Carnival CEO Faces Disaster Fallout From Miami

By Beth Jinks and Marco Bertacche - Jan 17, 2012 1:38 PM GMT+0700

Carnival (CCL) Corp.’s Micky Arison, who built the cruise company to almost $16 billion in annual revenue, is overseeing the response to its worst accident from Miami, more than 5,000 miles (8,000 kilometers) from the site.

The chairman and chief executive officer has so far left it to regional managers to face the press since the Costa Concordia cruise ship ran aground off the coast of Italy Jan. 13, leaving at least six dead and 29 missing. Arison, whose father founded Carnival in 1972, and Chief Operating Officer Howard Frank are helping coordinate actions with authorities in Italy from Florida, the Miami-based cruise operator said.

Public appearances by CEOs are generally important in helping companies regain consumer confidence following accidents, said Peter Hirsch, director of reputation risk at Ogilvy Public Relations Worldwide. For Arison, 62, the need to sooth concerns may be urgent as this is the peak season for cruise bookings.

“Whenever there are fatalities and serious injuries, it’s important for the most senior leadership to be visible,” Hirsch said, without specifically commenting on Carnival. “Some visibility is certainly a good thing.”

Captain Blamed

The Costa Concordia, owned and operated by Carnival’s Costa Crociere SpA unit, was carrying more than 4,000 passengers and crew when it struck rocks, ripping a hole through its hull. Company officials have joined local authorities in blaming the captain for getting too close to the island of Giglio in the Tyrrhenian Sea.

Pier Luigi Foschi, CEO of the Costa unit, has held two press conferences in Genoa, Italy, to address questions about the crash. Top group executives may still come to the scene to help, he said.

“Carnival’s management has already offered to come here if we believe it’s appropriate for them to come,” said Foschi. “We’ll decide together.”

The company’s senior management “has been in constant contact with the leadership of its Costa unit,” COO Frank said in an e-mailed statement.

Carnival fell the most in more than 11 years in London trading yesterday, dropping 16 percent to 1,878 pence. The stock dropped 29 percent last year.

Miami Heat

Royal Caribbean Cruises Ltd. (RCL), the second-biggest cruise line, fell 7.7 percent in Oslo trading yesterday. U.S. markets were closed for the Martin Luther King Jr. holiday.

Arison, who also owns the Miami Heat basketball team, became Carnival’s (CCL) CEO in 1979 and chairman in 1990. He has expanded the company into the world’s biggest cruise group via acquisitions of individual ships and ultimately entire cruise lines -- including the biggest cruise merger -- while building new vessels to accommodate thousands.

His wealth has grown along with Carnival, which went from $564 million in revenue in 1987 to $15.8 billion for the fiscal year ended in November. He had a net worth of $4.2 billion last year, according to Forbes magazine, making him the 75th wealthiest person in the Forbes 400 list of richest Americans.

“Our priority is the safety of our passengers and crew,” Arison said in a statement. “We are deeply saddened by this tragic event and our hearts go out to everyone affected by the grounding of the Costa Concordia and especially to the families and loved ones of those who lost their lives.”

Ship Strayed

Costa head Foschi’s voice cracked with emotion and eyes welled with tears during one press conference, as he described the performance of the crew during the two-hour emergency evacuation. He explained that the vessel’s route had been set electronically before it left Civitavecchia, near Rome.

“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. Carnival has called the accident its worst ever.

Residents on Giglio said they fear an oil spill may worsen the disaster.

Environmental Protection

“Inside it there are 2,500 tons of fuel, not 10 liters,” said Michele Cavero, 67, a pensioner and a former head of oil tank operations. “That would be an environmental disaster, we have among the cleanest waters in the Mediterranean Sea.”

Luca Milani, 38, is the owner of a building company on the island.

“Giglio is a pearl of the Mediterranean and we are running the risk of losing it,” he said. If the ship sinks further, “Who’s going to pull the fuel out?”

Carnival’s maritime policy and compliance team are helping to coordinate the environmental protection effort surrounding the offloading the ship’s fuel and the preparation for salvage, COO Frank said in his e-mail.

Carnival estimated yesterday it would have to pay at least $40 million in insurance deductibles following the wreck. It may also face as much as $95 million in lost earnings this year without the use of Costa Concordia. The company further “anticipates other costs to the business that are not possible to determine at this time.”

Peak Bookings

Direct losses may be exacerbated by the disaster deterring holidaymakers from booking cruises. About one-third of all cruise vacations are arranged during the so-called wave season from January to March, which is also the most profitable booking period, said Sharon Zackfia, an analyst with William Blair & Co. in Chicago.

While Carnival has continued to advertise its cruises, it won’t comment on whether the level of ad spending has changed. Its other cruise lines, including Seabourn, Princess and Cunard, are operating their regular schedules, the company said.

The international cruise-ship industry’s safety record is better than aviation’s, said Peter Wild, a maritime consultant whose company provides information on the industry to banks, governments, cruise lines and banks. Fatalities between 2005 and 2010 averaged less than 0.1 per million of passengers, compared with 0.3 fatalities per million passengers in aviation.

“Carnival is pretty much in line with the industry as a whole, and has an excellent record,” said Wild. “The track record of the industry speaks for itself, although it’s not to say that human error can’t happen.”

In November 2010, an engine fire on the Carnival Splendor stranded the cruise ship off the California and Mexican coasts for days, with more than 4,400 passengers aboard.

Carnival Growth

Carnival raised $400 million in a 1987 initial public offering, and continued its expansion via acquisitions. Arison engineered the 1989 purchase of Holland America Line, then bought Cunard Line, Seabourn Cruise Line, and Costa Cruises.

In April 2003, Arison merged Carnival’s six cruise lines with P&O Princess Cruises, adding brands including Princess Cruises, P&O Cruises, and AIDA. He later expanded in Spain with Iberocruceros.

He has benefited from a surge in cruise vacations. Global cruise passenger numbers jumped to 14.8 million in 2010, from 3.8 million in 1980, according to data from the Cruise Lines International Association, the biggest industry group.

Miami Heat

Arison bought the National Basketball Association’s Miami Heat in 1988 for $32.5 million. The franchise is worth $425 million, seventh among the league’s 30 teams, according to the annual Forbes ranking. Today’s team features All Stars LeBron James, Dwyane Wade and Chris Bosh, and entered this season favored by oddsmakers to win the championship.

Arison was active in the recent offseason labor negotiations during the lockout. He was fined $500,000 by the NBA for a comment he made on his Twitter account about the stalemate between the league and the players’ union.

The billionaire’s honors include the insignia of “Onorificenza al Merito della Repubblica Italiana” presented by Italy’s president, that country’s highest title for a civilian; and “Officer of the French Legion of Honor” by then French President, Jacques Chirac, that country’s highest civilian honor.

Europe generated about 38 percent of Carnival’s revenue in fiscal 2010, the last full year for which geographic results are available. Its Genoa-based Costa Crociere unit has 15 ships and is the continent’s largest cruise line based on passengers and ship capacity, according to Carnival.

Carnival’s bookings had been “strong” heading into the wave season, Arison said in a Dec. 20 statement, with “slightly higher prices with slightly lower occupancies.”

Earnings Outlook

For the year ended in November, revenue rose 9.2 percent to $15.8 billion, Carnival said on Dec. 20. The company projected then that net income would rise to $2.55 to $2.85 a share this year, adjusted for one-time items, from $2.42 in fiscal 2011.

