Economic Calendar

Monday, January 16, 2012

Europe Bank Dividends Poised to Tumble

By Alexis Xydias - Jan 16, 2012 4:14 PM GMT+0700

Euro-area bank dividends are poised to sink below the low set after the collapse of Lehman Brothers Holdings Inc. as regulators force lenders to bolster capital.

French, Italian and Spanish banks will have the most cuts after UniCredit SpA (UCG) and Societe Generale SA (GLE) scrapped payments for 2011, according to dividend forecasts by Bloomberg that are based on earnings estimates and options prices. Banks in the U.K. and Sweden, outside the euro zone, may keep or increase their payouts after regulators found they didn’t need to raise more capital, the data show.

Lenders are under pressure to raise an additional 115 billion euros ($146 billion) of capital by June to meet European rules. They’re finding it harder to generate that money from earnings, which are forecast to shrink 20 percent from 2010 levels, or raise it from investors in rights offerings. Bank stocks in the region have declined 36 percent in the past year.

“Shareholders and regulators do not currently see eye to eye as regulators are asking the banks to do recapitalizations at the worst time possible,” said Christophe Nijdam, an analyst at Alphavalue in Paris. “The big question mark will be the economic slowdown. The more severe it is, the higher the cost of risk and the more constrained the dividend-payment capability.”

All four publicly listed French lenders, five of Spain’s nine banks and nine out of 14 in Italy will cut or omit their dividends when they announce annual earnings, the Bloomberg estimates show. In all, 53 lenders in 11 euro nations will pay a combined 9.24 euros a share in dividends, 41 percent less than the previous year and 28 percent less than distributed for 2009, the year after Lehman’s bankruptcy, the data show.

‘Cold Wind’

“The cold wind of change is set to continue for some time,” said Kieron Launder, the London-based chief investment officer at Schroders Private Banking, which oversees $284 billion. “European banks are likely to suffer roughly the same environment in 2012 as they did in 2011, from the markets as well as the heightened regulatory oversight.”

The European Banking Authority, which co-ordinates the work of national regulators, said last month that banks in Greece, Spain, Italy, Germany and France had the biggest capital shortfalls. The fresh capital should come from investors, retained earnings and lower employee bonuses, the EBA has said.

A Bloomberg gauge of European bank shares declined 32 percent in 2011, with 14 lenders, including Commerzbank AG (CBK) and Lloyds Banking Group Plc (LLOY), tumbling more than 50 percent. Excluding the 64 percent plunge in 2008, last year’s drop was the biggest for the industry measure since at least 1997.

The industry benchmark lost 0.4 percent as of 8:30 a.m. in London today after Standard & Poor’s cut the ratings of nine euro-area nations after the close of trading on Jan. 13.

Santander, BBVA (BBVA)

The declines pushed the dividend yield for European banks to the highest level since 2003, excluding the period between November 2007 and April 2009. Investors in November got 4.2 percent of money put into bank shares back as dividends, data compiled by Bloomberg show.

While Spain’s largest banks, Banco Santander (SAN) SA in Madrid and Banco Bilbao Vizcaya Argentaria SA, based in Bilbao, may match the previous year’s payments, five smaller lenders in the country are likely to cut theirs, according to the Bloomberg estimates. They include Banco de Sabadell SA, Banco Popular Espanol SA (POP) and Banco Espanol de Credito SA. (BTO)

Santander said in a Jan. 9 statement it would maintain 2011 shareholder remuneration at 60 cents per share. BBVA Chief Financial Officer Manuel Gonzalez Cid said in an Oct. 27 presentation the bank would maintain its dividend policy. A spokesman for the lender declined to comment last week.

Italian Banks

Banco Popular aims to keep its dividend payout at about half of 2011 earnings, a spokesman said by telephone. Banesto Chief Executive Officer Jose Antonio Garcia Cantera said on a Jan. 12 webcast for analysts that he couldn’t comment on dividends. Officials at Sabadell weren’t immediately available.

In Italy, UniCredit omitted its 2011 payment altogether on Nov. 14. Banca Popolare di Milano Scarl and Banca Monte dei Paschi di Siena SpA may cut their cash returns to investors, the Bloomberg projections show.

Annalisa Presicce, a spokeswoman for Popolare, didn’t return an e-mail seeking comment. Monte Paschi Chairman Giuseppe Mussari declined to comment on the bank’s dividend policy this year when asked on Jan. 13.

UniCredit plunged 45 percent in the four days though Jan. 9 after Italy’s biggest bank priced a 7.5 billion-euro rights offer at a 43 percent discount to the Jan. 3 close, excluding the value of rights.

French Bond Holdings

French lenders hold $681 billion in debt issued to Greek, Irish, Italian, Spanish and Portuguese private and public borrowers, more than banks in any other country, according to data from the Bank for International Settlements.

Societe Generale, France’s second-largest bank, and Credit Agricole SA (ACA), the third-biggest, said last quarter they won’t pay cash to shareholders. BNP Paribas (BNP) SA and Natixis (KN) may reduce their dividends by 29 percent and 26 percent respectively, the Bloomberg estimates show. A spokeswoman at Natixis declined to comment on the bank’s dividend policy. BNP Chairman Baudouin Prot said the payout for 2011 will fall in line with earnings.

Societe Generale surged 7.3 percent on Nov. 8 after announcing its dividend cut, as investors bet the move will help the lender meet the EBA’s capital requirements.

“Banks could cut dividends and still perform if investors deem that is the right thing to do,” said Chris Wyllie, partner at Iveagh Ltd., a wealth-management firm in London. Still, even if dividend yields make bank stocks look cheap, investors may be more interested in their valuations relative to their assets, or book value, he said.


The Bloomberg European Banks and Financial Services Index traded in November at 0.6 times the reported value of its members’ assets, a measure known as price-to-book valuation. That compares with an average ratio of 1.52 since 2001 and is the second-lowest monthly ratio in the period, according to data compiled by Bloomberg.

Only one of seven Greek lenders tracked by Bloomberg still pays a dividend as banks in state bail-out plans are prohibited from doing so. The Bank of Greece, the nation’s publicly traded central bank, is forecast to cut its payout to 70 cents a share from 1.56 euros a year earlier. Irene Basia, a spokeswoman, said the lender won’t make an announcement on its dividend until April.

In Germany, Deutsche Bank AG (DBK) may keep its dividend at 75 euro cents a share, the Bloomberg projections show. Commerzbank and Deutsche Postbank AG (DPB) haven’t made payments since 2007.

British Lenders

British lenders will fare relatively better, with HSBC Holdings Inc., Barclays Plc (BARC) and Standard Chartered Plc expected to raise dividends for a second year. UBS AG (UBSN), the biggest Swiss bank, announced in November its first cash dividend in five years as Chief Executive Officer Sergio Ermotti shrinks the investment-banking unit.

Among the four Swedish lenders tracked by Bloomberg, Swedbank AB (SWEDA) may more than double its 2011 dividend while Svenska Handelsbanken AB and Skandinaviska Enskilda Banken AB (SEBA) may raise their payment by 5.6 percent and 33 percent respectively. Nordea Bank AB (NDA) will keep its payment unchanged at 0.29 euro cents.

U.S. bank shareholders may also receive a higher payment. Dividends at lenders in the world’s biggest equity market may grow this year by 23 percent, their second annual increase, the Bloomberg estimates show.

Lenders aren’t alone in reducing payments to shareholders as an economic slowdown eats into profits. Madrid-based Telefonica SA (TEF), Spain’s largest telecommunications company, cut its dividend for the first time in a decade last month. Vienna- based Telekom Austria AG (TKA) followed by trimming the minimum payout for 2011 and 2012 by half.

Earnings Risk

Even if the dividend reductions help European banks meet higher capital stipulations, the risk of a recession will remain, and its severity will determine future returns from bank shares, according to Didier Saint-Georges, who helps oversee $58 billion at Carmignac Gestion in Paris.

“The question is whether valuations have become attractive,” said Saint-Georges, “Our answer is not positive at this stage. Given returns are still falling, and earnings expectations are still too optimistic in our opinion, we do not think valuations to be particularly compelling, given the balance sheet risks.”

