Apple Surges on Net Income Doubling

By Adam Satariano - Jan 26, 2012 6:02 AM GMT+0700

Apple Inc. (AAPL) shares rose to a record after quarterly profit more than doubled as holiday demand for the iPhone and iPad cemented its position as the most valuable technology company.

Apple’s stock gained 6.2 percent to a $446.66 after reporting results yesterday. Apple’s increase, the company’s biggest one-day rise since May 2010, made it the day’s best performer in the Standard & Poor’s 500 Index.

The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.

“The momentum that Steve Jobs created, Tim Cook is maintaining,” Gene Munster, an analyst at Piper Jaffray Cos., said in a televised interview on “Bloomberg West.” “We kind of run out of adjectives to describe this quarter.”

Net income of $13.1 billion in the period that ended Dec. 31 ranked among the highest quarterly profits on record, putting Apple in the same league as energy companies such as Exxon Mobil Corp. (XOM) and Russia’s Gazprom OAO (OGZPY), data compiled by Bloomberg show. Per-share profit of $13.87 for the period was more than Apple earned in any full year before 2010, as the success of the new iPhone ramped up pressure on rivals Google Inc. and Samsung Electronics Co.

‘Stunning’ Numbers

The gain gives Apple a market value of about $416 billion, just below Exxon’s $418 billion. The two companies have been trading places atop the Standard & Poor’s 500 Index since August.

“Look at the Apple numbers, they were stunning,” Alcatel- Lucent CEO Ben Verwaayen said in an interview with Maryam Nemazee on Bloomberg Television’s “Countdown” show at the World Economic Forum’s annual meeting in Davos, Switzerland. “It shows that even in a time of difficult circumstances, if you have the right product and the right focus, you can make a difference.”

Sales rose 73 percent to $46.3 billion in the fiscal first quarter, Cupertino, California-based Apple said yesterday in a statement. Analysts surveyed by Bloomberg on average estimated net income of $10.14 a share on sales of $39 billion.

‘Unimaginable’ Numbers

In looking ahead to the second quarter, Apple forecast revenue of about $32.5 billion and profit of $8.50 a share. That compares with average analysts’ predictions for sales of $31.9 billion and profit of $7.96 a share.

Except for the period that ended in September 2011, when customers put off iPhone purchases in anticipation of the 4S, Apple’s profit has exceeded analysts’ projections in every quarter for at least six years, according to data compiled by Bloomberg.

The quarterly results mark the first time Apple’s revenue topped Hewlett-Packard’s, underscoring how the company’s focus on sleek, touch-screen mobile devices has rearranged the technology industry’s pecking order.

Apple’s net income exceeded total revenue at Google (GOOG), Apple’s largest rival in mobile operating systems, for the period.

“Those numbers are just unimaginable,” said Michael Obuchowski, chief investment officer at First Empire Asset Management, which has $4 billion under management, including Apple shares. “It’s still an extremely well-managed company and they are showing that the product pipeline is sufficient even now to generate growth rates that are unrivaled.”

Amazon’s Kindle

Apple wasn’t harmed by Amazon.com Inc.’s introduction of the Kindle Fire, a tablet designed to compete against the iPad at less than half the price. Apple sold 15.4 million iPads, topping the 13.5 million projected by analysts.

“Everybody expected the Kindle Fire to affect their sales,” said Carl Howe, an analyst at the Yankee Group in Boston. “All evidence shows it had none.”

Apple has accumulated $97.6 billion in cash and investments, money it’s “actively” discussing how to use, Chief Financial Officer Peter Oppenheimer said on a conference call yesterday. That could include supply-chain investments, acquisitions or other expenditures, he said.

The recent period was the first full quarter since Cook took over in August, when Jobs stepped down, six weeks before his death. Jobs co-founded the company with Steve Wozniak in 1976.

“This shows that the business model has lasting momentum without Steve Jobs,” said Keith Goddard, CEO of Capital Advisors Inc. in Tulsa, Oklahoma, whose firm manages more than $13 million in Apple shares.

Microsoft, Intel

Apple’s report contrasted with those of companies such as Microsoft Corp. (MSFT) and Intel Corp. (INTC), which are grappling with slower personal-computer sales in part because customers are choosing to buy smartphones and tablets like the iPad instead. While Microsoft and Intel are benefiting from business demand for servers and software, they’re playing catch-up in the consumer arena by rolling out new mobile products, including Microsoft’s Windows 8 operating system, designed to integrate more smoothly with smartphones and tablets.

Rival smartphone makers also have struggled to keep pace with Apple. HTC Corp. (2498) and Motorola Mobility Holdings Corp. (MMI), two of the biggest companies whose devices run Google’s Android operating system, disappointed investors with results for their most recent quarters. Research In Motion Ltd., which has lost 90 percent of its market value since June 2008, replaced its co- CEOs this week.

IPhone Demand

Holiday iPhone demand helped Apple gain market share on manufacturers including Samsung and HTC. In December, about 45 percent of U.S. shoppers who bought a smartphone in the previous three months said they purchased an iPhone, up from 25 percent in a study done two months earlier, according to Nielsen Co. Android phones were selected by 47 percent of buyers, down from 62 percent.

Cook said Apple couldn’t manufacture iPhones fast enough and that the record number announced yesterday could have been bigger.

Competitors also haven’t been able to match the success of the iPad, with Apple controlling 62 percent of the tablet market in the third quarter, according to researcher IDC.

The popularity of the iPad and iPhone has also buoyed sales of Apple’s lineup of Mac computers. The company sold a record 5.2 million Macs in the first quarter, up from 4.9 million in the previous period.

Hewlett-Packard (HPQ) had revenue of $32.1 billion in its most recent quarter, which ended in October. The Palo Alto, California-based computer maker will report fiscal first-quarter results next month.

On the call yesterday, Cook was asked to assess his early months at the helm.

