Apple Beijing Shop Pelted With Eggs as IPhone Debut Botched

By Bloomberg News - Jan 13, 2012 4:07 PM GMT+0700

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Jan. 13 (Bloomberg) -- Apple Inc., whose skill at hyping new products has helped make it the world’s most valuable technology company, became a victim of its own success with a botched introduction of its iPhone 4S in China. Would-be customers who had endured a wait overnight as temperatures dropped below minus 9 degrees Celsius reacted with fury after the company’s main store in Beijing’s Sanlitun district failed to open. Linzie Janis reports on Bloomberg Television's "First Look." (Source: Bloomberg)

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Broken eggs are seen outside an Apple Inc. store in Beijing. Photographer: Nelson Ching/Bloomberg

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Eggs streak down the facade of an Apple Inc. store in Beijing. Photographer: Nelson Ching/Bloomberg

Apple Inc. (AAPL), whose skill at hyping new products helped make it the world’s most valuable technology company, became a victim of its own success after a botched introduction of its iPhone 4S in China led it to suspend sales.

Would-be customers who waited overnight as temperatures dropped below minus 9 degrees Celsius reacted with fury after the company’s main store in Beijing’s Sanlitun district failed to open. The company sold out of the handsets at stores that did open and later halted sales of all iPhones at its five retail outlets in the country “for the time being,” spokeswoman Carolyn Wu said by phone.

Apple had advertised that the store would open at 7 a.m. At 7:15 a.m., people began chanting “Open the door!” and “Liars!” after an unidentified man said over a bullhorn that the phone wouldn’t go on sale today, without giving an explanation. The store stayed closed “for safety reasons,” Wu said. Beijing police temporarily cordoned off the shop after it was pelted with eggs by the crowd.

“This is a debacle,” Shaun Rein, managing director of China Market Research Group, a Shanghai-based retail advising company, said in a phone interview today. “Everybody knows there will be massive numbers of people when Apple has this kind of a launch. This shows very poor retail management ability.”

‘Very Angry’

Elsewhere in the capital, the introduction went more smoothly. At Apple’s store in the Xidan neighborhood, the company handed out 1,000 tickets good for the purchase of a maximum two iPhone 4S handsets each. In Shanghai, a store in the Pudong district opened an hour early to accommodate the waiting crowds before selling out of the phones immediately.

“I’m very angry,” said Li Yun, 59, a retiree who said she tried to buy the device on behalf of her daughter at the People’s Square store in Shanghai. “They had said they would start selling the iPhone 4S at 7 a.m. but I was told they were already sold out by the time I got here at 6 a.m.”

About 60 migrant workers, hired by resellers to line up last night outside Apple’s store in Beijing’s Xidan, weren’t paid the 120 yuan ($19) they were promised because they failed to get an iPhone 4S after the 12-hour wait, according to several of them, who asked not to be named for fear of reprisal. They came by bus from a labor market in the suburbs and received only a 10-yuan food allowance, they said.

Expansion Slowed

The crush of crowds at the stores is a reflection of the company’s decision to slow the opening of outlets in China, Rein said.

Apple in February 2010 announced a plan for 25 stores in China over two years, then slowed the expansion. Including the Hong Kong shop, which started selling the iPhone 4s on Nov. 11, there are six in the country.

“There isn’t enough product in enough retail points,” Rein said. “If they had more points of sale, it would disperse the crowds.”

Hundreds of people lined up outside the store in Hong Kong’s IFC Mall for several nights when the new iPhone went on sale, prompting police to use metal barricades to keep order.

Apple has more than 300 outlets worldwide and planned to sell the latest iPhone model through its three stores in Shanghai, two in Beijing, the two main cities in the world’s largest mobile-phone market.

Second-Largest Market

The Cupertino, California-based company sold 5.6 million iPhones in China in the first nine months of last year, giving it a 10.4 percent share of the smartphone market in the third quarter, according to research company Gartner Inc. Apple’s Wu earlier declined to comment on the outlook for iPhone 4S sales in China.

Apple’s stores in China generate the highest traffic and highest revenue of any of the company’s stores in the world, on average, Chief Financial Officer Peter Oppenheimer said last January.

The maker of Macintosh computers and the iPad tablet increased its revenue in China to $13 billion in the year ended Sept. 24, from $3 billion a year earlier, Chief Executive Officer Tim Cook said in October. China accounted for 16 percent of Apple’s revenue in the fiscal fourth-quarter, making it the company’s biggest national market after the U.S.

Foxconn Suicides

Today’s confrontation wasn’t the first during a product introduction at the Sanlitun store, which opened in 2008 as Apple’s first in the country. In May, the store was temporarily closed when a group that lined up outside to buy the iPad 2 “became unruly,” Wu of Apple said at the time. Four people were injured and a glass door to the shop was smashed, the China Daily reported.

The violence adds to challenges for Apple in China, where company supplier Foxconn Technology Group was hit by a series of employee suicides. The Taipei-based company installed safety nets on buildings, raised pay and hired counselors in 2010 after at least 10 workers killed themselves. Apple also commissioned a review by a team of suicide-prevention experts.

China Unicom (Hong Kong) Ltd., the nation’s second-largest carrier, is the only one of the country’s three service providers offering the iPhone with a service contract. The company sent a text message to subscribers trumpeting free home delivery of the new handset through its online store.

Yellow Bulls

“Buy the iPhone 4S without lining up!” China Unicom (762) said in a text sent to subscribers in Beijing. Unicom’s online shop made the device available at midnight, the text said.

While Apple suspended iPhone 4s sales at its China shops, the handsets remain available on its website as well as from Unicom and resellers, Wu said.

Sophia Tso, a spokeswoman at China Unicom in Hong Kong, didn’t immediately reply to messages left by phone and e-mail seeking comment.

The Unicom site lists the 16-gigabyte model for 5,880 yuan ($932), with different levels of subsidies. The handset is free to users committing to a three-year plan for 286 yuan a month or a two-year plan costing 386 yuan a month, the website said.

The crowd around Apple’s main Beijing store diminished after police lifted the cordon and the doors remained closed. Some waited a while longer for a chance to buy the phone, which includes voice recognition software that doesn’t work with Mandarin, before giving up.

“We were unable to open our store at Sanlitun due to the large crowd and to ensure the safety of our customers and employees,” Wu said.

The fracas outside the store was caused by yellow bulls, a euphemism for people who buy the phones for sale at a markup, Tony Si, an 18-year-old bartender, said outside the store. The disorder, police response and store closing was their fault, not Apple’s, though he is still disappointed, he said.

“I’m angry because they said they’d sell it, and now they aren’t selling it,” Si said.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

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

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JPMorgan Profit Falls on Trading, Investment Banking

By Dawn Kopecki - Jan 13, 2012 10:20 PM GMT+0700

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Jan. 13 (Bloomberg) -- Charles Peabody, an analyst at Portales Partners LLC, talks about JPMorgan Chase & Co.'s fourth-quarter profit. JPMorgan said net income fell 23 percent to $3.73 billion, or 90 cents a share, as trading revenue and investment-banking fees declined. Peabody speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Jan. 13 (Bloomberg) -- Jason Pride, director of investment strategy at Glenmede, talks about JPMorgan Chase & Co.'s fourth-quarter earnings reported today and investment strategy. The largest U.S. bank by assets said net income fell 23 percent to $3.73 billion, or 90 cents a share, as trading revenue and investment-banking fees declined. Pride speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

JPMorgan Chase & Co. fell the most in more than a month in New York trading after the bank reported a 23 percent drop in profit on lower investment-banking fees and revenue from trading stocks and bonds.

JPMorgan, the biggest U.S. bank by assets, dropped 3.9 percent to $35.42 at 10:18 a.m., the steepest decline since Dec. 8. The company said fourth-quarter net income slid to $3.73 billion, or 90 cents a share, from $4.83 billion, or $1.12, in the same period a year earlier.

Revenue in every investment-banking business fell from a year earlier, including an 18 percent drop in trading. The division’s total revenue declined 30 percent to $4.36 billion as corporate clients stayed on the sidelines on concern Europe’s debt crisis would lead to an economic slowdown. Chief Executive Officer Jamie Dimon said the investment-banking business is “naturally volatile” and would eventually bounce back.