To contact the reporter on this story: Alexis Xydias in London at

To contact the editor responsible for this story: Andrew Rummer at


Iran to Give ‘Firm’ Reply to Scientist Murder

By Ladane Nasseri and Robert Tuttle - Jan 16, 2012 10:11 PM GMT+0700

Iran’s intelligence minister warned of a “firm response” to the killing of an Iranian nuclear scientist and a senior military adviser said “every means” will be used to defend “national interests” as the country faces growing pressure to curtail its nuclear program.

“The U.S., the U.K. and Mossad,” Israel’s intelligence agency, “will see the results of their actions and Iran will deliver a firm response,” Heidar Moslehi said in the capital Tehran yesterday, according to the state-run Fars news agency.

Iran will use “every means” of defense if endangered, Major General Yahya Rahim Safavi, the Iranian supreme leader’s senior military adviser, was cited as saying by the state-owned Islamic Republic News Agency.

Iranian officials have accused the U.S. and Israel of targeting Iranian nuclear scientists in an effort to halt the country’s atomic program. Moslehi said the three nations he named wouldn’t be able to “hide” their role in last week’s murder of Mostafa Ahmadi Roshan, a deputy director at the Natanz uranium-enrichment facility in Isfahan province, Fars reported.

U.S. Secretary of State Hillary Clinton has rejected the accusation. Yigal Palmor, an Israeli Foreign Ministry spokesman, has said he had no comment on the reports.


“A number of people” who played a role in the killing have been arrested and an investigation is under way, Iranian Arabic language TV channel Al Alam reported, citing Ali Larijani, speaker of the Iranian parliament.

Tensions have risen over U.S. and European efforts to tighten economic sanctions on Iran. Western nations say Iran’s nuclear work may be aimed at producing atomic weapons, an allegation the Persian Gulf country rejects.

European Union foreign ministers will meet on Jan. 23 to consider barring oil from Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia. Iran has threatened to close the Strait of Hormuz, the world’s largest choke point for oil tankers, if its crude is sanctioned. Iran held 10 days of naval maneuvers east of Hormuz that ended on Jan. 3.

“No country in the world can manage the shock that results from 15 to 17 million barrels of oil not entering the market,” Mehr news agency reported today, citing comments by Iranian OPEC Governor Mohammad Ali Khatibi. Arab oil suppliers should refrain from supporting a possible European embargo, Khatibi said in an interview with Shargh newspaper published yesterday.


Saudi Arabia can “easily” compensate the loss of Iran’s crude production if sanctions are imposed, CNN reported today, citing an interview with the country’s oil minister, Ali Al- Naimi.

Iran yesterday acknowledged receipt of a letter from the U.S. concerning the Strait of Hormuz and will respond if “deemed necessary,” the Islamic Republic News Agency said. Concerns about Iran and the strait have contributed to a 7.5 percent gain in London oil prices in the past month.

Roshan, who was killed in a Tehran bomb blast, was the fourth prominent Iranian scientist to be targeted in similar attacks, Mohammad Khazaee, Iran’s ambassador to the United Nations, said on Jan. 11.

Roshan was a critic of his country’s nuclear program, saying it has led to stricter sanctions and increased poverty, Mohammad-Reza Heydari, who resigned as Iran’s Oslo consul in 2010 and was later granted political asylum, said in a phone interview. Roshan had voiced his concerns about the nuclear program to Iran’s Atomic Energy Organization, Heydari said.

Previous attacks against Iranian nuclear scientists include 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.

To contact the reporters on this story: Ladane Nasseri in Tehran at; Robert Tuttle in Doha at

To contact the editor responsible for this story: Andrew J. Barden at


Stocks, French Bonds Gain After Debt Sale

By Stephen Kirkland and Lynn Thomasson - Jan 16, 2012 11:06 PM GMT+0700

Jan. 16 (Bloomberg) -- Andrew Economos, head of sovereign and institutional strategy Asia ex-Japan at JPMorgan Asset Management in Hong Kong, talks about Standard & Poor's euro-zone credit downgrades and the outlook for the region's debt crisis, Asia stocks and his investment strategy. Economos speaks with Susan Li, Rishaad Salamat, Mia Saini and Zeb Eckert on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Jan. 16 (Bloomberg) -- Taiwan Stock Exchange Corp. Chairman Schive Chi talks about the bourse's outlook. Schive also discusses the re-election of Taiwanese President Ma Ying-jeou. He speaks from Taipei with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Jan. 16 (Bloomberg) -- Laurent Fransolet, head of European fixed-income strategy at Barclays Capital, talks about the euro-area rating downgrades by Standard & Poor’s. He speaks with Mark Barton on Bloomberg Television's "On the Move." (Source: Bloomberg)

Stocks rallied and French bonds rose as borrowing costs fell in the first sale of bills since Standard & Poor’s downgraded the country. The euro pared losses as the region’s central bank bought Italian and Spanish debt, while Portuguese notes fell and natural gas slid.

The Stoxx Europe 600 Index added 0.8 percent at 11:06 p.m. New York time and S&P 500 futures climbed 0.1 percent. U.S. equity and bond markets are closed today for the Martin Luther King Jr. holiday. Two-year French yields fell five basis points to 0.66 percent. The euro slipped 0.4 percent against the yen after touching an 11-year low, while Portugal’s 10-year yield jumped 183 basis points to 14.29 percent. Natural gas sank 4.5 percent, reaching a two-year low.

France sold the bills at a yield of 0.406 percent versus 0.454 percent at an auction of similar-maturity securities on Jan. 9. S&P warned on Jan. 13 that Europe’s efforts to fight its crisis are falling short as it lowered ratings on nine euro-area countries, cutting Portugal, Spain and Italy by two steps and France and Austria by one level. Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week over the size of investor losses in a proposed debt swap.

“The bill auctions have been carried out without a problem, which is helpful for market sentiment toward the euro area,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The reaction to the S&P downgrade has been somewhat muted. The move wasn’t a surprise and was well-flagged for a number of the issuers.”

Carnival Tumbles

Fiat SpA and Daimler AG led European automakers higher, rising more than 3.9 percent. Carnival Corp. tumbled 17 percent in London, the biggest drop since October 2008, after saying the grounding of the Costa Concordia off Italy’s Tuscan Coast that killed at least five people will cost the company as much as $95 million, or between 11 cents and 12 cents a share, in fiscal 2012.

The euro fell as much as 0.5 percent to 97.04 yen, the least since 2000. The euro slipped 0.1 percent to $1.2674, after dropping 0.4 percent to $1.2626.

The European Central Bank bought Italian and Spanish government bonds, according to three people with knowledge of the deals.

The yield on France’s 10-year bond dropped five basis points to 3.03 percent. Spain’s 10-year yield fell four basis points to 5.18 percent, after advancing 10 basis points. The yield on Italy’s 10-year bonds dropped three basis points after climbing 22 basis points. Ten-year German bund yields were little changed at 1.77 percent.

Natural gas fell as much as 4.9 percent to $2.54 per million British thermal units, the lowest price for a most- active contract since September 2009. Copper gained 1 percent and oil in New York rebounded 0.8 percent to $99.44 a barrel, the first increase in four days.

The MSCI Emerging Markets Index declined 0.2 percent. The Shanghai Composite Index dropped 1.7 percent before tomorrow’s release of data that may show China’s economy grew at the slowest pace in 10 quarters. South Korea’s Kospi Index slipped 0.9 percent.

To contact the reporters on this story: Stephen Kirkland in London at; Lynn Thomasson in Hong Kong at

To contact the editor responsible for this story: Nick Baker at


Stocks in Europe Advance as France Sells Treasury Bills; Carnival Tumbles

By Sarah Jones - Jan 16, 2012 10:03 PM GMT+0700

European stocks advanced, snapping three days of losses, as France auctioned debt at a lower borrowing cost even after Standard & Poor’s stripped the country of its top credit rating.

