U.S. Stocks Decline on Greek Debt Stalemate

By Rita Nazareth - Jan 24, 2012 9:31 PM GMT+0700

U.S. stocks retreated, snapping a five-day rally for the Standard & Poor’s 500 Index, amid a stalemate between European policy makers and Greek bondholders over how to resolve the nation’s debt crisis.

The S&P 500 fell 0.4 percent to 1,311.45 at 9:30 a.m. New York time. The index rose 2.1 percent over the past five days.

“There’s too little movement on the political front in Brussels and Athens,” said Witold Bahrke, a senior strategist at Copenhagen PFA Pension A/S where he helps manage assets worth $45 billion. “Markets are experiencing a small setback as results on Greek debt talks are still too meager.”

Global stocks fell as European finance ministers pushed bondholders to provide greater debt relief for Greece, denting newfound confidence in Europe’s strategy for coping with the debt crisis. President Barack Obama tonight will lay out what he calls a “blueprint” for revitalizing the economy in his third State of the Union address before a joint session of Congress. The Federal Reserve begins a two-day policy meeting.

The S&P 500 yesterday capped its longest rally since December as data bolstered confidence in the economy and most quarterly reports exceeded forecasts. Of the 66 companies in the S&P 500 that reported results since Jan. 9, 42 posted per-share earnings that beat projections, Bloomberg data show.

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

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

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Romney Paid 13.9% Tax Rate on $21.6 Million in 2010

By Richard Rubin - Jan 24, 2012 9:11 PM GMT+0700

Republican presidential candidate Mitt Romney earned $21.6 million in 2010 and paid 13.9 percent of that amount in income taxes, using the preferential rate on investment income and charitable deductions to pay a smaller share of his earnings than top wage earners typically do.

The former private-equity executive and Massachusetts governor earned more than half of his income from capital gains and dividends, which are taxed at a top rate of 15 percent, rather than the 35 percent top rate for ordinary income. His campaign publicly released the returns today.

“Oh, I’m sure people will talk about it,” Romney said during a debate in Tampa, Florida, last night. “You’ll see my income, how much taxes I’ve paid, how much I’ve paid to charity. You’ll see how complicated taxes can be.”

Romney’s income puts him near the very top of U.S. taxpayers. In 2008, according to the Internal Revenue Service, the median adjusted gross income was $33,048, which Romney earned in less than a day. Reaching the top 1 percent of taxpayers required $380,354 in adjusted gross income, about Romney’s earnings in a week.

The Romneys received a $1.6 million refund after filing their 2010 return because they overpaid taxes during the year. They pay estimated taxes and at the end of the year, the tax return reconciles their payments. They had the refund applied to their 2011 taxes.

Estimate for 2011

The campaign also released an estimated tax return for 2011 showing that Romney had an effective tax rate of 15.4 percent on $20.9 million in adjusted gross income. That return hasn’t been filed with the IRS.

The discussion of Romney’s tax returns has reignited the political debate over the tax treatment of investments and particularly carried interest. That is the profits stake that private-equity managers receive from successful investments even if they don’t invest their own money. It is taxed at capital gains rates, and President Barack Obama and many Democrats want to reverse that policy, calling it unfair.

Romney’s 2010 income included $7.4 million in carried interest, said Ben Ginsberg, national counsel for the campaign. Romney, a former executive at Bain Capital LLC, received $5.5 million in carried interest in 2011.

“Governor Romney has paid 100 percent of what he owes,” Ginsberg said.

Corporate Tax

Ginsberg added that “much of the income” subject to the preferential rate on investments has already been taxed at rates of up to 35 percent in the corporations in which they were earned.

Billionaire investor Warren Buffett, who is calling for raising taxes on high-income Americans, said he blames Congress, not Romney, for the governor’s tax rate.

“It’s the wrong policy to have,” Buffett told Bloomberg Television’s Betty Liu in an interview yesterday. “He’s not going to pay more than the law requires, and I don’t fault him for that in the least. But I do fault a law that allows him and me earning enormous sums to pay overall federal taxes at a rate that’s about half what the average person in my office pays.”

In 2008, according to IRS statistics, fewer than 15 percent of taxpayers earning more than $200,000 had effective tax rates of less than 15 percent.

Romney, who lost the South Carolina primary Jan. 21, is competing in the Jan. 31 contest in Florida against his main rival, former House Speaker Newt Gingrich.

Gingrich’s Plan

Ginsberg said Romney would fare better financially under Gingrich’s tax plan than under his own. Gingrich would end all taxation of capital gains; Romney wouldn’t let high-income taxpayers receive that break.

The 203-page return of Romney and his wife, Ann, along with returns from trusts and a foundation, provide a glimpse into the candidate’s financial life. The net worth of the 64-year-old Romney is between $190 million and $250 million, according to an estimate from his campaign.

In 2010, the Romneys had more than $4.5 million in itemized deductions, including almost $3 million in charitable contributions. The couple donated $1.5 million in 2010 to the Church of Jesus Christ of Latter-Day Saints, which also received donations from the family’s foundation. They contributed $2.6 million to the Mormon church in 2011, according to the estimated return.

Anthony Nitti, a tax partner at WithumSmith & Brown in Aspen, Colorado, said Romney’s return is a “pretty extreme example” of someone receiving income at preferential tax rates on investments.

‘High Net Worth’

“For a high net-worth individual, there’s nothing here that surprises me,” said Nitti, who reviewed the return for Bloomberg News.

The Romneys paid the alternative minimum tax, which is designed to prevent people from avoiding taxes legally. That parallel tax system doesn’t eliminate the preference for investment income.

Nitti, who works with high-income clients, said the Romneys’ trusts have investments in such places as the Cayman Islands. Even if the Romneys didn’t make those investment decisions, he said, “there’s some sophisticated tax planning going on.”

The 2010 return shows that the Romneys’ blind trusts have invested in an array of assets based around the world, including the Caymans. The Romneys had a bank account in Switzerland, the return shows. The account has since been closed, said Brad Malt, a partner at Ropes & Gray LLP in Boston who operates the family’s blind trusts.

‘Fully Disclosed’

“I thought that was prudent as a matter of diversification for trusts of this size,” he said. “I would like to emphasize that this bank account, in contrast to some that we’ve read about that have been the subject of criminal activity, is a fully legal, fully disclosed, fully reported bank account.”

Malt, who began working as the Romneys’ trustee in 2003, said during that time he was unaware of any IRS audit of the couple’s tax returns.

Romney’s income probably didn’t place him among the top 400 taxpayers. For the past several years, reaching that list required an adjusted gross income of more than $100 million.

In 2008, John McCain’s presidential campaign released the senator’s tax returns for the previous two years, 2007 and 2006, said Douglas Holtz-Eakin, who served as policy director for the Arizona Republican’s campaign.

Those tax documents, released on April 18, 2008, showed that McCain earned $405,409 in 2007 and paid $118,660 in federal taxes. He gave $105,467 to charity, the records show.

McCain’s campaign didn’t release tax returns for his wife, Cindy, who is chairman of the Phoenix-based Hensley & Co., one of the largest beer distributors in the U.S.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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Stocks in Europe Drop as Greek Debt Talks Reach Impasse; French Banks Fall

By Adria Cimino - Jan 24, 2012 9:37 PM GMT+0700

European (SXXP) stocks declined from a five-month high as the region’s finance ministers failed to agree on a debt-swap deal for Greece and called for a greater contribution from bondholders.

Banks tumbled, pacing losses on the Stoxx Europe 600 Index. Societe Generale SA and Credit Agricole SA (ACA) retreated at least 5.5 percent after Standard & Poor’s cut the banks’ credit ratings. Siemens AG (SIE), Europe’s largest engineering company, dropped 3 percent after saying that achieving its goals for the year has become harder. Petroplus Holdings AG plunged its lowest price ever after planning to file for insolvency.