“You can see our results,” Cook said. “The team is doing a fantastic job. We feel very good about where we are.”

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Apple Restores S&P 500 Earnings With Enough Cash to Cover Greece Payments

By Whitney Kisling - Jan 26, 2012 4:12 AM GMT+0700
Call it the iEconomy.

With its report yesterday, Apple Inc. (AAPL), the Cupertino, California-based iPhone maker, single-handedly erased a drop in Standard & Poor’s 500 Index earnings for the December quarter, turning a 4.2 percent decline into a 4.4 percent gain. Apple’s 116 percent profit growth helped push its total cash to $97.6 billion -- enough to cover Greece’s debt payments due in the next two years, according to data compiled by Bloomberg.

While results at companies from Google Inc. to Citigroup Inc. have trailed analyst estimates and Alcoa Inc. posted a loss, the world’s largest technology company beat revenue forecasts by $7.3 billion, the most ever. The performance came during a quarter in which U.S. unemployment averaged 8.7 percent and about 12.7 million Americans were looking for work.

“They can probably bail out Greece,” Ian Ainsworth, a Toronto-based money manager at Mackenzie Financial Corp., said in a telephone interview. His firm owns Apple shares and manages $60.9 billion. “It just puts the power of the company in perspective with near $100 billion in cash on the balance sheet and generating that kind of free cash flow. It’s hard to conceive of a company with that kind of power.”

Net income more than doubled to $13.1 billion as Apple sold 37 million iPhones and posted $46.3 billion in sales. The total ranks among the highest quarterly profits on record. MediaOne Group Inc., acquired by AT&T Inc. in 2000, earned $26.6 billion in the second quarter of 1998. Ford Motor Co. earned $17.6 billion in the first three months of 1998. Apple’s earnings were about 11 times the size of Zambia’s gross domestic product.

Earnings Season

The report may salvage a fourth-quarter earnings season that was in danger of being the first since 2009 in which profits declined from a year ago. Analysts project income for S&P 500 companies climbed 3.4 percent in the period, according to data compiled by Bloomberg.

Apple shares rose 6.2 percent to $446.66 today, gaining the most in a day since May 10, 2010. The stock is trading at its highest price ever, while the S&P 500 remains 15 percent below the record reached in October 2007, data compiled by Bloomberg show.

The company’s almost $100 billion in cash and equivalents is larger than the combined market value of Boeing Co., Alcoa Inc. and Travelers Cos. -- three of the 30 Dow Jones Industrial Average companies. That’s enough money to cover Greece’s 48.2 billion euros ($62.56 billion) due in 2012 and 27.9 billion euros due next year, depending on the exchange rate. The country is facing a 14.5 billion-euro bond payment on March 20.

New Zealand

For calendar 2011, Apple’s sales rose to $127.8 billion, bigger than the size of New Zealand’s economy, according to data compiled by Bloomberg. More iPhones were sold each day in the quarter ending Dec. 31 than babies were born in the world, according to data compiled by Bloomberg and the United Nations.

Apple’s $97.6 billion in cash and equivalents is enough for the company to buy 2,000 tons of gold at current prices, the weight of 10 blue whales.

“One word: impressive,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees about $75 billion, said in an e- mail. “Steve Jobs has a smile on his face wherever he is.”

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

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

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Asia Stocks, Oil Rise as Fed Signals Low Rates

By Lynn Thomasson and Mariko Ishikawa - Jan 26, 2012 12:39 PM GMT+0700

Play Video

Jan. 26 (Bloomberg) -- Robert Horrocks, chief investment officer at Matthews Asia, talks about Federal Reserve monetary policy, Asia stocks and his investment strategy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Jan. 26 (Bloomberg) -- Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management Ltd., talks about Hong Kong and mainland China stocks, and his investment strategy. Do also discusses Europe's sovereign debt crisis and Federal Reserve monetary policy. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Jan. 26 (Bloomberg) -- Puru Saxena, chief executive officer of Puru Saxena Wealth Management, talks about the outlook for global financial markets, Federal Reserve monetary policy and his investment strategy. Saxena speaks with Susan Li on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Asian stocks rose to a three-month high, copper climbed and South Korea’s won strengthened after Federal Reserve Chairman Ben S. Bernanke signaled plans to maintain near-zero interest rates through 2014. Crude oil advanced on data showing a pickup in U.S. fuel demand.

The MSCI Asia Pacific Index (MXAP) gained 0.7 percent as of 2:36 p.m. in Tokyo, poised for the highest close since Oct. 28. Standard & Poor’s 500 Index futures were little changed after the U.S. benchmark rallied 0.9 percent yesterday. Crude rose 0.7 percent and natural gas climbed for a fifth day. South Korea’s won reached a 10-week high, while the dollar traded near its weakest level in a month against the euro.

The Fed said yesterday it sees “exceptionally low” interest rates through 2014, having previously pledged to refrain from raising borrowing costs until at least the middle of 2013. New Zealand’s central bank signaled interest rates may stay at a record low for longer than previously intended and South Korea reported its slowest economic growth in more than a year as Europe’s debt crisis weighs on Asian exports.

“Mr. Bernanke is presenting the world with a gift,” Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management Ltd., said in a Bloomberg Television interview. The firm oversees $46 billion. “He wants to underwrite the recovery and underwriting the recovery is very good for equity markets and risk assets.”

Talks on a debt swap to avert a Greek default resume today. Charles Dallara and Jean Lemierre, negotiating on behalf of private creditors, return to Athens after European finance ministers insisted bondholders take bigger losses on their Greek debt.

Hyundai, Nintendo

NEC Corp. and Nintendo Co. are among Asian companies scheduled to report earnings today. Hong Kong’s Hang Seng Index rallied 1.2 percent in the first day of trading this week after the Lunar New Year holiday, while South Korea’s Kospi Index climbed 0.2 percent. Financial markets are shut in Australia, China, India and Taiwan.

