amount of low-frequency spectrum that they could bid for.

To contact the editor responsible for this story: Jonathan Browning at jbrowning9@bloomberg.net

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

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News Corp. Tells Judge of Tabloid Editor’s Prison Guard Bribe

By Erik Larson and Jonathan Browning - Jan 12, 2012 8:14 PM GMT+0700

News Corp. (NWSA) for the first time publicly detailed bribery by a journalist at its now-defunct News of the World, telling a court that a former editor agreed to pay a prison guard to get a story about a child killer.

Matt Nixson, a features editor for five years at the News of the World, told a reporter in March 2009 to pay 750 pounds ($1,150) to the guard for details about a man who murdered two girls. Nixson then said to “chuck her some more money later” since she wanted 1,000 pounds, according to court papers filed Dec. 13 in London and made public yesterday.

The disclosure is part of the company’s defense in Nixson’s lawsuit claiming he was wrongfully fired from News Corp.’s Sun tabloid, where he last worked. News Corp. closed the News of the World in July to help contain public anger after it was revealed it hacked into the voice mail of a different murdered school girl in 2002.

Nixson “was guilty of gross misconduct, or at any rate, conduct justifying dismissal without notice or pay,” members of the company’s Management and Standards Committee, which is running the investigation, said in the court filing.

Nixson’s lawyer, Alison Downie of Goodman Derrick LLP in London, declined to immediately comment. He hasn’t been arrested as part of the Metropolitan Police’s probe into journalist bribery of police. At least eight people have been arrested, including a serving police officer on Dec. 21.

‘Funny Business’

Nixson, who was fired in July, knew the bribe was wrong because he told the reporter, Matthew Acton, to arrange the payment “very carefully,” since the company had a “forensic new accountant who doesn’t brook any funny business,” according to the filing. Acton declined to comment when reached by phone.

Nixson also received an e-mail from another News of the World employee about phone hacking and “blagging,” or lying to get personal information for a story, and didn’t “raise an objection,” News Corp. said in the filing.

“I’ll get [REDACTED] to do his thing on [REDACTED]’s phone,” the unnamed employee said in the November 2005 e-mail to Nixson. The name of the employee and the proposed victim, a celebrity executive producer, were removed at the request of the Metropolitan Police, News Corp. said in the filing.

Daisy Dunlop, a spokeswoman for the New York-based company’s News International unit, declined to comment on the case. Paul Durman, a spokesman for the committee, also declined to comment.

News International is facing about 70 lawsuits filed by victims of phone hacking, as well as three police investigations and a judge-led inquiry into the ethics of U.K. newspapers, which was triggered by the scandal.

Ian Huntley

The bribe was made to get information on Ian Huntley, who was sentenced to life in prison in 2003 after being found guilty of murdering two 10-year-old girls attending the primary school where he worked in Cambridgeshire the previous year. In 2005, a court ruled he must spend at least 40 years in prison.

In the years after Huntley was jailed, the News of the World and other U.K. tabloids ran stories about his life in prison, saying he was given preferential treatment. A story by Acton in March 2009 said Huntely’s fellow inmates had been banned from swearing at him to avoid hurting his feelings after three failed suicide attempts. Huntley survived being slashed in the throat by another inmate in 2010.

Nixson sued the committee for recommending in July that the company fire him from the Sun, where he’d worked since 2010. He is seeking his 105,000-pound annual salary plus damages, claiming he will have difficulty finding work after being tainted by the News of the World’s phone-hacking scandal.

Committee Members

The committee is overseen by commercial lawyer Anthony Grabiner, a member of the U.K. Parliament’s House of Lords, and includes Simon Greenberg, Will Lewis and Jeffrey Palker.

The defense papers were filed by the committee members and not by News International, which was also sued.

Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.

The case is Nixson v. News Group Newspapers, High Court of Justice Queen’s Bench Division, Case No. HQ11X03843

To contact the reporters on this story: Erik Larson in London at elarson4@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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Apple Supplier Foxconn Says 150 Workers at South China Factory in Protest

By Janet Ong and Mark Lee - Jan 12, 2012 5:31 PM GMT+0700

Foxconn Technology Group (FOXCGZ), maker of parts for Microsoft (MSFT) Corp.’s Xbox, said some members of its 1 million-person workforce threatened to jump from a factory building earlier this month to protest an internal transfer of employees.

About 150 workers at Foxconn’s plant in Wuhan, southern China, demonstrated on Jan. 2 in opposition to the company’s plan to move them to a new production line, the Taiwanese company said in an e-mailed statement today. Foxconn didn’t say how many threatened to leap from the three-story building.

The incident was resolved the same day, after talks between the workers, executives and government officials, Foxconn said. Microsoft said in a separate statement that it investigated the issue.

Foxconn, the world’s biggest contract manufacturer of electronics including Apple Inc. (AAPL)’s iPhone, raised wages and boosted worker welfare in 2010 after at least 10 employees committed suicide. The Wuhan protests showed the Taipei-based company needs to improve communication with workers, said Geoffrey Crothall, a director at rights group China Labor Bulletin.

“The reason you see these protests is because the employees feel they have no other option,” Crothall said by phone from Hong Kong today. Threatening suicide is a common way for Chinese workers to draw employers’ attention to grievances, he said.

Worker Suicides

Forty five employees in Wuhan resigned after the dispute over reassignments among the facility’s 32,000 employees, Foxconn said in the statement.

The suicides at Foxconn in 2010 prompted labor groups including China Labor Watch to say the Taipei-based company pushes employees to work long hours to earn more money. Foxconn denied the allegation.

“After talking with workers and management, it is our understanding that the worker protest was related to staffing assignments and transfer policies, not working conditions,” Microsoft said in its statement.

The majority of the protesters at Foxconn returned to work, Microsoft said.

“The welfare of our employees is our top priority,” Foxconn said in the statement. “The operational changes that were the basis for this incident are being carried out in accordance with all relevant laws and regulations.”

In 2010, Foxconn offered to double wages for workers in Shenzhen, the company’s biggest manufacturing center in China; install safety nets; and hire counselors and psychologists in response to the employee suicides.

The Taiwan company also moved production to locations in central and western China, where costs are lower than in the east.

To contact the reporters on this story: Janet Ong in Taipei at jong3@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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King Resists Stimulus as U.K. Shows Resilience

By Scott Hamilton and Jennifer Ryan - Jan 12, 2012 8:02 PM GMT+0700
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Mervyn King, governor of the Bank of England. Photographer: Chris Ratcliffe/Bloomberg

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Jan. 12 (Bloomberg) -- Trevor Williams, chief economist at Lloyds Bank Corporate Markets, discusses U.K. interest rates and the prospect of further stimulus from the Bank of England. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

Bank of England Governor Mervyn King refrained from adding to emergency stimulus again today as policy makers await new forecasts and the economy showed some resilience heading into 2012.

The Monetary Policy Committee maintained its bond-purchase target at 275 billion pounds ($421 billion) in London today, which was forecast by all but one of 41 economists in a Bloomberg News survey. Citigroup Inc. and Royal Bank of Scotland Group Plc (RBS) are among banks saying it will increase the amount next month when current purchases end. The central bank has been buying about 5.1 billion pounds of gilts a week since October.

U.K. services and manufacturing gauges unexpectedly rose last month, signaling the economy gained some strength. Still, Bank of England officials have said the economy is probably stagnating as Europe’s debt crisis weighs on the recovery, and their November forecast for slowing inflation signals that more quantitative easing will be needed.

“Some of the data looks better, but we’re probably already in recession,” said Alan Clarke, an economist at Scotia Capital Europe in London. “They will expand QE in February, the only question is how much. I would expect 50 billion pounds.”

Bond Yields

The prospect of further bond purchases is weighing on the pound, which fell for a second day against the euro to 83.11 pence. Against the dollar, it was up 0.1 percent at $1.5348 as of 1 p.m. in London.

Bonds stayed lower after the Bank of England’s announcement, with the yield on the 10-year gilt up 1 basis point to 2.02 percent. U.K. gilts have risen as investors sought refuge from the euro-area crisis, with the 10-year yield falling to a record-low 1.93 percent on Dec. 30.