The Stoxx 600 fell 1 percent to 254.5 at 2:36 p.m. in London. The gauge has still risen 4.1 percent so far this year as reports added to optimism that the global economy is strengthening.

“It seems as if we are far from an agreement,” said Yves Maillot, the Paris-based head of investments at Robeco Gestions SA, which oversees $6.8 billion. “The problem of solvency of countries remains, along with the question of Greece. The market situation is fragile. Market sentiment has been more positive recently, with investors factoring in the European (SXXP) Central Bank’s easing for banks.”

The region’s finance ministers, meeting in Brussels yesterday, balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief in order to point the way out of the two-year-old debt crisis.

Aid Package

Euro-area governments stood by an October offer of 130 billion euros ($170 billion) for a second Greek aid package. Officials want to fill a deeper-than-expected hole in the nation’s finances by saddling investors with a lower interest rate on exchanged bonds.

Meanwhile, Greek Finance Minister Evangelos Venizelos said the Greek government intends to wrap up debt-swap talks with private investors by Feb. 1.

A report today showed that a combined measure of European services and manufacturing output unexpectedly expanded in January, led by Germany, the region’s largest economy.

A euro-area composite index based on a survey of purchasing managers in both industries jumped to 50.4, a five-month high, from 48.3 in December, London-based Markit Economics said in an initial estimate today. Economists forecast a reading of 48.5, according to the median of 17 estimates in a Bloomberg News survey. Fifty is the dividing line between expansion and contraction.

National benchmark indexes fell in all of the 18 western European markets except Iceland. France’s CAC 40 lost 1.1 percent, while the U.K.’s FTSE 100 dropped 0.9 percent. Germany’s DAX retreated 1.1 percent.

Bank Shares

A gauge of banking shares was among the worst performers of the 19 industry groups on the Stoxx 600, falling 2.2 percent. Societe Generale (GLE) retreated 7.7 percent to 21.05 euros. Credit Agricole lost 5.6 percent to 4.92 euros.

Societe Generale, France’s second-largest lender, and Credit Agricole had their ratings downgraded to A from A+, with a stable outlook, S&P said yesterday.

“The downgrade of some of these banks follows the downgrade of France,” S&P wrote.

Siemens declined 3 percent to 76 euros. The company said achieving its full-year goals has become harder to reach after profitability at its four divisions slipped as the debt crisis weighs on the economy.

Net income from continuing operations in the fiscal first quarter fell 27 percent to 1.36 billion euros ($1.77 billion), the company said. That missed the average estimate of 1.47 billion euros in a Bloomberg survey of analysts. New orders also dropped, Siemens said.

Petroplus Insolvency

Petroplus sank 83 percent to 25 centimes, its biggest decline and the lowest price since it issued shares to the public in November 2006. The company said it plans to file for insolvency in Switzerland and other jurisdictions. The Swiss refiner that has been trying to avoid bankruptcy had about $1 billion in credit lines suspended last month, preventing it from supplying its plants with crude.

Royal KPN NV (KPN), the biggest Dutch telephone company, fell 7.2 percent to 7.93 euros. The company said 2012 profit and cash flow will be lower. The company reported fourth-quarter earnings before interest, taxes, depreciation, and amortization of 1.32 billion euros, compared with the average analyst estimate of 1.36 billion euros. The company also said there will be no share buyback in 2012.

STMicroelectronics NV (STM) slid 5.3 percent to 5.33 euros. Europe’s largest semiconductor maker predicted that first- quarter revenue will fall as much as 10 percent from the previous three months because of lower sales at its wireless business.

Worst Performance

Chemring Group Plc (CHG) tumbled 14 percent to 388.3 pence for its biggest drop in two months and the worst performance today in the Stoxx 600. The maker of missile avoidance systems for fighter jets reported a 30 percent decline in full-year pretax profit to 90.8 million pounds. Analysts at JPMorgan Chase & Co. cut their 2012 earnings-per-share estimate for the company by 15 percent to 54.3 pence, citing a “more cautious” outlook for growth and margins.

SBM Offshore NV (SBMO), the world’s biggest supplier of floating oil-and-gas platforms, declined 9.9 percent to 13.46 euros, the most since July, after saying its Yme project in Norway faces “increased challenges,” and that its chief financial officer will step down.

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

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

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Stocks in Europe Drop on Greek Debt-Talk Stalemate; Natural Gas Advances

By Stephen Kirkland and Lynn Thomasson - Jan 24, 2012 6:27 PM GMT+0700

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Jan. 24 (Bloomberg) -- Jesper Koll, head of equity research at JPMorgan Chase & Co. in Tokyo, talks about the outlook for Japan's economy and stocks. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Jan. 24 (Bloomberg) -- John Vail, chief global strategist and head of asset allocation at Nikko Asset Management, talks about the outlook for Japan's economy, stocks and currency. Vail also discusses the impact of Europe's debt crisis on global financial markets. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Jan. 24 (Bloomberg) -- Travis Hamilton, managing director at Khan Investment Management Ltd., talks about investing in Mongolia, and the outlook for the country's stocks and economy. Hamilton speaks from Singapore with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

European stocks fell from a five- month high amid a stalemate between regional policy makers and Greek bondholders over how to resolve the nation’s debt crisis. Indian shares surged after the central bank unexpectedly cut the cash reserve ratio.

The Stoxx Europe 600 Index retreated 1.1 percent at 6:25 a.m. in New York. Standard & Poor’s 500 Index futures lost 0.6 percent, while the BSE India Sensitive Index jumped 1.5 percent. The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, rose 0.1 percent. Germany’s 10-year bund yield decreased one basis point to 1.96 percent. Natural gas jumped 3 percent.

European finance ministers balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief. Apple Inc., McDonald’s Corp. and Johnson & Johnson are among U.S. companies scheduled to report quarterly results today as the Federal Reserve begins a two-day policy meeting.

“There’s still a lot of uncertainty around Europe and the Greek restructuring issue is still to be resolved,” Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management, said in a Bloomberg Television interview. “After such a big run up in the last month or so, it wouldn’t surprise me to see markets correct a little bit.”

Five shares dropped for every one that gained in the Stoxx 600 (SXXP). The gauge has still risen 3.9 percent in 2012, the best start to a year since 1997. Societe Generale SA and Deutsche Bank AG led financial shares lower, retreating more than 3.5 percent. Royal KPN NV sank 6.4 percent, the most in five months, as the largest Dutch phone company predicted lower 2012 profit and cash flow.

Fed Survey

The decline in S&P 500 futures indicated the U.S. gauge will retreat from the highest level since July. The Richmond Federal Reserve Bank is due to release its manufacturing-sector activity survey for December at 10 a.m. New York time. Earnings have topped estimates at about 64 percent of the 56 companies in the S&P 500 that released results since Jan. 9, data compiled by Bloomberg show.

The yield on Spain’s two-year note fell five basis points to 3.12 percent as the government sold 2.51 billion euros ($3.3 billion of three- and six-month bills, meeting the maximum target for the sale. The Netherlands auctioned 1.84 billion euros of debt maturing in January 2013 and January 2042. The Dutch two-year yield was little changed at 0.24 percent.

The yield on the 10-year U.S. Treasury note was little changed at 2.06 percent before the government sells $35 billion of two-year securities.

Natural Gas Rallies

Natural gas rose as much as 3.6 percent after climbing 7.8 percent yesterday, the most since December 2009. Copper fell 0.3 percent and Brent oil declined 0.3 percent to $110.23 a barrel.