The Concordia crash may damp Carnival’s operating results this year, according to Standard & Poor’s. The cruise company’s BBB+ grade wasn’t affected by the crash, it said in a Jan. 15 note.

To retain customers in the long term following an accident or other failing, companies should keep the public informed quickly and accurately even as they face the challenge of dealing with crisis situations, said Ogilvy’s Hirsch.

“It’s important to be honest with people about what you know and what you don’t know,” said Hirsch. “You want to be able to reassure them that it’s not going to happen again.”

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

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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Fastest-Aging Society Greets Ma Second Term in Taiwan Asset-Deflation Risk

By Chinmei Sung - Jan 17, 2012 2:51 PM GMT+0700

Ma Ying-jeou’s second term as president of Taiwan, secured in an election win three days ago, may be one of the island’s last opportunities to address the consequences of something unmentioned on the campaign trail: the world’s fastest-aging society.

Ma’s push for closer ties with China won a fresh mandate as he defeated Tsai Ing-wen, who said the tighter bonds may risk Taiwan’s autonomy. While Taiwan’s top planning body predicts the island’s population will start falling in 11 years, coping with an aging society and low birth rates were absent from the debate because the challenge is intractable, said Chuang Meng-han, an industrial economics professor at Tamkang University in Taipei.

Failure to tackle the change, by reducing the cost of raising families or allowing immigration, will leave Taiwan’s labor force shrinking, putting pressure on growth and asset prices. The economy’s trend rate of expansion is poised to fall to about 3.5 percent annually in the next decade, from 5.1 percent in the 20 years through 2010, according to DBS Bank Ltd.

“The impact will be huge,” said Chuang, who has analyzed the housing market. “Most people aren’t well-prepared for the aging society. The later the government faces the consequences, the more difficult they will be to deal with.”

Taiwan’s 2010 total fertility rate was 0.9 babies per woman, according to baseline estimates compiled by Taiwan’s Council for Economic Planning and Development. That’s less than in the 196 other countries and territories tracked by the United Nations. Taiwan’s 23 million population will fall to less than 19 million by 2060, according to the council.

Bear Market

By 2050, Taiwan will have an aging index of almost 413 percent, compared with Japan’s 339 percent, the CEPD estimates. That makes the island the most rapidly aging society, said Lo Yu-mei, a council researcher. The index is defined as the number of people aged 65 and over per 100 youths under age 15.

“Taiwan is heading the way of Japan, whose population is shrinking,” said Tim Condon, chief Asia economist at ING Groep NV in Singapore, who previously worked at the World Bank. “Taiwan’s stock market resembles Japan’s Nikkei in that both have been in a bear market since asset bubbles burst in 1990.”

Japan has struggled to overcome an aging and declining population, leading to two decades of depressed economic growth. The Nikkei 225 stock index is down 78 percent, the most in the world, since a peak in December 1989. Taiwan’s Taiex (TWSE) index is down 25 percent in the period, the third-worst performance.

Ma, 61, has put in place a monthly childcare stipend of NT$2,500 ($83) for newborns, payable to certain households earning an annual net income below NT$1.13 million until the child is two, to try and turn the birth rate around.

Property Risk

During the election, neither he nor Tsai of the Democratic Progressive Party recommended greater immigration to boost the population. The CEPD has said Taiwan has the world’s second- densest population among territories with more than 10 million people, limiting political scope for such a policy.

Aging raises the risk of substantial future home-price falls, said Laura Ho, an economist at Grand Cathay Services Corp. in Taipei. Property prices “are disproportionately high” and “older people are investing in property they won’t be able to find buyers for in years to come,” she said.

The president has vowed to consider imposing new taxes to rein in property costs. Housing prices in Taipei have more than doubled since 2000 and reached a record last year.

“Young people are discouraged from getting married because they can’t afford to buy a home,” Tamkang’s Chuang said.

Costly real estate and stagnant wages combined with the risk of recession to stir voter discontent. Gross domestic product fell 0.15 percent in the third quarter from the previous three months, as Europe’s fiscal crisis damped the export-led island’s overseas sales.

Stagnating Wages

Household income adjusted for inflation was lower in 2010 than in 2000. Joblessness, at 4.3 percent, compares with less than 2 percent three decades ago.

Ma says detente with former civil-war foe China, the island’s largest trading partner, will help bolster Taiwan’s $430 billion economy. He has relaxed trade, tourism and investment restrictions. Tsai argued his policy risks giving China too much sway over Taiwan.

China’s economy expanded 8.9 percent in the fourth quarter from a year earlier, a report showed today. One consequence of closer economic ties to the nation has been an exodus of factories to the lower-cost mainland, crimping job opportunities at home.

Taipei-based Foxconn Technology Group (FOXCGZ), which assembles Apple Inc. iPhones and iPads, employs more than 1 million workers at its Chinese factories, compared with 10,000 in Taiwan.

About 800,000 Taiwanese live in China, according to Taiwan’s Mainland Affairs Council. Some of them may be counted as part of the island’s population depending on their periods of continuous residence in Taiwan, the statistics bureau said.

Pace of Detente

In his victory speech, Ma said he will “control” the pace of rapprochement with Asia’s largest economy to ensure the policy retains public support. He took 51.6 percent of the vote in last week’s election, compared with Tsai’s 45.6 percent.

“Rapid ageing means declining labor input and, in the long term, suggests population will fall, which will slow the economy,” said Ma Tieying, an economist at DBS Bank in Singapore. “The savings rate will drop too, as older people usually have to spend their savings. That will be negative for investment.”

Taiwan’s predicament echoes a trend across Asia, signaling increased regional pension and healthcare burdens. Asia will account for 62 percent of the global elderly population by 2050, up from 44 percent in 1950, the Asian Development Bank said in a 2009 report.

While 2012, the year of the dragon, may boost Taiwan’s birth rate temporarily as it’s considered an auspicious period, population decline is inevitable, according to the CEPD.

“The economy isn’t in good shape,” Tamkang’s Chuang said. “But you need to have a stable income and feel secure about your job to have children.”

To contact the reporter on this story: Chinmei Sung in Taipei at csung4@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang in Singapore at sphang@bloomberg.net

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Costa Races to Remove Fuel From Stricken Ship

By Alessandra Migliaccio and Marco Bertacche - Jan 17, 2012 6:01 AM GMT+0700

Carnival Corp. (CCL)’s Italian unit is racing to prevent its crippled cruise liner from spewing 2,300 tons of fuel into Europe’s biggest marine park, as the search continues for 29 missing passengers and crew members.

Costa Crociere SpA, which operated the stricken Costa Concordia, has hired Smit Salvage, a unit of Royal Boskalis Westminster N.V., to remove the fuel. Smit personnel and equipment have begun to arrive in the area and company divers hope to inspect the ship in the coming days, said Martin Schuttevaer, director of investor relations for Boskalis.

Time is critical to removing the 500,000 gallons of fuel as deteriorating weather and shifts in the boat’s position increase the risk of a spill. Search and rescue operations had to be suspended for four hours yesterday after the Costa Concordia moved position in rising seas off the Italian island of Giglio.

“Ill weather is the greatest risk to the environment right now because high waves might move or break the ship causing fuel to leak,” Alessandro Gianni, campaign director of Greenpeace Italy operations, said in a phone interview. “Containment barriers that have been placed around the ship don’t work in high waves.”