“I don’t think that these numbers are permanent,” Dimon, 55, said on a conference call with journalists after earnings were released. “When things come back these numbers will boom again and we’ll be geniuses, and it won’t be because we did anything, it will be because we stayed in the game.”

JPMorgan’s drop was the second-biggest on the KBW Bank Index (BKX) of 24 companies, after Bank of America Corp. (BAC)’s 4.4 percent decline.

Job Cuts

Financial institutions are eliminating jobs to compensate for falling trading revenue, disclosing plans to reduce staff by more than 200,000 worldwide, according to data compiled by Bloomberg. Royal Bank of Scotland Group Plc, Britain’s biggest government-owned bank, said this week it would cut about 4,800.

For the year, JPMorgan’s net income was a record $19 billion, 9 percent higher than in 2010. Revenue for 2011 declined 5 percent to $97.2 billion, and fourth-quarter revenue fell 18 percent, to $21.5 billion, the lowest in three years and below the $22.6 billion estimated by analysts in the Bloomberg survey.

“We believe these returns were reasonable given the environment, although the return for the fourth quarter was modestly disappointing,” Dimon said in the statement.

Fixed-income and equity-markets revenue dropped to $3.27 billion from $4 billion a year earlier and $4.75 billion in the third quarter, the company said.

Retail banking earned $533 million, down 54 percent from the third quarter and up 16 percent from a year earlier. The division benefited from a reduction in loss provisions to $779 million from $2.42 billion in the prior year.

Credit Cards

Fewer consumers fell behind on credit-card payments in the fourth quarter compared with the same period in 2010. Loans at least 30 days overdue, a signal of future write-offs, fell to 1.13 percent from 1.22 percent. Write-offs dropped to 4.29 percent from 7.85 percent the prior year and 4.7 percent in the previous quarter.

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, Jason Goldberg, a senior bank analyst at Barclays Capital in New York, said.

JPMorgan said today the new rules will reduce its net income by about $600 million a year, and Dimon said on the call that the Durbin amendment was a “gross miscarriage of justice.” Chief Financial Officer Douglas Braunstein said the Durbin amendment reduced revenue $350 million in the fourth quarter.

Mortgage Buybacks

Losses from buying back mortgages JPMorgan previously sold may amount to about $350 million per quarter this year, the bank forecast today. Quarterly repurchase losses averaged $337 million last year.

JPMorgan’s net income continued to benefit from releasing back into earnings reserves previously set aside for bad mortgages, credit cards and other loans, although it was smaller than in previous periods. The bank released $723 million in reserves in the fourth quarter, compared with $2.1 billion a year earlier. The bank added $4.66 billion in net income through reserve releases for the year, compared with $7 billion in 2010.

The company continued to build its litigation reserves, setting aside $528 million more for mortgage-related lawsuits.

JPMorgan, which has benefited from record low costs of funding mortgages and other assets, faces a squeeze on its net interest margin -- the difference between what it pays to borrow money and what it gets for loans and on securities.

The bank’s margin narrowed to 2.7 percent from 2.88 percent a year earlier.

Lower Taxes

JPMorgan was able to boost profit last quarter by paying less in taxes. The company’s effective tax rate was 21 percent in the fourth quarter, compared with 31 percent a year earlier and 27 percent in the third quarter.

The lower tax rate contributed about 10 cents to JPMorgan’s per-share earnings, helping it to meet or beat some analysts’ estimates, Keith Horowitz of Citigroup Investment Research, said in a note to clients today.

Goldberg at Barclays Capital said the fourth quarter was probably the worst earnings period for the industry during 2011.

“A lot of it is driven by the challenging capital markets environment,” he said in a Jan. 9 interview. “Trading revenues started out the year off strong, and then the second half of the year was quite challenged. That business bounces around.”

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

Bank Stocks

Slowing economic growth, mounting mortgage liabilities and heightened concern that Europe’s debt crisis will spread have weighed on bank stocks all year. Just two of the 24 companies in the KBW Bank Index posted a gain in 2011, and the worst performer, Bank of America, was down 58 percent.

Large super-regional banks such as Wells Fargo & Co. (WFC) 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.

Bank of America, second by assets to JPMorgan, will probably post $5.82 billion in adjusted earnings for the year when the Charlotte, North Carolina-based company reports next week, according to the Bloomberg survey.

Citigroup Inc. (C)’s 2011 profit was estimated at $11.6 billion, or 12 percent higher than the previous year, and Goldman Sachs Group Inc. (GS) is projected to report a 62 percent decline to $2.95 billion, the Bloomberg survey shows. Morgan Stanley, the sixth-largest U.S. bank, may post $2.22 billion of adjusted earnings, down 29 percent. All three companies are based in New York.

To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.com.

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

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Draghi Says Crisis Strategy Is Working as ECB Fights Threat From Turmoil

By Jeff Black and Jana Randow - Jan 13, 2012 5:48 PM GMT+0700

European Central Bank President Mario Draghi says his strategy for battling Europe’s debt crisis is starting to work.

The ECB’s massive injection of cash into the financial system last month is beginning to lubricate seized credit markets and there are “tentative signs” of economic stabilization in the euro area, Draghi said in Frankfurt yesterday. While “substantial downside risks” remain, he pointed to falling yields on Italian and Spanish debt this week.

That may mitigate the need for further interest rate cuts in the short term and muffle calls for the ECB to step up its government bond purchases. While the 17-nation euro region is still in danger of sliding into recession after the debt crisis spread to Italy and Spain, driving up borrowing costs and hurting the export markets of stronger economies such as Germany, recent data suggest the worst may be over.

“The ECB can be rightly justified in saying that the Armageddon we were facing toward the end of last year does seem to have been addressed,” said James Nixon, chief European economist at Societe Generale SA in London. “Further rate cuts will only be forthcoming if, for example, we see signs of an outright credit crunch.”

The euro climbed more than a cent after Draghi spoke and traded at $1.2814 at 11:40 a.m. in Frankfurt today. The ECB yesterday held its benchmark rate at a record low of 1 percent after two straight reductions, as predicted by 47 of 53 economists in a Bloomberg News survey.

‘Ready to Act’

Asked if the ECB is open to cutting rates further, Draghi said it depends on the inflation outlook. He indicated rates will remain low for an extended period.

“The monetary stance is and will remain accommodative,” Draghi said. “Uncertainty is very high. We will monitor all developments and stand ready to act.”

Signs of economic stabilization may stay the ECB’s hand for the time being.

German exports gained in November and business sentiment in France climbed from a two-year low last month. At the same time, the German statistics office said on Jan. 11 that Europe’s largest economy contracted in the fourth quarter of 2011, raising the prospect of recession.

“There are tentative signs of stabilization of economic activity at low levels,” Draghi said.

Three-Year Loans

In addition, the ECB’s three-year loans to banks, totaling a record 489 billion euros ($628 billion), are beginning to unlock markets and have prevented a “serious” credit contraction, he said.

“It was rather comforting to see that some opening of the unsecured bond market is actually taking place, but we really are at the beginning of this process,” Draghi said. “Let’s hope it will continue.”

The market for senior unsecured bonds dried up last July after European leaders insisted on private investors participating in a Greek debt write-down. In a sign confidence may be returning to the market, Rabobank Nederland last week sold 2.75 billion euros of floating-rate senior unsecured notes and 1.75 billion euros of senior unsecured bonds.

Draghi said it remains unclear whether banks will use ECB loans to buy sovereign bonds. He nevertheless noted the recent decline in yields across the euro region and the lower cost of borrowing at Italian and Spanish debt auctions yesterday.

Debt Sales

Italy yesterday sold 12 billion euros of Treasury bills, meeting its target, with the rate on the one-year bills plunging to 2.735 percent from 5.952 percent at the last auction of similar-maturity securities on Dec. 12. Spain sold 9.98 billion euros of bonds maturing in 2015 and 2016, twice its maximum target. Today Italy sold 3 billion euros of 6 percent bonds maturing in 2014, with the yield falling to 4.83 percent from 5.62 percent.

“While it’s premature to claim that the ECB’s new liquidity measures have forestalled a credit crunch, their effect is palpable in government bond markets,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “Who would have predicted in November that in January Italy would be able to sell one-year paper at 2.7 percent?”