The MSCI Emerging Markets Index (MXEF) slipped 0.3 percent as declines in eastern Europe and Africa offset gains in India. Hungary’s BUX Index (BUX) fell 1.9 percent and Turkey’s ISE National 100 Index slipped 1.1 percent before central bank rate decisions. Benchmark gauges in Russia and South Africa slipped at least 0.7 percent.

India’s Sensex (SENSEX) jumped to the highest level since Nov. 14 after the central bank reduced its cash reserve ratio to 5.5 percent from 6 percent, the first cut to the amount of cash banks must put aside since 2009. Policy makers left borrowing costs unchanged.

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

To contact the editor responsible for this story: Stuart Wallace at Swallace6@bloomberg.net

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Societe Generale, Credit Agricole Debt Downgraded by S&P

By Dakin Campbell - Jan 24, 2012 3:45 PM GMT+0700

Societe Generale SA (GLE) and Credit Agricole SA (ACA) were among French banks to have their credit grades cut by Standard & Poor’s after France was stripped of its top rating earlier this month.

Societe Generale, France’s second-largest bank by market value, and Credit Agricole, the third-biggest, had their debt downgraded to A from A+ with a stable outlook, S&P said yesterday in statements. Caisse des Depots et Consignations was also cut, to AA+ from AAA.

European nations are grappling with a debt crisis now in its third year as they seek to restore budget order. France’s credit was lowered to AAA from AA+ on Jan. 13 amid downgrades that left Germany the sole nation in the euro area with a stable top rating. The assessments for Societe Generale and Credit Agricole incorporate one level of government support rather than two levels that an AAA rated sovereign would provide, S&P said.

“The downgrade of some of these banks follows the downgrade of France,” S&P said in a statement.

Societe Generale declined as much as 5.2 percent, and was 85 cents, or 3.7 percent, lower at 21.95 euros by 9:23 a.m. in Paris. The stock is up 27 percent since the start of the year. Credit Agricole fell 15 cents, or 2.9 percent, to 5.06 euros.

Societe Generale said S&P's decision was anticipated.

“This downgrade is a direct consequence of the methodology used by S&P, which builds into our rating an element of systemic support by the French state, whose own sovereign rating has been recently cut,” the bank said in a statement.

Funding Needs

S&P said it expects lower investment-banking revenues to weigh on Societe Generale’s operating income. The bank announced in November that it won’t pay a dividend for 2011. The rating on Credit Agricole assumes “the bank will continue to improve its structural funding and liquidity position as part of the plan it announced at the end of 2011, and which provided for a significant reduction in funding needs,” it said.

The banks are likely to meet their 2012 funding needs through some combination of public and private placements, or covered bonds, according to S&P.

“We see the French government as supportive to its banking sector,” the ratings firm said.

S&P said it expects credit losses in France this year and next to rise “only moderately” from 2011.

The ratings company also affirmed the AA- long-term grade for BNP Paribas (BNP) SA, France’s biggest bank, and Credit Logement SA.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

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

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Amazon Fire Takes Android, Leaves Google Apps

By Peter Burrows - Jan 24, 2012 12:15 PM GMT+0700
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Best Buy Co. employees are instructed on how to use the Amazon.com Inc. Kindle Fire tablet computer at a store in New York, U.S. Photographer: Scott Eells/Bloomberg

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Amazon.com Inc.'s Kindle Fire tablet computer. Photographer: Emile Wamsteker/Bloomberg

Since Google Inc. (GOOG) introduced its Android operating system in 2007, the company’s strategy has been simple: Give it to developers for free and make money when consumers click ads on the Web or through apps. That model is hitting a snag.

Amazon.com Inc. (AMZN) and Chinese Internet giants Baidu Inc. and Tencent Holdings Ltd. are using Android as a building block for their devices, skipping preloaded applications such as Gmail, Google Maps and YouTube that generate ad revenue for Google, as well as its app store. Amazon’s Kindle Fire tablet, which is gaining ground on Apple Inc. (AAPL)’s iPad, comes with none of those apps.

“The Fire may be the best Android tablet out there, even though it’s the least Android-y of all of them,” said Noah Elkin, an analyst at New York-based research firm EMarketer Inc. “The Google experience is very much in the background.”

Mobile advertising is one of Google’s fastest-growing markets, with industrywide revenue projected to rise to $20.6 billion in 2015 from $3.3 billion in 2010, according to Gartner Inc. With online traffic increasingly coming through apps instead of mobile browsers, Google’s push to wring mobile-ad revenue from Android could be impeded if more device makers emulate and succeed with Amazon’s scaled-back approach.

“Part of the reason Android is so important as an operating system is that it lets Google put its mobile services front and center,” said Ken Sena, an analyst at Evercore Partners Inc.

Mobile Apps

According to Flurry Inc., a software company that tracks usage of apps, the average smartphone owner uses a mobile app -- for example, seeking a restaurant by clicking on the OpenTable Inc. icon on a phone, instead of using a browser to access the website -- 94 minutes a day, compared to 72 minutes accessing websites via a browser. A year ago, time was almost equally split.

“This may be small potatoes now, but increasingly it’s going to be way search gets conducted,” Sena said.

Many buyers may not know that the Kindle Fire, estimated to be the best-selling Android tablet ever, thanks to strong holiday sales, is even an Android tablet.

Amazon uses its own app store instead of Google’s Android Marketplace, and, like Apple, tightly controls which programs can appear there. The Fire also features Amazon’s one-click e- commerce shopping experience, already familiar to millions of Amazon customers.

Apple Model

The device’s success -- with 5.5 million sold during the holiday shopping season, according to Anthony DiClemente, an analyst at Barclays Capital -- shows that many consumers are looking for such seamless interplay between software and hardware.

“Apple has taught everyone that people value an integrated ecosystem that just works,” said Michael Gartenberg, an analyst at Gartner. “There’s a real possibility that Android could succeed, but not deliver what Google hopes it will.”

Google executives say it’s more important for the company to expand the Android ecosystem currently than it is to profit from it. The more devices run on Android, the more people will do mobile search and the more likely app makers are to develop programs for the platform.

“We’re in the early stages of monetization” of Android, Google Chief Executive Officer Larry Page said on a Jan. 19 earnings conference call with analysts. “We see a lot of potential for us to make money on Android.”

Search Advertising

Google’s main source of revenue is advertising on its search engine. Like Apple and its App Store, Mountain View, California-based Google takes a 30 percent cut on sales of apps from its Android Marketplace.

Of an estimated $44.6 billion in sales this year, $5.8 billion will come from mobile, according to Cowen & Co. Less than half of Google’s mobile revenue comes from through mobile apps, according to Sena. Google’s mobile business could expand to more than $10 billion in four years, said Mark Mahaney, an analyst at Citigroup Inc. That would outpace the 66 percent total sales growth expected for Google from 2011 to 2015, the average estimate of analysts surveyed by Bloomberg.

Yet even if 10 percent of all mobile app-related sales on Android devices came through Amazon’s Kindle Fire -- which cuts Google out of the equation -- Google would lose out on less than $300 million in revenue.

Baidu, Tencent, Dell

Still, Amazon isn’t the only company whose plan is to push Android into the background. In smartphones, Baidu and Tencent, leaders in China’s Internet search and social-networking markets, have created their own software suites to run on top of Google’s operating system. Last month, Dell Inc. (DELL) unveiled a smartphone, the Streak Pro, that will be sold in China. It is the first device designed to run Baidu Yi, which includes Baidu’s own programs for search, books, maps, music and local recommendations.