The ship struck a reef off the island of Giglio on Jan. 13 after the captain overrode a pre-programmed route to sail close to the island, hours after the vessel left a port near Rome with 4,000 passengers and crew for a Mediterranean cruise. Six people are confirmed dead and rescue workers are still searching for survivors in the partially submerged cruise liner.

Marine Sanctuary

The ship is lying on its side off Giglio, an island of 1,500 inhabitants in winter who survive on fishing and tourism, located about 14 miles from the Tuscan coast. Giglio lies within the “Santuario dei Cetacei,” an area of roughly 87,500 square kilometers that in 1999 was declared by the governments of France, Italy and Monaco a sanctuary for marine mammals such as dolphins and whales.

“This is a particularly sensitive area of great environmental value and it just makes you wonder why on earth such large ships are allowed to go through there,” said Giuseppe Notarbartolo, regional coordinator for the Mediterranean for the International Union for Conservation of Nature. “Fuel spills can cause decade-long damage on local animal and plant populations and must be avoided.”

The ship’s 17 fuel tanks are double hulled for added protection and no oil has leaked until now, said Pier Luigi Foschi, chairman of Costa Crociere.

Heating Fuel

Environmental damage “is our main concern after human lives,” Foschi said at a press conference yesterday in Genoa. “I hope the fuel can be taken off the ship soon.”

The heavy fuel used to power the ship becomes semi-solid when cooled, making it harder to pump unless it is re-heated or diluted. Removing the fuel could take at least two weeks in good weather, he said.

Smit used a similar technique in June of last year to remove fuel from a tanker that has been sitting off the coast of South Korea for more than 30 years. The company employed a tank heating system to remove about 500 tons of oil from the tanker Kyung Shin, which was at a depth of about 100 meters, according to the company’s website.

The Costa Concordia tanks were full, having refueled at Civitavecchia near Rome hours before hitting the reef. While the ship is lying in about 60 feet of water, rescue workers are concerned that currents and waves could push it off an undersea ledge and in into deeper water.

High Risk

The environmental risk for Giglio “is extremely high,” Italy’s environment Minister Corrado Clini said yesterday. The “the entire archipelago” may be at threat “depending on how the sea moves.”

Prime Minister Mario Monti’s government plans to declare a state of emergency for the area, news agency Ansa quoted Clini as saying yesterday

“We are very nervous right now and concerned about the future,” said Luca Milani, 38, who owns a building company on the island. “I was born here, I live here, I work here, this place is my life and all I have. Now there is a risk of an environmental catastrophe and that would be the end for us.

To contact the reporters on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net Marco Bertacche in Milan at mbertacche@bloomberg.net;

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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Slowing China GDP Boosts Scope for Easing

By Bloomberg News - Jan 17, 2012 1:50 PM GMT+0700

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Jan. 17 (Bloomberg) -- Lu Ting, a China economist at Bank of America-Merrill Lynch in Hong Kong, talks about the outlook for China's economic growth. Ting speaks with Rishaad Salamat, Susan Li, Zeb Eckert and Mia Saini on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

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Jan. 17 (Bloomberg) -- Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management, talks about the outlook for China and U.S. economy growth, Europe's debt crisis and his investment strategy. Do speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (He spoke before China's fourth-quarter gross domestic product figures were released. Source: Bloomberg)

China’s economy expanded at the slowest pace in 10 quarters as Europe’s debt crisis curbed export demand and the property market weakened, sustaining pressure on Premier Wen Jiabao to ease monetary policy.

Gross domestic product rose 8.9 percent in the fourth quarter from a year earlier, the statistics bureau said in Beijing today. Growth exceeded the 8.7 percent median of 26 estimates in a Bloomberg survey, staying above the 8 percent that signals a “soft landing” for China, according to SinoPac Financial Holdings Co., which correctly predicted the GDP number.

Asian stocks rose on speculation policy makers will cut banks’ reserve ratios further and increase fiscal spending to bolster the world’s second-biggest economy. Liang Wengen, China’s richest man and chairman of Sany Heavy Industry Co., told Wen this month that construction-machinery demand is weak and called for more infrastructure investment.

“Decelerating GDP growth will provide more room for policy makers to shift towards a pro-growth bias after an extended tightening cycle,” Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co., said in a note after the data. “At this juncture, the challenge for policy makers is to implement measures that boost domestic demand without setting back progress made in curbing inflation.”

The Shanghai Composite Index (SHCOMP) climbed 3.9 percent at 2:12 p.m. local time, the most since October 2009, on expectations for more monetary easing and on speculation the government will support equities. The MSCI Asia Pacific Index gained 1.7 percent at 3:14 p.m. in Tokyo.

Property Meltdown Risk

Full-year economic growth slowed to 9.2 percent from 10.4 percent in 2010, today’s report showed. Industrial production increased 12.8 percent in December from a year earlier, more than the median estimate of 12.3 percent in a Bloomberg survey and a 12.4 percent increase in November. The economy grew 2 percent last quarter from the previous three months, when it expanded 2.3 percent.

“The data confirmed no hard landing is likely, more so given the loosening stance already adopted by the policy makers,” said Shen Jianguang, Hong Kong-based chief greater China economist for Mizuho Securities Asia Ltd. Still, there is “no room for complacency, given the risks of a property sector meltdown and global crises,” said Shen, who expects more loosening in credit, an expansionary fiscal policy and loosening in the property sector in the second quarter.

China’s home sales rose at the slowest pace in three years in 2011, data from the statistics bureau today showed, after the government extended measures to control property prices. Mizuho’s property analyst Alan Jin expects the data to worsen in the next two quarters because developers are short of capital.

Europe Downgrades

The yuan, which was little changed today, dropped the most in more than two months yesterday after Standard & Poor’s stripped France of its top credit rating and downgraded eight other euro-area nations.

In New Zealand, reports today showed business confidence and consumer spending weakened in the final months of 2011, bolstering the case for central bank Governor Alan Bollard to delay raising interest rates until the second half of this year. Singapore’s exports unexpectedly rose in December as pharmaceutical shipments countered a drop in sales of electronics goods.

Japan’s government maintained its assessment that the economy is still picking up from the March earthquake, with exports weakening recently because of slower global growth.

Weaker Expansion

In the U.S., the Federal Reserve Bank of New York’s Empire State manufacturing index rose to an eight-month high of 11 in January, based on a Bloomberg News survey of economists before the report today. Inflation in the euro area and the U.K. may have risen at a slower pace in December from a year earlier, separate surveys showed.

Banks including BNP Paribas SA, Nomura Holdings Inc. and UBS AG forecast weaker economic expansion in China this quarter as overseas sales moderate further and government measures to rein in property prices hurt demand for goods including steel, cement and home appliances.

“Amid a slowdown of both domestic and external economies, the government will continue to roll out stimulus policies,” said Sylvia Chiu, an economist at SinoPac Financial in Taipei who was the only analyst to predict today’s GDP number in the Bloomberg survey. She expects China’s growth to slow to 8.6 percent in 2012.

Lack of Credit

Chiu says reserve requirement ratios will drop to 19 percent by the end of 2012 and sees the benchmark one-year lending rate at 6.06 percent. The reserve ratio is currently 21 percent for the biggest lenders and borrowing costs are 6.56 percent.