Hyundai Motor Co. (005380) tumbled 1.9 percent. South Korea’s largest automaker said net income climbed to 2 trillion won ($1.8 billion) in the three months ended Dec. 31, missing the average analyst estimate from a Bloomberg survey.

The S&P 500 closed yesterday at the highest level since July after Apple Inc. reported quarterly profit more than doubled. The maker of iPhones and iPads single-handedly erased a drop in S&P 500 earnings for the December quarter, turning a 4.2 percent decline into a 4.4 percent gain. Apple’s 116 percent profit growth helped push its total cash to $97.6 billion -- enough to cover Greece’s debt payments due in the next two years, according to data compiled by Bloomberg.

Foxconn Jumps

Foxconn International Holdings Ltd. (2038), whose parent Hon Hai Precision Industry Co. manufactures Apple products, jumped 3.2 percent to a two-month high in Hong Kong.

Five-year Treasuries yielded 0.79 percent, after the rate reached a record-low 0.76 percent yesterday. The 10-year yield slipped two basis points to 1.97 percent. Policy makers are “prepared to provide further monetary accommodation” and bond buying is “an option that’s certainly on the table,” Bernanke said after officials gathered for a meeting yesterday. The Treasury Department is scheduled to sell $29 billion of seven- year securities today.

Ringgit, Won

The dollar traded at $1.311 per euro, little changed from yesterday when it reached $1.3121, the weakest level since Dec. 21. Malaysia’s ringgit strengthened the most in seven months, climbing 1.5 percent to 3.03075 per dollar and the won advanced 0.4 percent to 1,121.55.

Crude for March delivery rose as much as 0.8 percent to $100.19 a barrel on the New York Mercantile Exchange. U.S. total fuel consumption increased 7.5 percent to 19.2 million barrels a day in the week ended Jan. 20, the largest increase since Nov. 4, the Energy Department said yesterday.

“Most of the price movement has been driven by the announcement” from the Fed, said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. “Continuing the zero-interest- rate policy should fuel the economy. People could expect oil demand to go up.”

Natural gas headed for the longest winning streak in a year on speculation a supply glut may ease. Gas for February delivery rose 0.9 percent to $2.753 per million British thermal units on the New York Mercantile Exchange. It has gained 19 percent since Jan. 19.

Copper, Gold

Three-month copper climbed 0.9 percent to $8,459.75 per metric ton on the London Metal Exchange. The LME Index of the six main industrial metals has jumped 12 percent this month, after tumbling 22 percent in 2011. Gold futures for April delivery advanced as much as 0.8 percent to $1,717.20 an ounce, the highest level in more than six weeks.

The cost of protecting bonds in Asia against non-payment declined, according to credit-default swap traders. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped four basis points to 185.5, Royal Bank of Scotland Group Plc prices show. The gauge is on course for its lowest close since Oct. 31, according to data provider CMA.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.

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

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Geithner: Obama Wouldn’t Ask Me to Stay

By Ian Katz and Trish Regan - Jan 26, 2012 12:00 PM GMT+0700

Treasury Secretary Timothy F. Geithner, the last member of the Obama administration’s original economic team, said he doesn’t expect to remain in office if the president is re-elected.

“He’s not going to ask me to stay on, I’m pretty confident,” Geithner said in an interview with Bloomberg Television yesterday in Charlotte, North Carolina. “I’m confident he’ll be president. But I’m also confident he’s going to have the privilege of having another secretary of the Treasury.”

Geithner, 50, has led President Barack Obama’s efforts to pull the U.S. economy out of the worst recession since World War II, including overseeing bailouts of automakers General Motors Co. (GM) and Chrysler Group LLC, which have since emerged from bankruptcy. Before joining the administration in 2009, Geithner was president of the Federal Reserve Bank of New York, playing a key role in the government’s rescue packages for banks such as Citigroup Inc. (C) and Bank of America Corp. (BAC)

In the interview, Geithner said he would do “something else” after leaving the Treasury Department, without specifying what that would be. In August, an administration official said Geithner would stay in his job at least through this year’s presidential election.

Erskine Bowles, chief of staff under President Bill Clinton, and Democratic Senator Kent Conrad of North Dakota could be among the potential candidates to succeed Geithner, said Mark Calabria, director of financial regulation studies at the Cato Institute in Washington.

‘Budget Hawk’

Conrad, 63, chairman of the Senate Budget Committee who said a year ago he won’t seek another term, is “a serious budget hawk on the left, well-liked and respected,” Calabria said.

Bowles, 66, is the former co-leader of Obama’s commission that drafted a plan to reduce the federal government’s debt.

Geithner told White House officials earlier last year that he was considering leaving after negotiations on raising the nation’s debt limit were completed. An agreement was signed into law by Obama in August.

The Treasury secretary said in June that his son would be returning to New York to finish high school, and that “I’m going to be commuting for a while.”

Geithner is the last remaining member of Obama’s original economic team after the departures of advisers including National Economic Council Director Lawrence Summers, Office of Management and Budget Director Peter Orszag, and Austan Goolsbee, who was a member of the Council of Economic Advisers and later replaced Christina Romer as chairman.

Dodd-Frank

Geithner also said in the Bloomberg TV interview he wasn’t concerned about Wall Street complaints over the Dodd-Frank Act’s financial overhaul and regulation.

“I would not worry too much about them,” Geithner said. “I would worry more about the basic confidence of Americans that they’re going to face more opportunities, more likely to find a job, keep a job, save for college, save for a dignified retirement.”

Geithner said that “no industry likes reforms that change the way we do business. But we’re doing that because we have to protect the economy from ever facing again the type of crisis we saw. And I am very confident that these reforms will make our financial system a stronger financial system.”