As the debt crisis escalated in the last quarter of 2011, the ECB faced increasing calls to ramp up its government bond purchases to cap yields. Draghi and colleagues including Germany’s Jens Weidmann pushed back, urging politicians to sort out their fiscal problems while the ECB supplied funds to prevent the banking system from collapsing.

ECB ‘Prescription’

“Beyond providing generous liquidity support to banks, the ECB does not seem to be contemplating any measure to tackle tensions in sovereign debt markets more directly,” said Holger Schmieding, chief economist at Berenberg Bank in London. “If escalating tensions were to clog up the transmission channels more severely, the ECB might have to do more.”

Draghi said he expects “substantial demand” for the ECB’s second batch of three-year loans that will be awarded on Feb. 29. Banks can borrow as much as they like against collateral and the ECB has widened the pool of assets that can be used for obtaining the funds.

“The provision of liquidity and the allotment modes for refinancing operations will continue to support the euro-area banks, and thus the financing of the real economy,” Draghi said.

Economists including Marco Valli at UniCredit in Milan say ECB rates may now be on hold for the rest of the year.

“Obviously things can change very quickly and then the ECB will act,” said Ken Wattret, chief euro-area market economist at BNP Paribas in London. “But for now, its prescription is doing what it set out to do, so there is no rush to cut rates and massively step up asset purchases.”

To contact the reporters on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net; Jana Randow in Frankfurt at jrandow@bloomberg.net

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

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Stocks, Euro, Oil Fall on Reports of ‘Imminent’ S&P Downgrades in Europe

By Rita Nazareth and Allison Bennett - Jan 13, 2012 9:54 PM GMT+0700

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Jan. 13 (Bloomberg) -- Michael Holland, chairman of Holland & Co., talks about JPMorgan Chase & Co.'s fourth-quarter earnings reported today and outlook. The largest U.S. bank by assets said net income fell 23 percent to $3.73 billion, or 90 cents a share, as trading revenue and investment-banking fees declined. Holland speaks with Erik Schatzker, Scarlet Fu and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Jan. 13 (Bloomberg) -- Richard Staite, an analyst at Atlantic Equities LLP, talks about the outlook for JPMorgan Chase & Co.'s fourth-quarter results to be reported today, Wells Fargo & Co.'s dividend, and expectations for the U.S. banking industry. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

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Jan. 13 (Bloomberg) -- Norman Chan, head of investment at Calibre Asset Management, discusses the outlook for Asian economic growth and stocks. He speaks from Hong Kong with Caroline Hyde on Bloomberg Television's "First Look." (Source: Bloomberg)

Stocks fell, trimming a weekly gain, while the euro and commodities slid following reports that several European countries may face imminent credit downgrades by Standard & Poor’s. Yields on German bunds slid to record lows and Treasuries rallied.

The S&P 500 fell 0.8 percent to 1,285.71 at 9:53 a.m. in New York, paring its weekly gain to 0.6 percent. The Stoxx Europe 600 Index slipped 0.4 percent after increasing as much as 0.7 percent earlier. The euro slumped 1 percent to $1.2682, near a 16-month low. Treasuries extended gains, sending the 10-year note’s yield down six basis points to 1.87 percent, and Italian, Spanish and Belgian bonds dropped. Germany’s 30-year yield lost as much as 10 basis points to 2.33 percent.

The downgrades may happen as soon as today, according to Dow Jones Newswires, which cited European Union sources. Germany’s rating will not be cut, Reuters reported, citing a senior euro-area source. Banks led losses in U.S. stocks after JPMorgan Chase & Co. reported a drop in profit, sending shares of the largest U.S. bank by assets down as much as 4.7 percent.

“The cloud of Europe has weighed on investors’ sentiment,” Keith Wirtz, who oversees $14.6 billion as chief investment officer at Fifth Third Asset Management in Cincinnati, said in a telephone interview. “These downgrading actions in Europe were expected down the road, not right now.”

Financial Shares Slump

Financial shares in the S&P 500 lost 1.7 percent as a group to lead the S&P 500’s drop as Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. lost at least 1.9 percent. Declines in trading revenue and investment banking fees sent JPMorgan’s fourth-quarter profit down 23 percent to $3.73 billion, or 90 cents a share, matching the average estimate of 90 cents by 28 analysts surveyed by Bloomberg.

Wells Fargo & Co., Citigroup Inc. and Goldman Sachs Group Inc. are due to release results next week.

The S&P 500 had risen for four straight days, bringing this week’s gain to 1.4 percent and its 2012 advance to 3 percent before today.

The Stoxx 600 rose earlier following a report the European Banking Authority will postpone stress tests, while borrowing costs fell at an Italian debt auction. Italy sold 3 billion euros ($3.8 billion) of bonds maturing in 2014 to yield 4.83 percent, compared with 5.62 percent at the previous auction.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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Stocks Fall Amid Europe Downgrade Concern, JPMorgan

By Rita Nazareth - Jan 13, 2012 10:02 PM GMT+0700

U.S. stocks fell, snapping a four- day rally for the Standard & Poor’s 500 Index, on a report that several euro-region countries may face credit downgrades by S&P and as JPMorgan Chase & Co.’s profit slumped 23 percent.

All 10 groups in the S&P 500 declined as financial, industrial and commodity gauges slid at least 0.7 percent. JPMorgan, the largest U.S. bank by assets, retreated 3.3 percent. Bank of America Corp. (BAC), Morgan Stanley and Citigroup Inc. (C) retreated at least 3.2 percent. Eastman Kodak Co. (EK) tumbled 22 percent as the unprofitable imaging company is said to be in talks with Citigroup to provide bankruptcy financing.

The S&P 500 lost 0.8 percent to 1,285.32 as of 10 a.m. New York time, after the report by Dow Jones Newswires, which cited European Union sources. The benchmark gauge advanced 1.4 percent over the previous four days. The Dow Jones Industrial Average slid 102.70 points, or 0.8 percent, to 12,368.32 today.

“The cloud of Europe has weighed on investors’ sentiment,” Keith Wirtz, who oversees $14.6 billion as chief investment officer at Fifth Third Asset Management in Cincinnati, said in a telephone interview. “These downgrading actions in Europe were expected down the road, not right now,” he said. “JPMorgan had very soft business results coming from investment banking and trading. Still, they were able to scratch out an EPS result in line with expectations.”

The S&P 500 was still headed for the second week of gains amid lower borrowing costs at auctions in Europe. Investors also watched fourth-quarter results. S&P 500 companies, which beat estimates in the previous 11 quarters, are forecast to report a 6 percent increase in per-share profit during the September- December period, according to projections compiled by Bloomberg.

Economic Data

The U.S. trade deficit widened more than forecast in November as American exports declined and companies stepped up imports of crude oil and automobiles. Separately, the Thomson Reuters-University of Michigan preliminary index of consumer sentiment in January rose to 74 from 69.9 at the end of December. The gauge was projected to rise to 71.5, according to the median estimate in a Bloomberg News survey.

Financial companies slumped. JPMorgan dropped 3.3 percent to $35.64. Investment-banking revenue declined 30 percent to $4.36 billion from a year earlier as many clients stayed on the sidelines on concern the European debt crisis would lead to a global economic slowdown.

“Financials would have to participate for the market to do well,” James Dunigan, who helps oversee $104 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “We’ll look to see whether all that disruption in Europe had some an effect in overall earnings reports. If that bleeds over into our export numbers, it may have an impact on the earnings side.”

Bank Shares

Bank of America lost 3.8 percent to $6.53, while Morgan Stanley (MS) retreated 3.2 percent to $16.62. Citigroup fell 3.2 percent to $30.60. Goldman Sachs Group Inc. (GS) slid 3 percent to $98.22.

Kodak tumbled 22 percent to 53 cents. The company may seek protection from creditors within weeks and then hold an auction to sell its patent portfolio, said three people familiar with the matter, who asked not to be identified because the talks are private. Kodak may seek about $1 billion in so-called debtor-in- possession financing, though terms may change, two people said.

Charles Schwab Corp. (SCHW) lost 2.2 percent to $12.20. The independent, San Francisco-based brokerage was downgraded to “market perform” from “outperform” at Wells Fargo & Co.

Relative Calm

Stock investors shouldn’t get used to the relative calm that markets are now showing, according to Andrew Garthwaite, a global equity strategist at Credit Suisse Group AG.