The Bank of England also kept its benchmark interest rate at a record-low 0.5 percent today. The European Central Bank kept its key rate at 1 percent today. ECB President Mario Draghi will speak at a press conference in Frankfurt at 2:30 p.m.

While the U.K. economy grew the most in a year in the third quarter, the outlook has since darkened. U.K. manufacturing dropped 0.2 percent in November from the previous month, data today showed. The Bank of England cut its 2012 growth projection in November, a month after it increased its QE target by 75 billion pounds. Prime Minister David Cameron, whose government is cutting spending to narrow the budget deficit, said on Jan. 5 this will be a “difficult year.”

Job Cuts

Rising unemployment is undermining consumer demand in the U.K. Royal Bank of Scotland said today it will cut about 4,800 jobs. It didn’t say how many would be lost in Britain. Tesco Plc (TSCO), the U.K.’s largest supermarket chain, reported Christmas sales that missed analyst estimates and said full-year profit will be at the “low end of the current consensus range.” There will be “minimal” growth in earnings next year, it said.

Bank of England policy makers will publish new growth and inflation projections next month. They have forecast that inflation, at 4.8 percent in November, will slow “sharply” this year. Based on its current stimulus, the central bank sees consumer-price growth at 1.7 percent at end of 2012, below its 2 percent goal, and 1.3 percent at the end of 2013.

James Knightley, an economist at ING Group in London, said the inflation forecast “means further stimulus will be required.”

‘Poor’ Prospects

“Consumer spending is being constrained by negative real wage growth and rising job insecurity,” he said. “Add in the fact that the external environment is not good news for exports and that firms are reluctant to invest in such an uncertain economic backdrop, and we believe that growth prospects remain very poor.”

The central bank expects the current round of QE to be finished in February. In the minutes of their December meeting, some MPC members said more may be needed. Still, they noted that “market capacity made it difficult to increase the monthly rate of purchases substantially above what was already under way.”

Clarke at Scotia said that a 50 billion-pound increase to the bond target in February that’s completed over three months would produce about the same weekly rate of purchases as the current round, which extended over four months.

Lower borrowing costs have helped to support the economy. A U.K. index of services rose to the highest in five months in December, while Britain’s benchmark FTSE 100 Index has gained about 4.9 percent in the past month.

There are also signs of strength in the U.S., the world’s largest economy. Payrolls growth beat forecasts in December and the unemployment rate dropped to the lowest in almost three years. Indexes of manufacturing and services strengthened.

“The data looks a bit better than people were expecting,” said David Tinsley, an economist at BNP Paribas SA in London. “But I still think” the Bank of England is “going to go. The data can take some improvement and it’s still justified to do more QE in February.”

To contact the reporters on this story: Scott Hamilton in London at shamilton8@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net

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

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U.S. Stock Futures Trim Gains After Jobless Claims, Retail Sales Reports

By Michael P. Regan - Jan 12, 2012 8:33 PM GMT+0700

U.S. stock futures trimmed gains after government data showed retail sales trailed projections and jobless claims increased more than forecast, damping optimism in the economic outlook.

Futures on the Standard & Poor’s 500 Index expiring in March were up 0.2 percent at 1,290.3 at 8:32 a.m. in New York after climbing as much as 0.7 percent.

Jobless claims climbed by 24,000 to 399,000 in the week ended Jan. 7, Labor Department figures showed. The median forecast of 46 economists in a Bloomberg News survey projected 375,000. Retail sales climbed 0.1 percent in December following a 0.4 percent advance in November that was more than initially reported, Commerce Department figures showed. Economists forecast a 0.3 percent December rise, according to the median estimate in a Bloomberg News survey. Purchases excluding automobiles fell 0.2 percent.

U.S. futures followed European shares higher earlier today as Spain sold 10 billion euros ($13 billion) of bonds, twice the target for the sale, while Italy sold 12 billion euros of bills, easing concerns the countries would struggle to finance their debts. The European Central Bank held interest rates steady after two straight cuts as signs of respite from the sovereign debt crisis gave it scope to pause.

Most (.ADLR) U.S. stocks advanced yesterday as a rally in banks helped the market recover from an early slump spurred by growing signs Europe may slip into a recession. The S&P 500 has risen 2.8 percent in 2012 through yesterday as commodity, financial and industrial companies had the biggest gains among 10 groups.

Earnings Season

JPMorgan Chase & Co. will be the second company in the Dow to release fourth-quarter results, with the largest U.S. bank scheduled to report before markets open tomorrow. JPMorgan is projected to post a record $18.5 billion in 2011 profit when adjusted for one-time items, a 6 percent increase, according to a survey of analysts by Bloomberg.

Earnings season will accelerate next week with 48 companies in the S&P 500 reporting and six Dow members, including Bank of America Corp., Intel Corp. and General Electric Co.

Forecast earnings growth of 6 percent in the final three months of 2011 would mark the slowest increase since the third quarter of 2009, according to data compiled by Bloomberg. Analysts predict energy companies will post 21 percent growth to lead gains, with profits climbing 7.6 percent at industrial companies and 6.8 percent at technology companies. Raw-material producers and telephone companies are forecast to show declines in earnings.

Financial companies are projected to report 3.9 percent earnings growth, with profits up 21 percent at banks and down the same amount at diversified financial firms, according to a compilation of analysts’ estimates. Some analysts are predicting Goldman Sachs Group Inc. will post its lowest annual profit since the firm went public after its trading business contracted as investors become more cautious and regulators demand banks hold more capital and curb proprietary bets.

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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U.S. Jobless Claims Rise More Than Forecast

By Shobhana Chandra - Jan 12, 2012 8:49 PM GMT+0700

More Americans than forecast filed applications for unemployment benefits last week, raising the possibility that a greater-than-usual increase in temporary holiday hiring boosted December payrolls.

Jobless claims climbed by 24,000 to 399,000 in the week ended Jan. 7, Labor Department figures showed today in Washington. The median forecast of 46 economists in a Bloomberg News survey projected 375,000. The number of people on unemployment benefit rolls rose, while those receiving extended payments decreased.

Hiring by package delivery companies and retailers during the holidays to meet demand for gifts may now be giving way to an increase in dismissals. At the same time, claims figures are subject to greater volatility during this time of year, as the government has trouble adjusting the data for the seasonal swings in employment.

“There is usually a surge in seasonal layoffs at this time, and that is what’s happening here,” said Jonathan Basile, a senior economist at Credit Suisse in New York, who projected claims would jump to 405,000. “Claims have shown an improving trend. It’s a vote of confidence for continued improvement in the labor market.”

Retail sales in December rose less than forecast, restrained by cheaper fuel prices and holiday discounting that helped hold down the value of goods purchased, figures from the Commerce Department also showed today. The 0.1 percent gain followed a 0.4 percent advance in November that was more than initially reported.

Shares Trim Gains

Stock-index futures trimmed earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in March climbed 0.1 percent to 1,289.6 at 8:48 a.m. in New York. It had been up as much as 0.7 percent earlier.

Jobless claims were projected to increase from 372,000 initially reported for the prior week, according to the Bloomberg survey. Estimates ranged from 352,000 to 405,000. The Labor Department revised the previous week’s figure up to 375,000.

A Labor Department spokesman said there was nothing unusual in the data and no states or territories were estimated. The seasonal-adjustment projected a 12 percent increase in claims during the first week of January. Instead, unadjusted applications climbed by 19 percent, he said.

Seasonal Volatility

The week-to-week changes in claims may differ from economists’ forecasts as adjusting the data for seasonal variations is difficult around this time of the year, said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

“Seasonal volatility injects considerable uncertainty into projections of these data for another couple of weeks,” Shapiro said in a note this month.

The four-week moving average, a less volatile measure than the weekly figures, increased to 381,750 last week from 374,000.

The number of people continuing to receive jobless benefits rose by 19,000 in the week ended Dec. 31 to 3.63 million.

The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.

Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 48,500 to 3.45 million in the week ended Dec. 24.

Employers trying to trim costs include Archer Daniels Midland Co. The world’s largest grain processor plans to cut about 1,000 jobs, or 3 percent of its workforce, in part by offering voluntary retirement incentives and severance.