The unemployment rate in December dropped to 8.5 percent, almost a three-year low, and employers expanded payrolls by 200,000, twice the rate of the previous month and an indication that the job market is gaining momentum.

The U.S. automobile industry is reviving after the Obama administration helped push what ended up as an $82 billion bailout. President George W. Bush also supported aid for the industry as he was leaving office in late 2008.

Investing, Manufacturing

Geithner said he’s confident the administration, working with Congress, can design changes in the corporate tax system to “improve the incentives for investing, make manufacturing stronger.” Manufacturing can play “a broader role” in the economy, he said.

On Europe, Geithner said leaders there are “making some progress. They got a lot of work to do.” He said he tells European leaders that they need to “put in place a stronger, more credible firewall.”

Geithner is due to arrive today in Davos, Switzerland, for the 42nd annual meeting of the World Economic Forum, his sixth trip to the continent since September.

He also spoke at an event held by the Charlotte Chamber of Commerce in North Carolina yesterday. Geithner visited the state to tour a Siemens AG (SIE) energy plant and promote investments in manufacturing and technology to create jobs.

Geithner last visited North Carolina in October when he spoke at a Corning Inc. (GLW) factory and touted the president’s jobs bill that later stalled in Congress.

North Carolina was one of two Southern states -- the other was Virginia -- that swung for Obama in 2008 after decades of voting for Republican presidential candidates. Obama defeated Republican rival John McCain by 14,000 votes of almost 4.3 million ballots cast.

To contact the reporters on this story: Cheyenne Hopkins in Washington at chopkins19@bloomberg.net; Trish Regan in New York at tregan8@bloomberg.net

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

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Dow Average Rallies to Highest Level Since May

By Rita Nazareth - Jan 26, 2012 4:57 AM GMT+0700

U.S. stocks rose, sending the Dow Jones Industrial Average to the highest level since May, as the Federal Reserve signaled low rates through at least late 2014 and didn’t rule out bond purchases to bolster the economy.

A measure of commodity shares in the Standard & Poor’s 500 Index added 1.6 percent after gold rallied as record-low rates may boost its appeal as a hedge against inflation. Banks had the biggest drop in the S&P 500 among 24 groups as the industry may face pressure on margins from the Fed’s policy on rates. Apple (AAPL) Inc. climbed 6.2 percent to an all-time high as profit more than doubled. Textron Inc. (TXT), the maker of Cessna planes, surged 15 percent after forecasting higher-than-estimated earnings.

The S&P 500 added 0.9 percent to 1,326.06 at 4 p.m. New York time, after dropping 0.5 percent earlier. The Dow gained 83.10 points, or 0.7 percent, to 12,758.85. The Nasdaq-100 Index rose 1.3 percent to 2,465.66, the highest since 2001.

“The Fed is saying that money will stay easy and the cost of money will stay low,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “The ability for businesses to find the money they need to grow and for consumers to find the money they need to buy things is going to be easier. That makes the growth path a little simpler.”

Benchmark gauges reversed losses as the Fed extended its previous pledge to keep rates low at least until the middle of 2013 as more than two years of economic growth have failed to push unemployment below 8.5 percent. Fed Chairman Ben S. Bernanke said central bankers are still debating additional asset purchases.

Earnings Season

Investors also watched earnings reports. Of the 112 S&P 500 companies that reported results since Jan. 9, 74 posted per- share earnings that beat projections, according to data compiled by Bloomberg. Earnings probably grew 3.4 percent for S&P 500 companies in the fourth quarter, the data show. The projection has fallen from 6.2 percent at the end of last year.

The Morgan Stanley Cyclical Index of companies most- dependent on economic growth added 1 percent. The Dow Jones Transportation Average advanced 1.5 percent. All 10 groups in the S&P 500 gained.

Gold producers rallied as the metal climbed to a six-week high. Newmont Mining Corp. (NEM), the largest U.S. gold producer, jumped 4.8 percent to $60.25. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper producer, climbed 4.8 percent to $46.08.

Apple Rallies

Apple rallied 6.2 percent, the most since May 2010, to $446.66. The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. (HPQ) as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.

Textron surged 15 percent, the most in the S&P 500, to $24.76. Chief Executive Officer Scott Donnelly is working to leverage the company’s businesses with measures such as having Cessna and Bell share overseas service centers and sales forces. Textron is winding down its finance unit, which struggled during the recession.

The Bloomberg U.S. Airlines Index (BUSAIRL) of 11 companies jumped 4.5 percent. Delta Air Lines Inc. (DAL) and US Airways Group Inc. (LCC) reported fourth-quarter profits that topped analysts’ projections. Delta Air climbed 6.2 percent to $9.96. US Airways rallied 17 percent to $7.52.

M&A Deal

Illumina Inc. (ILMN) surged 46 percent to $55.15. Roche Holding AG offered $5.7 billion in a hostile bid for Illumina to bolster sales of gene-mapping equipment and services. Roche proposed paying $44.50 a share, 18 percent more than yesterday’s close.

Walter Energy Inc. (WLT) gained 3.9 percent to $70.14. The company may finally lure buyers willing to bet on a recovery in coal prices with the industry’s cheapest stock. After losing almost half its value in the past year, the producer of steelmaking coal sold for 9.3 times earnings this week, according to data compiled by Bloomberg. That was less than any North American coal-mining company with $1 billion in market capitalization.

Walter Energy, which bought Western Coal Corp. for $5.3 billion in April, is an attractive target because it produces high-grade steelmaking coal, Brean Murray Carret & Co. said. A buyer could spend double Walter Energy’s closing price of $67.54 a share yesterday and still get the company for less relative to earnings than any coal takeover in the past year, data compiled by Bloomberg show.

Banks (S5BANKX) Decline

Banks had the biggest decline in the S&P 500 among 24 industries, falling 0.3 percent. Bank of America Corp. and Citigroup Inc. (C) are among lenders that may find it harder to boost profits and capital after the Fed’s pledge on low rates. Bank of America rose 0.8 percent to $7.35. Citigroup added 0.2 percent to $29.96.