Volatility is likely to rise this year, Garthwaite wrote yesterday in a report. He attributed the outlook to excessive borrowing in developed economies, which ensures that investors will be “abnormally sensitive” to shifts in economic growth and government policy, he added.

“Sentiment in the market has clearly changed over the past three months,” wrote Garthwaite, who is based in London. Both volatility gauges erased almost all of their gains from last year’s second-half stock slump. The reading for the S&P 500 dropped below 20 yesterday for the first time since Aug. 3.

Even so, developed-country debt is still $8 trillion too high, the report said. Garthwaite came up with that estimate by comparing the borrowing relative to gross domestic product with a figure based on the debt-to-GDP ratio’s trend during the past three decades.

The need to reduce this burden creates “a considerable amount of tail risk,” or potential for unlikely stock-market outcomes, the report said. He mentioned 11 possible surprises for this year. One was a breakup of the euro region, which he estimated would send the S&P 500 falling to 800, or 38 percent less than yesterday’s close.

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

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

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RBS Capitulation Sets Blueprint for EU Banks

By Elisa Martinuzzi and Liam Vaughan - Jan 13, 2012 5:43 PM GMT+0700

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Jan. 13 (Bloomberg) -- Gordon Kerr, founder of Cobden Partners, talks about the solvency of Royal Bank of Scotland Group Plc. He speaks with Caroline Hyde on Bloomberg Television's "First Look." (Source: Bloomberg)

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Jan. 13 (Bloomberg) -- Mark Steyn, chief executive officer for Asia Pacific at recruitment firm Hudson Highland Group Inc., talks about the hiring outlook for the global financial services industry. He speaks from Sydney with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Royal Bank of Scotland Group Plc’s decision to cut its European investment bank by more than a quarter may kick-start a wider shake-up among its rivals in the region as a fee drought and greater regulation force middle- ranking firms to shrink their operations.

RBS, the U.K.’s largest government-owned bank, said yesterday it will sell or close its equities, mergers advisory and equity capital markets businesses, eliminating 3,500 jobs. UniCredit SpA, which in November shut part of its equities unit, Nomura Holdings Inc. and UBS AG (UBSN) are also pulling back.

Banks running securities arms that are laggards in their industries may follow RBS in shuttering units because a decline in trading and a jump in the cost of operating under incoming regulation is rendering some businesses not viable, say analysts. Competition among dozens of lenders in Europe for services such as underwriting initial public offerings and advising on mergers and acquisitions contributed to record low fees, exacerbating the pressure on returns for firms that are relying on the region to drive growth.

“Middle-ranking banks are being squeezed as volumes have collapsed,” said Christopher Wheeler, an analyst at Mediobanca SpA in London. “The banks that are neither betwixt nor between can’t afford the cost base they’re running.”

Fees Decline

Europe’s investment banking fee pool, which comprises payments to banks for M&A advice, loans and underwriting debt and equity sales, posted the worst quarter since 2004 in the three months to December, according to New York-based research firm Freeman & Co.

Investment banking fees in Europe dropped to $4.2 billion in the fourth quarter of 2011 from $4.7 billion in the previous quarter and $7.2 billion in the second quarter. Fees hit a record $11.1 billion in the second quarter of 2007, the data show.

Competition has driven the average fee for an IPO in Europe to a record low of 1.87 percent, according to data compiled by Bloomberg. That is down from 2.5 percent in 2008 and 2.2 percent in 2007, a record year for IPOs.

Earnings in the 25 banks in Bloomberg’s European bank index are forecast to fall 40 percent from 2010 on average, driven by profit warnings among the U.K. banks, UBS and Erste Group Bank AG, according to a survey of analysts by Bloomberg.

Profit Declines

Profit at RBS’s investment bank fell 85 percent in the third quarter to 80 million pounds ($123 million), from 549 million pounds in the same period a year earlier. Nomura (8604) posted a 46.1 billion yen ($600 million) loss for the three months ended Sept. 30, the first since the quarter ended March 2009, driven by declines in trading and investment banking income. Pretax losses from overseas operations swelled to 52.4 billion yen, the most in at least six quarters.

“Low returns are an industry issue, although pressures are greatest for businesses that lack scale and have weaker market positions,” Raul Sinha, an analyst for JPMorgan Cazenove in London, said in a note to clients. “In addition, a structurally negative increase in fixed costs for the sector has removed a natural offset to revenue volatility.”

RBS is reversing a decade of expansion, closing units and cutting employees at the securities unit, led by John Hourican, by 29 percent to 13,500 by 2015. The Edinburgh-based bank will focus on fixed income, foreign exchange and transaction banking.

RBS Shares Rise

“The tough economic outlook and regulatory changes will impede our progress -- as it will for all banks,” RBS Chief Executive Officer Stephen Hester, 51, said in a memorandum circulated to employees yesterday. “I expect other banks to follow our lead in their own differing ways.”

Shares in RBS rose 6.6 percent to 24.5 pence at 10:40 a.m. in London, giving it a market value of 27 billion pounds. They have risen 22 percent this week.

RBS’s move is similar to Barclays Plc’s decision in 1997 to sell its Barclays de Zoete Wedd’s equities and advisory business for about 100 million pounds to focus on fixed income and foreign exchange, said Mediobanca’s Wheeler. The retained division was renamed Barclays Capital. (BARC)

“Both of them ended up with sub-scale equities businesses,” Wheeler said. “If you look at the track record for BZW, at a rather better time in the market, they had to give it away.”

UBS, Societe Generale

The resignation of two former Lehman Brothers Holdings Inc. executives from Nomura this week may allow Japan’s biggest brokerage to revamp the business, which has stumbled since it bought assets of the failed U.S. firm in 2008. The firm plans $1.2 billion in cost cuts.

Last year securities firms globally culled more than 200,000 positions, according to data compiled by Bloomberg. Among them, UBS, Switzerland’s biggest bank, said in November it will reduce staff at its securities unit by 2,000, or 11 percent, as it scales back in investment banking and focuses on wealth management.

Societe Generale SA (GLE), France’s second-largest bank, said it may eliminate 1,580 jobs in corporate and investment banking. UniCredit, Italy’s biggest lender, cut 130 jobs as it exited sales, trading and research for western European equities. UniCredit’s investment bank will tap Kepler Capital Markets SA, a French securities firm, to provide some research.

In Europe, 160 lenders underwrote stock sales last year, a $90.6 billion market, data compiled by Bloomberg show. In the U.S., less than half the number of firms, 72, managed $159 billion of stock offerings, the data show.

Nomura, Barclays

Notwithstanding the competition, the top 10 underwriters in Europe controlled 71 percent of the market. RBS, which is focused on Europe and the U.S., ranked 26th while the top nine underwriters, led by Goldman Sachs Group Inc. (GS) and Deutsche Bank AG, (DBK) run global businesses.

Banks expanded in equities trading over the last decade in Europe, lured by the stable revenue provided by buying and selling securities for customers. The credit crisis prompted firms such as Nomura and Barclays, Britain’s second-biggest bank by assets, to exploit the collapse of rivals to expand their equities operations and seize market share. Meanwhile, brokers that dominated the industry sought to maintain their leads and build on their positions.

Mergers Activity

M&A activity hasn’t recovered from the banking crisis of 2008 as companies opt to preserve cash rather than spend on acquisitions. The total value of M&A deals last year was $2.3 trillion, 44 percent lower than in 2007, according to data compiled by Bloomberg.

“It is expensive and difficult to reverse these decisions so banks have put them off as long as possible,” said Matthew Clark, a bank analyst at Keefe, Bruyette & Woods Inc. in London. “We have had two years of depressed investment bank earnings.”

To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net; Liam Vaughan in London at lvaughan6@bloomberg.net

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

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U.K. Factory-Gate Prices Unexpectedly Fell in December on Fuel-Price Drop

By Jennifer Ryan and Scott Hamilton - Jan 13, 2012 4:44 PM GMT+0700

U.K. factory output prices unexpectedly fell in December for the first time in 18 months as the cost of petroleum products such as gasoline plunged.

The cost of goods at factory gates declined 0.2 percent from November, the Office for National Statistics said today in London. Annual price growth slowed to 4.8 percent, the least in a year. On the month, economists had forecast a 0.1 percent gain in December, according to the median of 17 estimates in a Bloomberg News survey.