Cutting Jobs

“These actions will help us enhance our productivity and earnings power,” Patricia Woertz, chief executive officer of Decatur, Illinois-based ADM, said in a statement yesterday.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at to 2.9 percent, today’s report showed.

Twenty-six states and territories reported an increase in claims, while 27 reported a decrease. These data are reported with a one-week lag.

Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.

Payrolls climbed by 200,000 workers in December after rising by 100,000 the prior month, and the jobless rate fell to 8.5 percent, the lowest level in almost three years, Labor Department figures showed on Jan. 6.

Seasonal Employment

About 40,000 of the increase in December payrolls represented a jump in hiring at courier and messenger services like FedEx Corp.

Employers created 1.64 million jobs in 2011, the best year for the American worker since 2006. Even with the gains, much needs to be done toward recovering the 8.75 million jobs lost as a result of the recession that ended in June 2009.

The economy “expanded at a modest to moderate pace” from late November through the end of December, while most industries saw “limited permanent hiring,” the Federal Reserve said in its Beige Book anecdotal business survey released yesterday. “The combination of limited permanent hiring in most sectors and numerous active job seekers has continued to keep a lid on general wage increases.”

Fed policy makers next meet on Jan. 24-25.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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Stocks in Europe Climb as Yields Decline at Auction; Copper, Oil Advance

By Stephen Kirkland and Lynn Thomasson - Jan 12, 2012 7:49 PM GMT+0700
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Oil rose on speculation supplies may be cut by a strike in Nigeria and the threat of sanctions on Iran. Photographer: Jock Fistick/Bloomberg

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Jan. 12 (Bloomberg) -- Edwin Merner, president of Atlantis Investment Research Corp., talks about the outlook for Japan stocks and his investment strategy. Japan stocks fell, snapping a two-day advance, as a shrinking German economy fed concern Europe is headed toward a recession. Merner speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

European stocks rose and the euro strengthened as Spain sold almost double the amount planned and Italy’s borrowing costs fell at debt sales today. Copper climbed after Chinese inflation cooled, and oil gained on concern sanctions against Iran will cut supply.

The Stoxx Europe 600 Index added 0.8 percent at 7:45 a.m. in New York. Standard & Poor’s 500 Index futures added 0.6 percent. The euro appreciated 0.5 percent to $1.2771. The Spanish two-year note yield dropped to less than 3 percent for the first time since April 2011, with the extra yield investors demand to hold Italian 10-year bonds instead of benchmark German bunds slipping 42 basis points. Copper climbed 2.3 percent, and oil gained 1.2 percent to $102.10 a barrel.

Spain sold 9.98 billion euros ($12.7 billion) of notes, compared with a target of as much as 5 billion euros, while the yield on Italy’s one-year bills fell to 2.735 percent. China reported inflation slowed to a 15-month low in December, and the Federal Reserve said yesterday the U.S. economy improved last month across most of the country. Japan said it may reduce petroleum imports from Iran, which has threatened to shut the Strait of Hormuz.

“The carry trade, with banks borrowing from the European Central Bank and then investing in short term government notes, will continue to be supportive for Spanish and Italian yields,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam.

Banks Rally

Financial companies led gains in the Stoxx 600. Royal Bank of Scotland Group Plc (RBS) jumped 8.6 percent as Britain’s biggest government-owned lender said it will cut 3,500 jobs at its investment bank. ING Groep NV, the largest Dutch financial- services company, advanced 7.7 percent after saying it will explore other options for the planned disposal of its Asian insurance and investment-management businesses.

A gauge of European retailers had the biggest drop since May 2010. Tesco Plc plummeted 13 percent, the most since at least 1988, after the U.K.’s largest supermarket chain reported Christmas sales that missed analyst estimates and reined back profit expectations. Delhaize Group SA, the owner of the U.S. Food Lion supermarkets, sank 9.1 percent in Brussels after also reporting sales that trailed projections.

The advance in S&P 500 futures indicated the U.S. gauge will extend three days of gains. Chevron Corp. (CVX) slid 1.6 percent in pre-market trading as the second-largest U.S. energy company said fourth-quarter profit was “significantly below” that of the previous period.

Retail Sales

A Commerce Department report at 8:30 a.m. in Washington may show sales at U.S. retailers rose in December as Americans bought discounted holiday items. The projected 0.3 percent gain would follow a 0.2 percent advance in November, according to the median forecast of 75 economists surveyed by Bloomberg. First- time jobless-benefit claims were little changed last week, another release may show.

The MSCI Emerging Markets Index (MXEF) gained 0.7 percent, bound for the highest close since Dec. 7. Benchmark gauges in Russia, Poland, Turkey and Hungary climbed at least 1.1 percent. The BSE India Sensitive Index (SENSEX) fell 0.9 percent as Infosys Ltd. cut its full-year forecast for sales in dollar terms. The Hungarian forint jumped 1.5 percent after the government sold more bonds than planned and financing costs fell at an auction today.

The yield on Spain’s two-year note dropped for the fourth straight day, sliding 18 basis points to 2.91 percent. Italy’s 10-year yield sank 40 basis points. The yield on the French 10- year bond dropped nine basis points, narrowing the difference in yield with bunds 11 basis points.

Treasury Auction

The yield on the 30-year U.S. Treasury bond rose two basis points to 2.99 percent before the government sells $13 billion of the securities, the last of three auctions this week totaling $66 billion.

The euro strengthened against 11 of its 16 major counterparts, gaining 0.5 percent against the yen. The ECB kept its benchmark interest rate at 1 percent today, matching the forecast of economists surveyed by Bloomberg.

Copper led the S&P GSCI gauge of 24 commodities which increased 1 percent. China is the biggest buyer of the metal. Wheat rose 0.8 percent and corn gained 1.1 percent. Japan bought 139,239 metric tons of milling wheat from the U.S. today, the most in two months, the Ministry of Agriculture, Forestry and Fisheries said.

Natural gas dropped as much as 2.7 percent to $2.70 per million British thermal units, the lowest price since September 2009.

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: Stuart Wallace at Swallace6@bloomberg.net

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U.S. Stock Futures Rise on European Debt Sales

By Corinne Gretler - Jan 12, 2012 7:21 PM GMT+0700

U.S. stock futures advanced, indicating the Standard & Poor’s 500 Index will extend three days of gains, after borrowing costs fell at auctions of Spanish and Italian debt.

Jaguar Mining Inc. (JAG), the target of a takeover bid from China’s Shandong Gold Group Co. in November, jumped 5.1 percent. Chevron (CVX) Corp., the second-largest U.S. oil company, dropped 1.6 percent after saying fourth-quarter profit was “significantly below” that of the previous period.

Futures on the S&P 500 expiring in March climbed 0.6 percent to 1,296.5 at 7:19 a.m. in New York. Dow Jones Industrial Average futures gained 67 points, or 0.5 percent, to 12,455. The S&P 500 has risen 2.8 percent this year on better- than-forecast U.S. economic data and amid optimism that Europe is taking steps to tame the region’s debt crisis.

“Confidence begets confidence,” said Manish Singh, the London-based head of investment at Crossbridge Capital, which has more than $2 billion under management. “A success at the auctions and narrowing yields on both Italian and Spanish debt is a very positive outcome. This should give the market something to hold on to, but the question remains if the yield compression on Italian debt will continue in the future.”

Spain sold 9.98 billion euros ($12.7 billion) of bonds maturing in 2015 and 2016, including a new three-year benchmark security, twice the maximum target of 5 billion euros set for the sale. Italy auctioned 8.5 billion euros of one-year bills at a rate of 2.735 percent, down from 5.952 percent at the last auction of similar-maturity securities on Dec. 12.

Retail Sales

A Commerce Department report at 8:30 a.m. in Washington may show that sales at U.S. retailers rose in December as Americans bought discounted holiday items, giving the economy a boost entering 2012. The projected 0.3 percent gain would follow a 0.2 percent advance in November, according to the median forecast of 75 economists surveyed by Bloomberg.

Data from the Labor Department at the same time may show that initial jobless claims rose to 375,000 last week from 372,000 the previous period, according to the median of 45 economists.

The Federal Reserve may embark on as much as $500 billion of quantitative easing in the second half, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said in a televised interview with Bloomberg HT news channel broadcast today.