Neither Baidu nor Tencent can point to Amazon-like successes with these efforts so far. Dell also isn’t a powerful player in tablets, said Gene Munster, an analyst at Piper Jaffray Cos.

Facebook Inc., on the other hand, is an important wildcard. Tim Bajarin, president of San Jose, California-based consultancy Creative Strategies Inc., expects Facebook to introduce an Android-based phone that wouldn’t include Google’s apps. Instead, the user interface would be designed around its social network and software from other app makers.

Google’s Terms

So far, Google has pursued an all-or-nothing approach to licensing its suite of applications. In contract talks, licensees may choose to use all or most of Google’s mobile apps, or none of them. This means that to get popular apps such as Gmail and Google Maps, the licensee may also need to agree to use Google Talk, a Skype-like app for making phone calls, or Contacts, a tool for managing contact details.

Google insists on these terms to ensure that consumers aren’t prevented from using apps that have become de facto standards, and because Google’s apps are designed to work well together, Android chief Andy Rubin has said. It’s also about making money.

“There’s something that’s funding all this free software, and it’s Google’s business model” to generate revenue from search and its own apps, Rubin said at a press event on Dec. 21.

Some rivals say Google is unfairly using its influence to push its own mobile offerings. Skyhook Wireless Inc. is suing Google for allegedly preventing Motorola Mobility Holdings Inc. and another phonemaker from using Skyhook’s location-tracking software, by insisting they make Google’s alternative the default on their Android products.

‘Play Nice’

Many device makers have little choice other than to take a full suite of Google apps. Without Android, companies such as Samsung Electronics Co. (005930) and HTC Corp. would have no platform for competing with Apple. With no must-have apps or services of their own, these device makers would be at a disadvantage without Google apps.

“I don’t know if any other manufacturers have the clout to do what Amazon is doing,” said Bajarin. “They need to play nice with Google.”

Amazon doesn’t. Rather than make money on the hardware -- it sells the Kindle Fire at a loss for $199 -- its strategy is to make devices that let customers stream or buy more movies, music and books from its online store. To do that, Amazon created its own mobile-app store and a browser called Silk. Amazon will make $136 on each Kindle Fire, thanks to movie and book downloads onto the device, according to Ross Sandler, an analyst at RBC Capital Markets.

Google Phone?

Android devices that ship without Google’s services aren’t a total loss for the company, said Maha Ibrahim, a partner at Menlo Park, California-based investment firm Canaan Partners.

“Google has done an incredible job getting Android out there,” she said. “They’d rather have Android be part of these devices than not.” Fire owners can still do Internet searches via Google or use Youtube.com or the Google Maps website.

Google may opt to create its own integrated phone that highlights its services, as the Fire does for Amazon. The company agreed in August to acquire Motorola Mobility. Rubin has said that Google is working on its own tablet design, which will have the brand name Nexus.

“One way or another, they need to have a tablet that’s a strong No. 3 to iPad and the Fire,” said Evercore’s Sena.

To contact the reporter on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net

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

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European Stocks Decline on Greek Debt Impasse

By Adria Cimino - Jan 24, 2012 6:32 PM GMT+0700

European (SXXP) stocks declined from a five-month high as the region’s finance ministers failed to agree on a debt-swap deal for Greece and called for a greater contribution from bondholders. U.S. index futures retreated and Asian stocks fluctuated.

Banks tumbled, pacing losses on the Stoxx Europe 600 Index. Societe Generale SA and Credit Agricole SA (ACA) retreated at least 5 percent after Standard & Poor’s cut the banks’ credit ratings. Siemens AG (SIE), Europe’s largest engineering company, dropped 3.6 percent after saying that achieving its goals for the year has become harder. Petroplus Holdings AG plunged its lowest price ever after planning to file for insolvency.

The Stoxx 600 fell 1.1 percent to 254.16 at 11:29 a.m. in London. The gauge has still risen 3.9 percent so far this year as reports added to optimism that the global economy is strengthening. Futures on the Standard & Poor’s 500 Index slid 0.6 percent. The MSCI Asia Pacific Index declined 0.1 percent.

“It seems as if we are far from an agreement,” said Yves Maillot, the Paris-based head of investments at Robeco Gestions SA, which oversees $6.8 billion. “The problem of solvency of countries remains, along with the question of Greece. The market situation is fragile. Market sentiment has been more positive recently, with investors factoring in the European (SXXP) Central Bank’s easing for banks.”

The region’s finance ministers, meeting in Brussels yesterday, balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief in order to point the way out of the two-year-old debt crisis.

Aid Package

Euro-area governments stood by an October offer of 130 billion euros ($170 billion) for a second Greek aid package. Officials want to fill a deeper-than-expected hole in the nation’s finances by saddling investors with a lower interest rate on exchanged bonds.

Meanwhile, Greek Finance Minister Evangelos Venizelos said the Greek government intends to wrap up debt-swap talks with private investors by Feb. 1.

A report today showed that a combined measure of European services and manufacturing output unexpectedly expanded in January, led by Germany, the region’s largest economy.

A euro-area composite index based on a survey of purchasing managers in both industries jumped to 50.4, a five-month high, from 48.3 in December, London-based Markit Economics said in an initial estimate today. Economists forecast a reading of 48.5, according to the median of 17 estimates in a Bloomberg News survey. Fifty is the dividing line between expansion and contraction.

Bank Shares

A gauge of banking shares was the among the worst performers of the 19 industry groups on the Stoxx 600, falling 2 percent. Societe Generale (GLE) retreated 5.4 percent to 21.57 euros. Credit Agricole lost 5.1 percent to 4.95 euros.

Societe Generale, France’s second-largest lender, and Credit Agricole had their ratings downgraded to A from A+, with a stable outlook, S&P said yesterday.

“The downgrade of some of these banks follows the downgrade of France,” S&P wrote.

Siemens declined 3.6 percent to 75.56 euros. The company said achieving its full-year goals has become harder to reach after profitability at its four divisions slipped as the debt crisis weighs on the economy.

Net income from continuing operations in the fiscal first quarter fell 27 percent to 1.36 billion euros ($1.77 billion), the company said. That missed the average estimate of 1.47 billion euros in a Bloomberg survey of analysts. New orders also dropped, Siemens said.

Petroplus Insolvency

Petroplus sank 85 percent to 22 centimes, its biggest decline and the lowest price since it issued shares to the public in November 2006. The company said it plans to file for insolvency in Switzerland and other jurisdictions. The Swiss refiner that has been trying to avoid bankruptcy had about $1 billion in credit lines suspended last month, preventing it from supplying its plants with crude.

Royal KPN NV (KPN), the biggest Dutch telephone company, fell 6.8 percent to 7.96 euros. The company said 2012 profit and cash flow will be lower. The company reported fourth-quarter earnings before interest, taxes, depreciation, and amortization of 1.32 billion euros, compared with the average analyst estimate of 1.36 billion euros. The company also said there will be no share buyback in 2012.

STMicroelectronics NV (STM) slid 5.4 percent to 5.33 euros. Europe’s largest semiconductor maker predicted that first- quarter revenue will fall as much as 10 percent from the previous three months because of lower sales at its wireless business.

Chemring Group Plc (CHG) tumbled 13 percent to 390.4 pence for its biggest drop in two months and the worst performance today in the Stoxx 600. The maker of missile avoidance systems for fighter jets reported a 30 percent decline in full-year pretax profit to 90.8 million pounds. Analysts at JPMorgan Chase & Co. cut their 2012 earnings-per-share estimate for the company by 15 percent to 54.3 pence, citing a “more cautious” outlook for growth and margins.