Sany’s Liang, who topped Forbes Asia’s 2011 China rich list with an estimated wealth of $9.3 billion, was among business leaders who met Wen during his visit to Hunan province earlier this month. Zhan Chunxin, chairman of competitor Zoomlion Heavy Industry Science & Technology Co., who was also at the meeting, complained a lack of access to credit was hurting customers and suppliers.

Fixed-asset investment excluding rural households expanded 23.8 percent last year, compared with the median 24.1 percent estimate in a Bloomberg survey. Retail sales rose 18.1 percent in December from a year earlier, today’s report showed.

The People’s Bank of China last month allowed banks to set aside less of their deposits as reserves and December’s new loans were the highest since April, signs the government is loosening monetary policy to encourage lending even as it maintains curbs on the residential real-estate market to bring down home prices.

Halt Sales

The PBOC halted sales of bills and repurchase contracts at the end of December to add funds to the financial system before the Lunar New Year holiday that starts Jan. 23. It will inject more cash through 14-day reverse repurchase operations today and Jan. 19, two traders who declined to be identified said yesterday, after the seven-day repurchase rate, which measures interbank funding availability, surged to the highest since July.

“The economic data is almost in line and haven’t gone beyond the intolerable level of the government,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “Further monetary policy easing may be pushed back a bit until next month as policy makers are still concerned about a comeback in inflation.”

Consumer-price gains averaged 5.4 percent last year, exceeding the government’s 4 percent target every month, even as the pace slowed to 4.1 percent in December from a year earlier.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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Asia Stocks, Won Rise After China GDP Report

By Lynn Thomasson and Yoshiaki Nohara - Jan 17, 2012 2:19 PM GMT+0700

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Jan. 17 (Bloomberg) -- Wang Tao, a Hong Kong-based economist for UBS AG, talks about the China economy and the nation's central bank monetary policy. China’s economy expanded at the slowest pace in 10 quarters as export demand moderated and a prolonged campaign against consumer and property-price gains cooled growth. Wang speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Jan. 17 (Bloomberg) -- Lu Ting, a China economist at Bank of America-Merrill Lynch in Hong Kong, talks about the outlook for China's economic growth. Ting speaks with Rishaad Salamat, Susan Li, Zeb Eckert and Mia Saini on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Asian shares rallied the most in almost a month as metals and the South Korean won rose after China’s slowest economic growth in more than two years bolstered expectations for easier monetary policy and French borrowing costs declined.

The MSCI Asia Pacific Index advanced 1.8 percent as of 4:17 p.m. in Tokyo, erasing a 1.1 percent drop yesterday. The Shanghai Composite Index jumped 4.2 percent. Euro Stoxx 50 Index futures climbed 1.2 percent, while contracts on the Standard & Poor’s 500 Index added 0.8 percent. The won gained against 15 of its 16 major peers and the euro rose 0.7 percent. Copper gained 1.9 percent to the highest price since October. Soybeans and corn advanced for the first time in a week.

Gross domestic product in China, the world’s second-largest economy, rose 8.9 percent in the fourth quarter from a year earlier, the statistics bureau said in Beijing. France sold 1.895 billion euros ($2.4 billion) of one-year notes at a yield of 0.406 percent yesterday, down from 0.454 percent on Jan. 9. The sale was the first since Europe’s second-biggest economy lost its AAA credit rating at Standard & Poor’s last week.

“There’s a bias in China right now for more policy easing,” said Andrew Pease, Sydney-based chief investment strategist for the Asia-Pacific region at Russell Investment Group, which manages $150 billion. “We are hearing China’s senior leadership is very, very concerned about the outlook in Europe.”

French Bond Auction

The euro advanced to $1.2749 following two days of losses. The European Financial Stability Facility, Greece and Spain are scheduled to sell debt today. Standard & Poor’s cut the rating of the euro-region bailout fund to AA+ from AAA after European markets closed yesterday. U.S. equity and bond markets were closed yesterday for the Martin Luther King Jr. holiday.

Investors will be watching fourth-quarter earnings from Wells Fargo & Co. and Citigroup Inc. today. Economic reports may show manufacturing in the New York region expanded and German investor confidence improved, based on the median economist forecast from surveys compiled by Bloomberg.

S&P 500 companies, which beat profit estimates in the previous 11 quarters, are forecast to report a 4.6 percent increase in per-share earnings during the September-December period, according to projections compiled by Bloomberg.

More than six stocks rose for each that fell in the MSCI Asia Pacific Index (MXAP), which has rallied 9.5 percent since a two- year low in October. Hong Kong’s Hang Seng Index (HSI) jumped 2.4 percent and the Nikkei 225 Stock Average added 1.1 percent.

China Growth

“China demand is now very important for the Asian region,” said Caroline Maurer, a Singapore-based fund manager at Henderson Global Investors Ltd., which managed $100 billion as of Sept. 30. “Policy makers now have more room to drive growth by loosening monetary policy.”

Energy companies and raw-material producers rose the most among 10 industries in the MSCI Asia gauge. Cnooc Ltd., China’s largest offshore oil producer, and Jiangxi Copper Co., the nation’s biggest producer of the metal, climbed more than 3 percent in Hong Kong.

Paladin Energy Ltd. surged 12 percent, the most in three months. The Australian uranium producer reported a 24 percent gain in output and predicted an increase in prices for the nuclear fuel.

Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second- biggest bank by market value, rose 1.2 percent after winning a bid to buy Royal Bank of Scotland Group Plc’s aircraft-leasing division for about $7.3 billion.

Copper, Gold

South Korea’s won climbed 0.8 percent to 1,146.15 per dollar. The Australian dollar rose 0.7 percent to $1.0384. The yen retreated from near an 11-year high against the euro, falling 0.4 percent to 97.61 per euro.

Copper for three-month delivery rallied 1.8 percent. It climbed as much as 1.9 percent to $8,240.25 a metric ton on the London Metal Exchange, the highest intraday level since Oct. 28. Spot gold added 0.9 percent to $1,658.35 an ounce.

Gold may climb and copper is the most-favored base metal for 2012, according to Morgan Stanley, which said that investment demand will bolster bullion, while a deficit will benefit the raw material used in pipes and wires. The New York- based bank is bearish on lead, nickel, aluminum and zinc amid surpluses, Melbourne-based analysts Peter Richardson and Joel Crane said in a report today.

March-delivery soybeans climbed 1.5 percent to $11.76 a bushel on the Chicago Board of Trade. The price dropped 3.2 percent last week. Corn for March delivery rose as much as 1.3 percent to $6.0725 a bushel, after slumping 6.8 percent last week.

Bond Risk

Corn and soybean crops in Brazil’s southernmost state of Rio Grande do Sul will be harmed by further dry weather in the next 10 days, forecaster Somar Meteorologia said yesterday.

The cost of insuring Asia-Pacific bonds against non-payment fell, according to credit-default swap traders. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped 3 basis points to 202.5, Royal Bank of Scotland Group Plc prices show. The measure is set for the lowest level since Jan. 13, according to CMA, which compiles prices quoted by dealers in the privately negotiated market.

To contact the reporters 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: Darren Boey at dboey@bloomberg.net

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Olympus Panel Blames Auditors for $109 Million in Losses From Cover Up

By Mariko Yasu - Jan 17, 2012 7:42 AM GMT+0700

Olympus Corp. (7733) said a panel it set up to investigate accounting fraud found five internal auditors liable for damage related to a cover-up of investment losses.