BOE Stimulus

The Bank of England refrained from adding to emergency stimulus again today as policy makers await new forecasts and the economy showed some resilience heading into 2012. The Monetary Policy Committee maintained its bond-purchase target at 275 billion pounds ($421 billion), as forecast by all but one of 41 economists in a Bloomberg survey.

Jaguar Mining rallied 5.1 percent to $7.18 in Germany after saying “several” parties have entered into confidentiality agreements regarding a possible acquisition or merger.

“These parties have access to due diligence materials and are continuing to conduct their evaluations,” Jaguar said in a statement late yesterday.

CA Inc. (CA), the maker of software for mainframe computers, climbed 4 percent to $21.78 in German trading. Hedge fund Taconic Capital Advisors LP said it acquired a 5.1 percent stake in the company and is in talks with management to boost equity investors’ returns.

EBay Inc. (EBAY), the largest Internet marketplace, added 0.6 percent to $31.71 as CLSA Asia-Pacific Markets Ltd. initiated coverage of the stock with a “buy” rating and a price estimate of $40.

Chevron declined 1.6 percent to $106.02 in pre-market New York trading. The energy company said fourth-quarter profit was “significantly below” third-quarter results after maintenance work at a California refinery and the sale of a U.K. plant curbed fuel output.

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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JPMorgan May Show Record Profit as Wells Closes Gap

By Dawn Kopecki and Dakin Campbell - Jan 12, 2012 7:57 PM GMT+0700
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JPMorgan Chase & Co. will probably report a 23 percent slump in fourth-quarter adjusted profit from the same period in 2010 to $3.74 billion. Photographer: Robert Caplin/Bloomberg

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Jan. 12 (Bloomberg) -- Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, talks about U.S. stocks and investment strategy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

JPMorgan Chase & Co. (JPM), likely to keep the title of most profitable U.S. bank when it reports earnings tomorrow, has a West Coast rival closing in: Wells Fargo & Co. (WFC)

JPMorgan is projected to report a record $18.5 billion in 2011 earnings when adjusted for one-time items, a 6 percent increase for the New York-based company, according to a survey of analysts by Bloomberg. Profit at San Francisco-based Wells Fargo is estimated to have jumped more than four times as much, to an all-time high of $15.3 billion.

By focusing on the U.S. and eschewing traditional Wall Street businesses such as structured products, Wells Fargo surpassed earnings at Goldman Sachs Group Inc. (GS) and Citigroup Inc. for six consecutive quarters. Wells Fargo, whose $1.3 trillion in assets make it the fourth-largest U.S. bank, also has higher valuations than its bigger peers.

Wells Fargo “never really embraced investment banking as heavily as the Wall Street crowd has,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia. “I think one of the reasons Wells is where they are right now is because they did not get into that business” in a bigger way, he said.

The strains on investment banking will be apparent in JPMorgan’s fourth-quarter profit, as well as weak trading results predicted for its smaller competitors when they report earnings next week, Miller said.

Earnings Ratio

Wells Fargo is being rewarded for its restraint with a market value of $156.2 billion, compared with $139.3 billion at JPMorgan and $91.4 billion at No. 3 Citigroup. (C) Only Goldman Sachs trades at a higher price-to-earnings ratio than Wells Fargo among the biggest U.S. lenders, at 10.76 versus 10.25. The higher the ratio, the faster investors think the company’s profit will grow.

“Traditional banking, predominantly making loans and taking deposits and serving both corporate and individual consumers, is being viewed more favorably right now by the investor community,” said Ed Najarian, who runs bank research at International Strategy and Investment Group in New York. “It’s considered safer and to have a steadier and more consistent earnings outlook.”

Share Performance

Wells Fargo has dropped 7.5 percent in New York trading in the past 12 months, compared with declines of 18 percent for JPMorgan and 54 percent for Bank of America Corp. (BAC) Wells Fargo rose to $30 at 7:37 a.m. in New York from $29.62 yesterday, while JPMorgan climbed to $37.13 from $36.66.

Wells Fargo, which reports earnings on Jan. 17, owes its relative good fortune partly to Europe’s sovereign debt crisis, which slammed investment-banking results in the second half of last year at JPMorgan, Goldman Sachs and other firms with large trading desks and international divisions.

JPMorgan, the biggest U.S. bank by assets, will probably report a 23 percent slump in fourth-quarter adjusted profit from the same period in 2010 to $3.74 billion, or 90 cents a share, according to the survey. Analysts lowered their estimates after Chief Executive Officer Jamie Dimon, 55, said at a Dec. 7 investor conference that trading would be “essentially flat” from the third quarter.

Banking Units

Revenue at the company’s investment-banking unit slid this year from $8.2 billion in the first quarter to about $4.5 billion in the third after backing out a $1.9 billion one-time accounting gain as concern mounted that Greece would default and U.S. lawmakers would fail to raise the debt ceiling. JPMorgan told investors in October that the division would face similar market conditions for the rest of the year.

Trading results got a lift in the third quarter as the price of bank debt fell, resulting in a so-called debt-valuation adjustment that boosted profits for JPMorgan, Goldman Sachs and Citigroup. The accounting adjustment probably hurt banks in the fourth quarter as price of their debt rose, resulting in the opposite effect on earnings.

“Trading and investment-banking revenue has been weak and volatile, especially over the last two quarters, but really the last two years,” Najarian said. Investment-banking results will be worse for the fourth quarter than in the third quarter, he said.

Revenue Declines

Overall revenue at JPMorgan is expected to drop 13 percent for the quarter and 4 percent for the year, to $98.9 billion. Fixed-income trading revenue at U.S. banks may fall 12 percent from the third quarter, minus accounting adjustments, while equities revenue drop 10 percent and investment-bank revenue remains unchanged, David Trone, an analyst at JMP Securities, wrote in a Dec. 16 report.

Markets showed little improvement in the fourth quarter, as trading remained subdued, corporate and institutional clients stayed out of the markets and the holidays slowed deal and trading traffic.

Lenders will continue to face pressure from persistently low interest rates, which have compressed profit margins on lending. They’ll also have to contend with new restrictions on fees.

The so-called Durbin amendment, which limits what lenders can charge merchants on debit transactions, took effect on Oct. 1, affecting almost all U.S. banks and costing the top 25 about $1.5 billion, according to Jason Goldberg, a senior bank analyst at Barclays Capital in New York.

Avoiding ‘Trash’

Wells Fargo “avoided a lot of the trash that others kind of fell into leading into the 2008 financial crisis,” Goldberg said in an interview. The company, led by CEO John Stumpf, 58, will see its fee revenue fall by about $350 million and JPMorgan will lose roughly $300 million, Goldberg estimated.

“The big issue for the banks is, is this a cyclical or a secular problem? And the answer is, it’s both,” said Richard Bove, an analyst at Rochdale Securities LLC in Lutz, Florida. Bove said U.S. lenders are starting to perform more like utilities with smaller growth rates and less leverage. Goldman Sachs may never generate 10 percent or 12 percent growth rates again, he said.

“It’s not going to happen because the leverage in the balance sheet is gone, the off-balance-sheet conduits are illegal, the variable-interest entities are limited, the structured-investment vehicles are gone,” Bove said, referring to the types of securities that helped trigger the U.S. economic crisis. “The leverage isn’t there and the market isn’t there.”

Optimistic Outlook

Large super-regional banks such as Wells Fargo and Pittsburgh-based PNC Financial Services Group Inc. will probably fare better as the basic business of taking deposits and making loans gives reason for optimism, Goldberg said. Lending at U.S. banks was up 2.1 percent from the third to the fourth quarter while deposits rose 5.6 percent, according to Federal Reserve data. Goldberg said the growth offset slimmer profit margins in the fourth quarter.

“In this quarter you’re going to see dramatically different results in each segment, with the traditional banks having the best performance and the capital markets having the worst,” Bove said.

Mike Mayo, an analyst with independent research firm CLSA in New York, said U.S. banks are in the middle of the industry’s worst two years of revenue growth since the Great Depression. Earnings for the fourth quarter will be weak and won’t see much improvement this year, he said.