Declines in prices for commodities such as oil may ease inflation pressure in the economy as producers and manufacturers pass lower costs onto consumers. The Bank of England, which maintained its bond-purchase target at 275 billion pounds ($422 billion) yesterday, has forecast that consumer-price growth will ease “sharply” this year.

“Output-price inflation has been fairly benign over recent months,” said Victoria Cadman, an economist at Investec Securities in London. “That should contribute to the sharp fall in headline inflation that we expect to see early this year.”

Out of 10 categories, four recorded declines in prices, four rose and two were unchanged. Prices for petroleum products dropped 0.9 percent in December from November as diesel and gas oil fell 1.2 percent. Chemical and pharmaceutical prices declined 0.9 percent. Food prices rose 0.1 percent.

The pound was little changed against the dollar after the report. It traded at $1.5343 as of 9:37 a.m. in London, up 0.1 percent from yesterday.

Core Prices

In a separate report, the statistics office said construction output rose 0.2 percent in November from the previous month, when it plunged 1 percent. From a year earlier, output was down 1.6 percent.

Core producer prices, which exclude costs of food, alcohol, tobacco and petroleum, slipped 0.1 percent on the month and were up 3 from a year earlier, the statistics office said.

Input prices fell 0.6 percent in December from the previous month and were up 8.7 percent from a year earlier, the statistics office said. That’s the slowest annual increase since October 2010.

SuperGroup Plc, the U.K. owner of the Superdry fashion chain, expects to cut prices this year as it adds suppliers in India and cotton costs ease, Chief Executive Officer Julian Dunkerton said on Jan. 11.

Crude oil prices have fallen to $99.62 a barrel from about $115 a barrel in May 2010, easing pressure on companies and consumers. Electricite de France SA’s U.K. unit and Centrica Plc said this week they will cut power prices for households. World food prices fell 2.4 percent in December from the previous month, led by grains, sugar and oilseeds, the United Nations’ Food and Agriculture Organization said yesterday. Copper has fallen 19 percent in the past six months.

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

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

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European Stocks Gain Before Italian Debt Auction; Commerzbank Shares Jump

By Peter Levring - Jan 13, 2012 4:37 PM GMT+0700

European (SXXP) stocks climbed, with the benchmark Stoxx Europe 600 Index headed for its fourth weekly advance, as Italy prepares to sell more debt. U.S. index futures were little changed, while Asian shares rose.

Commerzbank jumped 6.1 percent after German newspaper Handelsblatt reported that the lender will raise its capital levels without seeking government aid. GN Store Nord A/S (GN), a Danish maker of hearing aids and headsets, rallied 13 percent after one of its units won a settlement from Telekomunikacja Polska SA (TPS) over a dispute in Poland. Invensys Plc (ISYS) slumped the most in almost nine years after revealing 60 million pounds ($92 million) in additional costs.

The Stoxx 600 rose 0.3 percent to 250.28 at 9:35 a.m. in London. The gauge is headed for a weekly gain of 1.1 percent as the Federal Reserve confirmed the U.S. economy continues to grow and borrowing costs fell in the euro area. Futures on the Standard & Poor’s 500 Index expiring in March slipped less than 0.1 percent. The MSCI Asia Pacific Index added 0.9 percent.

“Investors are trading on the positive sentiment from the past weeks,” said Henrik Henriksen, the chief investment strategist at PFA Pension A/S, which has assets of $53 billion. “Recent data was not as bad as feared in Europe and has been better than expected in the U.S. and Asia.”

European (SXXP) stocks fell in the past two days as the German economy shrank in the final quarter of 2011 and data on U.S. retail sales and initial jobless claims missed economists’ forecasts.

Italian Debt

Italy, which raised 12 billion euros selling Treasury bills yesterday, seeks to sell 4.75 billion euros of bonds today. Spain and Germany this week received more bids than the amounts they targeted in their debt sales.

In the U.S., a report may show consumer sentiment reached a seven-month high. Thomson Reuters-University of Michigan preliminary index of consumer sentiment in January increased to 71.5 from 69.9 at the end of December, according to the median forecast in the Bloomberg survey before the report at 9:55 a.m. New York time. The measure may have been boosted by a pickup in job and wage growth at the end of 2011.

European Central Bank President Mario Draghi said in Frankfurt yesterday his strategy for battling Europe’s debt crisis is starting to work and that there are “tentative signs” of economic stabilization in the euro area.

Bank Stress Tests

The European Banking Authority will this year postpone the annual stress test for banks usually published in July, Handelsblatt reported, citing a spokeswoman for the EBA.

The test will be delayed to allow time for banks to get fresh capital to fill gaps documented by the last stress test in December, the newspaper said. The test may be postponed to the autumn or not happen at all this year, Handelsblatt said.

Commerzbank (CBK), Germany’s second-biggest lender, rose 6.1 percent to 1.46 euros to pace gains in European banks. The bank plans to raise its capital level by mid-year without seeking direct or indirect aid from the German state, its biggest shareholder, Handelsblatt reported, citing unidentified people close to the government.

Deutsche Bank AG (DBK), the biggest German lender, climbed 3.3 percent to 29.46 euros.

UniCredit SA and BNP Paribas (BNP) SA, the biggest lenders in Italy and France, rose 3.5 percent to 3.01 euros and 3.8 percent to to 32.20 euros, respectively.

GN Store Nord jumped 13 percent to 58.25 kroner after saying its DPTG unit and TPSA have reached a 550 million-euro agreement to settle a dispute on traffic volumes carried over a fiber optical telecommunications system in Poland. GN Store Nord said its entitled to receive 75 percent of the amount.

Invensys Plunges

Invensys Plc plummeted 23 percent to 175.9 pence, the biggest fall since March 2003. The British maker of washing- machine controls and factory gear revealed 60 million pounds in additional costs to fulfill contracts.

Full-year earnings will be “significantly” below last year as a result of the expenses, the London-based company said today.

Air France-KLM (AF) Group declined 2.3 percent to 4.39 euros. Europe’s biggest airline said it will freeze pay and hiring to cut costs by 1 billion euros, while beginning productivity talks with unions aimed at delivering a similar saving it says is needed to secure the long-term future.

To contact the reporters on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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

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Target to Test Apple Boutiques to Boost Lagging Tech Sales

By Matt Townsend, Adam Satariano and Heather Perlberg - Jan 13, 2012 4:13 AM GMT+0700

Target Corp. (TGT), the second-largest U.S. discount chain, plans to install areas dedicated to Apple Inc. (AAPL)’s brand in some of its stores this year to boost sales of iPads and computer accessories.

The concept will be tested in 25 locations and have a wider assortment of Apple products than the retailer currently sells, Dustee Tucker Jenkins, a spokeswoman for Minneapolis-based Target, told reporters today.

Target, which already sells Apple products and was one of the first major retailers to sell the iPad, said “softness” in electronics sales last month contributed to a same-store sales increase that trailed analysts’ estimates. By placing branded areas in Target, Apple is returning to the big-box retailers that late co-founder Steve Jobs had sought to circumvent when he created the company’s chain of stores a decade ago.

“Target is a retailer that I don’t think has a large presence in tech, but it has a good presence in young suburban family shoppers,” Daniel Ernst, an analyst at Hudson Square Research in New York, said in a telephone interview. “It’s the hip, big-box store. It makes a lot of sense and it will give Apple a bigger footprint.”

Apple’s stores typically are placed in high-trafficked areas or flagship locations such as Grand Central Station in New York and Covent Garden in London.

Apple already has miniature shops in more than 600 Best Buy Co. locations, a partnership that began about two years ago. The sections within Best Buy have characteristics of Apple stores, with tables highlighting products such as iPads and Mac computers.

‘Big Driver’

“The guys standing next to it are trained to sell Apple products and have different T-shirts on, and it’s been a big driver,” Ernst said.

Apple, based in Cupertino, California, has been operating without a head of its retail operations since Ronald Johnson said he would leave to become chief executive officer of J.C. Penney Co. in June. Apple had 357 stores at the end of last quarter, which generated $3.6 billion in sales.