Fiat SpA (F) and Daimler AG (DAI) led a rally in carmakers after Goldman Sachs Group Inc. recommended the industry. Carnival Corp. (CCL) tumbled 17 percent in London after its Costa Concordia cruise liner ran aground off Italy, killing at least six people. Holcim Ltd. (HOLN) retreated 2.3 percent as the cement maker said it will book a charge in the fourth quarter.

The benchmark Stoxx Europe 600 Index gained 0.4 percent to 250.07 at 3:01 p.m. in London after earlier falling as much as 0.5 percent. The gauge erased its gains on Jan. 13, the final day of trading last week, amid reports S&P planned to downgrade several euro-area countries.

“While the downgrades to France may not be too surprising to markets, it is still disappointing news,” said Dominic Rossi, chief investment officer for equities at Fidelity Worldwide Investment in London. “The euro-zone crisis is now dominating market activity again, after a period in which better economic news from the U.S., and easier monetary policy in China had helped markets move higher.”

The rating company downgraded France to AA+ from AAA with a negative outlook after the close of European trading on Jan. 13. It cut Cyprus, Italy, Portugal and Spain by two grades, while also lowering the long-term ratings on Austria, Malta, Slovakia and Slovenia. Germany, Belgium, Estonia, Finland, Ireland, Luxembourg and the Netherlands had their grades affirmed.

National benchmark indexes rose in 10 of the 18 western European markets. France’s CAC 40 Index was little changed, Germany’s DAX Index gained 0.4 percent and the U.K.’s FTSE 100 Index gained 0.1 percent.

S&P Downgrades France

The euro declined for a second day, falling to an 11-year low against the yen today even as the European Central Bank was said to buy Italian and Spanish bonds.

French borrowing costs fell at a sale of 51-week treasury bills in the first sale since the nation’s credit downgrade. France sold 1.895 billion euros ($2.4 billion) of one-year notes at a yield of 0.406 percent, down from 0.454 percent on Jan. 9. The Treasury sold a total of 8.59 billion euros in bills, including three and six-month paper.

Fiscal Deficit Rules

Euro-area leaders will this week try to rescue under-fire efforts to deliver new fiscal rules and cut Greece’s debt burden as they urge investors to ignore the S&P downgrades.

Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week, raising the threat of default. German Chancellor Angela Merkel and French President Nicolas Sarkozy will also meet as the ECB warns governments against “watering down” a revamp of budget laws.

Fiat led a gauge of carmakers to the biggest gain on the Stoxx 600 today as Goldman Sachs reiterated its “attractive” view on the industry. Fiat jumped 4.5 percent to 4.07 euros, Fiat Industrial SpA (FI) increased 2.6 percent to 7.32 euros and Pirelli & C. SpA climbed 4.5 percent to 6.89 euros as analysts recommended all three companies’ shares and added Pirelli to their “conviction buy” list.

Daimler (DAI) was also added to Goldman’s “conviction buy” list, while Renault SA (RNO) was upgraded to “neutral” from “sell.” The carmakers climbed 3.1 percent to 39.14 euros and 2.6 percent to 30.76 euros, respectively.

“The sector is now discounting a substantial decline in returns in 2012,” wrote Goldman analyst Stefan Burgstaller in a report to clients dated today. “The European Union sector is in better financial and operational shape than in 2007, and we believe it is well placed to benefit from global economic realignment.”

Carnival Shares Tumble

Carnival dropped 17 percent to 1,864 pence, the biggest intraday drop since 2008, after its cruise liner capsized off the Italian coast on Jan. 13, injuring about 60 people. The ship, carrying more than 4,000 passengers and crew, hit submerged rocks in the Tyrrhenian Sea. Rescuers are still searching for as many as 17 people.

Morgan Stanley lowered its recommendation for the shares to “equal weight” from “overweight.”

Holcim lost 2.3 percent to 50.65 Swiss francs. The world’s second-largest cement maker said it will book a 775 million- franc ($812 million) charge in the fourth quarter after writing off investments in South Africa and revaluing assets in sluggish markets from Spain to the U.S.

Lundin Drops

Lundin Petroleum AB (LUPE) sank 14 percent to 152.20 kronor after the company said it will probably reduce its estimates for the recoverable resources at the Avaldsnes discovery.

Cie. Financiere Richemont SA gained 2.4 percent to 51.90 francs after the world’s second-largest luxury goods maker reported 24 percent growth in third-quarter revenue to 2.62 billion euros, as sales of Cartier jewelry increased in Asia. That beat the median analyst estimate of 2.54 billion euros.

Rockhopper Exploration Plc (RKH) jumped 11 percent to 304 pence, its biggest rally in a month, after the Sunday Times reported that Cairn Energy Plc has held talks with the U.K. company that discovered oil near the Falkland Islands off Argentina.

Rockhopper has hired Bank of America Corp. to find a partner to share development costs. The talks may lead to a takeover, the Sunday Times said, citing unidentified bankers.

Cairn Energy doesn’t comment on rumors, a spokesman, who declined to be identified citing company policy, told Bloomberg News by phone yesterday. Rockhopper spokesman Patrick d’Ancona declined to comment.

To contact the reporter on this story: Sarah Jones in London at

To contact the editor responsible for this story: Andrew Rummer at


Carnival Questions Captain’s Judgment After Disaster

By Marco Bertacche and Chiara Vasarri - Jan 16, 2012 10:47 PM GMT+0700
Enlarge image Carnival Questions Captain’s Judgment After Wreck

A helicopter flies over the partially submerged Costa Concordia ship off the coast of the Isola del Giglio on Jan. 16, 2012. Photographer: Andreas Solaro/AFP/Getty Images

Jan. 16 (Bloomberg) -- Carnival Corp. said the grounding of the Costa Concordia off Italy's Tuscan Coast that killed at least five people will cost the company as much as $95 million, or between 11 cents and 12 cents a share in fiscal 2012. Nicole Itano reports on Bloomberg Television's "Countdown" with Linzie Janis and Owen Thomas. (Source: Bloomberg)

The captain of a Carnival Corp. (CCL) cruise liner ordered the ship off its programmed route, an “error” that caused it to hit rocks off Italy’s coast in an accident that killed at least six people, the chairman of the cruise ship’s operator said.

The Costa Concordia’s route was set electronically before it left Civitavecchia near Rome, carrying more than 4,000 passengers and crew, on Jan. 13 and the ship shouldn’t have been so close to the Giglio island where it struck rocks, ripping a hole through its hull, Costa Crociere Chairman Pier Luigi Foschi said at a press conference in Genoa. The Italian company is controlled by Carnival.

“We can’t deny that there was a human error,” he said. “The route had been properly programmed in Civitavecchia. The fact that the ship strayed from that course can only be due to a maneuver that was not approved, not authorized nor communicated to Costa Crociere by the captain of the ship.” Captain Francesco Schettino, who is in custody amid a criminal probe, may have steered the boat closer to Giglio to give passengers a better view of the Tuscan island, Foschi said.

Foschi, whose voice cracked with emotion and eyes welled with tears in the first of two press conferences, defended the performance of the crew during the two-hour emergency evacuation of passengers. The company’s priorities are completing the rescue operation and removing more than 500,000 gallons of fuel before trying to salvage the ship, he said.

Rescue Operations

The rescue operation was halted for about four hours today because of the ship’s movement in shallow waters near Giglio, Italy’s Civil Protection Agency said. Search efforts resumed about 4 p.m. local time. About 16 people are still missing. The ship’s insurers may face total costs of about 405 million euros ($512 million), said one person with knowledge of the policies.

The Costa is resting on its starboard side, a portion of the ship underwater and its orange smokestack close to the waterline. The ship was built in 2006 and has 1,500 cabins, according to Costa Crociere’s website.

Sixth Victim

Carnival shares fell as much as 23 percent in London trading today, the biggest decline in 10 years. The U.S. stock market is closed for a holiday.

“In terms of physical damage, this will be one of the biggest claims around,” said Eamonn Flanagan, an insurance analyst at Shore Capital Group Ltd. in Liverpool, England.