Friday the 13th

“Friday the 13th will live up to its name when it comes to bank earnings,” Mayo said in an interview yesterday at Bloomberg’s headquarters in New York promoting his new book, “Exile on Wall Street.” When banks start reporting results with JPMorgan tomorrow, “you’re going to see all sorts of revenue and margin pressure and the results will be underwhelming.”

Bank of America, second by assets to JPMorgan, will probably post $5.84 billion in adjusted earnings for the year, a 63 percent plunge from 2010, according to the Bloomberg survey.

Citigroup’s 2011 profit was estimated at $11.8 billion, or 13 percent higher than the previous year, and Goldman Sachs is projected to report a 57 percent decline to $3.35 billion. Morgan Stanley (MS), the sixth-largest U.S. bank, may post $2.23 billion of adjusted earnings, down 28 percent. All three companies are based in New York.

To contact the reporters on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

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

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Goldman Sachs Trading Chiefs Join Exodus

By Christine Harper and Stephanie Ruhle - Jan 12, 2012 5:26 PM GMT+0700

Goldman Sachs Group Inc. (GS) said two leaders of its biggest division are leaving the company a week before it reports what some analysts predict will be the lowest annual profit since the firm went public.

Edward K. Eisler, 42, and David B. Heller, 44, are retiring from the company, where they helped lead the securities trading division since February 2008, according to two internal memos obtained by Bloomberg News yesterday. Eisler, an Austrian based in London, joined the bank 18 years ago and has a background trading interest-rate products, currencies and commodities. Heller, a U.S. citizen who lives in New York, spent more than 22 years at the firm, mainly in equities and equity derivatives.

Goldman Sachs, the fifth-biggest U.S. bank by assets, derived more than 60 percent of its revenue from trading in the first nine months of last year. The business is contracting as investors become more cautious and regulators demand banks hold more capital and curb proprietary bets, leading Goldman Sachs Chief Executive Officer Lloyd C. Blankfein, 57, to cut jobs and other expenses.

“This is not as appealing a sector to work in for the time-being,” Roger Freeman, an analyst at Barclays Capital in New York who has an “equal-weight” rating on Goldman Sachs, said in a phone interview. For executives like Eisler and Heller who already have accumulated wealth “this could be a great time to just take a few years off, spend it with your kids, and you’re not missing anything.”

Succession Plans

The departures will add to speculation about succession plans at the top of New York-based Goldman Sachs, where Blankfein has held the chairman and CEO roles since mid-2006. Heller sometimes is brought up as a possible future CEO, even as president and chief operating officer Gary D. Cohn, 51, Blankfein’s top deputy, continues to be the leading candidate.

Isabelle Ealet, 48, the bank’s London-based global head of commodities since 2007, will become one of three co-heads of the securities division alongside Pablo J. Salame, 45, and Harvey M. Schwartz, 47, according to another internal memo obtained by Bloomberg News. Michael DuVally, a spokesman for the company, confirmed the memos’ contents and declined to comment further.

Ealet, a French citizen who started at Goldman Sachs as an oil trader in 1991, already is a member of the management committee and will continue to be based in London. As the only woman on Goldman Sachs’s management committee to oversee a revenue-producing unit, she’s one of the most powerful women working at a Wall Street firm. She started her Goldman Sachs career at the commodities trading division J. Aron, as did Blankfein and Cohn.

Rutgers University

Schwartz also started in Goldman Sachs’s commodities division, joining in 1997. A New Jersey native based in New York, Schwartz helped run fixed-income sales and the financing group before taking his current role. In October 2010, Schwartz donated $1.5 million to Rutgers University, from which he graduated in 1987.

Ealet and Schwartz are close to Cohn, according to former Goldman Sachs employees.

Salame, an Ecuadorian who moved to New York from London last year, joined the firm in 1996 and helped manage global credit, mortgages, emerging-markets trading and equity derivatives before taking his current role.

Eisler and Heller join about 50 Goldman Sachs partners who left the firm in the past 12 months, according to company filings, internal memos and news reports. The bank elects its most successful employees to a so-called partnership every other year, granting them access to a special compensation pool, to maintain the culture of the partnership the firm ended when it went public in May 1999.

Gasvoda, Hunt

Other recent departures include James B. Clark from asset management, Kevin S. Gasvoda from fixed-income and Edith A. Hunt, who helped manage the personnel division, according to a company filing. None responded to e-mails seeking comment.

Eisler and Heller will become senior directors, according to the memos. Senior directors advise the firm on matters related to their areas of expertise and aren’t employees.

“Both of these executives have a risk-taking background at Goldman and are relatively young and may have perceived greener pastures elsewhere,” Gregory Cresci, an executive recruiter at Odyssey Search Partners in New York, said in a phone interview.

Interest in Politics

Heller, who didn’t respond to phone and e-mail messages seeking comment, has demonstrated an interest in politics, helping to raise money for President Barack Obama’s election in 2008, and in sports. Heller became a part-owner of the Philadelphia 76ers basketball team last year, according to the National Basketball Association, and was part of a group that tried to buy the New York Mets baseball team, according to the New York Post. Eisler didn’t reply to an e-mail seeking comment.

“The vast majority of traders at Goldman who leave go on to start their own hedge funds,” William Cohan, author of “Money and Power: How Goldman Sachs Came to Rule the World” and a Bloomberg View columnist, said on Bloomberg television.

Eric S. Lane, Stephen M. Scherr and Ashok Varadhan were named to the firm’s management committee, according to a separate memo yesterday from Blankfein and Cohn.

Lane, who former Goldman Sachs executives say is also close to Cohn, was promoted last month to be co-head of the firm’s investment-management division with Timothy O’Neill. Scherr is global head of the financing group within investment banking and also assumed responsibility for Latin America when Kevin W. Kennedy retired last year. Varadhan is global head of currencies and emerging markets.

Paradise, Ueda

Goldman Sachs named James R. Paradise, 47, and Eiji Ueda as co-heads of the trading business in Asia, according to a separate internal memo dated Jan. 10. Paradise, who’s based in London, and Ueda, based in Tokyo, will move to Hong Kong to assume some of the responsibilities previously held by Yusuf A. Alireza, who left in November after 19 years at the company.

Paradise and Ueda will report to Katsunori Sago, deputy president of Goldman Sachs Japan, and to David C. Ryan, who serves as president in Asia outside Japan, according to the memo.

Goldman Sachs may post fourth-quarter profit of 75 cents a share when it reports results on Jan. 18, Barclays Capital’s Freeman wrote in a research note last month. That would be down from $3.79 a share a year earlier and would mean the lowest annual earnings attributable to common stockholders since 1998, the year before Goldman Sachs went public, according to Freeman.

Changes Beginning

The changes at Goldman Sachs are just beginning, Freeman said in the phone interview. He pointed to still-incomplete areas of regulation such as derivatives, the so-called Volcker rule, which places limits on proprietary trading, and the adoption of the Basel Committee on Banking Supervision’s rules on capital requirements.

“As the rule sets around Volcker, derivatives and Basel get finalized over the course of the first half of this year, that frees up these firms to finally move forward in restructuring these businesses, and that may result in further headcount or management changes,” Freeman said. “You could see something broader this year or maybe next year.”

Separately, Charles Manby is retiring as global chairman of technology, media and telecommunications banking, the firm said in a memorandum to employees last month. The dealmaker, who advised companies including Deutsche Telekom AG and Vodafone Group Plc, joined Goldman Sachs’s corporate finance unit in London in 1990 before becoming a partner in 2000. A spokeswoman confirmed the contents of the document today.

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Stephanie Ruhle in New York at sruhle2@bloomberg.net.

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

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European Stocks Advance as Spain, Italy Meet Debt-Sale Targets; RBS Gains

By Adria Cimino - Jan 12, 2012 7:10 PM GMT+0700

European (SXXP) stocks advanced after Spain and Italy sold debt at lower borrowing costs, signaling continued investor appetite for euro-area securities. U.S. index futures climbed, while Asian shares were little changed.

Royal Bank of Scotland Group Plc rose 8.4 percent after announcing job cuts. Sulzer AG, the world’s second-largest maker of pumps, added 5.4 percent after saying full-year orders increased 14 percent. Tesco Plc led retail shares lower after the U.K.’s largest supermarket chain said it was “disappointed” with festive trading. Vestas Wind Systems A/S and Delhaize Group SA (DELB) tumbled.