Target rose 1.6 percent to $49.81 at the close in New York. Apple fell 0.3 percent to $421.39.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net; Heather Perlberg in New York at hperlberg@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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Oil Advances as Europe Economic Optimism Counters EU Iran Embargo Delay

By Ben Sharples - Jan 13, 2012 1:29 PM GMT+0700

Oil advanced in New York, trimming the biggest weekly decline in a month, as signs Europe’s debt crisis is easing countered indications a proposed embargo on Iranian crude will be delayed.

Futures gained as much as 1.1 percent after borrowing costs for Spain and Italy fell at debt sales yesterday and European Central Bank President Mario Draghi said he saw signs of stabilization in the euro region. Oil also climbed after Nigerian labor unions said they will continue a strike that threatens crude exports from Africa’s top producer. Planned European Union sanctions on Iran may be postponed by six months to allow some countries to find alternative petroleum supplies, according to an EU official with knowledge of the talks.

“It’s a case of Iranian embargo versus a mildly risk-on attitude as a consequence of the so-far so-good Italian and Spanish bond auction,” said Ric Spooner, a chief analyst at CMC Markets in Sydney. Nigeria “is certainly another aspect” that’s affecting the market, he said.

Crude for February delivery increased as much as $1.09 to $100.19 a barrel in electronic trading on the New York Mercantile Exchange. It was at $100.14 at 2:16 p.m. Singapore time. The contract yesterday fell $1.77, or 1.8 percent, to $99.10, the lowest close since Dec. 30. Prices are down 1.4 percent this week, the biggest decline since the period ended Dec. 16, and up 1.3 percent this year.

Brent oil for February settlement rose $1.05 to $112.31 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate futures was at $12.19, compared with a record $27.88 on Oct. 14.

‘Tentative Signs’

The European Central Bank’s injection of cash into the financial system last month is lubricating credit markets and there are “tentative signs” of economic stabilization in the euro area, ECB President Mario Draghi said in Frankfurt yesterday. While “substantial downside risks” remain, he pointed to falling yields on Italian and Spanish debt.

Nigerian labor unions said yesterday they will continue a strike that threatens oil exports from Africa’s top producer because no agreement has been reached yet with President Goodluck Jonathan on restoring fuel subsidies. The unions plan to resume talks with the president tomorrow, Abdulwaheed Omar, president of the Nigeria Labour Congress, told reporters at a press conference in the capital Abuja.

The oil union Pengassan said it would begin shutting down oil output on Jan. 15 if there was no agreement with the government, while its counterpart Nupeng said it has withdrawn its workers from fields operated by companies such as Royal Dutch Shell Plc (RDSA) to back the strike.

Iran Threat

Oil in New York has traded above $100 a barrel every day this year amid Iranian threats to respond to sanctions by shutting the Strait of Hormuz, a transit route for a fifth of the world’s crude. It rose to $103.74, the highest intraday price in almost eight months, on Jan. 4 after the EU said foreign ministers intend to announce harsher sanctions on Iran’s energy and banking industries at their next meeting.

Phasing in the European embargo would satisfy the concerns of countries most dependent on Iranian oil, including Italy, Greece and Spain, the EU official said, declining to be identified because the talks are private. Those three nations accounted for 68.5 percent of EU imports from Iran in 2010, according to European Commission data.

Sanctions, which would need to be agreed on by the foreign ministers of the 27-nation bloc on Jan. 23, are also likely to include an exemption for Italy so crude can be sold to pay off debts to Rome-based Eni SpA (ENI), the nation’s largest oil company, according to the official.

‘Upside Skew’

The risk of higher oil prices in 2012 is “increasingly skewed to the upside,” according to Goldman Sachs Group Inc. Iranian crude embargoed by the European Union will be replaced by Saudi Arabian supplies while China will take the surplus, Jeffrey Currie, head of commodities research at the bank in London, said in a report today.

Crude shipments from OPEC will reach the highest level in almost a year amid rising exports from Libya, according to tanker-tracker Oil Movements. The Organization of Petroleum Exporting Countries will export 23.66 million barrels a day in the four weeks to Jan. 28, the most since Feb. 12, 2011, the Halifax, England-based researcher said yesterday in an e-mailed report. The figures exclude Angola and Ecuador.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net;

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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Japan Builders Tout Quake-Resistant Features

By Kathleen Chu and Katsuyo Kuwako - Jan 13, 2012 1:13 PM GMT+0700

Ken Saishoji, a 46-year-old Tokyo real-estate agent, used to answer questions from potential apartment buyers about the proximity to train stations and prices. After the March 11 earthquake, that changed.

“The question almost 100 percent of the customers ask first these days is how strong the ground and the structure of the building is,” said Saishoji, who was in charge of selling 198 units in a 28-story building in Yokohama, south of Tokyo, at broker Nomura Real Estate Urban Net Co.

Mitsui Fudosan Co. (8801) and Mitsubishi Estate Co. (8802), Japan’s two- biggest developers, are adopting higher quake-absorbing methods to reduce motion during temblors in buildings taller than 20 stories. For builders such Nomura Real Estate Holdings Inc. (3231), highlighting quake-resistant features has meant selling all apartments at the Yokohama project at prices 14 percent higher than average for the area.

“The disaster has changed the way people think,” Kamezo Nakai, president of Nomura Real Estate, which sells its apartments through its own real-estate brokerage, said in an interview. “Some may think that people will refrain from buying homes after the quake, but it’s the opposite. People want to move in to apartments they deem safe.”

Mitsui Fudosan rose 2.2 percent to 1,159 yen at the close in Tokyo, while Mitsubishi Estate declined 0.4 percent to 1,155 yen. The Topix Real Estate Index (TPREAL) climbed 0.7 percent, the most in more than a week.

Avoiding Major Damage

Tokyo’s stringent building code, which includes rubber bearings used as foundation so that seismic energy can shift from structures, helped the city’s buildings avoid major damage from the nation’s record magnitude-9 quake, though the temblor turned landfill in the Tokyo Bay area into mud, shattering pipes and disrupting gas, electricity and water supplies.

The quake struck 130 kilometers (81 miles) off the coast northeast of Tokyo, triggering a tsunami and leaving almost 20,000 people dead or missing.

Contracted rates of high-rises in Tokyo, or the percentage of apartments sold before completion, dropped to 66 percent in November, declining below the 70 percent level needed for builders to be profitable, and down from 88 percent a year earlier, according to Real Estate Economic Research Institute Co. data released Dec. 15. High-rises are defined by the Tokyo-based research firm as buildings that are higher than 20 stories.

‘Sense of Security’

Mitsui Fudosan, Japan’s biggest developer by sales, is installing pipes with elasticity to minimize damage and will store three-day electricity supply for buildings and warehouses, it said in a Dec. 15 statement. Its 31-story Park Tower Umeda in Osaka and the 43-story, 585-unit Park Tower Shinonome in Tokyo will be the first projects where the new measures will be implemented. The developments will be completed by early 2014.

“There is rising demand for a sense of security and safe homes after the quake,” Takeru Hasegawa, a spokesman at Mitsui Fudosan, said by phone. “We have strengthened disaster prevention methods for all of our new projects from now on.”

The number of high-rises offered in Tokyo fell to 104 units, the lowest in more than three years, in April, according to the real estate institute. It recovered to 636 units in September, still 20 percent lower than the 796 that were put up for sale in February, a month prior to the quake. In November, it stood at 315 units, according to the latest data.

The supply of apartments in the city last year is estimated at about half the 10-year average of more than 81,000, the institute’s data show. It fell after lenders tightened loans following the collapse of Lehman Brothers Holdings Inc. in 2008.

Limited Supply

Demand for properties in central Tokyo will remain high, said Masahiro Mochizuki, an analyst at Credit Suisse Group AG.

“Condo supply was about half of what it was before even though demand remained the same; people who want to buy houses didn’t just disappear,” Tokyo-based Mochizuki said. “The limited supply and rising preference for central Tokyo properties will help boost demand.”

Mitsubishi Estate’s 49-story Park House Harumi Towers, which will be completed by November 2013, will have storage rooms with emergency kits on each floor, as well as stocks of water, food and other daily necessities, and a kitchen system that will allow residents to prepare meals outdoors, it said in separate statements.

Japan’s biggest developer by market value plans to increase fuel reserves for power generators in its residential buildings to last for about 24 hours from the previous estimate of eight to 10 hours, said Ryuichiro Funo, a spokesman at Mitsubishi Estate.