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

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

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EU Seeks Concessions From Greece Bondholders

By James G. Neuger and Rebecca Christie - Jan 24, 2012 6:21 PM GMT+0700
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A sculpture stands in front of a flag of the European Union at one of the buildings of the European Commission in Brussels, Belgium. Photographer: Sean Gallup/Getty Images

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Jan. 24 (Bloomberg) -- Sony Kapoor, managing director of policy advisory firm Re-Define, discusses European government austerity measures and implementing the region's fiscal compact. He speaks with Owen Thomas and Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

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Jan. 23 (Bloomberg) -- Christian Schulz, a senior economist at Berenberg Bank, talks about European bond markets and the Greek debt crisis. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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Jan. 24 (Bloomberg) -- James Hickman, managing director at Caxton FX, discusses the outlook for the euro, the region's bond yields and the possibility of European Central Bank interest rates being cut to zero. He speaks with Linzie Janis and Linda Yueh on Bloomberg Television's "Countdown." (Source: Bloomberg)

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Jan. 24 (Bloomberg) -- Gavin Stacey, chief interest-rate strategist at Barclays Capital in Sydney, talks about Europe's sovereign debt crisis and its implications for the region's common currency. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

European finance ministers pushed bondholders to provide greater debt relief for Greece, denting newfound confidence in Europe’s strategy for coping with the two-year-old debt crisis.

Euro governments sought to fill a deeper-than-expected hole in Greece’s finances by saddling investors with a lower interest rate on exchanged bonds, setting up a confrontation in the runup to a Jan. 30 European Union summit.

Brinkmanship over Greece clouded progress toward new fiscal rules and a beefed-up rescue fund, posing a potential setback to the start-of-year rally in stocks, bonds and the euro.

“Obviously Greece and the banks have to do more in order to reach a sustainable debt level,” Dutch Finance Minister Jan Kees de Jager told reporters in Brussels before the final session of a two-day meeting of European ministers.

The euro slipped after yesterday’s meeting, trading at $1.3002 at 12:14 p.m. in Brussels, down 0.1 percent. The Stoxx Europe 600 index was down 1 percent.

Efforts to shore up Greece, which triggered the crisis, were flanked by headway on a German-inspired deficit-reduction treaty and indications that a cap on rescue lending might be boosted to 750 billion euros ($975 billion) from 500 billion euros.

Psychological Impact

Finance chiefs balked at an investors’ bid for an average 4 percent interest rate on new Greek bonds, seeking coupons below 3.5 percent for debt to be serviced until 2020 and below 4 percent over the 30 years of the next Greek package.

The difference between the losses bondholders have offered and those mentioned by EU finance chiefs “comes down to 10 billion or 20 billion euros” over the life of the new bonds, said Carsten Brzeski, an economist at ING Group in Brussels.

“This is just nothing compared to the psychological impact you would get on Spanish or Italian yields if Greece were to go bust,” Brzeski said in an interview today. “They’re going to find a deal,” he said on Bloomberg Television.

The contribution of euro governments and the International Monetary Fund to the package will stay at 130 billion euros as pledged in October.

“It’s obvious that the Greek program is off track,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing last night’s meeting of ministers from the 17 euro countries.

‘Green Light’

The stalemate is reminiscent of October’s bargaining over bond losses and threatens to spill into next week’s leaders’ summit. An accord with bondholders is essential to a second financing package for cash-strapped Greece, which faces a 14.5 billion-euro bond payment on March 20.

“We have the green light of the euro group to close the deal with the private sector in the next few days,” Greek Finance Minister Evangelos Venizelos said.

Greece’s struggle intruded on the Brussels meeting after bondholders made what Charles Dallara, managing director of the Washington-based Institute of International Finance, told Antenna TV constitutes a “maximum” debt-relief offer.

There was no immediate reaction from the IIF, negotiating on behalf of bondholders, to the euro region’s appeal. Dallara is scheduled to hold a press conference at 2:30 p.m. in Zurich.

Short-Term Debt

Failure to wrap up the debt-reduction accord helped drive Greek two-year yields to an all-time high of 206 percent yesterday. In contrast to earlier episodes in the crisis, investors were optimistic that Greece’s travails won’t spill over to the rest of Europe.

Successful short-term debt sales in the past two weeks in Italy, Portugal, Spain, France and Belgium were smoothed by 489 billion euros disbursed by the European Central Bank in unlimited three-year loans to euro-region banks.

Spain today sold 2.51 billion euros of bills, just above its maximum target for the sale, as a surge in demand helped bring down borrowing costs.

The country sold three-month bills at a rate of 1.285 percent, the Bank of Spain said, the lowest since March and down from 1.735 percent when the securities were last sold on Dec. 20, the day before Prime Minister Mariano Rajoy took over. It sold six-month bills at 1.847 percent, compared with 2.435 percent.

‘Correction Mechanism’

The central bank has drawn encouragement from pledges by political leaders to turn Europe into a low-debt economy, enforced by a fiscal treaty that finance ministers said is on track to be signed in March.

The treaty will create an EU-supervised automatic “correction mechanism” that would force governments to fix “significant” deviations from a target structural deficit of 0.5 percent of GDP, according to a Jan. 19 draft obtained by Bloomberg News.

“We have reason to be optimistic that we are not only on the right path, but that we will successfully pursue this path for the rest of the year,” German Finance Minister Wolfgang Schaeuble said.

Under German pressure, countries that don’t enact the fiscal pact will be denied aid from the permanent rescue fund, the European Stability Mechanism. Finance ministers agreed to set up the ESM in July, a year ahead of schedule, after reaching a compromise with Finland over how it will award aid.

Twin Rescue Funds

Finland, one of the four remaining euro-area borrowers rated AAA by Standard & Poor’s, pushed through changes to provisions that could force it to underwrite loans against its will. Finance chiefs will sign the ESM treaty on Feb. 20, sending it to national parliaments for ratification.

Germany, Europe’s dominant economic power, gave the strongest signal yet that it would allow the temporary rescue fund, the European Financial Stability Facility, to lend its full remaining amount before it expires in mid-2013.

Combining the two funds would boost Europe’s unspent crisis-fighting capacity to 750 billion euros. In the past, Germany has backed plans to limit the combined lending at 500 billion euros.

Running the two funds in parallel “is being discussed,” Norbert Barthle, parliamentary budget spokesman for Chancellor Angela Merkel’s Christian Democratic Union, said in an interview yesterday in Berlin.

The dual use of the funds “is capable of consensus,” Austrian Finance Minister Maria Fekter said today.

‘Improved’ Firewall

The IMF repeated its plea for the dual-fund option. Speaking on Germany’s Deutschlandradio today, IMF Managing Director Christine Lagarde said: “The idea behind the wall is that it is so big that investors -- people who finance, people who speculate occasionally -- are discouraged because the wall is too big so that the fire cannot go through. It needs to be improved -- the EFSF plus the ESM.”

Meanwhile, the temporary fund will soon be ready to offer insurance to persuade investors to buy bonds, said Klaus Regling, the fund’s manager. It would only intervene if a country such as Italy or Spain requests the backup.

A separate battle brewed over who will take the seat on the ECB’s Executive Board that will open up when Spain’s Jose Manuel Gonzalez-Paramo comes to the end of his eight-year term in May.

In a fight between the richer north and the debt-encumbered south, Luxembourg is seeking to wrest the seat away from Spain by nominating its central bank chief, Yves Mersch, the longest- serving monetary official in Europe.