“This is a very dovish Fed,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “It’s an attempt to push down long-term interest rates. They are pushing the rates down to a level where consumers should find them very attractive, but banks will find them very unattractive.”

Corning Inc. (GLW) tumbled 11 percent, the biggest decline in the S&P 500, to $13.05. The largest maker of glass for flat-panel televisions said glass prices contributed to a 53 percent drop in fourth-quarter profit and are still sinking.

Xerox, WellPoint

Xerox Corp. (XRX) slumped 9.9 percent to $7.81. The provider of printers and business services gave earnings forecasts that trailed some analysts’ estimates as Europe weakens.

WellPoint Inc. (WLP) decreased 4.8 percent to $66.10. The largest U.S. health insurer by enrollment forecast 2012 earnings and reported fourth-quarter profit that were less than analyst estimates on higher medical costs.

“It’s going to be a mediocre earnings season,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a phone interview. His firm oversees $3.5 trillion as the world’s largest asset manager. “We’re not going to see robust growth this year and this is being reflected in corporate outlooks.”

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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Morgan Stanley CEO Says Pay-Cut Complaints Would Be ‘Naive’

By Michael J. Moore, Erik Schatzker and Patrick Clark - Jan 26, 2012 1:02 AM GMT+0700

Morgan Stanley (MS) Chairman and Chief Executive Officer James Gorman said employees understand why the investment bank had to cut pay, and those who don’t grasp the reasoning need to adjust their attitude.

“You’re naive, read the newspaper, No. 1,” Gorman said he would tell miffed employees, speaking in an interview on Bloomberg Television. “No. 2, if you put your compensation in a one-year context to define your overall level of happiness, you have a problem which is much bigger than the job. And No. 3, if you’re really unhappy, just leave. I mean, life’s too short.”

Morgan Stanley is reducing pay for senior investment bankers and traders by an average of 20 percent to 30 percent, people with knowledge of the decision said last week. The New York-based firm is also capping immediate cash bonuses at $125,000 as it defers a greater share of awards, a person briefed on the plan said.

“The world has changed and the banking industry has gone through a fundamental change, and we have to readjust,” Gorman said from Davos, Switzerland, where he’s attending the World Economic Forum’s annual meeting. “When we come out of this and we start re-performing, obviously compensation will reflect that. Until then, we have to respect the fact that shareholders have to get paid, too.”

Earnings Decline

Profit fell 13 percent last year to $4.11 billion as the firm had a 4 percent return on equity, below Gorman’s goal of the mid-teens. While Morgan Stanley posted the only trading- revenue increase among the major U.S. banks, excluding accounting gains, the firm had per-share losses in two of the past three quarters.

Goldman Sachs Group Inc. (GS) Chief Financial Officer David Viniar said last week that discretionary compensation declined “significantly more” than the firm’s 26 percent drop in revenue. Bank of America Corp. (BAC), the second-biggest U.S. lender by assets, told its investment bankers to expect compensation packages that average 25 percent less than last year, said two people with knowledge of the discussions.

Gorman’s own pay for 2011 fell 25 percent from a year earlier to $10.5 million, according to a person briefed on the figures.

Shareholders Matter

Gorman said his employees understand the need to reward shareholders with higher returns and he hasn’t seen signs of defections. The pay “is not as much as everyone would wish for, and it’s probably more than some of them expected in the world and turmoil that we’re in,” Gorman said. “They’re loyal. We’ve had very little turnover, no turnover of the top management committee at all.”

Morgan Stanley’s shares fell 44 percent in 2011, the biggest annual decline since 2008. The firm rose 5.4 percent on Jan. 19 after reporting a narrower fourth-quarter loss than analysts estimated, and had gained 20 percent this year through yesterday.

Gorman, 53, said the market gains this year have been a “relief rally” as Europe steadied and investors realized that the U.S. economy isn’t as bad as many feared. He said mergers and initial public offerings may pick up in the second half of this year.

Private investors reaching an agreement over a restructuring of Greek debt will keep Europe’s sovereign debt crisis from getting worse and could spur more efforts from the European Central Bank, he said.

Moving Forward

“Getting Greece done is something concrete that puts a line in the sand,” Gorman said. “That will be a major push towards more action by the ECB and I believe the euro staying together as we move forward.”

Charles Dallara, managing director of the Washington-based Institute of International Finance, will return to Athens tomorrow to resume talks with the Greek government on a voluntary bond swap, Greek government spokesman Pantelis Kapsis said today. Kapsis told reporters in Athens he hoped talks on the debt swap are concluded by the end of the week.

“If Greece fails, then it raises questions about much larger economies,” Gorman said. The situation has steadied as administrations have been changed in Spain, Italy and Greece, central bankers have taken action and banks are starting to raise capital, deleverage and “get their balance sheets in shape,” Gorman said. “We’ve got a lot of momentum. What we need to do is close off some of these problems.”

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Erik Schatzker in New York at eschatzker@bloomberg.net

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

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China Police Open Fire on Tibetans as Protests Spread

By Bloomberg News - Jan 26, 2012 10:14 AM GMT+0700

Police in southwestern China opened fire on protesters in a Tibetan enclave during a clash Jan. 24, the second straight day of deadly protests in the area, the official Xinhua News Agency reported.

The confrontation occurred after a crowd gathered two days ago near the Chengguan Police Station, Xinhua said yesterday, citing an unidentified police officer. The crowd refused to disperse and then stormed the station with knives, gasoline bottles and stones, according to the report.

Police opened fire after attempts to disperse the crowd by non-lethal means failed, Xinhua reported. One protester was killed and another injured, in addition to 14 police wounded, according to the report.