Changing Sales Pitch

“The sales pitch has changed: We demonstrate more as to what we have done in preparation for the earthquake,” said Funo.

An 8-magnitude quake is estimated to strike every 118.8 years on average near Tokyo, the last one being in 1854, government data showed. The chance of a major quake in the next decade beneath greater Tokyo, home to 13.1 million people, has doubled since the March tremor, geophysicist Ross Stein at the U.S. Geological Survey has said.

The March quake triggered liquefaction in neighborhoods in Tokyo Bay, which has about 24,955 hectares (61,665 acres) of reclaimed land, and where Mitsui Fudosan, Mitsubishi Estate and Nomura Real Estate have residential projects. Liquefaction is a phenomenon where soil loses its strength after violent shaking.

Apartments in the area are sought after for their views and travel time of less than half an hour to central Tokyo, a city with an average commute of 49 minutes, according to a survey by national broadcaster NHK. Nomura Real Estate, Tokyo’s third- largest developer, sold all 250 units in the first phase rollout of its 600-unit complex in the Shinonome area in Tokyo Bay within a day, according to the company.

“People’s preference to live in central Tokyo has strengthened” after commuters were stranded as the city’s subway system was shut immediately after the quake, said Tadashi Matsuda, a researcher at the real estate institute. “If the developers can emphasize the safety of their buildings, then that’s positive for them amid rising interest of living in the city.”

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

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

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Deutsche Telekom, France Telecom Win ’Early Route’ to Faster U.K. Services

By Jonathan Browning - Jan 13, 2012 7:00 AM GMT+0700

Deutsche Telekom AG (DTE) and France Telecom SA (FTE)’s U.K. mobile-phone venture may get a head start in high-speed mobile-phone services as the watchdog revised its design of a 2.6 billion-pound ($4 billion) frequency auction.

Everything Everywhere, which has applied to regulators to run faster services on its existing airwaves, has “an early route” to high-speed mobile Internet with its current holding, regulator Ofcom said yesterday as it announced proposals for an upcoming spectrum auction.

British carriers are seeking access to more frequencies to offer faster services and 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. (GOOG)’s Android system. Rolling out faster services early may help Everything Everywhere to stem a decline in customers and steal a march on rivals Vodafone Group Plc (VOD) and Telefonica SA (TEF).

“This is the most significant spectrum release in the U.K. for many years,” Ofcom Chief Executive Ed Richards said. “The U.K. benefits from being one of the most competitive mobile phone markets in Europe.”

All the companies have been seeking access to the valuable 800 megahertz band of low-frequency spectrum that can travel long distances with fewer expensive base stations. Vodafone, based in Newbury, England, and Spain’s Telefonica (TEF)are the only operators in the U.K. to hold low-frequency airwaves.

In its revised proposals Ofcom said it won’t reserve spectrum for Everything Everywhere, though it will probably guarantee frequencies for Hutchison Whampoa Ltd. (13)’s Three or a new company to keep four operators in the U.K.

‘Be Happy’

Ofcom emphasized that Everything Everywhere could roll out the faster services, known as LTE, early, to compensate for the loss of that guarantee, said Matthew Howett, an analyst at research firm Ovum in London.

“By saying you can get LTE over it, this is their way of making them say you should be happy,” he said.

Everything Everywhere said yesterday Ofcom told the company the application would be considered in the first quarter of 2012. The operator hasn’t been informed when it may receive a license to run the services.

Vodafone welcomed Ofcom’s proposals which will “bring the U.K. closer to a fair and open auction that will benefit the wider economy and increase competition.” O2 didn’t return several calls seeking comment.

Client Losses

Everything Everywhere said in October that third-quarter sales dropped 4.3 percent as the venture continued to lose clients amid a push to shift customers to long-term contracts. The number of clients dropped 1.4 percent from the previous year after the company lost 188,000 users in the second quarter.

The operator will still need to wait for handsets and equipment for the new technology, which aren’t yet available, Howett said.

The number of U.K. operators fell to four from five after France Telecom and Deutsche Telekom in 2009 merged their British units to form Everything Everywhere, the country’s largest operator. The market may consolidate further without intervention from the regulator, Three has said.

The next auction, now scheduled for the end of 2012 after repeated delays, will sell frequencies equivalent to three- quarters of the spectrum currently being used by the operators.

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.

The U.K. auction will follow the sale of low frequencies in countries such as Sweden and Germany, designed to enable operators to roll out fourth-generation networks. The German auction raised 4.4 billion euros from the disposal of airwaves previously used to broadcast television services.

Based on the amounts spent in Sweden and Germany, the U.K. auction may raise as much as 2.6 billion pounds, according to Analysys Mason, a research firm in Cambridge, U.K.

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

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

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Asian Stocks, Won Advance on Europe Optimism

By Lynn Thomasson and Yoshiaki Nohara - Jan 13, 2012 11:43 AM GMT+0700

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Jan. 13 (Bloomberg) -- Lim Say Boon, chief investment officer of DBS Group Holding Ltd.’s wealth management business in Singapore, talks about China stocks. He also discusses Europe's sovereign debt crisis and its implications for global financial markets. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Asian stocks rose to a one-month high and South Korea’s won strengthened on signs Europe’s debt crisis is easing. Oil was set for the biggest weekly drop in a month as an embargo against Iran was said to face delays.

The MSCI Asia Pacific Index climbed 0.6 percent as of 1:16 p.m. in Tokyo, set for a fourth weekly gain. The Nikkei 225 (NKY) Stock Average rose to a one-week high, while Standard & Poor’s 500 futures were little changed. The won advanced against all 16 major peers. Oil added 0.6 percent, after sliding 1.8 percent yesterday. Copper, zinc and nickel fell at least 0.6 percent.

Asian stocks are poised for the longest run of weekly gains in a year, led by energy producers, retailers and automakers. Borrowing costs for Spain and Italy fell at debt sales yesterday, while European Central Bank President Mario Draghi said he saw “tentative signs” of stabilization in the euro region. Data today is expected to show U.S. consumer confidence is at a seven-month high, based on the median forecast in a Bloomberg survey of economists.

ECB policy makers “have stabilized the whole situation,” said Diane Lin, a fund manager at Sydney-based Pengana Capital Ltd., which manages about $1.1 billion. “We should see some good performances in Asian equity markets.”

The MSCI Asia Pacific Index (MXAP) has rallied 8.7 percent from a two-year low reached in October, pushing valuations to 12.3 times estimated profit, based on data compiled by Bloomberg. More than three stocks gained for every two that fell in the index today. The Nikkei 225 advanced 1.1 percent and Australia’s S&P/ASX 200 added 0.3 percent.

China Stocks

The S&P 500 rose in each of the last four days, closing yesterday at the highest level since July. JPMorgan Chase & Co., the most profitable U.S. bank, is scheduled to report earnings today and Wells Fargo & Co., Citigroup Inc. and Goldman Sachs Group Inc. will release results next week.

The Shanghai Composite Index slid 1.8 percent, the most in a month. The gauge has fallen for the past three days as Credit Suisse Group AG and Royal Bank of Scotland Group Plc said inflation would hamper the government’s ability to ease monetary policy.

“An immediate reserve-ratio cut probably won’t come soon given policy makers’ concern about a possible rebound in inflation,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million.

Belle International Holdings Ltd. (1880) tumbled 8.6 percent in Hong Kong, poised for the biggest drop in three months. China’s biggest shoe retailer reported slower same-store sales growth.

Oil, Gas

Crude oil rose for the first time in three days. Nigerian labor unions said yesterday they will continue a strike that threatens oil exports from Africa’s top producer because no agreement has been reached yet with President Goodluck Jonathan on restoring fuel subsidies.

Oil declined 1.7 percent this week. A European Union embargo on imports of Iranian oil will probably be delayed for six months to let countries such as Greece, Italy and Spain find alternative supplies, according to an EU official with knowledge of the talks.

Natural gas futures in New York fell for a fifth day to trade near the lowest price in more than two years. Gas for February delivery slipped 0.5 percent to $2.684 per million British thermal units on the New York Mercantile Exchange.

Copper, Corn

Copper for delivery in three months declined 0.9 percent to $7,937 a metric ton on the London Metal Exchange, falling for the first time in four days. Zinc retreated 1.1 percent to $1,946 per ton. Nickel lost 0.6 percent to $19,550 a ton.