Spain proposed Antonio Sainz de Vicuna, head of the ECB’s legal department, to hold onto a seat that has been in Spanish hands throughout the euro. A third contender, Mitja Gaspari, was put forward by Slovenia. The ministers put off a decision until the next meeting on Feb. 20.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Rebecca Christie in Brussels at rchristie4@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Obama Speech to Embrace U.S. Manufacturing Rebirth, Energy for Job Growth

By Roger Runningen and Margaret Talev - Jan 24, 2012 12:01 PM GMT+0700

President Barack Obama tonight will lay out what he calls a “blueprint” for revitalizing the economy, emphasizing a rebirth for U.S. manufacturing, bolstering domestic energy production and training workers.

In his third State of the Union address before a joint session of Congress, Obama will focus on economic concerns in an election-year speech that sets policy priorities as it lays out themes for his re-election campaign.

The speech will include “the principles that President Obama has brought to public service since he began his career in public service,” White House press secretary Jay Carney said yesterday without giving specifics. “And I’m sure that the campaign is focused on those same ideas, because they are working to get the president re-elected.”

While administration officials have promised the address will include new proposals, Obama is unlikely to get major initiatives enacted before the November election, which will also decide control of the House and Senate. The speech is sandwiched between the Republican presidential primary in South Carolina on Jan. 21 and the Florida primary on Jan. 31.

Obama also will be constrained this year by efforts to reduce the nation’s long-term debt. Last year’s deficit of $1.3 trillion was third-highest as a share of the economy since 1945.

The president is scheduled to deliver the televised address at 9 p.m. Washington time. The Republican response will be delivered by Indiana Governor Mitch Daniels, who flirted last year with running for president.

Little New

Douglas Holtz-Eakin, an economic policy adviser to Republican candidate John McCain in 2008, said he expects Obama will offer little new and instead “talk about the sad state of the middle class and the Republicans’ plans are going to make it worse.”

Obama previewed his message in a Dec. 6 speech in Osawatomie, Kansas, that invoked the populism of President Theodore Roosevelt. Economic inequality has left millions of Americans feeling that “the basic bargain that made this country great has eroded,” he said.

That means more “fairness” is needed in the tax code and in making sure that financial firms play by the same rules as other businesses, according to Obama. More details will be in the president’s 2013 budget, which will go to Congress Feb 13.

Republicans say they are ready for a fight.

‘Same Old Policies’

“It sounds to me like the same old policies that we’ve seen,” House Speaker John Boehner said on the “Fox News Sunday” program on Jan. 22.

“More spending, higher taxes, more regulations -- the same policies that haven’t helped our economy,” the Ohio Republican said. “If that’s what the president is going to talk about Tuesday night, I think it’s pathetic.”

Obama also will devote a section of his speech to U.S. energy production. In a video to supporters over the weekend he said economic growth can be “fueled by homegrown and alternative energy sources.”

Last March he called for new incentives to boost production of oil, natural gas and biofuels, tougher fuel-efficiency standards for vehicles and greater reliance on cleaner sources of energy, including nuclear power.

An Interior Department report last year the Gulf of Mexico alone may have as much as 11.6 billion barrels of untapped crude -- enough to meet U.S. demand for almost two years -- and 59.2 trillion cubic feet of natural gas. He’s also endorsed extracting gas from shale as long as it is done in a way that is environmentally sound.

Economic Outlook

In talking about the economy, Obama may point to signs of a rebound.

The unemployment rate in December dropped to 8.5 percent, a three-year low, and employers expanded payrolls by 200,000, showing the job market is gaining momentum. Employers added 853,000 jobs in the second half of 2011, compared with 782,000 in the first six months. Manufacturing output climbed 0.9 percent, the biggest gain since December 2010, according to Federal Reserve data.

Gross domestic product, the value of all goods and services produced, rose at a 3 percent annual rate in the final three months of 2011 after advancing 1.8 percent in the previous quarter, according to the median forecast of 64 economists surveyed by Bloomberg News before the Commerce Department’s Jan. 27 release.

Flying West

Obama will leave the morning after the State of the Union for a three-day trip to Iowa, Arizona, Nevada, Colorado and Michigan, all battlegrounds in the election.

To talk about manufacturing, Obama tomorrow will stop at Conveyor Engineering & Manufacturing in Cedar Rapids, Iowa, which makes screw-type conveyors for moving materials such as feed, grain and chemicals for farming and processing facilities.

Later in the day he’s scheduled to visit Chandler, Arizona, about 20 miles (32 kilometers) southeast of Phoenix, where Intel Corp. has a manufacturing plant. The world’s largest chipmaker says the facility employs 9,700 people.

Obama’s 2011 State of the Union was watched live by 42.8 million viewers on ABC, CBS, Fox, NBC, Telemundo, Univision, CNN, Centric, CNBC, Fox News Channel and MSNBC, according to Nielsen data. That was down 11 percent from 2010 and 18 percent from Obama’s first address to Congress in 2009. He has so far failed to garner TV audiences to match the most-watched addresses by George W. Bush and Bill Clinton.

Obama’s campaign plans to use social media to spread the messages in his speech. The president plans an online video chat on Jan. 30 on the White House page on Google Plus and the whitehouse.gov website.

To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net; Margaret Talev in Washington at mtalev@bloomberg.net

To contact the editor responsible for this story: Steve Komarow at skomarow1@bloomberg.net

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Australian Dollar, U.S. Futures Drop Amid Greek Debt Stalemate; Gas Climbs

By Lynn Thomasson and Yoshiaki Nohara - Jan 24, 2012 12:07 PM GMT+0700

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Jan. 24 (Bloomberg) -- Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney, talks about global stocks and his investment strategy. He also discusses Europe's sovereign debt crisis. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Jan. 24 (Bloomberg) -- Jesper Koll, head of equity research at JPMorgan Chase & Co. in Tokyo, talks about the outlook for Japan's economy and stocks. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Jan. 24 (Bloomberg) -- John Vail, chief global strategist and head of asset allocation at Nikko Asset Management, talks about the outlook for Japan's economy, stocks and currency. Vail also discusses the impact of Europe's debt crisis on global financial markets. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Jan. 24 (Bloomberg) -- Travis Hamilton, managing director at Khan Investment Management Ltd., talks about investing in Mongolia, and the outlook for the country's stocks and economy. Hamilton speaks from Singapore with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

The Australian dollar fell from the highest level in 12 weeks and U.S. equity futures declined amid a stalemate between European policy makers and Greek bondholders over how to resolve the nation’s debt crisis.

The so-called Aussie weakened 0.3 percent to $1.0492 as of 1:48 p.m. in Tokyo. Standard & Poor’s 500 Index futures slid 0.3 percent and the MSCI Asia Pacific Index was little changed. Gold and silver lost at least 0.2 percent, while natural gas extended yesterday’s 7.8 percent surge. Treasuries rose following four days of declines. Bond risk in Australia and Japan dropped to the lowest since October.

Markets in China, Hong Kong, South Korea and Singapore are shut for the Lunar New Year holiday. European finance ministers balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief. India’s economic growth outlook has weakened and inflation remains elevated, the nation’s central bank said on Jan. 23, signaling it may leave interest rates unchanged today.

“After such a big run up in the last month or so, it wouldn’t surprise me to see markets correct a little bit,” Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management, said in a Bloomberg Television interview. “There’s still a lot of uncertainty around Europe and the Greek restructuring issue is still to be resolved.”

About the same number of stocks rose and fell in the MSCI Asia Pacific Index (MXAP), which has rallied 6.3 percent this year. The gauge trades at 12.7 times estimated profit, 24 percent less than the six-year average, data compiled by Bloomberg show.

U.S. Earnings

Apple Inc., McDonald’s Corp. and Johnson & Johnson are among U.S. companies scheduled to report quarterly results today. Earnings topped estimates at about 65 percent of the 52 companies in the S&P 500 that released results since Jan. 9, data compiled by Bloomberg show.