The camera maker hasn’t decided what action to take after receiving the panel’s report yesterday, Tokyo-based Olympus said today. The five auditors caused 8.4 billion yen ($109 million) in losses, according to results of a probe into auditors’ accountability provided by Olympus in a statement to the Tokyo Stock Exchange.

KPMG Azsa LLC and Ernst & Young ShinNihon LLC, hired by the company as outside auditors, aren’t at fault, Olympus said.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net.

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

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Europe Won’t Let U.S. Dominate Cloud With Rules to Keep HP at Bay: Tech

By Cornelius Rahn - Jan 17, 2012 7:01 AM GMT+0700

European governments, determined not to lose another technology battle to the U.S., are giving domestic companies a leg-up in the cloud.

France set up a venture in November with companies including France Telecom SA (FTE) and Thales SA (HO) to offer on-demand rental of hardware, software and applications that are “made in France.” The German government is working on stricter data- protection rules that would include as a criterion the location of servers that host often confidential and sensitive user data.

State intervention has picked up since Microsoft Corp. (MSFT) said last June that, as an American company, it must hand data to U.S. authorities under the Patriot Act if asked, even if its files are stored in Europe. At stake is a market valued at $47 billion in western Europe alone by 2015, according to Gartner Inc. (IT) France Telecom, Deutsche Telekom AG (DTE) and Atos Origin are bidding against U.S. suppliers Hewlett-Packard Co. (HP) and International Business Machines Corp. (IBM)

“It’s the beginning of a fight between two giants,” Jean- Francois Audenard, Paris-based France Telecom’s cloud-security adviser, said in an interview. “It’s extremely important to have the governments of Europe take care of this issue because if all the data of enterprises were going to be under the control of the U.S., it’s not really good for the future of the European people.”

Europe’s technology companies have fallen behind Google Inc. (GOOG), Facebook Inc. and Apple Inc. (AAPL) in Internet search, social- media and consumer electronics. Henning Kagermann, a former chief executive officer of Walldorf, Germany-based SAP AG (SAP), the largest maker of management-business software, said Europe needs to avoid the same fate in cloud computing.

Salesforce.com, IBM

“I can’t imagine that Europe can afford to leave this field to the U.S.,” Kagermann, now president of Germany’s National Academy of Science and Engineering, said in an interview in Berlin yesterday. “This year will show whether we’re serious about this.”

SAP, its archrival Oracle Corp. (ORCL), and companies such as IBM, Hewlett-Packard, Salesforce.com Inc. (CRM), Amazon.com Inc. (AMZN) and Microsoft are promoting cloud computing as a secure way to outsource services and reduce the need for pricey servers.

In Europe, Deutsche Telekom’s T-Systems unit and France Telecom are wooing clients with the vow to protect their data from the U.S. government. They cite legal provisions, including the Patriot Act, that allow authorities to request data without a court order and to force providers to keep quiet about it toward their customers.

‘Level Playing Field’

The European Commission will this month present tighter data-protection rules to shield individuals from data loss on the Web while at the same time create a “level playing field for companies” by smoothing out differences across European countries. EU Justice Commissioner Viviane Reding said last month that the reforms should inspire the U.S. to also strengthen its privacy regime.

Some governments have proposed measures that may be seen as protectionist. In September, Dutch Security and Justice MinisterIvo Opstelten told the parliament that U.S. companies will be excluded from bidding for IT services by his government because of fears that the U.S. Patriot Act may allow data to be compromised.

As more European clients may request to have data stored locally, U.S. cloud providers may increasingly have to divvy up contracts with local providers.

Royal Dutch Shell Plc (RDSA), Europe’s largest oil company and one of Microsoft’s biggest clients in the region, last year decided to store its data in Germany with T-Systems while leaving Microsoft to run software applications. Jonathan French, a Shell spokesman, won’t discuss why the company chose German servers.

Google Deal

This month, Google won its biggest enterprise contract to date, helping 110,000 employees at Spain’s Banco Bilbao Vizcaya Argentaria SA (BBVA) access its Apps suite, which includes e-mail, calendar, data and Website creation tools.

That deal doesn’t include storing “more confidential” data about clients and the bank’s business as the lender prefers keeping such files under its own control, said Carmen Lopez, director for BBVA’s Innovation Observatory.

Sebastien Marotte, a vice president at Google Enterprise, said that the company would need “strong justification” from U.S. authorities, like alleged crimes, before handing over data.

In the longer term, European companies won’t be able to win global clients with business models based on local regulations, said Gartner analyst Frank Ridder.

“You always have to keep in mind that you’re participating in a model that’s geared toward global application,” he said. “Governments need to understand that if they want to promote cloud computing they have to open up rather than dig in.”

As Big as the Web?

Europe is still a relatively small slice of the global cloud market, which may expand to $241 billion in 2020 from $40.7 billion last year, according to Forrester Research Inc. The cloud will become as important as the Internet in maintaining U.S. competitiveness, according to a report that 71 of the nation’s largest technology companies submitted in July to the Obama administration.

Patrik Edlund, a Hewlett-Packard spokesman, said the company’s cloud products are certified to meet various levels of data protection. “We welcome any initiatives to standardize rules and make them more transparent because that actually helps all parties do business.

IBM spokesman Joseph Hanley said the company makes sure it “works with customers to architect solutions appropriate for their privacy and security needs.”

T-Systems Wins

For now, the U.S. laws are helping Deutsche Telekom, in which the German government owns 32 percent, win cloud business, said Reinhard Clemens, CEO of the T-Systems unit. T-Systems last month added contracts from customers including Promotora de Informaciones SA, Spain’s largest media company, Brazilian insurer Intermedica Sistema de Saude SA, and South African glass manufacturer Consol Ltd.

“The Americans say that no matter what happens, I’ll release the data to the government if I’m forced to do so, from anywhere in the world,” Clemens told reporters on Sept. 12. “That’s why we’re well-positioned if we can say we’re a European provider in a European legal sphere and no American can get to them.”

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

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

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Samsung Group Plans Record $41.7 Billion Spending in 2012 to Boost Growth

By Jun Yang - Jan 17, 2012 8:01 AM GMT+0700

Samsung Group (SAMZ), South Korea’s largest industrial group, said it will boost spending to a record this year to continue growth in its main businesses and cultivate new sources of revenue.

Samsung Electronics Co. (005930), the world’s largest maker of computer-memory chips, and its affiliates will invest 47.8 trillion won ($41.7 billion) in 2012, a 12 percent increase from last year, the group said in an e-mailed statement today. The companies will invest 31 trillion won in capital expenditure, according to the statement. It didn’t give details on how the money will be spent.

Samsung, whose 2010 sales were equivalent to one-fifth of South Korea’s gross domestic product, plans to increase investment even as it predicts slowing growth in the global economy, according to the statement. Samsung said it will add 26,000 employees this year.

Suwon-based Samsung said yesterday it plans to issue as much as $1 billion in overseas bonds to expand a chip factory in Texas.