Corn declined for a third straight day, extending the worst slump in three months, after the U.S. government unexpectedly increased its global supply estimate. March-delivery corn declined as much as 1.1 percent on the Chicago Board of Trade to $6.05 a bushel, the lowest price for the most-active contract since Dec. 21. The contract plunged 6.1 percent yesterday, the most since Sept. 30.

Global production will exceed demand for the first time in three years as higher harvests in the U.S., the largest grower, Russia, Ukraine and the European Union more than offset losses in Argentina, the U.S. Department of Agriculture said yesterday.

The euro is poised to rise 0.8 percent against the dollar this week, the first advance since the period ended Dec. 2. The 17-nation currency was little changed today at $1.2820 before Italy sells bonds due in 2014 and 2018.

“The European liquidity operations are having a positive effect on risk appetite at the moment,” Chris Weston, an institutional trader at IG Markets Ltd. in Melbourne. “The bond auctions are becoming more positive and yields are declining and that’s having a positive impact on euro.”

Taiwan Election

The won advanced 0.8 percent to 1,149.55 per dollar after the Bank of Korea kept borrowing costs unchanged at 3.25 percent for a seventh month to support the economy. Taiwan’s dollar rose toward a two-month high on speculation President Ma Ying-jeou, who has improved economic ties with China, will be re-elected tomorrow. The currency gained 0.1 percent to NT$29.97 versus the greenback.

The cost of protecting Asia-Pacific corporate and sovereign bonds from non-payment fell, according to traders of credit- default swaps. The Markit iTraxx Asia index of 40 investment- grade borrowers outside Japan declined four basis points to 203, Royal Bank of Scotland Group Plc prices show. That would be the lowest close since Jan. 4, according to data provider CMA.

To contact the reporter on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: James Regan in Hong Kong at jregan19@bloomberg.net

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China Deals Up for Judgment in Taiwan Election

By Bloomberg News - Jan 13, 2012 10:49 AM GMT+0700
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The flags of Taiwan are displayed in Taipei. Photographer: Ashley Pon/Bloomberg

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Jan. 13 (Bloomberg) -- Taiwan’s 18 million voters will decide the course of relations with China for the next four years tomorrow as they choose between the incumbent president and an opposition leader critical of his push for closer ties with the mainland. Bloomberg's Stephen Engle reports. (Source: Bloomberg)

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Jan. 13 (Bloomberg) -- Douglas Paal, vice president for studies at the Carnegie Endowment for International Peace and formerly head of the American Institute in Taiwan, the de facto U.S. embassy, talks about Taiwan's presidential election and its implications for the island's relations with China and the U.S. Financial assets have rallied in the island before tomorrow's contest between President Ma Ying-jeou of the Kuomintang Party, who has championed closer ties with China, and Tsai Ing-wen, chairwoman of the opposition Democratic Progressive Party. Paal speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Taiwan’s 18 million voters will decide the course of relations with China for the next four years tomorrow as they choose between the incumbent president and an opposition leader critical of his push for closer ties with the mainland.

President Ma Ying-jeou, 61, who heads the Kuomintang Party, says that a surge in two-way trade, investment and tourism across the Taiwan Strait helped propel growth to 6.6 percent in the first quarter of last year. His main opponent, the Democratic Progressive Party’s Tsai Ing-wen, counters that the links Ma engineered with the mainland risk eroding Taiwan’s autonomy.

A Ma win may offer a mandate to forge ahead with agreements expanding cross-strait trade and investment. A victory for Tsai, who has blamed a growing wealth divide on jobs being lost to the mainland, could set back cross-strait relations in a year that will also see the start of a leadership change in China.

“Ma’s biggest legacy in the past three and a half years is he’s signed 16 agreements with China,” said Chang Wu-ueh, a professor of political science at Taipei’s Tamkang University. “The reason why he still runs such a tight race with Tsai is because most people don’t feel the immediate benefits of the improved China-Taiwan relations, and not everyone regards the cross-strait issue as the deciding matter for their vote.”

Closing Time

Voting stations are open from 8 a.m. to 4 p.m., with tallies posted on the Central Election Commission website after they close. Voters must be at least 20 years old.

Ma was widening his narrow lead over Tsai, 55, in public opinion polls taken prior to a blackout period for voter surveys that began Jan. 4. Taiwanese law bars publication or release of polls 10 days prior to presidential elections.

“Right now both sides are showing -- on the incumbent side, a little bit of self confidence, on the challenger side, a little bit of nervousness,” Douglas Paal, formerly head of the American Institute in Taiwan, the de facto U.S. embassy, said on Bloomberg TV today.

Airlines doubled the number of extra flights from China to Taiwan this year to handle demand from passengers returning home for the Lunar New Year and to vote in the elections, in which absentee balloting isn’t allowed.

Airlines added 20 flights in the first eight days of the traditional holiday travel period last year, according to data provided by the Civil Aeronautics Administration. This year, they added 101 flights in the first five days up to the Jan. 14 election.

Market Bets

Markets may be assuming a Ma victory. Option traders are increasing bullish bets on an exchange-traded fund tracking Taiwan stocks. The ratio of calls to buy the iShares MSCI Taiwan Index Fund versus puts to sell rose to 3.39-to-1 on Jan. 9 and touched 3.47 on Jan. 6, the highest level since March 2008, two months before Ma was sworn in for his first term.

Investors may respond positively to a Ma victory “given what is widely perceived to be a more market-friendly stance on cross-strait policies and potentially fewer uncertainties in terms of policy direction,” Shirla Sum, an economist in Hong Kong at Goldman Sachs Group Inc., wrote in a Jan. 11 note.

Under Ma’s administration, a six-decade ban on direct air, sea and postal links with the mainland came to an end. The two sides signed a trade agreement in 2010 that reduced tariffs and paved the way for Cathay Financial Holding Co. and Fubon Financial Holding Co., Taiwan’s largest listed financial- services companies, to expand business in China.

Two-Way Trade

Two-way trade reached $160 billion last year, a 10 percent increase from 2010, according to Chinese customs statistics.

The Taiwan Stock Exchange’s Taiex Index (TWSE) has tracked the performance of the MSCI Asia Pacific Index (MXAP) of equities under Ma, whereas it lagged behind under predecessor Chen Shui-bian, who advocated independence. Since Ma took office in 2008, the Taiwanese gauge is down 23 percent, against the 25 percent drop for the MSCI measure. Under Chen, the Taiex was up 1.9 percent while the Asia Pacific index climbed 35 percent.

“I said my first four-year term would be to put Taiwan back on track,” Ma told reporters yesterday in Taipei. “My second term is to make Taiwan a leading global economy.”

China regards Taiwan, a nation of 23 million people ruled separately since a civil war ended in 1949, as its own territory and criticized a push by the DPP’s Chen to seek sovereignty during his 2000-08 tenure. Chinese officials have said relations would suffer if Tsai wins.

China ‘Basket’

In a campaign rally today, Tsai said that if she wins the presidency, her first task will be ensuring stable cross-straits ties with China.

“The new government will accept all existing agreements and hope to build new cross-strait consensus and reach new agreements with China that will benefit both sides,” she said.

As China (CNGDPYOY)’s economy slows, Taiwan’s growth also is moderating, with the island’s gross domestic product rising 3.4 percent in the quarter through September. Nomura Holdings Inc. forecasts GDP will drop 0.3 percent in the current quarter from a year ago.

Also seeking the presidency is James Soong, head of the People First Party, a member of the Kuomintang-led coalition in parliament. Soong, who also supports closer ties with China and could take votes away from Ma, was trailing in public opinion polls taken prior to the blackout period.

New Parliament

Taiwan’s voters also choose a new parliament tomorrow, the first time the two elections have been held on the same day. The ruling KMT kept control of Taiwan’s Legislative Yuan when the opposition DPP held the presidency from 2000-2008. The division of power resulted in delays in implementing government policies, from financial-sector consolidation to defense purchases.

This year, a party split in control of the presidency and the 113-seat legislature could jeopardize passage of a fiscal stimulus package, Nomura analysts led by Alistair Newton wrote in a Jan. 6 note.

The winner must have a plurality of votes, and there is no run-off election. The new president takes office in May for a four-year term, and, like in the U.S., can serve a maximum of two four-year terms.

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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