The 10-year Treasury yield declined one basis point to 2.04 percent. The Federal Reserve begins a two-day policy meeting today after which it will provide forecasts for the benchmark interest rate for the first time.

Data later today may show a euro-area composite index based on a survey of purchasing managers in both manufacturing and services industries rose to 48.5 this month from 48.3 in December, according to the median economist estimate from a Bloomberg survey before the report from Markit Economics is released. That would be the fifth monthly reading below 50, indicating contraction.

Japan’s Economy

The Nikkei 225 Stock Average rose 0.1 percent, paring an early gain of as much as 0.7 percent after the Bank of Japan cut its growth outlook. Governor Masaaki Shirakawa and fellow board members lowered the economic forecast to 2 percent from an October estimate of 2.2 percent for fiscal 2012.

Elpida Memory Inc. (6665) advanced 3.1 percent for a sixth day of gains. The Japanese chipmaker is in talks with Micron Technology Inc. and Nanya Technology Corp. for a three-way merger, the Yomiuri newspaper reported, without saying where it got the information.

Oil fluctuated below $100 a barrel in New York, failing to extend yesterday’s gain, as speculation U.S. supplies rose last week countered concern Iran will respond to a European ban on its crude exports by shutting the Strait of Hormuz. Crude for March delivery was little changed at $99.69 a barrel in electronic trading on the New York Mercantile Exchange.

Natural Gas

Natural gas rose a third day in New York after Chesapeake Energy Corp., the second-largest U.S. producer, said it will cut production and reduce spending. The contract surged 7.8 percent yesterday, rebounding from a 10-year low on Jan. 19.

The cost of insuring corporate bonds in Australia and Japan against non-payment decreased, according to credit-default swap traders. The Markit iTraxx Australia index fell 5 basis points to 157, according to Westpac Banking Corp. The Australian benchmark slid to 157 basis points yesterday, its lowest level since Oct. 28, according to data provider CMA prices in New York. The Markit iTraxx Japan index declined 3.5 basis points to 168, Citigroup Inc. prices show. That’s on course for its lowest level since Oct. 31, according to CMA.

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: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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Australian Dollar Drops From 12-Week High on Speculation Inflation Slowing

By Mariko Ishikawa - Jan 24, 2012 12:15 PM GMT+0700

Australia’s dollar declined from the highest level in 12 weeks on speculation a report tomorrow will show gains in consumer prices are slowing, providing scope for the nation’s central bank to cut interest rates.

The New Zealand dollar halted a two-day advance amid expectations the Reserve Bank of New Zealand will keep interest rates at a record low at a policy meeting this week. Losses in the South Pacific nations’ currencies were limited on optimism European Union finance ministers meeting in Brussels are making progress in resolving the region’s debt crisis, supporting demand for riskier assets.

“Without the pressure of inflation, interest rates have scope to come down,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency-risk management company. “I think the RBNZ will adjust their rhetoric to suggest that they will cut rates if needed. It could take a little bit of edge off” the New Zealand dollar, he said.

Australia’s dollar declined 0.3 percent to $1.0492 at 3:41 p.m. in Sydney from yesterday in New York, when it touched $1.0573, the highest since Oct. 31. The so-called Aussie also fell 0.3 percent to 80.80 yen, snapping a five-day advance.

New Zealand’s dollar was little changed at 80.93 U.S. cents from 81.01 yesterday, when it reached 81.42, also the highest since Oct. 31. It slid 0.1 percent to 62.32 yen.

Consumer Prices

Australia’s consumer prices climbed 0.2 percent in the fourth quarter from the previous three-month period, according to economists surveyed by Bloomberg News before the Bureau of Statistics report tomorrow. That compares with a 0.6 percent gain in the third quarter.

An index of Australian leading economic indicators fell 0.3 percent to 128 in November, the New York-based Conference Board said in an e-mailed statement today. That follows a revised increase of 0.5 percent the previous month.

A Credit Suisse Group AG index based on swaps indicates an 84 percent chance that the Reserve Bank of Australia will lower rates by 25 basis points, or 0.25 percentage point, when policy makers convene Feb. 7. The benchmark rate is 4.25 percent following quarter-point reductions at each of the central bank’s two previous meetings.

A Statistics New Zealand report on Jan. 19 showed consumer prices in the country declined 0.3 percent in the fourth quarter from the previous three-month period, when they advanced 0.4 percent. All 14 economists surveyed by Bloomberg forecast the RBNZ to keep interest rates unchanged at 2.5 percent at the policy meeting on Jan. 26.

Excessive Gains

Demand for the South Pacific nations’ currencies was also limited as a technical indicator signaled their recent gains were too rapid. The New Zealand dollar’s 14-day relative strength index (MXAP) against the greenback was at the 70 level that some traders see as a sign that an asset may be about to reverse direction. The index for the so-called Aussie was at 65.

“This positive sentiment at the beginning of the year is quite fragile,” said Rochford’s Mumford. “If you see corrections in equity markets, you’ll see money coming out of the Aussie dollar.”

Standard & Poor’s 500 Index futures fell 0.4 percent. The MSCI Asia Pacific Index of stocks earlier rose as much as 0.3 percent before trading little changed from yesterday.

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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Noda’s $130B Fund Goes Untapped in M&A Surge

By Andy Sharp - Jan 24, 2012 9:21 AM GMT+0700
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Yoshihiko Noda, Japan's prime minister. Photographer: Haruyoshi Yamaguchi/Bloomberg

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Jan. 24 (Bloomberg) -- John Vail, chief global strategist and head of asset allocation at Nikko Asset Management, talks about the outlook for Japan's economy, stocks and currency. Vail also discusses the impact of Europe's debt crisis on global financial markets. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

The biggest year for overseas buyouts by Japan’s companies since at least 2000 was financed without a single yen coming from a $130 billion program Prime Minister Yoshihiko Noda set up to spur such deals.

While “multiple” companies are weighing participation in the 10 trillion-yen fund, none have signed up, Kenji Okamura, director of the finance ministry’s development-policy division, said in an interview in Tokyo. He said it was too early to judge the initiative, which ends in eight months. Japanese companies spent $88.7 billion in overseas acquisitions last year, a record in data compiled by Bloomberg that go back 12 years.

Businesses may be bypassing the money even as purchases boom because of growing cash stockpiles and the need to move more quickly than a government process would allow. The lack of demand for the program unveiled in August underscores how difficult it is for Noda to go beyond the more traditional means of intervening in currency markets to support companies as the yen hovers near its postwar high of 75.35 per dollar.

“Japan is still in need of a quick remedy like intervention to erase the yen’s gains,” said Junko Nishioka, chief Japan economist in Tokyo at RBS Securities Japan Ltd. and a former Bank of Japan official. “There’s a chance Japan will intervene again. Companies have little incentive to increase capital spending and expand at home.”

Currency Reserves

Under the program, the state-run Japan Bank for International Cooperation disperses funds from the country’s foreign-exchange reserves. Authorities’ attempts to intervene to weaken the currency have failed to curb the yen’s 8 percent climb against the dollar in the past 12 months.

Companies in the Topix Index have 97.8 trillion yen of cash, up from 79.5 trillion yen three years ago, according to data compiled by Bloomberg. Takeda Pharmaceutical Co. (4502) bought Swiss drug-maker Nycomed last year for 9.6 million euros in cash, the largest overseas acquisition made by a Japanese company that year. Toshiba Corp., Japan’s largest maker of nuclear reactors, bolstered its stake in Westinghouse Electric for $1.6 billion.