“The Tibetan people are unhappy and restive about their lot in China,” Mohan Guruswamy, chairman of the Centre for Policy Alternatives, a New Delhi-based research group, said in an e-mail. “There is ample evidence of it, and the acute Chinese sensitivity to any comment on Tibet is only proof.”

Tibet’s spiritual leader, the Dalai Lama has lived in India since fleeing in 1959 from China’s military takeover of the region. China accuses the Dalai Lama of waging a campaign for independence while the spiritual leader says he is seeking autonomy for Tibet.

The unrest was in the county seat of Seda, Ganzi Tibetan Autonomous Prefecture, about 400 kilometers (250 miles) northwest of Sichuan’s provincial capital, Chengdu. A clash the day before in Luhuo county left one protester dead and five police officers hurt, according to Xinhua. A crowd had gathered that day to witness the self-immolation of three monks, the news agency reported.

Violent Protests

Tibetan protests began in the rural mountains of western Sichuan in March when monks at a prominent Buddhist monastery in the province immolated themselves to highlight their opposition to Chinese policies in ethnic Tibetan regions. Fourteen monks or nuns have burned themselves to death since then and unrest has “spread to the general population of the area in protest against the arrest and prosecution of many bystanders,” said Bahukutumbi Raman, a political analyst with the Chennai Center for China Studies in southern India.

The protests have become violent in recent weeks and twice have targeted police stations, Raman said in an e-mail.

Local police have adopted “harsh measures” to counter the circulation of leaflets that called for Tibetans to avoid new year celebrations amid plans for more self-immolations, the Washington-based International Campaign for Tibet said in a Jan. 23 statement that cited exiles in contact with local protesters.

Social Order

China will remain “resolute in maintaining normal social order,” Foreign Ministry spokesman Hong Lei said in a Jan. 24 statement carried by Xinhua after the first day of protests. Hong said overseas groups advocating Tibetan independence have “fabricated rumors and distorted the truth to discredit the Chinese government,” according to Xinhua.

In October, the U.S. State Department called on China to respect human rights and particularly “the rights of Tibetans” after a ninth person set herself on fire in protest at Chinese rule over the region.

“We urge Chinese leaders to address counterproductive policies in Tibetan areas that have created tensions,” the State Department said in a statement Oct. 19.

Self-Immolation

Since then, there have been at least two further deaths by self-immolation, as well at least one failed attempt. Xinhua reported on Nov. 3 a Tibetan nun died in Sichuan after setting herself on fire, and said on Jan. 9 a Tibetan Monk in northwest Qinghai province died in similar fashion.

A Tibetan farmer was hospitalized after setting fire to himself, Xinhua reported on Dec. 2.

The U.S. government is “seriously concerned” about the reports of the latest violence and urges China to hold “constructive” talks with the Dalai Lama, Tibet’s exiled spiritual leader, the State Department said on Jan. 24.

The U.S. will make “clear” its concerns on the issue of human rights for Tibetans as well as the rest of China during Chinese Vice President Xi Jinping’s visit to Washington next month, State Department spokeswoman Victoria Nuland said.

Xi will meet with President Barack Obama, Vice President Joe Biden and other senior officials to discuss bilateral and global issues, the White House said on Jan. 23.

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

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

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Fed: Benchmark Rate Will Stay Low Until ’14

By Craig Torres and Caroline Salas Gage - Jan 26, 2012 4:49 AM GMT+0700

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Jan. 26 (Bloomberg) -- Mikio Kumada, a global strategist at LGT Capital Management in Singapore, talks about Federal Reserve and European Central Bank monetary policy, and its implications for global financial markets. Kumada also discusses China's economy and central bank policy. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Chairman Ben S. Bernanke said the Federal Reserve is considering additional asset purchases to boost growth after extending its pledge to keep interest rates low through at least late 2014.

Policy makers are “prepared to provide further monetary accommodation if employment is not making sufficient progress towards our assessment of its maximum level, or if inflation shows signs of moving further below its mandate-consistent rate,” Bernanke said at a news conference today after a Federal Open Market Committee meeting in Washington. Bond buying is “an option that’s certainly on the table.”

Stocks and Treasuries rose after the Fed extended its previous pledge to keep borrowing costs low at least until the middle of 2013. Fed officials lowered their forecasts for economic growth and price increases this year and in 2013 and set a long-term goal of 2 percent inflation.

“What they’re doing is setting the table for some sort of additional monetary easing,” said Scott Minerd, chief investment officer in Santa Monica, California for Guggenheim Partners LLC. “The changes in the statement from last month de- emphasize growth.”

The Standard & Poor’s 500 Index climbed 0.9 percent to 1,326.06 at 4:07 p.m. in New York. The yield on the current five-year note fell 10 basis points to 0.80 percent after touching the record low of 0.76 percent.

“The Committee expects to maintain a highly accommodative stance for monetary policy,” the FOMC said in a statement. “Economic conditions -- including low rates of resource utilization and a subdued outlook for inflation over the medium run -- are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

Growth Forecast

The Fed lowered its forecast for growth this year to 2.2 percent to 2.7 percent, down from a projection of 2.5 percent to 2.9 percent in November. It predicted the economy next year will expand 2.8 percent to 3.2 percent, down from a previous forecast of 3.0 percent to 3.5 percent.

The Fed has been “quite active” in its accommodative policies, including through the extension of the rate commitment today, Bernanke said.

“We hope to convey to the market the extent to which there is support on the committee for maintaining rates at a low level for a significant time,” he said.

In a separate statement of its long-range goals and strategy, the FOMC specified a 2 percent goal for inflation, as measured by the annual change in the price index for personal consumption expenditures.

‘Firmly Anchored’

“Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability,” the panel said in a statement. It also enhances “the committee’s ability to promote maximum employment in the face of significant economic disturbances.”

Policy makers declined to specify a goal for employment, saying that it “is largely determined by non-monetary factors.” The committee’s longer-run forecast for the jobless rate is 5.2 percent to 6 percent.