The Stoxx Europe 600 Index gained 0.8 percent to 252.02 at 12:07 p.m. in London, after the U.S. Federal Reserve yesterday confirmed the world’s largest economy continues to grow. The March contract on the Standard & Poor’s 500 Index increased 0.6 percent. The MSCI Asia Pacific Index lost less than 0.1 percent.

“The debt sales in Italy and Spain are important elements for the market,” said Bruno Ducros, a fund manager at CamGestion in Paris, which oversees about $3.8 billion in stocks. “The Fed’s confirming of U.S. growth is good news. It is a relief for the market and eases worries of a slowdown in the U.S. The market is looking for zones of growth.”

Bond Auctions

Spain sold 9.98 billion euros ($12.7 billion) of bonds maturing in 2015 and 2016, including a new three-year benchmark security, twice the maximum target of 5 billion euros set for the sale. The yield on the three-year notes was 3.384 percent, compared with 5.187 percent when the nation sold similar notes in December.

Italy sold 12 billion euros of Treasury bills, meeting its target, and its borrowing costs plunged. The Rome-based Treasury sold 8.5 billion euros one-year bills at a rate of 2.735 percent, down from 5.952 percent at the last auction.

The U.S. economic expansion improved last month across most of the country, while hiring was limited and housing remained stagnant, the Fed said in the first edition of its Beige Book in 2012.

The Stoxx 600 has advanced 3.1 percent since the beginning of this year as economic reports around the world added to optimism the global economy can withstand the euro area’s debt crisis.

Economic Reports

Sales at U.S. retailers probably rose in December as Americans bought discounted holiday items, giving the economy a boost entering 2012, economists said before a report today. Initial jobless claims rose to 375,000 last week from 372,000 the previous period, data from the Labor Department may show.

In the U.K., the Bank of England maintained its benchmark interest rate at 0.5 percent and its asset-purchase plan at 275 billion pounds ($422 billion). Both decisions matched economists’ estimates in a Bloomberg survey.

The European (SXXP) Central Bank will leave its key rate at 1 percent today, a separate survey shows, and ECB President Mario Draghi will speak at 2:30 p.m. in Frankfurt.

RBS advanced 8.4 percent to 23.61 pence. Britain’s biggest government-owned lender will cut 3,500 jobs at its investment bank over the next three years as it exits its unprofitable cash equities and mergers advisory operations.

RBS said it will sell or close the units, along with its corporate broking and equity capital markets operations. The bank also said it cut a further 2,000 positions in the second half of last year.

Sulzer (SUN), Petroplus

Sulzer jumped 5.4 percent to 112.8 Swiss francs. The company said 2011 orders rose 14 percent, or 8.4 percent nominally, to 3.6 billion francs ($3.8 billion).

Petroplus Holdings AG surged 28 percent to 1.53 francs. Europe’s largest independent refiner has reached a temporary agreement with lenders to renegotiate its debts and maintain operations at its Coryton and Ingolstadt refineries.

UniCredit SpA (UCG) climbed 11 percent to 2.85 euros. The stock was raised to “buy” from “neutral” at Citigroup Inc., which said the stock would suit a high-risk investment strategy as it offers significant “upside potential.”

Solar shares gained after a government body said China plans to double solar capacity this year. The head of China’s National Energy Administration, Liu Tienan, said yesterday that the country will install 3 gigawatts in 2012.

Wacker Chemie AG (WCH), the second-biggest maker of solar-grade silicon, advanced 6 percent to 78.02 euros. Solarworld AG (SWV), Germany’s largest solar-panel maker, rose 9.9 percent to 3.94 euros.

Retailers Slide

Tesco tumbled 13 percent to 334.35 pence. The company said sales declined in the six weeks to Jan. 7 and that profit would be at the “low end of the current consensus range.” U.K. sales at stores open at least a year fell 2.3 percent, excluding fuel and value-added tax, during the period.

Retail shares slid 4.4 percent for the biggest drop among the 19 industry groups in the Stoxx 600. J Sainsbury Plc (SBRY) lost 5.2 percent to 286.5 pence. William Morrison Supermarkets Plc, the smallest of the U.K.’s four main food retailers, retreated 5.5 percent to 287.2 pence.

Delhaize dropped 9.1 percent to 42.61 euros. The owner of Food Lion supermarkets plans to cut about 5,000 positions and expects a 2.4 percent drop in revenue as it closes stores in the U.S. and Europe. Costs related to the closures will hurt earnings by about 205 million euros starting in the first quarter, the Brussels-based company said.

Vestas lost 4.2 percent to 60.30 kroner. The biggest wind- turbine maker said it’s cutting 2,335 jobs worldwide and a further 1,600 posts are at risk in the U.S. this year as a tax credit expires.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

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

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Dubai Brokers Selling Sandwiches Instead of Stocks With Volume Down by 77%

By Zahra Hankir - Jan 12, 2012 7:14 PM GMT+0700

Nabil Rantisi, who sold stocks during the United Arab Emirates’ boom, now oversees orders of roast beef and Yorkshire pudding wraps from crowds including former clients.

“Business was getting too slow, and at some point you have to decide where time would be spent in a more valuable way,” said Rantisi, who quit his job as the director of brokerage at Rasmala Investment Bank Ltd. in Dubai in June to help start a deli named 1762. The 34-year-old now works a few hundred meters from where he used to fulfill share orders.

Three years after the Dubai bubble burst, its financial industry is still in decline and shows little sign of recovery. While the emirate successfully restructured debt and invested in transport and tourism, the number of employees in the Dubai International Financial Centre fell to 11,331 in July of last year from 11,436 in 2009.

As trading volume on the Dubai Financial Market plunged 77 percent after 2009, 41 of the 98 local brokerages active in 2008 suspended operations. Banks including Credit Suisse Group AG (CS) and Nomura Holdings Inc. (8604) have trimmed their equities or equity research devisions. Al Futtaim HC Securities LLC, a Dubai-based broker ranked first by value traded in July according to the Dubai Financial Market website, said Jan. 4 it would end operations in the U.A.E.

The crash followed real-estate speculation as government and state-owned companies amassed about $110 billion in debt. Dubai is home to the world’s tallest skyscraper and palm-tree shaped islands off its coast. By early 2008, the benchmark DFM General Index (DFMGI) had risen almost six-fold in five years.

Market Crash

The market value of shares in the U.A.E. is now $97 billion, less than half the $206 billion at the end of 2007, according to data compiled by Bloomberg. Foreign investors have reduced holdings of Dubai stocks amid Europe’s debt crisis and political uprisings that ousted leaders in Egypt and Libya. They bought shares worth 2.8 billion dirhams ($762 million) in the third quarter, down 83 percent from the same period in 2009, according to the Dubai Financial Market website.

Dubai’s benchmark index slumped 17 percent in 2011 compared with a 20 percent drop in the MSCI Emerging Markets Index. (MXEF) Abu Dhabi’s measure dropped 12 percent. The value of shares traded in Dubai tumbled to about $5 million on Nov. 16, the lowest since 2004. The DFM General Index slipped 0.5 percent to 1,327.54 at the 2 p.m. close today, while Abu Dhabi shares fell 0.2 percent.

Trading volume in Dubai plummeted to a six-year low even after state-owned holding company Dubai World reached a restructuring agreement with creditors in March. The company roiled global financial markets in 2009 when it sought to halt repayments on about $25 billion of debt.

Market Upgrade

The U.A.E. will have to wait until at least June to be upgraded to emerging market from frontier status in MSCI Inc. (MSCI) indexes, which determine the stocks that tracking funds buy.

With little to trade, ex-stockbrokers are running restaurants, nightclubs and luxury hotels, waiting for a catalyst to reignite markets. Vyas Jayabhanu, the manager of Al Dhafra Financial Broker LLC, has spent the past year developing Boutique 7 Hotel and Suites, a four-star Dubai hotel complete with a bar, a café and soon a nightclub.