Companies that completed deals after the program was announced said they didn’t want to use a facility they were unfamiliar with. Kirin Holdings Co. (2503), Japan’s largest brewer by market value, in November took full control of Brazilian beer maker Schincariol Participacoes e Representacoes by signing a bridge loan for about 100 billion yen from the Bank of Mitsubishi UFJ Ltd. to help finance the $1.35 billion purchase.

‘Weren’t Sure’

“We weren’t sure how to how to use it,” Kan Yamamoto, a Kirin spokesman, said when asked why his company didn’t tap the program. “We understand the outline of the facility, but we have little know-how without the existence of actual cases.”

The JBIC program offers loans at the six-month Libor rate, which at around 0.34 percent is lower than financing that companies could get with private financial institutions.

Libor, a benchmark for about $360 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. The lenders are asked how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and Swiss francs. After a predetermined number of quotes are excluded, those remaining are averaged and published for each currency by the BBA before noon.

Rates Drop

The loan rates Japanese banks charge have been declining as a global slowdown weighs on corporate demand. New loan rates fell 17.5 basis points in November to 1.019 percent, the lowest since the BOJ started tracking data in October 1993.

“Cash-rich companies can finance mid-sized transactions by themselves, utilizing bank loans,” said Kensaku Bessho, managing director of M&A advisory group Mitsubishi UFJ Morgan Stanley in Tokyo. “Utilizing governmental financing may require some sort of lengthy application process, which would be relatively cumbersome for companies in comparison with a commercial bank loan.”

Besides mergers and acquisitions, the JBIC program supports exports of small and medium-sized companies and securing energy resources, an area where it’s seen more interest. JBIC has so far made three loans worth about $835 million to companies involved with liquefied natural gas projects in Australia and Papua New Guinea.

Intervention Calls

Meantime, large businesses press for currency intervention, on top of the record sales of yen the Noda administration oversaw last year to stem appreciation. The yen traded at 76.98 per dollar at 11:19 a.m. in Tokyo, 17 percent higher than two years ago.

“The facility may have a slight effect,” said Takehiko Seike, economic policy bureau manager at Keidanren in Tokyo. Seike said that Keidanren still hopes the government will intervene when necessary, and that it has no position on other measures that could tame the yen’s rise. Members including Nissan Motor (7201) Corp. and Panasonic Corp. (6752) have announced plans to shift operations abroad as the currency soared.

Former BOJ Deputy Governor Kazumasa Iwata in October suggested that the central bank establish a 50 trillion yen fund to purchase foreign debt to help weaken the yen. Iwata, who was at the central bank from 2003-2008, also advised the government in November to promote Samurai bonds, or debt securities sold in Japan by foreign governments or companies.

To contact the reporter on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Asian Stocks Rise on Europe Optimism

By Yoshiaki Nohara and Lynn Thomasson - Jan 24, 2012 11:40 AM GMT+0700

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Canon Inc., a Japanese camera maker that depends on Europe for almost a third of its sales, rose 0.6 percent. Photographer: Toshiyuki Aizawa/Bloomberg

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Jan. 23 (Bloomberg) -- Donald Straszheim, senior managing director at International Strategy & Investment Group, talks about the outlook for China's economy and stock market. He speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

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Jan. 23 (Bloomberg) -- Robert Hagstrom, a portfolio manager at Legg Mason Funds Management, talks about investment strategy and the outlook for global markets. Hagstrom speaks with Deirdre Bolton and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Asian stocks swung between gains and losses, snapping a five-day rally, as investors weighed European efforts to ease the region’s debt crisis.

Nintendo Co. (7974), a Japanese maker of video-game players that gets 34 percent of its sales in Europe, rose 1.1 percent. Mirabela Nickel Ltd. (MBN), an Australian nickel producer, slumped 12 percent after analysts cut their recommendations on the stock. Elpida Memory Inc. (6665) advanced 3.4 percent after a newspaper reported the chipmaker is in merger talks with Micron Technology Inc. and Nanya Technology Corp. (2408)

The MSCI Asia Pacific Index (TPX) was little changed at 120.99 as of 1:34 p.m. in Tokyo after swinging between gains and losses at least four times. Six of the 10 industry groups on the measure rose.

“After such a big run up in the last month or so, it wouldn’t surprise me to see markets correct a little bit,” Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management, said in a Bloomberg Television interview. “There’s still a lot of uncertainty around Europe and the Greek restructuring issue is still to be resolved.”

Japan’s Nikkei 225 Stock Average rose 0.2 percent even after the Bank of Japan cut its growth outlook for the year starting in April while keeping its zero-interest rate policy. Australia’s S&P/ASX 200 was little changed. Stock markets in China, Hong Kong and South Korea and Singapore are shut for the Lunar New Year holiday.

Greece Talks

Futures on the Standard & Poor’s 500 Index slid 0.3 percent today. The index added 0.1 percent in New York yesterday after Germany and France said talks between Greece and bondholders were making progress. The euro rose 0.6 percent to 100.25 yen yesterday. A strong euro boosts the value of Asian exporters’ earnings overseas.

Nintendo gained 1.1 percent to 10,760 yen. Canon Inc. (7751), a Japanese camera maker that generates about a third of its revenue in Europe, rose 0.3 percent to 3,400 yen.

“The market has gotten used to developments in Europe, and investors are expecting things won’t get worse after they priced in negative factors,” said Naoteru Teraoka, general manager at Tokyo-based Chuo Mitsui Asset Management Co., which oversees about $29.9 billion. “The euro’s rebound against the yen is contributing to a buyback in shares. The question is how long it will last.”

Gains in stocks were limited as European finance ministers balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief in order to point the way out of the debt crisis.

‘Sensitive’ to Europe

“Many investors continue to be sensitive to European problems,” saidMasahiko Sato, an analyst at Nomura Holdings Inc. “They want to wait for earnings reports to get into a full swing down the road.”

Nippon Sheet Glass Co. (5202), which gets the highest percentage of revenue generated in Europe on the Nikkei 225 (NKY) Average, slumped 1.9 percent to 153 yen.

Of 1,004 companies listed on the MSCI Asia Pacific Index, 63 firms are set to report their earnings this week, according to data compiled by Bloomberg.

The MSCI Asia Pacific Index (TPX) gained 6.3 percent this year through yesterday, compared with gains of 4.6 percent by the S&P 500 and 5.1 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 1.3 times book value. That compares with 2.1 times for the Standard & Poor’s 500 Index in the U.S. and 1.4 times for the Europe Stoxx 600 Index in Europe.

Mirabela Nickel slid 12 percent to A$1.07, set for the biggest drop in almost three years, after analysts cut their recommendations following increased production costs at its Brazilian mine.

Elpida, which faces an April deadline to pay back debts, added 3.4 percent to 363 yen after the Yomiuri newspaper reported it’s in merger talks with Micron Technology and Nanya Technology.

Energy Firms Gain

Inpex Corp. (1605), Japan’s No. 1 energy explorer, led gains among energy firms as oil rose for a second day on prospects crude supplies may be disrupted after the European Union said it will impose a ban on imports from Iran. Crude for March delivery increased as much as 39 cents to $99.97 in electronic trading on the New York Mercantile Exchange.

Inpex gained 2.4 percent to 518,000 yen. Smaller Japan Petroleum Exploration Co. climbed 1.7 percent to 3,390 yen. Woodside Petroleum Ltd. (WPL), Australia’s second-biggest oil and gas firm, added 0.8 percent to A$33.97.

Sony Corp. (6758) fell 2.3 percent to 1,390 yen after the Nikkei newspaper reported without citing anyone that the company offered to take as much as a 30 percent stake in Olympus Corp. (7733) Olympus lost 0.2 percent to 1,295 yen.

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

To contact the editor responsible for this story: John McCluskey at j.mccluskey@bloomberg.net

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