South Korean competitor LG Group (LGGZ) said Jan. 13 it will reduce spending by 15 percent this year.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

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

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Hutchison Whampoa to Buy Orange in Austria

By Matthew Campbell and Jonathan Browning - Jan 17, 2012 6:00 AM GMT+0700

Hutchison Whampoa Ltd. (13), billionaire Li Ka-shing’s biggest company, is nearing a deal to acquire Orange Austria, the mobile-phone operator owned by France Telecom SA (FTE) and buyout firm Mid-Europa Partners, according to people with knowledge of the matter.

A transaction, which may value Orange Austria at about 1.4 billion euros ($1.8 billion) including debt, may be finalized within weeks, the people said, declining to be identified as the talks are private. France Telecom may receive about 100 million euros in cash from the sale of its 35 percent stake, one of the people said.

European mobile operators are looking to consolidate, some concentrating on fewer markets, as subscriber growth stagnates in their home countries and network expenses rise due to data- hungry devices such as Apple Inc. (AAPL)’s iPhone. Hong Kong-based Hutchison’s 3 Group sells services in European countries including Austria, Italy, the U.K. and Sweden as well as Australia.

“Looking across Hutchison’s European footprint, they are not going to have too many opportunities like this in Austria,” said Nick Brown, an analyst at Espirito Santo Investment Bank in London. “It’s always been subscale in Europe, and this is a way for them to gain scale in one of its markets.”

A deal would combine the third- and fourth-largest Austrian operators, improving the enlarged company’s ability to compete in the country of 8.2 million people. The operator may gain close to 30 percent market share after divesting the Yesss! brand to Telekom Austria AG (TKA), Espirito Santo’s Brown said. Hutchison is the fourth-largest operator in both Italy and Britain.

Falling Sales

Representatives of France Telecom and Hutchison declined to comment, as did an official at Mid-Europa, which owns 65 percent of Orange Austria.

Orange Austria posted sales of 578 million euros in 2010, down from 595 million euros the year before and 615 million euros in 2008.

France Telecom, the country’s former phone monopoly, last year began a review of European assets as it rebalances its portfolio toward emerging markets. The Paris-based company last month agreed to sell its Swiss unit to Apax Partners LLP for 1.6 billion euros. France Telecom may also sell its stake in a Portuguese mobile operator.

“They’re very keen on exiting operations where they don’t have market power,” said Alexander Wisch, an analyst at S&P Capital IQ Equity Research. “The Austrian market is the most competitive in Europe.”

To contact the reporters on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net.

To contact the editor responsible for this story: Jacqueline Simmons at jackiem@bloomberg.net

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Liverpool’s Performance Didn’t Earn Apparel Deal Renewal, Adidas CEO Says

By Tariq Panja - Jan 17, 2012 7:39 AM GMT+0700

Adidas AG (ADS) declined to renew its apparel deal with Liverpool because the price was too high given the 18-time English soccer champion’s poor performance, the chief executive officer of the world’s second-biggest sporting goods maker said.

Liverpool, which is also a five-time European champion, has replaced Adidas with a club record, 6-year, 25 million pound ($38.3 million) contract with Warrior Sports, a subsidiary of New Balance Athletic Shoe Inc. The accord, Warrior’s first major soccer contract, begins next season and is worth almost double the current agreement with Adidas.

Liverpool has struggled to recapture glories that made it England’s dominant team during the 1970s and 80s. It hasn’t won a league championship since 1990 and last season was overtaken by Manchester United as the holder of the most titles. Liverpool didn’t make the Champions League, Europe’s top club competition, this season and is seventh in the Premier League, 13 points behind leader Manchester City.

“The gap between their performance on the field and what the number should be is not in balance,” Adidas CEO Herbert Hainer said in an interview in Munich yesterday. “Then we said, ‘Okay we will not do it. That’s the end of the story.’” Liverpool didn’t respond.

The team’s lack of success hasn’t stopped it signing other commercial agreements. London-based bank Standard Chartered (STAN) is paying a record 81.5 million pounds to have its logo displayed on its jerseys for four years and the team’s sales department has also signed new sponsors like Turkish tourism.

Benefits?

The contract with Warrior may benefit the team further because it allows Liverpool to retain control over all merchandise not related to the clothing the team wears, something that it had ceded to Adidas. Still, it will no longer be able to rely on the company’s vast global supply chain.

“It all depends on the success and the effort and the popularity, the exposure on TV, revenue you can generate by merchandising,” Hainer said. “This all has to be brought in line between what you offer and what you get. We thought their asking and the delivering is not in the right balance.”

Adidas faces a big year ahead as the main partner to the two biggest sports events taking place: soccer’s European Championship and the London Olympic Games.

Hainer said from a commercial point of view the soccer event will be a bigger boost, while the Olympics is the biggest platform the company has to show its commitment to sports. The company enjoyed record 1.5 billion euro ($1.9 billion) in sales in 2010 because of the soccer World Cup in South Africa. The CEO said it will do even better this year.

“We will definitely beat the 1.5 billion euro revenue target in 2012: there’s no doubt for me,” said Hainer.

To contact the reporter on this story: Tariq Panja in London at tpanja@bloomberg.net

To contact the editor responsible for this story: Christopher Elser at celser@bloomberg.net

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Stocks Rally With French Bonds After Debt Sale; Euro Weakens, Gas Declines

By Stephen Kirkland and Lynn Thomasson - Jan 17, 2012 4:42 AM GMT+0700
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The euro slipped 0.3 percent against the yen at 11:40 a.m. in London after touching an 11-year low. Photographer: Simon Dawson/Bloomberg

Stocks rallied and French bonds rose after borrowing costs fell at the first bills sale since Standard & Poor’s downgraded the country and as Europe’s central bank bought Italian and Spanish debt. The euro weakened, Portuguese notes slid and natural gas tumbled.

Two-year French yields fell four basis points to 0.67 percent. The Stoxx Europe 600 Index added 0.8 percent and S&P 500 futures climbed 0.2 percent. U.S. equity and bond markets are closed today for the Martin Luther King Jr. holiday. The euro slipped 0.3 percent against the yen at 4 p.m. New York time, after touching an 11-year low earlier. Portugal’s 10-year yield jumped 195 basis points to 14.41 percent. Natural gas sank 4.5 percent, reaching a two-year low. The Bovespa stock index jumped 1.4 percent as Brazil’s economy showed strength.

“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.”

France sold 1.895 billion euros ($2.4 billion) of one-year notes at a yield of 0.406 percent, versus 0.454 percent at an auction of similar-maturity securities on Jan. 9. It also sold 8.59 billion euros in bills. 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.

After European markets closed today, S&P cut the rating of the European Financial Stability Facility, the euro-region bailout fund, to AA+ from AAA. S&P said on Dec. 6 that the loss of an AAA rating by any one of the EFSF’s guarantor nations may lead to the facility being downgraded.

Carnival Tumbles

Fiat SpA and Daimler AG led European automakers higher, rising more than 3.6 percent. Carnival Corp. tumbled 16 percent in London, the biggest drop since October 2000, 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.

Investors will be watching fourth-quarter earnings this week. Wells Fargo & Co., Citigroup Inc. and Microsoft Corp. are among the U.S. companies due to report results. S&P 500 companies, which beat estimates in the previous 11 quarters, are forecast to report a 4.6 percent increase in per-share profit during the September-December period, according to projections compiled by Bloomberg.

Euro Falls

The euro fell as much as 0.5 percent to 97.04 yen today, the least since 2000. The euro slipped 0.1 percent to $1.2666, after dropping 0.4 percent to $1.2626. The South Korean won and the Thailand baht weakened before a report that may show China’s economy expanded at the slowest pace in almost two years.