A sixth body was found on the ship today, said Stefano Giannelli, a fire department spokesman. Rescue teams found two South Korean passengers alive in a ship cabin at 3 a.m. local time yesterday and saved a crewmember on the third deck, Giannelli said.


Several survivors described scenes of panic when the ship began listing, with some likening the events to the film “Titanic.”

Schettino, who was on the ship’s bridge at the time of the incident, was arrested for allegedly abandoning the ship “since we know he was in the harbor about midnight,” Francesco Verusio, the chief prosecutor in the city of Grosseto, said in an interview yesterday. The ship’s first officer is also being probed, he said. Dozens of people have been questioned so far in the investigation, the prosecutor said.

Costa’s Foschi said the rocks which caused the vessel to run aground, were correctly marked on navigation maps, though the captain may have been using a less detailed version. The ship may have been only about 150 meters (492 feet) from the coast when the accident occurred, Foschi said.

Cruise Ships

Some witnesses reported that the captain remained onboard for a long time, and it was difficult to determine if Schettino abandoned the vessel, he said. The only time Foschi was aware that one of his company’s cruise ships was authorized to sail close to the island was Aug. 9-10, 2011. In that case, the distance from the island wasn’t less than 500 meters.

“Ships have never come this close to the island,” said Michele Cavero, a 67-year-old retired head of operations for oil tankers. “They have always kept themselves further away.”

Gianni Onorato, general manager of the Costa Crociere line, said the ship had embarked about 7 p.m. from Civitavecchia near Rome on a trip that was scheduled to include stops at ports in France and Spain. When the vessel hit the rocks, Schettino, after assessing the damage, decided to secure the ship and gave the evacuation order, Onorato said.

‘Terrible Tragedy’

The U.S. Embassy in Italy said two of the 120 U.S. passengers are still unaccounted for, according to a statement posted on Twitter.

Carnival, based in Miami, is the world’s largest cruise line owner, with brands such as Cunard, Princess Cruises and Costa. Its shares trade in London and New York.

The so-called black box that carries crucial information about the ship’s movements has been retrieved, Verusio said. Captain Schettino said he was the last one to leave the ship, according to an interview broadcast by TGCOM24 before his arrest. The rocks weren’t identified on the navigation maps, Schettino said. The ship was at least 300 meters from the island when it hit the rocks, he said.

To contact the reporters on this story: Marco Bertacche in Milan at; Chiara Vasarri in Milan at

To contact the editor responsible for this story: Jerrold Colten at


Euro Leaders Race to Salvage Rescue Plans

By Patrick Donahue and Simon Kennedy - Jan 16, 2012 11:26 PM GMT+0700

Jan. 16 (Bloomberg) -- Richard Corbett, adviser to European Union President Herman Van Rompuy, discusses Standard & Poor's decision to downgrade nine euro-area nations, the outlook for a fiscal pact and the European Central Bank's role in fighting the debt crisis. He speaks from Brussels with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

Jan. 16 (Bloomberg) -- Fabienne Keller, vice president of the French senate's finance commission and a member of the UMP party, talks about Standard & Poor’s decision to strip the country of its AAA credit rating for the first time. Keller speaks from Paris with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Jan. 16 (Bloomberg) -- Patrick Legland, head of research at Societe Generale SA, discusses Standard & Poor's decision to strip France of its AAA credit rating for the first time and the outlook for the European sovereign-debt crisis. He speaks from Paris with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

European leaders will this week try to rescue under-fire efforts to deliver new fiscal rules and cut Greece’s debt burden as investors ignore Standard & Poor’s euro- region downgrades.

Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week and governments elsewhere are preparing for a Jan. 30 summit as the European Central Bank warns against “watering down” a revamp of budget laws. French borrowing costs fell today as the government in Paris sold 8.59 billion euros ($10.9 billion) in debt.

The talks on Greece and budgets may serve as tougher tests of the tentative recovery in investor sentiment than S&P’s decision to cut the ratings of nine euro-region nations, including France. History suggests fallout from the downgrades may be limited. JPMorgan Chase & Co research shows that 10-year yields for the nine sovereigns that lost their AAA status between 1998 and last year’s U.S. downgrade rose an average of two basis points the next week.

Efforts to toughen budget laws and make Greek debt more sustainable “deserve far more attention than these rating changes, which as usual are lagging fundamental developments,” Joachim Fels, chief global economist at Morgan Stanley in London, said in a note to clients yesterday.

French Yields

Investors shrugged off the S&P downgrade as France sold 1.895 billion euros of one-year notes at a yield of 0.406 percent, down from 0.454 percent on Jan. 9.

The euro pared declines against the dollar after the ECB was said to buy Italian and Spanish debt, trading at $1.2671.

Policy makers fanned out over the weekend to seize back the initiative. German Chancellor Angela Merkel said S&P’s decision and criticism of “insufficient” policy steps reinforced her view that leaders must redouble efforts to resolve the two-year crisis. Germany is now alone in the euro area with a stable AAA.

Reacting to Spain’s downgrade to A from AA-, Prime Minister Mariano Rajoy pledged spending cuts and a banking-system cleanup, as well as a “clear, firm and forceful” commitment to the euro’s future. French Finance Minister Francois Baroin said the reduction of France’s rating was “disappointing,” yet expected, and markets were “muted” in response.

S&P Ignored

Investors ignored S&P last August when it cut the U.S. to AA+, pushing the yield on the benchmark U.S. government bond to a record of 1.6714 percent seven weeks later. One difference is that the U.S., unlike France, is prepared and able to print money, making it easier for the world’s largest economy to pay its debts.

“The U.S. is still rightly seen as a safe haven,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said. “The U.S. is a big liquid economy with a strong tradition of honoring its debts in modern times and a central bank pledged to taking action if needed. It’s different with France in the sense that they cannot rely on strong central bank policies.”

Speaking over the weekend at a meeting of her party, Merkel played down the risk that weaker French creditworthiness saps potency from Europe’s 440 billion-euro bailout fund. The European Financial Stability Facility, which is designed to fund rescue packages for Greece, Ireland and Portugal partially with bond sales, owes its AAA rating to guarantees from its sponsoring nations.

Don’t Need AAA

“I was never of the opinion that the EFSF necessarily has to be AAA,” Merkel told reporters in the northern German city of Kiel.

Luxembourg Prime Minister Jean-Claude Juncker said the EFSF’s shareholders will explore ways to maintain the top rating of the fund, which is scheduled to sell up to 1.5 billion euros in 6-month bills this week. In the meantime, Merkel and other European leaders have pledged to move quickly toward setting up its permanent successor, the European Stability Mechanism, this year -- one year ahead of the original plan.

In an interview with Bloomberg Television today in Hong Kong, U.K. Chancellor of the Exchequer George Osborne said he sees some reason for optimism in Europe, while acknowledging that 2012 is set to be a challenging year.


“Obviously people are anxious about the year ahead, and I understand that, but I would say there are some grounds for optimism,” Osborne said, citing recent liquidity measures by the ECB.

Merkel had been scheduled to meet with French President Nicolas Sarkozy and Italian Prime Minister Mario Monti in Rome on Jan. 20 to flesh out details of crisis-rescue efforts before a European summit 10 days later. The leaders will likely delay those talks until after the summit, an Italian government official said.

Dealing with Europe and whether to boost the resources of the International Monetary Fund to do so will also top the agenda when deputy finance chiefs from the Group of 20 meet in Mexico this week.

The leaders are in discussions as the ECB warns governments against diluting a December pact to toughen budget rules designed to avoid a repeat of the crisis.

Recent changes in a text aimed at translating the agreement into an international treaty “imply a substantial watering down” and “run against the spirit” of the original plan, ECB Executive Board member Joerg Asmussen said in a letter last week. Leaders have said they may complete the rulebook by Jan. 30, a month earlier than scheduled.

Greek Threat

A more immediate threat may come from Greece, where investors have warned of a collapse of the financial system. Failure to strike a deal with creditors could imperil the ability of the government in Athens to pay back 14.5 billion euros maturing March 20 and force it to seek even more aid from governments.