Business has been good, Jayabhanu, 35, said in an interview over coffee at the hotel’s Garden of Eden café. “If you’re bankrupt, you drink more,” he said. “It’s a win-win situation.” The café sports tables made of wood imported from Scotland, surrounded by trees and bushes, and offers shisha, the water-pipe smoked in the Middle East.

Moving Investment

“During the boom you saw everyone investing more to capture market share,” said Rantisi of 1762, a reference to the year the Earl of Sandwich supposedly asked for his meat between two pieces of bread so he could stay at the gambling table. “It was overdone, and that was the first signal that the cycle was coming to an end,” he said. “Today is the opposite. People are getting out of the business or moving to other investments as the market dries up.”

Dubai, which has less than 10 percent of the U.A.E.’s oil reserves, set up the DIFC, a tax-free business park, in 2004 to attract global banks, asset managers and insurers to help diversify its economy. Banks such as Goldman Sachs Group Inc. (GS) and HSBC Holdings Plc. (HSBA) added staff in the region as rising oil wealth increased demand for financial advice.

Expanded Too Quickly

Dubai expanded too quickly, said Akram Annous, former Middle East and North Africa strategist at Al Mal Capital PSC who left the company in November. “For now, I’m working on enhancing my personal brand,” the 33-year-old former banker said. “Maybe I’ll bring a franchise to Dubai, such as a shisha- based bowling alley, a fusion enterprise of some sort. Or maybe I’ll start a twitter feed.”

Rantisi’s former company, Rasmala, which has a research venture with Royal Bank of Scotland Group Plc, has moved away from retail brokerage services, as have HSBC and Shuaa Capital PSC. (SHUAA) Shuaa, the U.A.E.’s largest investment bank, scaled back its research department to two employees as it cut costs, two bankers familiar with the matter said Jan. 10.

“We are simply not making any money through brokerage,” said Jayabhanu of Al Dhafra. “There’s a vicious fight to make use of small volume. In tourism, there’s something for everybody,” said the broker, who spends much of his time on the hotel project. “Encouraging clients to trade in this market condition is not ethical.”

Banks Also Suffer

Regional lenders have also suffered after the global credit crisis weakened lending, crimped investment banking and spurred loan defaults. Fees earned by banks in the region fell 42 percent to $320 million in the first nine months of 2011 from $551 million during the same period the year earlier, according to New York-based research firm Freeman & Co.

Bond markets have recovered, with the average yield on debt in the U.A.E. slumping about 200 basis points since the end of 2009 to 5.36 percent on Jan. 10, according to the HSBC/Nasdaq Dubai UAE US Dollar Bond Index.

Al Dhafra still operates with four brokers in Abu Dhabi, the U.A.E. capital that led the $20 billion bailout of Dubai, Jayabhanu said. The brokerage was ranked 30th by value traded in December on the Dubai Financial Market. (DFM)

“One thing that could boost volumes would be the inclusion of the U.A.E. in the MSCI Emerging Markets Index,” Georges Elhedery, head of global markets for the Middle East and North Africa at HSBC, said by e-mail Jan. 4. “Inclusion would have the effect of allowing international Emerging Markets funds to access this important market.”

Key Designation

MSCI indexes are tracked by funds that oversee about $3 trillion in assets, so getting promoted to emerging market from frontier can increase investment. MSCI cited investor’s questions about the effectiveness of a new settlement system as a reason why it kept the country under review.

The U.A.E. and Qatar, which is also up for review from frontier market status in June, “deserve an upgrade on the basis of their financial strength and economic and political stability,” Paul Cooper, the Dubai-based managing director at Sarasin-Alpen & Partners Ltd., which oversees more than $500 million in the Middle East, said by e-mail Dec. 21. “The difficult global economic environment could work in the region’s favor as its financial strength could justify an overweight stance here.”

The Securities & Commodities Authority, the U.A.E. market regulator, plans to issue rules on liquidity providers, short selling and security lending and borrowing in the first half, Chief Executive Officer Abdullah Al Turaifi said in November.

“The smart brokers who manage to stick around will capitalize big time when volumes come back,” Rantisi said. Meanwhile, the former broker and his partners plan to open a branch of 1762 as soon as this month in Jebel Ali, another Dubai business district.

“We haven’t hit a wall in sales figures yet,” Rantisi said. “And business has exceeded expectations.”

To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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Iran Says Nuclear Scientist’s Murder Shows Foreign-Backed Terror Campaign

By Ladane Nasseri and Nicole Gaouette - Jan 12, 2012 5:46 PM GMT+0700

The Iranian government said in a letter to United Nations Secretary General Ban Ki-Moon that a civilian nuclear scientist who was killed by a bomb yesterday was the latest victim of a foreign terror campaign.

“Based on the existing evidence collected by the relevant Iranian security authorities, similar to previous incidents, perpetrators used the same terrorist method in assassinating Iranian nuclear scientists, i.e. attaching a sticky magnetic bomb to the car carrying the scientists and detonating it,” Mohammad Khazaee, Iran’s ambassador to the UN, said in the letter yesterday. “Furthermore, there is firm evidence that certain foreign quarters are behind such assassinations.”

Iranian officials have accused the U.S. and Israel of targeting Iranian nuclear scientists in an effort to halt Iran’s nuclear program, which Western nations say may be aimed at producing atomic weapons. Tensions have risen over U.S. and European efforts to increase economic sanctions on Iran because of the nuclear program.

Khazaee said Mostafa Ahamdi Roshan, who was killed in a Tehran bomb blast, was the fourth prominent Iranian scientist to be targeted in similar attacks. Roshan, a deputy director at the Natanz uranium enrichment facility in Isfahan province, and another person died in the latest attack, Khazaee said.

“This terrorist action was undertaken by elements of the Zionist regime and those who claim to fight against terrorism,” the official Islamic Republic News Agency cited Iranian Vice President Mohammad-Reza Rahimi as saying.

Israeli Foreign Ministry spokesman Yigal Palmor said by telephone that he had no comment on the reports.

Clinton’s Comment

“I want to categorically deny any United States involvement in any kind of act of violence inside Iran,” Secretary of State Hillary Clinton told reporters yesterday in Washington. “There has to be an understanding between Iran, its neighbors and the international community that finds a way forward for it to end its provocative behavior, end its search for nuclear weapons and rejoin the international community.”

Some Republican presidential candidates in the U.S. have supported efforts to halt Iran’s nuclear program by attacking its scientists. In a November debate, former House Speaker Newt Gingrich endorsed “taking out their scientists,” and former Pennsylvania Senator Rick Santorum called it ”a wonderful thing” when Iranian scientists are killed.

Previous attacks against Iranian nuclear scientists involved the assassination of Massoud Ali-Mohammadi, killed by a bomb outside his Tehran home in January 2010, and an explosion in November of that year that took the life of Majid Shahriari and wounded Fereydoun Abbasi-Davani, who is now the head of Iran’s Atomic Energy Organization.

Possible Attackers

“While it is difficult to gauge the impact of the scientists’ deaths on the country’s nuclear development, Iranian officials have already acknowledged they have a human resources problem in the program, largely because of the sharp political differences within the country,” Meir Javedanfar, lecturer on Iranian politics at the Herzliya Interdisciplinary Center in Israel, said in a telephone interview.

The attacks on scientists may be the work of a foreign intelligence agency such as Israel’s Mossad, according to a U.S. official who agreed to speak on condition of anonymity because intelligence matters are classified. They also could have been carried out by an Iranian exile group such as the People’s Mujahadeen Organization of Iran working independently or in cooperation with a foreign intelligence agency, the official said in a telephone interview.

Attributing the murder to the Mujahadeen is “absolutely false,” the group said in an e-mailed statement.

Locating Targets

It’s also possible that internal opponents of the Iranian regime might have helped the Mujahadeen e-Khalq or foreign agents identify, locate and target important figures in Iran’s nuclear program, the official said.

That alone is difficult, said Reuel Marc Gerecht, a former Central Intelligence Agency specialist on Iran who is now at the Foundation for the Defense of Democracies, a Washington foreign- policy research organization.

“It’s not as if you can look people like this up in the Natanz phone book,” he said in a telephone interview.

It’s conceivable that Iran’s Interior Ministry may have targeted at least some of the scientists because it suspected they were disloyal, according to Gerecht and the U.S. official. Using magnetic bombs attached to their vehicles would make it appear that Israel was behind the killings.