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 four basis points to 3.03 percent. Spain’s 10-year yield fell four basis points to 5.19 percent, after advancing 10 basis points. The yield on Italy’s 10-year bonds dropped two 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, amid speculation that milder-than-average weather in the U.S. will curb heating demand.

Oil Rallies

Oil in New York rebounded 1 percent to $99.69 a barrel, the first increase in four days. Iran said a disruption to crude supplies through the Strait of Hormuz would cause a shock to markets that “no country” could manage. Iran has threatened to shut the strait, a transit route for about a fifth of global oil trade, in response to international sanctions on its exports.

Gold advanced 0.8 percent as S&P’s ratings downgrades in Europe spurred demand for the metal as a protection of wealth. Copper gained 1.1 percent.

Canadian stocks rose, with the S&P/TSX Composite Index climbing 0.2 percent, led by raw-materials producers as gold gained. The Bovespa stock index jumped 1.4 percent, the most since Jan. 3, as stocks linked to domestic demand rallied after a report showed Brazil’s economy expanded more than forecast in November.

The MSCI Emerging Markets Index declined 0.1 percent. The Shanghai Composite Index dropped 1.7 percent. Data released tomorrow 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 skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

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

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Europe Bailout Fund Loses Top Rating at S&P

By Svenja O’Donnell - Jan 17, 2012 6:01 AM GMT+0700
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A Euro sign sculpture stands in front of the European Central Bank's (ECB) headquarters in Frankfurt. Photographer: Simon Dawson/Bloomberg

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Jan. 17 (Bloomberg) -- Satyajit Das, author of "Extreme Money: Masters of the Universe and the Cult of Risk," talks about Europe's sovereign debt crisis. Das also discusses China's economy. He speaks from Sydney with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Das spoke before China announced its fourth-quarter economic growth data. Source: Bloomberg)

The European Financial Stability Facility, the euro area’s bailout fund, lost its top credit rating at Standard & Poor’s after earlier downgrades of France and Austria.

The rating was cut to AA+ from AAA, S&P said yesterday in a statement and removed the facility from CreditWatch with negative implications. S&P had said on Dec. 6 that the loss of an AAA rating by any of EFSF’s guarantors may lead to a downgrade.

“The EFSF’s obligations are no longer fully supported either by guarantees from EFSF members rated AAA by S&P, or by AAA rated securities,” the rating company said. “Credit enhancements sufficient to offset what we view as the reduced creditworthiness of guarantors are currently not in place.”

The EFSF, designed to fund rescue packages for Greece, Ireland and Portugal partially with bond sales, owed its AAA rating to guarantees from its sponsoring nations. Two of those sovereigns, France and Austria, were cut on Jan. 13 to AA+ from AAA by S&P, which also downgraded seven other euro countries.

Klaus Regling, chief executive officer of the facility, said the downgrade won’t hamper its capacity of 440 billion euros ($557 billion). “EFSF has sufficient means to fulfill its commitments under current and potential future adjustment programs until the ESM becomes operational in July 2012,” he said in an e-mail, referring to the permanent European Stability Mechanism.

‘Unconditional Guarantees’

Luxembourg Prime Minister Jean-Claude Juncker, who leads euro-area finance ministers, said in a separate statement that the facility “has sufficient means to fulfill its commitments under current and potential future adjustment programs and will continue to be backed by unconditional and irrevocable guarantees by euro area member states.”

European leaders may struggle to deliver their new fiscal rules and cut Greece’s debt burden as their efforts come increasingly under fire. Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week, while governments in Europe are preparing for a Jan. 30 summit.

The policy response to the crisis “has not kept up” with the risks, which remain “firmly tilted to the downside,” Moritz Kraemer, S&P’s managing director of European sovereign ratings, said on a conference call on Jan. 14.

Changing Outlook

S&P said yesterday that that governments “may currently be exploring credit-enhancement options” and that if the EFSF adopts enhancements “sufficient to offset its now-reduced creditworthiness,” it “would likely raise” the rating to AAA.

Still, it said that if such enhancements are “not likely to be forthcoming,” it would change the outlook to negative to “mirror the negative outlooks of France and Austria.”

The European Commission said yesterday that S&P’s downgrades ignored Europe’s progress in fiscal consolidation. EU forecasts show the euro area’s aggregate deficit will fall to 3.4 percent of gross domestic product in 2012 from 4.1 percent in 2011, spokesman Olivier Bailly said in Brussels.

German Chancellor Angela Merkel said the rating company’s criticism of “insufficient” policy steps reinforced her view that leaders must redouble efforts to resolve the crisis.

Germany, France, the Netherlands, Finland, Austria and Luxembourg were the top-rated nations backing the fund, and Germany is now the only euro nation with a stable AAA rating.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

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

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Funds Wager Wrongly on Commodity Prices

By Joe Richter - Jan 17, 2012 3:57 AM GMT+0700

Speculators increased wagers on rising commodities to the highest level since November just as prices headed for the biggest three-day slide in almost a month.

Money managers expanded combined net-long positions across 18 U.S. futures and options by 7.2 percent to 719,991 contracts in the week ended Jan. 10, Commodity Futures Trading Commission data show. The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 2.5 percent in the following three days.

While the index rose 14 percent from a 10-month low in October, prices dropped last week after the U.S. government predicted supplies of corn and soybeans that were bigger than anticipated by analysts. A report on U.S. retail sales fell short of forecasts while jobless claims exceeded estimates. The dollar rose to a 15-month high, increasing the cost of dollar- denominated raw materials outside the world’s biggest economy.

“The recovery is modest,” said Adrian Day, who manages about $180 million of assets as the president of Adrian Day Asset Management in Annapolis, Maryland. “Is it too early to say we’ve seen the turn? Probably. I’m not buying at these prices after the rallies we had the past few weeks.”

The S&P GSCI (SPGSCI) fell 1.6 percent last week, the biggest drop in a month. The MSCI All-Country World Index (MXWD) of equities rose 1 percent, with about $750 billion added to the value of global stocks. The U.S. Dollar Index, a measure against six trading partners, rose 0.3 percent, and the yield on 10-year Treasuries fell 0.09 percentage point to 1.86 percent, the lowest in more than three weeks, Bloomberg Bond Trader prices show.

Natural Gas Slide

Eleven of the 24 raw materials tracked by the S&P GSCI gauge declined last week, led by a 13 percent drop in natural gas. Corn fell 6.8 percent, the most since the end of September, wheat retreated 3.6 percent and soybeans 3.2 percent. Natural gas fell as much as another 4.9 percent today to a two-year low.

Sales at U.S. retailers climbed 0.1 percent in November, missing economist forecasts for a 0.3 percent gain, the Commerce Department said on Jan. 12. U.S. jobless claims climbed 24,000 to a greater-than-expected 399,000, the Labor Department said the same day.

“Everybody came into the New Year feeling good, and maybe things got a little ahead of themselves,” said Shonda Warner, the managing partner of Chess Ag Full Harvest Partners in Clarksdale, Mississippi, which oversees about $75 million of assets.