“A Greek default would have a major impact on the euro as it would spread contagion to other bond markets in the euro zone,” Mansoor Mohi-uddin, Singapore-based head of foreign exchange strategy at UBS AG, said in a Jan. 14 note.

Greece’s creditor banks broke off talks three days ago after failing to agree with the government on how much money investors will lose by swapping their bonds. Proposals by a committee representing financial firms haven’t produced a “constructive consolidated response by all parties,” the Washington-based Institute of International Finance said in a statement yesterday. Talks between Prime Minister Lucas Papademos, Finance Minister Evangelos Venizelos and Charles Dallara, the managing director of the IIF, will resume Jan. 18.

Debt Cut

Greek officials and the nation’s creditors agreed in October to implement a 50 percent cut in the face value of Greek debt, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020.

2012 began with speculation the worst may be over as borrowing costs fell, evidence of economic resilience emerged and the ECB said it had quelled a credit crunch at banks. Now the crisis threatens to reignite.

“While the market impact of the downgrades is unlikely to be very significant in the short-term, they serve as a stark reminder that the euro area sovereign debt crisis is here to stay,” said Royal Bank of Scotland Group Plc economists led by Jacques Cailloux. “We continue to expect the crisis to deepen.”

To contact the reporters on this story: Patrick Donahue in Berlin at; Simon Kennedy in Paris at

To contact the editors responsible for this story: Alan Crawford at; Craig Stirling at


Samsung May Sell First Overseas Bonds Since 1997 to Finance Chip Factories

By Jun Yang and Taejin Park - Jan 16, 2012 1:45 PM GMT+0700

Samsung Electronics Co. (005930), the world’s largest maker of computer memory chips, plans to issue its first overseas bonds since 1997 to expand production of processors used in mobile devices including Apple Inc.’s iPhone.

The company has sent requests for proposals to banks to borrow as much as $1 billion to expand production capacity at its factory in Austin, Texas, James Chung, a Seoul-based spokesman for Samsung, said by telephone today, confirming a report in the Korea Economic Daily yesterday. The bonds will be issued by Samsung’s U.S. unit and may have maturities of five years, Chung said.

Samsung joins cash-rich technology companies including Google (GOOG) Inc. in entering the bond market as borrowing costs fall, making it cheaper for the company to raise funds to meet surging smartphone demand. Suwon-based Samsung’s credit rating, on par with that for South Korea, suggests strong demand for its bonds, said Louis Shin of Woori Investment & Securities Co.

“Samsung will probably receive very positive feedback from global investors,” Shin, a credit analyst at Woori Investment in Seoul, said by telephone. “Investors are thirsty for companies with good credit.”

Lower Treasury Yields

The yield on the benchmark 10-year U.S. Treasury bond reached 1.87 percent on Jan. 13 in New York, the lowest level since Dec. 20, after dropping nine basis points, or 0.09 percentage point, for the week, according to Bloomberg Bond Trader prices.

Borrowing costs for global industrial companies were at the lowest level in about two months as of Jan. 13, according to Bank of America Merrill Lynch index.

Samsung, the exclusive maker of Apple-designed (AAPL) processors powering the iPhone and iPad tablet computer, fell 1.5 percent to 1,030,000 won at the close of trading in Seoul. South Korea’s Kospi index dropped 0.9 percent.

Moody’s Investors Service has a “stable” outlook on Samsung’s A1 rating, the fifth-highest of 10 investment grades.

Samsung had 22 trillion won ($19 billion) in cash and equivalents as of Sept. 30, according to data compiled by Bloomberg. Google, which planned to issue $3 billion in its first bond sale, had $43 billion in cash and equivalents, the data show.

Samsung began running the Austin factory’s production of mobile-phone processors at maximum capacity in October. Third- quarter industrywide shipments of smartphones increased 44 percent from a year earlier, according to Strategy Analytics Inc.

The Korean company may almost double spending on its logic- chip business, which oversees manufacturing of Apple’s A4 and A5 processors, to a record 8 trillion won this year, said Shin Hyun Joon, a Seoul-based analyst at Dongbu Securities Co.

Operating profit at the business probably more than doubled in 2011 and may increase 82 percent this year, according to Korea Investment & Securities Co.’s estimate.

To contact the reporters on this story: Jun Yang in Seoul at; Taejin Park in Seoul at

To contact the editor responsible for this story: Michael Tighe at


Ma Vote Seen Boosting Taiwan Markets

By Weiyi Lim and Andrea Wong - Jan 16, 2012 10:16 AM GMT+0700

Jan. 16 (Bloomberg) -- Bloomberg Television's Stephen Engle reports from Taipei on Taiwan's presidential election. President Ma Ying-jeou was elected to a second four-year term, giving him a renewed mandate to press for closer ties with China that have eased decades-old tensions across the Taiwan Strait. (Source: Bloomberg)

The re-election of Taiwanese President Ma Ying-jeou, a booster of closer ties with China, is bullish for the island’s financial markets, according to Bank Julius Baer & Co., Citigroup Inc. and Uni-President Assets Management Corp.

Julius Baer, which oversees about $205 billion in assets, is re-evaluating its “underweight” rating on Taiwanese equities and may buy airlines and hotel stocks, Lee Boon Keng, head of the firm’s investment solutions group in Singapore, said by phone yesterday. JPMorgan Chase & Co. upgraded Taiwan’s shares to “neutral” from “underweight.” Two-year bonds may rally as overseas investors buy Taiwan dollar assets, said Samson Tu, a Taipei-based fund manager at Uni-President.

The Taiex Index, the island’s benchmark stock gauge, fell 1 percent to 7,106.83 as of 11:13 a.m. local time, as European debt concerns dragged the MSCI Asia Pacific Index (MXAP) down by 1.3 percent. The gauge rose as much as 1.1 percent. Taiwan’s dollar was little changed at NT$30.019 against its U.S. counterpart from NT$30.0 on Jan. 13, according to Taipei Forex Inc. It advanced 0.1 percent earlier.The yield on 1 percent notes due January 2017 fell one basis point, or 0.01 percentage point, to 0.959 percent, prices from Gretai Securities Market show.

“In Ma’s second term, we could see not only continuation but probably an acceleration of cross-strait economic links and that will certainly be positive for the market,” Peter Kurz, Citigroup’s head of Taiwan research, said in a telephone interview yesterday. His team was ranked first for Taiwanese research by Institutional Investor from 2008 to 2010.

Closer Ties

Ma, the 61-year-old leader of the ruling Kuomintang Party, won a second four-year term after defeating Tsai Ing-wen, chairwoman of the Democratic Progressive Party, in Jan. 14 elections. Ma’s first term was characterized by the pursuit of closer ties with China through trade agreements and the ending of a six-decade ban on direct air, sea and postal links.

China regards Taiwan, ruled separately since the end of a civil war in 1949, as its own territory and mainland officials had warned that relations would suffer if Tsai won the weekend election. The DPP’s Chen Shui-bian had pushed for Taiwan’s recognition as a sovereign nation during his presidency that ended when Ma took office in 2008.

Ma won 51.6 percent of the votes cast to Tsai’s 45.6 percent, Taiwan’s Central Election Commission reported on its website. The commission said 74.4 percent of 18 million eligible voters cast ballots.

Bullish Bets

Options traders already anticipated Ma’s victory, placing increasingly bullish bets earlier this month 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 on Jan. 6 to the highest level since March 2008, two months before Ma was sworn in for his first term.

The Taiex reached an eight-week high on Jan. 11. The local dollar touched NT$29.880 on Jan. 12, the strongest level since Nov. 1. Benchmark 10-year bond yields declined two basis points last week to 1.29 percent, the lowest level among emerging markets. Five-year yields dropped three basis points last week.

“Ma’s win has eliminated worries and uncertainties in the bond market,” Uni-President’s Tu, who helps manage $1.6 billion of fixed-income securities. said by phone yesterday. “Two-year bonds may rally as foreign investors may buy Taiwan dollar assets to profit from a currency rally.” His firm is a unit of Uni-President Enterprises Group, Taiwan’s biggest food company.