Mossad was suspected of using such a “sticky bomb” to kill Lebanese Hezbollah terrorist leader Imad Mughniyeh in Damascus in February 2008, although that was never proved, the official said.

Explosion, Stuxnet

Other incidents in Iran in recent months have raised suspicions of sabotage against the country’s nuclear program.

A November explosion at a military base west of Tehran killed at least 17 people including a director in the Iranian Revolutionary Guard Corps, state media reported at the time. Last year, malicious software known as Stuxnet affected computer systems controlling several centrifuges used in Iran’s uranium- enrichment program, Iranian officials have said.

The latest killing also follows an Iranian court’s Jan. 9 decision to sentence an American of Iranian descent, Amir Mirzaei Hekmati, to death for spying. U.S. State Department spokeswoman Victoria Nuland has said allegations that Hekmati worked for the CIA were “simply untrue.”

EU Meeting

Iran is under increasing pressure to curb what the International Atomic Energy Agency and a number of western nations have said may be a program to build nuclear weapons. The IAEA reported in November, citing unidentified sources it called “credible,” that Iranian work toward a nuclear weapon continued until 2010 -- seven years after U.S. Intelligence agencies determined with high probability that Tehran’s government had stopped.

European Union foreign ministers plan to meet on Jan. 23 to discuss imposing an oil embargo on Iran. Iranian officials have threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s oil, if crude exports are sanctioned.

Crude rose 0.7 percent to $101.53 at 8:30 a.m. in London, after reaching an eight-month high above $103 last week. Futures are up more than 10 percent in the past year.

Yesterday’s attack “comes in the middle of heightened tensions, and it helps Iran to play on a sense of threat that it is under a lot of pressure,” Gala Riani, a Middle East analyst at London-based forecaster IHS Global Insight, said by telephone. “It can also be beneficial to more extremist elements in the government who are supporting further military drills in the Strait of Hormuz.”

Iran conducted naval exercises near the Strait for 10 days that ended early this month. Iran also announced on Jan. 6 plans for “naval war games” to be conducted by the Revolutionary Guard Corps next month.

To contact the reporters on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net; Nicole Gaouette in Washington at ngaouette@bloomberg.net

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

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Hedge Funds Try to Profit From Greece

By Jesse Westbrook and Julie Cruz - Jan 12, 2012 4:43 PM GMT+0700

Hedge funds in New York and London are trying to profit from trading Greek government bonds as European banks brace for losses from a debt swap.

Saba Capital Management LP, founded by former Deutsche Bank AG (DBK) credit trader Boaz Weinstein, York Capital Management LP, the $14 billion fund started by Jamie Dinan, and London-based CapeView Capital LLP are among managers that now hold Greek bonds, according to people with knowledge of the transactions who declined to be identified because they weren’t authorized to speak publicly about the trades. Officials at the three firms declined to comment.

They’ve amassed the stakes as the government lobbies investors to accept a swap that would cause losses of more than 50 percent for bondholders. For the deal to avoid triggering credit-default swaps that could cause losses for more of the region’s banks, the agreement has to be voluntary. Hedge funds may not agree to the deal.

“I would expect to see some holdouts,” said Sudeep Singh, a hedge fund manager at Matrix Group Ltd. who doesn’t own Greek debt. “The industry breaks down into guys who want to keep on fighting and into guys who just want to get the best deal and move on. It’s all a question of what price you got in at.”

Some fund managers say they have little incentive to accept the swap, and are seeking full payment. If Greece refuses to pay the funds what’s owed to them, the funds may seek to trigger the credit-default swaps. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

‘Credit Event’

European officials, including former European Central Bank President Jean-Claude Trichet, have tried to avoid a default that would cause what he called a “credit event.” Triggering the CDS could encourage traders to increase their bets against other indebted European nations such as Italy, Portugal and Spain --worsening the debt crisis.

Saba bought Greek debt maturing in one year, Weinstein said at an investment conference in September. The price paid factored in at least a 75 percent chance of default, said Weinstein, whose New York-based hedge fund oversees about $5 billion. His biggest fund climbed 9.3 percent last year, according to a person briefed on its performance. New York-based York Capital also owns Greek sovereign debt, according to another two people.

Greek officials held meetings last year with CapeView Capital, the fund started by former Deutsche Bank executive and Trafalgar Asset Managers Ltd. founder Theo Phanos, to discuss the firm’s sovereign debt investments, said another two people, who declined to be identified because the meetings were private.

Sarkozy, Merkel

Officials led by German Chancellor Angela Merkel and French President Nicolas Sarkozy persuaded banks in October to agree to exchange their Greek bonds for new securities with longer-dated maturities and lower coupon rates, as part of a tentative accord aimed at slashing the nation’s debt and halting the spread of a crisis that has plagued Europe for more than two years. Banks and politicians are still negotiating the exact level of losses imposed on private bondholders in the swap.

Greek Finance Minister Evangelos Venizelos said yesterday that discussions with private bondholders on the swap “have advanced and are now at a very good point,” according to a statement released by the government. Venizelos is scheduled to meet in Athens today with Charles Dallara, a managing director at the Institute of International Finance, which represents banks that hold Greek debt.

ECB Holdings

Of the 355 billion euros ($450 billion) of outstanding Greek debt, about a third is held by the ECB, the European Union and the International Monetary Fund, according to estimates by Open Europe, a research Group based in London and Brussels.

The swap would slice about half of Greek’s remaining 200 billion euros of debt, most of which is owned by banks. About 80 billion euros is held by overseas investors such as insurers, sovereign wealth funds and hedge funds, Open Europe said.

The ECB has purchased about 36 billion euros of Greek debt since 2010, according to a Jan. 6 report by Laurent Fransolet, head of fixed income strategy at Barclays Capital in London.

Trichet, who was succeeded by Mario Draghi in November, repeatedly said he was opposed to any bond restructuring that forces investors to accept haircuts. ECB council member Athanasios Orphanides last week called in a Financial Times column for euro-area leaders to drop haircuts to convince markets it’s safe to invest in the region again.

‘Free Ride’

Losses from the ECB’s holdings of Greek debt could require it to raise new capital from its euro-zone member central banks. Niels Buenemann, a spokesman for the ECB, declined to comment.

Hedge funds shouldn’t swap their Greek bonds for new debt as long as the ECB refuses to do so itself because it’s legally difficult for a sovereign to default on payments to one holder while providing full payment to another, said Andreas Koutras, an analyst at InTouch Capital Markets Ltd. in London. Funds stand a good chance of getting paid out at face value, especially on debt maturing in coming months, should the ECB decline to take part in any exchange, he said.

“If the ECB is out, then for sure you should try to free ride on the back of the ECB,” Koutras said. “You’d be stupid to actually participate if the ECB does not.”

The first test of that trade is in March, when about 14.4 billion euros of debt matures. Government bonds redeemable on March 20 fell to a 52-week low of about 40 cents on the euro on Nov. 29, according to data compiled by Bloomberg. The bonds rose to 49 cents on Dec. 19. It traded at about 44 cents as of yesterday.

Collective Action Clauses

Trun-Tin Nguyen, a hedge fund manager at TTN NG in Zurich, said he’s been buying the bond on the expectation that policy makers will fail to reach an agreement before March.

“The bet is that either way, they will repay this one,” Nguyen said in an interview. “Before March, no solution should be achieved, whether it’s a haircut or a default.”

Officials may include collective actions clauses in any agreement, which would blur the voluntary nature of the swap, said a person with direct knowledge of the negotiations. Such a clause would give Greece’s lenders the right to impose the exchange on all holders if a majority of holders agree to it.

Policy makers expect the clause would push more investors, including hedge funds, to agree to the swap, said the person, who declined to be identified because the negotiations are private. Inserting the clause wouldn’t be a credit event, while a decision by Greece to act on it would probably trigger the CDS, the person said.

Still, CDS prices show investors are wagering that Greece will default and that swaps will be triggered. Contracts insuring against a default within the next five years have more than doubled to 7,819 basis points since October, when officials announced the debt swap.

To contact the reporters on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net; Julie Cruz in Dusseldorf via jcruz6@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net.

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