The Fed said it would continue to extend the average maturity of its $2.6 trillion securities portfolio, a move dubbed “Operation Twist.” The Fed also maintained its policy of reinvesting maturing housing debt into agency mortgage-backed securities.

Bernanke said that the extension of the “expected point of takeoff” for rising interest rates to 2014 implies that asset sales by the Fed would occur “later than previously thought,” and “presumably in 2015.”

Omit Description

Richmond Federal Reserve Bank President Jeffrey Lacker dissented because he “preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate,” according to the FOMC statement.

Recent reports on manufacturing, housing and employment indicated that the economy was picking up speed as the new year began.

Employers added 200,000 jobs in December, twice the previous month’s pace, and the unemployment rate dropped to 8.5 percent from 8.7 percent the month before.

Household wealth is getting a boost from rising stock prices. The Standard and Poor’s 500 Index climbed 4.5 percent in 2012 through yesterday, the best start to the year since 1997, when it rallied 6.1 percent in the first 14 days.

Motorcycle Maker

Harley-Davidson Inc., the biggest U.S. motorcycle maker, reported $54.6 million income from continuing operations in the fourth quarter compared with a loss of $42.1 million a year earlier. Sales at the maker of Fat Boy and V-Rod motorcycles rose 12 percent in the U.S.

“There has certainly been some encouraging news recently,” Bernanke said. Still, “we continue to see headwinds from Europe, coming from the slowing global economy and some other factors as well.”

The Fed is not “ready to declare that we’ve entered a new stronger phase” for the U.S. economy, he said.

To contact the reporters on this story: Craig Torres at ctorres3@bloomberg.net; Caroline Salas Gage at Csalas1@bloomberg.net

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

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Obama’s State of Union Audience Shrinks 12% to 37.7 Million, Nielsen Says

By Andy Fixmer - Jan 26, 2012 6:04 AM GMT+0700
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Barack Obama, U.S. President. Photographer: Joshua Roberts/Bloomberg

President Barack Obama, who is seeking re-election in November, drew 37.75 million viewers to last night’s State of the Union address, a 12 percent decline from a year earlier.

Obama’s 65-minute speech was watched by 13 percent fewer than the 43.4 million who tuned in for President George W. Bush’s State of the Union in 2004, before that re-election campaign, according to Nielsen data today.

The president used last night’s address to highlight themes of his bid for a second term. Obama called on Congress to require those making $1 million or more annually to pay a 30 percent federal tax rate. He called on Congress to help homeowners, crack down on U.S. financial crimes and unfair trade practices in China, and investigate lending practices that preceded the housing crisis.

The speech had a preliminary rating of 24, meaning it was seen in 24 percent of the 114.7 million U.S. TV households. The address was carried by major broadcast networks, Fox News Channel, CNN, CNBC and MSNBC, along with the Spanish outlets, Telemundo, Telefutura, Univision and Mundo2.

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

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

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BofA, Citigroup Among Banks Facing Margin Pressure From Fed’s Rate Stance

By Dakin Campbell - Jan 26, 2012 6:00 AM GMT+0700

Bank of America Corp. and Citigroup Inc. (C) are among lenders that may find it more difficult to boost profits and capital after the Federal Reserve pledged to keep its benchmark interest rate low until at least late 2014.

“This hurts the banks, I don’t think there’s any question about that,” said Ralph Cole, a senior vice president of research at Ferguson Wellman Inc. in Portland, Oregon, which manages $2.9 billion. “Their cost of funds stays low but it makes it harder to earn a return.”

The Federal Open Market Committee said yesterday that economic conditions are likely to warrant “exceptionally low levels for the federal funds rate at least through late 2014.” The policy may hurt lenders’ profits as they struggle to find loans or securities with yields high enough to support their net interest margins, a gauge of profitability that measures the difference between the cost of funds and what they earn on assets.

The KBW Bank Index of 24 U.S. lenders advanced 0.1 percent, led by a 2.2 percent gain at Salt Lake City-based Zions Bancorp. Shares of U.S. insurers, including Radnor, Pennsylvania-based Lincoln National Corp. (LNC), slid as investors bet lower yields will crimp income from corporate debt, municipal securities and mortgage-linked assets used by the companies to cover policyholder obligations and generate profits.

Unwelcome Response

The average net interest margin at the four largest U.S. banks -- JPMorgan Chase & Co., Bank of America, Citigroup and Wells Fargo & Co. (WFC) -- dropped to 2.99 percent in the fourth quarter from 3.17 percent a year earlier. The margin at U.S. banks with more than $15 billion in assets fell to 3.44 percent in the third quarter of 2011, from 3.85 percent in the first quarter of 2010, according to Fed data.

“As a bank investor, this is not a welcome response” from the Fed, said Peter Kovalski, a money manager at Alpine Woods Capital Investors LLC in Purchase, New York, which manages about $6 billion. Bank stocks “have had a good run here, but they could give back some of the gains in the next few weeks,” he said. The KBW Bank Index (BKX) is up 11 percent this year.

Executives at New York-based JPMorgan expect low rates and the resulting margin compression to cause a $400 million decline in consumer and business banking net income this year, Barclays Capital analyst Jason Goldberg wrote in a report yesterday after meeting with bank management.

U.S. Unemployment

The Fed extended its previous pledge to keep rates low at least until the middle of 2013 as inflation remains tame and more than two years of economic growth failed to push unemployment below 8.5 percent. Some Fed officials have said further easing might be needed to put more Americans back to work and revive the housing market.

The Fed’s earlier pledge led San Francisco-based Wells Fargo to purchase more securities for its investment portfolio, Chief Financial Officer Timothy J. Sloan said in a Jan. 17 phone interview. Wells Fargo’s securities available for sale climbed to $222.6 billion as of Dec. 31 from $186.3 billion at the end of June.