Foxconn’s Gou

There was no trading on two-year securities today, according to data compiled by Bloomberg. Two-year bond yields fell three basis points last week to 0.79 percent, the best five-day performance since the week ended Dec. 16.

Ma was backed by Taiwanese executives who have said his cross-strait policies have boosted investment and helped the island’s economy grow. Terry Gou, chairman of Apple Inc. supplier Foxconn Technology Group (2317), predicted in a Jan. 14 interview with local television station TVBS that a Ma victory would cause a stock rally today.

The Taiex Index (TWSE) has matched the performance of the MSCI Asia-Pacific Index under Ma’s rule, whereas it lagged behind under Chen. Since Ma became president, the Taiwanese gauge is down about 23 percent, against the 25 percent drop for the MSCI measure. During Chen’s presidency, the Taiex rose 1.9 percent, while the regional index climbed 35 percent.

Fubon Financial

China and Taiwan signed an economic cooperation agreement in 2010, paving the way for the island’s financial services companies to expand their businesses on the mainland. Taipei- based Fubon Financial Holding Co. (2881), Taiwan’s second-largest financial services company, lost 3 percent as of Jan. 13 since Ma’s inauguration on May 20, 2008, less than the Taiex index’s 23 percent slump. Fubon dropped 0.6 percent today.

The removal of travel restrictions helped the number of Chinese tourist arrivals to jump 68 percent to 1.63 million in 2010, overtaking Japan as Taiwan’s biggest source of visitors.

Shares of Formosa International Hotels Corp. (2707), Taiwan’s largest hotel operator, retreated 4.9 percent as of Jan. 13 since Ma’s inauguration. The Taipei-based company’s shares, which lost 0.3 percent today, are valued at 26.3 times estimated profit, compared with the Taiex’s multiple of 12.8. Fubon Financial trades at 10.6 times.

Farglory Land Development Co., the largest construction company in Taiwan, gained 1.2 percent to NT$50.80. Cathay Real Estate Development, the second-largest, advanced 3.5 percent to NT$10.45, poised for the biggest increase since Dec. 23.

Clear Outcome

Property stocks are poised for a short-term rally after Ma’s victory as the DPP may have taken steps to lower real- estate prices had it won power, Dave Chiou, a Citigroup analyst, wrote in a report yesterday.

“The fact that the outcome is clear, the KMT not only won, but with a convincing majority, clearly it will allow for a fairly strong market rally in the short term,” said Citigroup’s Kurz, who is favoring technology companies. He’s maintaining his target for the Taiex to rise to 8,200 this year, 14 percent above last week’s close.

China’s Taiwan Affairs Office said in a statement issued through the Xinhua News Agency that Ma’s victory shows that the “peaceful development of cross-straits ties” in the last four years was “the correct path that has won the support of the majority of the Taiwanese compatriots.”

Financial markets slumped after the DPP’s Chen won the presidencies in 2000 and 2004. The Taiex fell 9.4 percent in the two days following his second victory, after he was shot while campaigning in his hometown of Tainan. The government bought stocks and the currency to stem losses.

‘A Rat’

A government-backed stock stabilization fund also supported the market in March 1996 when China test-fired missiles within about 30 miles of Taiwan’s two biggest ports in an attempt to intimidate people to vote against former President Lee Teng-hui, who published a state-to-state relations doctrine that led China to brand him “a rat.”

Europe’s debt crisis may still drag on Taiwanese equities in the next 12 months, said Jessie Zhang, manager of the Polaris Taiwan Top 50 Tracker Fund, the island’s largest fund.

“We are still an export-oriented economy,” Zhang said by phone from Taipei yesterday. “Ultimately, if the euro-zone crisis were to continue, any stock gains will be limited.”

Global equity markets lost more than $6 trillion in value last year as Europe’s debt woes and slowing economic expansion worldwide weighed on investor demand for riskier assets. Morgan Stanley said in a report on Jan. 13 Taiwan’s stocks will be “susceptible” to declines whatever the outcome of the elections this weekend as global economic concerns remain.

Stronger Finances

Taiwan’s dollar, the second-best performer in Asia in the past three months, advanced 0.3 percent in 2011, a third year of gains as investors favored economies with the strongest finances as Europe’s crisis worsened. The island’s debt is 33 percent of gross domestic product, half the ratio of the U.S., and its $386 billion foreign reserves are the fifth largest.

“In the long run, the continuation of Ma is positive for the country and the region; the economic cooperation between China and Taiwan should continue to develop,” Wee-Khoon Chong, a Hong Kong-based fixed-income strategist at Societe Generale SA, said by telephone yesterday. “The near-term optimism and long-term prospects are both positive for the Taiwan dollar.”

Chong recommends taking a long position on the currency versus a basket split between the U.S. dollar and the yen. A long position profits when an asset rises in price.

Ma’s election victory is conducive to the economic development of the island and China, Justin Lin, the World Bank’s chief economist, said in Beijing yesterday.

Largest Trading Partner

China passed the U.S. as Taiwan’s largest trading partner in 2002. Two-way trade reached $160 billion last year, according to Chinese customs statistics, a 10 percent increase from a year earlier. Under the first trade accord signed by the two sides in 2010, China agreed to open markets in 11 service sectors such as banking and to cut duties on Taiwanese imports worth $13.8 billion in 2009, or about 16 percent of the total.

Exports rose 0.6 percent from a year earlier in December, the slowest pace in 26 months, finance ministry data show. The central bank left its benchmark rate unchanged at 1.875 percent for a second straight quarterly meeting last month. The government cut its 2011 economic expansion forecast to 4.5 percent and said growth will slow to 4.2 percent this year, after a 10.7 percent expansion in 2010.

Ma’s election victory “certainly will have a positive impact given what the Taiwanese have voted on really is to have a closer relationship with China,” Julius Baer’s Lee said. “Had the DPP won, it would be a destabilizing development. This is a step in the right direction.”

To contact the reporters on this story: Weiyi Lim in Singapore at; Andrea Wong in Taipei at

To contact the editors responsible for this story: Darren Boey at; Sandy Hendry at


Asia Stocks, Euro Drop on S&P Rating Cuts

By Lynn Thomasson and Yoshiaki Nohara - Jan 16, 2012 10:16 AM GMT+0700

Asian stocks fell the most in a almost a month, the euro touched an 11-year low versus the yen and copper slid after Standard & Poor’s stripped France of its top credit rating and cut eight other euro-zone nations.

The MSCI Asia Pacific Index tumbled 1.3 percent as of 11:38 a.m. in Tokyo following a 2.2 percent gain last week. Standard & Poor’s 500 Index futures sank 0.5 percent. The euro weakened 0.4 percent to 97.17 yen, which rose against 16 major counterparts. Australian 10-year bond yields fell the most in four months. Copper lost 0.7 percent as zinc and nickel slumped.

France will auction as much as 8.7 billion euros ($11 billion) of bills today, followed by the European Financial Stability Facility’s 1.5 billion-euro sale tomorrow. Europe’s debt crisis will inevitably affect Asia, Hong Kong Chief Executive Donald Tsang said. Japan’s Prime Minister Yoshihiko Noda said containing the country’s public debt load, the world’s largest, is critical.

“It’s unrealistic to expect Europe to make progress in dealing with debt issues in a straight line without having hiccups,” said Prasad Patkar, who helps manage about $1 billion at Platypus Asset Management Ltd. in Sydney. S&P’s ratings downgrades are “not going to help investor sentiment.”

Ratings Cut

S&P warned on Jan. 13 that Europe’s efforts to fight its crisis are falling short as it lowered the top ratings of France and Austria one level to AA+. The New York-based company downgraded Italy, Portugal, Spain and Cyprus by two steps and cut Malta, Slovakia and Slovenia by one level. It affirmed the ratings of countries including Germany, Belgium, and Ireland.

The euro fell as much as 0.5 percent to 97.04 yen, the lowest since December 2000. The shared currency slid 0.3 percent to $1.2644. Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week over the size of investor losses in a proposed debt swap, raising the threat of default.

Japanese machinery orders rose 14.8 percent in November, the most in almost four years, and data later today may show India’s inflation eased to a two-year low, based on the median economist estimate from a Bloomberg survey.