Agriculture Holdings

A measure of 11 U.S. farm goods showed speculators raised bullish wagers in agricultural commodities by 8.7 percent, a third consecutive gain, to 400,979 contracts, the highest since the week ended Nov. 8. The bets came before a Jan. 12 report that showed U.S. supplies of corn and soybeans were bigger than forecast after ample harvests and slowing demand. The U.S. was the world’s top grower and exporter of both crops last year.

Corn stockpiles may total 846 million bushels before this year’s harvest, 12 percent more than analysts expected, the U.S. Department of Agriculture said. Soybean inventories on Aug. 31, before this year’s harvest, will be 20 percent larger than forecast last month at a five-year high of 275 million bushels.

Goldman Sachs Group Inc. cut its three-month corn forecast to $6.30 a bushel from $6.85 on Jan. 12, citing the USDA report. The grain closed 2 percent lower at $5.995 the following day. The bank also trimmed its three-month outlook for soybeans to $12.15 a bushel from $12.20 and its wheat estimate to $6.20 a bushel from $6.70. Soybeans closed at $11.5825 on Jan. 13 and wheat $6.0225.

Goldman ‘Overweight’

The bank reiterated an “overweight” recommendation on commodities over the next 12 months, predicting a 15 percent gain in the S&P GSCI Enhanced Commodity Index. (MXWD)

Investors put $537 million into commodity funds in the week ended Jan. 11, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. It was the first inflow in four weeks and the biggest since Nov. 23, said Cameron Brandt, the director of research. Gold and precious-metals inflows totaled $414 million, he said.

The Federal Reserve said Jan. 11 the economy improved in December across most of the country. Inflation fell to a 15- month low in China, the world’s biggest consumer of everything from zinc to copper to cotton, giving policymakers more leeway in easing monetary policy to shore up growth.

“The mindset of the investor though is that no one wants to miss a rally, so they’ve always got a toe in the water,” said Jon Fisher, a fund manager at Fifth Third Asset Management in Minneapolis, which oversees about $16 billion of assets. “It doesn’t take much for them go get both feet in.”

To contact the reporter on this story: Joe Richter in New York at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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Gas Bears Up Bets on ’Catastrophic’ Surplus

By Asjylyn Loder
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An employee passes gas cylinders stored on racks at Calor Group Plc's distribution center in Coryton, U.K. Photographer: Chris Ratcliffe/Bloomberg

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The natural gas fired 1200-megawatt Kendall Energy power plant, owned by Dynegy Inc., stands in Minooka, Illinois, U.S. Photographer: Daniel Acker/Bloomberg

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A Halliburton Co. natural gas drill stands in a gas field outside of Rifle, Colorado, U.S. Photographer: George Frey/Bloomberg

Hedge funds turned bearish on U.S. natural gas for the first time in eight weeks as a surplus and warmer-than-normal weather pushed the price of the heating fuel to the lowest level in more than two years.

The funds and other large speculators switched from bets that futures will rise to a bearish, or “short,” position of a net 10,344 futures equivalents in the week ended Jan. 10, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Jan. 13.

Natural gas plunged 13 percent last week on the New York Mercantile Exchange, the biggest decline since August 2009, after forecasts showed above-average temperatures through January. Stockpiles in the week ended Jan. 6 stood at 3.377 trillion cubic feet, 17 percent above the five-year average, the U.S. Energy Department reported on Jan. 12.

“The funds that got short are feeling good right now,” Kyle Cooper, director of research for IAF Advisors in Houston, said in a telephone interview on Jan. 13. “As long as it stays this warm, prices have to go lower. With this type of weather, the storage surplus becomes catastrophic.”

Natural gas for February delivery fell 5.2 cents to $2.941 per million British thermal units on the Nymex in the week covered by the report and dropped another 9.2 percent to $2.67 on Jan. 13, the lowest settlement price since Sept. 3, 2009.

The contract fell for sixth day today, dropping 12.2 cents, or 4.6 percent, to $2.548 at 10:59 a.m. in New York.

Seasonal Record

Storage slipped 95 billion cubic feet in the week ended Jan. 6, compared with a five-year average decline of 128 billion, the Energy Department reported. Inventories rose to an all-time high of 3.852 trillion cubic feet on Nov. 18.

Supplies may reach a seasonal record of 2.4 trillion cubic feet in March, which is when heating demand usually ends and producers begin piping more gas into storage, Cooper said. Unless production falls or cold weather bolsters demand, prices will drop to $2.40 per million Btu, and perhaps below $2, as gas overflows storage caverns and clogs pipelines, he said.

“This is a situation that has never been seen before,” Cooper said. “If we hit 2.4 trillion, you’re looking at storage capacity constraints by July or August where you literally have system problems because the system is so full.”

Mild Weather

U.S. gas production will rise to an all-time high next year amid rising output from shale formations, according to Energy Department estimates. Marketed gas output will average 67.34 billion cubic feet a day in 2012, up 2.2 percent from this year, the department’s Energy Information Administration said in its Jan. 10 Short-Term Energy Outlook.

Forecasts have shown higher temperatures, Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland, said in a Jan. 13 telephone interview. His predictions for January heating degree days, a measure of demand for fuel during cold weather, fell by 115, or 12 percent, to 822 from his Dec. 30 estimate of 937.

“It’s nowhere close to what we were expecting,” Rogers said. “It’s making everyone question whether there will be any cold weather this winter.”

Heating demand will be 4.4 percent below normal in the U.S. through Jan. 20, and 6 percent below normal in New York, David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri, said in a report to clients on Jan. 13.

About 51 percent of U.S. households use gas for heating, according to the Energy Department.

Managed Money

Hedge funds and other large speculators, including commodity pools and commodity-trading advisers, switched in the week ended Jan. 10 from a net-long position of 14,318 the previous week. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps and ICE Henry Hub Swaps. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

In other markets, funds increased oil wagers on rising prices by 1,365 to 201,672 contracts in the seven days ended Jan. 10.

They boosted positions in gasoline to the highest in records going back to 2006. Bullish bets advanced by 3,929 futures and options combined, or 5.8 percent, to 71,282 in the week ended January 10, the CFTC said. Bets that heating oil will rise increased by 3,841 futures and options combined, or 15 percent, to 30,103, the data showed.

To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net.

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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Carnival Questions Captain’s Judgment as Death Toll Rises After Capsizing

By Marco Bertacche and Chiara Vasarri - Jan 17, 2012 4:53 AM GMT+0700
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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

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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)

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Jan. 16 (Bloomberg) -- Bloomberg reporter Lorenzo Totaro reports from Giglio, Italy, about rescue and recovery efforts following the grounding of the Costa Concordia cruise ship off the Tuscan coast on Jan. 13. The Costa Concordia is owned by Costa Crociere, the Italian company controlled by Carnival Corp. He speaks with Andrea Catherwood on Bloomberg Television's "Last Word." (Source: Bloomberg)

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Isola del Giglio citizens looks at the Costa Concordia after the cruise ship ran aground and keeled over off the Isola del Giglio, Italy. Photographer: Filippo Monteforte/AFP/Getty Images

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 29 people are still missing, the Associated Press reported, citing Italian coast guard officials. 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.

The Italian government plans to declare a state of emergency in the region, news wire Ansa reported, citing Environment Minister Corrado Clini. Small fuel leaks have been reported in the area around the ship, though the material probably will evaporate, Ansa said, without citing anyone.

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.

‘Titanic’

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 mbertacche@bloomberg.net; Chiara Vasarri in Milan at cvasarri@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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