“If the Fed had not said we are going to keep rates low, maybe we wouldn’t have invested as much, but they are the driver here,” Sloan said. “It’s silly not to take some of our liquidity, particularly because we’ve had good deposit growth, and invest it.”

The average yield on that portfolio fell to 4.46 percent in the fourth quarter from 4.92 percent in the third, the bank said last week in its earnings statement.

‘Economic Growth’

Banks may be able to cushion some of the negative impact of low rates if the Fed’s policy fuels economic growth and lending picks up, said Richard Staite, a London-based analyst with Atlantic Equities LLC. The yield on Wells Fargo’s loan portfolio was 4.81 percent in the fourth quarter.

“The best thing the Fed can do is promote economic growth, even if that requires a sustained period of low interest rates,” Staite said in a phone interview. “Loan growth will be the most important factor to helping banks offset the negative impact of low rates.”

Ferguson Wellman’s Cole said he’s worried about the potential for banks to make riskier loans if they grow desperate for income.

“At some point they won’t be able to make a return on their money so they will have to lend more,” said Cole, whose firm owns shares in Citigroup, JPMorgan and Wells Fargo. “Hopefully that doesn’t mean the loan quality goes down. They start reaching for yield, and that’s when they get hurt.”

Mortgage Rates

The Fed’s pledge is likely to further trim mortgage rates, which are linked to long-term government bond yields, said Greg McBride, the senior financial analyst at Bankrate.com, a unit of Bankrate Inc. Credit-card lenders, betting that their funding costs will remain low, also may boost or extend offers for zero- interest balance transfers, he said.

The national average rate on deposits, which includes checking, savings and money-market accounts, and certificates of deposit up to five years, is 0.59 percent, according to Dan Geller, executive vice president of Market Rates Insight in San Anselmo, California. That’s the lowest since he started tracking the data in January 1990. Interest rates on deposits may reach zero within the next 12 months to 18 months if lending continues to be soft, he said.

Custody Banks

Low interest rates also hurt custody banks by reducing the returns they make on investments and from lending cash and securities to institutional investors such as mutual funds and hedge funds. Bank of New York Mellon Corp. (BK), Boston-based State Street Corp. and Chicago-based Northern Trust Corp., the three largest independent custody banks, have made or planned 4,450 job cuts since November 2010.

The Fed’s announcement signals more difficulty for U.S. money-market mutual funds, which have waived some of their fees to keep customers’ returns above zero. The average annual fee charged by the largest 100 money funds fell to 0.17 percent in December, from 0.37 percent in August 2008, according to Crane Data LLC in Westborough, Massachusetts. Money fund assets had declined 31 percent in the past two years to $2.66 trillion as of Jan. 17.

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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Wal-Mart Pulls Night-Shift Greeters as Walton Legacy Ebbs

By David Welch - Jan 26, 2012 2:32 AM GMT+0700

Wal-Mart Stores Inc. (WMT), the world’s largest retailer, has removed greeters from the overnight shift at its U.S. supercenters, chipping away at a 30-year tradition of making sure all shoppers are welcomed to the store.

The move will save money and ensure Wal-Mart has the right staffing levels during peak and non-peak hours, David Tovar, a spokesman, said in a telephone interview. For the past six months, Wal-Mart has been reassigning greeters at the company’s approximately 3,000 U.S. supercenters from the third shift, which runs from 10 p.m. to 7 a.m., to other jobs, he said.

Founder Sam Walton added greeters in 1980 to make his giant low-price stores friendly and welcoming. Cutting back, even during the early morning hours, shows Wal-Mart is rethinking longheld traditions to boost profit margins and guarantee low prices, said David Strasser, an analyst with Janney Montgomery Scott LLC in Philadelphia.

“It’s risky,” Strasser, who recommends buying Wal-Mart shares, said in a phone interview. “Consumers have been going to Wal-Mart for years, and greeters have become an expectation. To a degree it defines Wal-Mart.”

Bruce Plummer, a greeter on the first shift at a Wal-Mart in Fort Worth, Texas, said the company stopped scheduling third- shift greeters at his store in recent weeks.

“It’s important that they have it,” Plummer said in an interview. “Our job is to ask people if they have receipts. We also make them feel welcome and safe.”

Dollar-Store Competition

Wal-Mart has been minding its costs as U.S. sales growth slows and dollar stores increase price competition, Strasser said. Same-store sales at Wal-Mart’s namesake U.S. locations declined for nine straight quarters before snapping the streak with a 1.3 percent gain for the quarter ended in October.

Protecting revenue and profit margins at Bentonville, Arkansas-based Wal-Mart’s U.S. stores is important because they accounted for 60 percent of total sales and 73 percent of operating income for the nine months ended October.

Many of the former third-shift greeters are now stocking shelves to make sure there is plenty of inventory for the busier morning shopping hours, Tovar said.

Wal-Mart management decided to make the change six months ago, around the same time that the company hired consultant Acosta Inc. to help make sure its stores had adequate inventory.

Wal-Mart DNA

While greeters are an important part of Wal-Mart’s brand, so is restraining costs and prices, he said.

“We realized that it wasn’t necessary to have people greeting customers because it wasn’t peak shopping hours,” Tovar said. “It was meant to operate stores as efficiently as possible, which is also part of our DNA.”

Wal-Mart’s competitive advantage is low pricing, so constantly squeezing costs makes sense, said Matt Arnold, an analyst with Edward Jones & Co. in Des Peres, Missouri. While the company risks going too far by cutting staff, eliminating third-shift greeters may have minimal impact, said Arnold, who recommends buying the shares.

“That time of night, shopping at Wal-Mart is serve- yourself,” Arnold said in a telephone interview. “It’s probably a minimal impact on customer service.”

To contact the reporter on this story: David Welch in Detroit at dwelch12@bloomberg.net

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

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