The MSCI Asia Pacific Index (MXAP) has climbed 7.5 percent since a two-year low in October and capped four weeks of gains on Jan. 13, the longest stretch in a year. The equity benchmark trades at 12.2 times estimates earnings, 27 percent less than the six- year average, according to data compiled by Bloomberg.

Nikkei, Hang Seng

About six stocks fell for each that gained in the MSCI Asia index. Financial and technology companies contributed the most to the decline in the gauge. The Nikkei 225 Stock Average slid 1.6 percent and the Hang Seng Index lost 1 percent.

S&P 500 futures declined to 1,282.4. Wells Fargo & Co. and Citigroup Inc. are among companies to report quarterly results this week. U.S. stock markets are closed for a holiday today.

Copper for delivery in three months declined as much as 1.1 percent to $7,909.50 a metric ton on the London Metal Exchange. Zinc fell 1.3 percent to $1,934.50 a ton and nickel lost 1.2 percent to $19,375 a ton. Oil traded at $98.83 a barrel, little changed near the lowest in almost four weeks.

The Australian dollar slid 0.4 percent to $1.0277. The currency maintained its decline even after data showed home loans rose for an eighth straight month in November. New Zealand’s dollar weakened 0.2 percent to 79.33 U.S. cents.

Australia’s benchmark 10-year bond yield dropped 16 basis points to 3.68 percent, poised for the biggest decline since Sept. 5. Japan’s 10-year government bond yield fell one basis point to 0.94 percent, matching the lowest rate since November 2010.

Limited Fallout

History suggests fallout from S&P’s ratings downgrades of European countries may be limited. JPMorgan Chase & Co. research shows that 10-year yields for the nine sovereigns that lost their AAA status between 1998 and last year’s U.S. downgrade rose an average of two basis points the following week.

French 10-year yields climbed four basis points on Jan. 13 to 3.08 percent. The extra yield investors demand to hold French 10-year debt instead of German bunds has widened to 131 basis points, compared with an average of 69 basis points over the past year.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at; Yoshiaki Nohara in Tokyo at

To contact the editor responsible for this story: Alexander Kwiatkowski at


Japan Machinery Orders Jump 14.8%

By Eleanor Warnock - Jan 16, 2012 10:22 AM GMT+0700

Japan’s machinery orders rebounded in November, signaling that companies are willing to invest even as the yen remains strong and the global economy slows.

Bookings, an indicator of future capital spending, rose 15 percent in November from a month earlier, the Cabinet Office said in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg News was for a 5.1 percent increase.

Weak overseas demand and gains in the yen have cut profits at Japanese exporters from Nippon Steel Corp. (5401) to Panasonic Corp. The rebound in orders signals that the world’s third-largest economy is showing some resilience to the stronger currency and a slowing global economy.

“Strong November data comes as a relief, bolstering confidence in the expansionary capex trend,” said Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo. Rebuilding from the March 11 earthquake means capital spending will be “resilient” in 2012, he said.

The yen reached a postwar record of 75.35 per dollar on Oct. 31. It traded at 76.84 against the dollar at 12:03 p.m. in Tokyo today and 97.15 against Europe’s shared currency after touching its highest since December 2000 earlier today. Standard & Poor’s downgraded France, Austria and seven other European nations last week.

Finance Minister Jun Azumi told reporters today that he was “concerned” about the euro’s decline, which has been “a bit rapid.” The region’s debt crisis “will be a big drag on global growth this year” unless policy makers come up with a “powerful” solution to keep the crisis from spreading, he said.

Order Volatility

The increase in machinery orders, which are volatile because they can be influenced by large one-off orders, was the biggest since January 2008, the government said.

“Until I see a sustained rise in orders for the next few months, I’m not ready to say I’m optimistic,” said Mari Iwashita, chief market economist at SMBC Nikko Securities Inc. in Tokyo.

A stalled economy could increase opposition to Prime Minister Yoshihiko Noda’s plan to double the nation’s sales tax by 2015. The opposition party and some members of the ruling party have said a tax hike could further cripple a rebound.

Authorities intervened in the currency market at least three times to weaken the yen last year, and the government compiled four extra budgets, worth about 20 trillion yen, measures that have not been enough to sustain an export-driven recovery.

Economic Contraction

The country’s economy may have contracted in the fourth quarter of 2011, according to calculations by the Japan Center for Economic Research, an independent analysis group in Tokyo. Gross-domestic product contracted for two quarters before growing an annualized 5.6 percent in the three months through September. The Cabinet Office will release fourth-quarter GDP data next month.

Nippon Steel Corp., Japan’s largest steel manufacturer, reported on Oct. 26 that its profits declined by more than half in the third quarter of 2011 on slow demand in Asia. Panasonic Corp. (6752), Japan’s largest home-appliance manufacturer, has revised its forecast for the year through March 2012 to a loss of 420 billion yen, its largest in 10 years, due to appreciation of the yen and company restructuring.

To contact the reporter on this story: Eleanor Warnock in Tokyo at

To contact the editor responsible for this story: Stephanie Phang at


Euro Decoupling as Draghi Rate Cuts Fail to Restore Correlation Confidence

By Catarina Saraiva - Jan 16, 2012 6:50 AM GMT+0700

The euro is losing the relationship with riskier assets that underpinned the currency in 2011 as the deepening sovereign debt crisis reduces the creditworthiness of even the biggest economies in the region.

The 17-nation currency has fallen 8.7 percent against the dollar since October, while the Standard & Poor’s 500 Index has gained 3.4 percent, and the correlation between the two dropped to 58 percent from a record 91 percent in November, according to data compiled by Bloomberg. The euro had moved almost in lockstep with investments linked to growth, including stocks and the Australian dollar, since January 2011.

This decoupling is taking place as European Central Bank President Mario Draghi cuts interest rates and promises banks unlimited cash for three years to rein in soaring borrowing costs for governments ranging from Italy to Spain to France, which lost its AAA credit rating last week. The infusion drove the euro to a 20-month low of $1.2624 last week. UBS AG, which in mid-August advised selling the currency when it was at about $1.45, says fair value ranges from $1.15 to $1.20.

“In the latter part of last year you had the euro, the Aussie and the S&P 500 all trading in the same way, very highly correlated,” Andrew Cox, a currency strategist at Citigroup Inc. in New York, said in a Jan. 9 telephone interview. “Fundamentals once again matter.”

Worst Performer

Strategists also anticipate more losses as the U.S. economy improves while the euro zone shrinks, driving international investors away from the region’s assets. At the same time, European officials led by German Chancellor Angela Merkel are taking steps to contain the crisis and sovereign borrowing costs eased last week.

The euro is the worst performer this year among the 10 currencies tracked by the Bloomberg Correlation-Weighted Indexes, falling 1.7 percent. Major peers that have appreciated the most against the dollar are Brazil’s real, Mexico’s peso and New Zealand’s dollar, currencies with a traditionally high correlation to U.S. equities and the favorites of speculators seeking riskier bets, according to data compiled by Bloomberg.

Europe’s deepening debt crisis, which culminated in Standard & Poor’s cutting the ratings of France and eight other euro-zone nations on Jan. 13, caused the euro to weaken 0.2 percent to $1.2654 as of 8:45 a.m. in Tokyo, extending a drop from last week. It declined 0.2 percent to 97.34 yen after touching 97.17, the least since December 2000.

‘Short the Currency’

“Investors should be short the currency now and we’re concerned that Friday’s mass downgrades of euro-zone countries by S&P is not fully priced yet,” Mansoor Mohi-uddin, the Singapore-based chief foreign-exchange strategist at UBS, said in a Jan. 14 report.

The euro also reached a record low of 81.55 cents against the Australian dollar today. Currency forecasters reduced their fourth-quarter estimates by the most last month since January 2010, predicting it will end the year at $1.30, from previous estimates of $1.38, Bloomberg data show. Cox said he expects it to drop to $1.20.

“The escalating euro zone sovereign debt crisis is both raising concerns over the long-run growth outlook for the euro zone, sustainability of the currency bloc, and solvency of some members,” Lee Hardman , a currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London, said in a Jan. 11 e-mail.

Even with the declines, the euro remains above its average of $1.2054 since its inception in 1999 and signals that Europe’s leaders may stem the crisis that has led to bailouts of Greece, Portugal and Ireland.

EU Summit

The results of a Dec. 9 summit, at which 26 of the 27 European Union members agreed to sign up to or consider tighter deficit limits and sanctions against offenders, would have been “unthinkable” a few months ago and “can’t be overstated,” Merkel said in a Dec. 14 speech in Berlin.

The Stoxx Europe 600 Index of stocks is up 1.9 percent this year. Yields on Italian 10-year bonds fell to 6.64 percent last week from 2011’s high of 7.48 percent on Nov. 11. French notes of similar maturity are 3.08 percent, down from 3.82 percent.

That may change this week after S&P stripped France and Austria of their AAA ratings, cut those of Italy and Spain, while leaving Germany’s untouched. Before S&P made its move, Greece’s creditors said they had failed to agree how much money investors will lose by swapping the nation’s bonds, increasing the risk of the euro area’s first sovereign default.

Crisis Shift

“The problems in the euro zone have shifted from the periphery and are moving more into the core of Europe,” Ian Stannard, the head of European foreign-exchange strategy at Morgan Stanley in London, said in a Jan. 10 telephone interview.

A growing divergence between Europe and the rest of the world is driving away investors as ECB interest-rate cuts remove one of the euro’s pillars of support.

The currency appreciated as much as 6.6 percent between January and May 2011 as Jean-Claude Trichet, who stepped down as head of the ECB in October, raised the central bank’s main rate twice, to 1.5 percent from 1 percent.

Draghi has undone those increases, and foreign holders sold the greatest amount of euro zone assets in October since February 2000, according to ECB data released last month. He has signaled more cuts may come, saying at a Jan. 12 press conference in Frankfurt that there are “substantial downside risks” to the economy and policy makers stand “ready to act.”

The ECB’s decision to offer banks unlimited three-year loans and the central bank’s purchase of sovereign bonds helped balloon the central bank’s balance sheet to a record 2.73 trillion euros ($3.5 trillion) in December. The Federal Reserve’s balance sheet has averaged $2.86 trillion since the end of the central bank’s latest asset purchase program in June.

Sovereign Bonds

“It’s a different ECB than we’ve ever had before,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, said in a Jan. 11 telephone interview. “That means that the euro is not going to perform very well.”

By making loans to banks and purchasing sovereign bonds the ECB is flooding the market with euros, similar to the monetary policy called quantitative easing that the Fed conducted when it flooded the financial system with dollars through asset purchases.

A measure of the relationship between the value of the European currency and the Australian dollar against the greenback has dropped to 76 percent, after climbing to as high as 94 percent in November, according to the pair’s 20-day percent change correlation. The euro’s ties to the S&P 500 have fallen to the lowest since June.

Recession Risk

Germany may be on the brink of recession after its economy shrank “roughly” 0.25 percent in the fourth quarter from the third, the Federal Statistics Office said Jan. 11 in an unofficial estimate. A recession is defined as two consecutive quarters of declining gross domestic product.

Economists estimate the euro zone economy will contract 0.2 percent this year, according to the median estimate in a Bloomberg News survey. A separate survey shows the U.S.’s gross domestic product may expand 2.3 percent in 2012.

“In a world in which the ECB loosens policy and the better data in the U.S. is implying a lower probability for quantitative easing, we would expect euro-dollar to continue under pressure.” said Aroop Chatterjee, a currency strategist at Barclays Capital Inc. in New York.

To contact the reporter on this story: Catarina Saraiva in New York at

To contact the editor responsible for this story: Dave Liedtka at


Telenor CEO Fights Facebook for ‘Wallet Share’

By Diana ben-Aaron - Jan 16, 2012 6:01 AM GMT+0700

Telenor ASA (TEL) has become one of the last major European phone operators to respond to the threat of a loss of revenue to Apple Inc. (AAPL) and Facebook Inc. with its own push in digital services.

“The communications industry can think in terms of maintaining a share of the consumer’s wallet and we shouldn’t shy away from this ambition,” Chief Executive Officer Jon Fredrik Baksaas said in an interview at the company’s headquarters in Fornebu, Norway.

The Nordic region’s largest phone company, with 133 million wireless customers worldwide, plans to add workers to the digital division it founded in September to assemble services like movies and banking for customers from Oslo to Kuala Lumpur. Partners so far include Google Inc. (GOOG) and Ericsson AB and Telenor plans to expand the 450-person venture through acquisitions as well as own growth.

Telenor is lining up with peers including Telefonica SA (TEF) and Vodafone Plc to sell telephony as a service portal rather than just a “dumb pipe” transport layer. The operators are losing voice and text revenues as users go “over the top” of operator billing systems to chat with each other through Internet access they’ve already paid for. The wireless companies don’t want to lose more.

“It’s a question of if Facebook and others will be confident enough from their perspective to say we don’t need the telcos, or could they reach a more rapid buildup on the other kind of business model that we entertain,” Baksaas, 57, said in the Jan. 13 interview. “Everyone is talking to everyone to find different forms of how to cooperate.”

Uncertain Future

As competition with Apple, Google and Facebook intensifies, operators and handset makers are struggling to establish themselves as Internet platforms and to find ways to charge users separately for products like music and video. The Vodafone 360 project, intended to give customers a one-stop services and authentication platform, faces an uncertain future after its head quit last year. Nokia Oyj (NOK1V), the world’s biggest mobile-phone maker, has fought to reproduce Apple’s model with its Ovi services and has now teamed up with Microsoft Corp.

Telenor shares have climbed 1.9 percent over the last year, valuing the company at 155 billion kroner ($26 billion), compared with a 10 percent fall for the STOXX 600 Telecommunications Index. Telenor, which is also the largest broadcaster in the Nordic region, is 54 percent owned by the Norwegian state.

Google Deal

The company’s digital services unit, headed by Nordic and broadcast businesses chief Kristin Skogen Lund, announced a deal with Google in November to let its customers in 11 countries pay for Android apps on their phone bills, and will also have its own shelf in Android market. More deals will follow, Baksaas said.

The unit, which includes a team looking at acquisitions, incorporates some existing service units like Comoyo, which aims to sell movies and other services through a single login. For music, Telenor offers the WiMP service, a competitor to Spotify Inc., developed by Aspiro AB. (ASP)

Some of the new services will be “anti-churn” measures to retain customers or give them more value for money, while others generate revenue like WiMP, Baksaas said. The digital services arm may publish targets in the next year and will channel content from partners rather than creating it, he said.

Besides “over the top” consumer services, Telenor is working on financial, business and machine-to-machine services in cooperation with Ericsson, Rolv Erik Spilling, Lund’s deputy chief for digital and Nordics, said in an interview. Telenor is already the largest bank in Pakistan by number of users with its Easypaisa service, he said.

Network Pressure

Norwegian text messaging volumes peaked in 2009 and customers increasingly use social networking and platform- specific systems like iPhone and BlackBerry messaging to communicate, Baksaas said. Systems like Skype and Apple’s Facetime shift voice and video calling into the data bundle as well, adding to the pressure to recoup money for networks and profits from users on all-you-can-eat data plans.

Pricing models in Europe are in flux as data use swells and operators install faster fourth-generation systems, which treat all traffic as data. Operators are starting to charge more for better quality services and differentiate between peak and off- peak hours, Baksaas said. Time-based usage is also growing, borrowing a model from emerging markets, where people top up day by day.

The average revenue per user is an increasingly poor indicator of monthly customer spending since it typically refers to income from each subscription tracked by a SIM card, Baksaas said.

“Five years ago you had one SIM card per subscriber,” he said. “My usage has grown but now it comes from three or four SIM cards for phones, iPad, camera.”

To contact the reporter on this story: Diana ben-Aaron in Helsinki at

To contact the editor responsible for this story: Kenneth Wong in Berlin at