U.S. Companies Added 170,000 Workers: ADP

By Bob Willis - Feb 1, 2012 8:31 PM GMT+0700
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Job seekers at the "JobExpo" employment fair on Jan. 25, 2012 in New York City. Photographer: Mario Tama/Getty Images

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Feb. 1 (Bloomberg) -- Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC, talks about January's ADP Employer Services report and the outlook for Federal Reserve policy. Companies added 170,000 workers to their payrolls last month, according to data today from ADP while the median projections of economists surveyed by Bloomberg News called for an advance of 182,000. Lebas speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Companies added 170,000 workers in January, reflecting job gains in services and at small businesses, according to a private report based on payrolls.

The increase was less than forecast and followed a revised 292,000 rise the prior month that was smaller than previously reported, the report from the Roseland, New Jersey-based ADP Employer Services showed today. The median estimate in a Bloomberg News survey of economists called for an advance of 182,000.

“The job market continues to grow at a moderate pace,” Jonathan Basile, a senior economist at Credit Suisse in New York, said before the report. “We’re on a gradually improving path for the labor market.”

More hiring is needed to spur consumer spending, which accounts for about 70 percent of the world’s largest economy. A Labor Department report in two days may show payrolls last month rose by 145,000 and the unemployment rate held at 8.5 percent, economists in a Bloomberg survey projected.

The projections for the change ADP employment ranged from 145,000 to 300,000, based on the estimates of 40 economists surveyed by Bloomberg.

The slowdown in hiring from the prior month may be explained by the so-called purge effect. Workers, regardless of when they are dismissed or quit, sometimes remain on company records until December, when businesses update, or purge, their figures with ADP.

The paycheck processor estimates this change when adjusting its data for seasonal variations and, because there were fewer firings at the end of 2011 than in previous years, ADP may have found it more difficult to formulate a projection.

‘Some Firming’

“Employment grew in all the major sectors of the economy,” Joel Prakken, senior managing director at Macroeconomic Advisers LLC in St. Louis, which produces the data with ADP, said in a statement. “Other indicators suggest some firming of labor market conditions as well.”

ADP’s initial figures for December showed a 325,000 gain, while the Labor Department’s data a day later registered an increase of 212,000 in private payrolls for the month.

Goods-producing industries, which include manufacturers and construction companies, climbed by 18,000 workers, today’s ADP figures showed. Employment in factories added 10,000 jobs.

Service providers took on 152,000 workers.

Companies employing more than 499 workers added 3,000 jobs. Medium-sized businesses, with 50 to 499 employees, added 72,000 workers and small companies increased payrolls by 95,000, ADP said.

Federal Reserve

Concern about the high number of jobless Americans is one reason why the Federal Reserve last week said it would keep its benchmark lending rate near zero “at least” until late 2014 from a prior target of mid-2013.

“While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated,” Fed policy makers said after their meeting.

The Labor Department’s report in two days may show private payrolls rose by 165,000 in January, according to the Bloomberg survey median. Overall hiring, which includes government jobs, may have slowed to 145,000 after rising 200,000 in December.

The ADP report is based on data from about 344,000 businesses with more than 21 million workers on payrolls. Macroeconomic Advisers LLC in St. Louis produces the data with ADP.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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

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U.S. Stocks Gain Before Manufacturing Data

By Rita Nazareth - Feb 1, 2012 9:31 PM GMT+0700

U.S. stocks rose, snapping a four-day decline for the Standard & Poor’s 500 Index, as a report may show that American manufacturing joined a global pick up after factory indexes from China to Germany and the U.K. expanded.

The S&P 500 added 0.6 percent to 1,320.49 at 9:31 a.m. New York time. The index lost 1 percent over the past four sessions.

“The news on the economy is better,” David Sowerby, a Bloomfield Hills, Michigan-based portfolio manager at Loomis Sayles & Co., which oversees $150 billion, said in a telephone interview. “The uncertainty in Europe has diminished. While corporate profits have been less robust, they are still growing. That’s what’s moving stock prices higher.”

The S&P 500 rose 4.4 percent for the best January since it gained 6.1 percent in 1997, according to data compiled by Bloomberg. Earnings (SPX) beat projections at 66 percent of the 207 companies in the S&P 500 that reported quarterly results since Jan. 9, according to data compiled by Bloomberg. Profits probably grew 4.6 percent in the fourth quarter, according to a Bloomberg survey of analysts. The projection has fallen from 6.2 percent at the end of last year.

Equity futures joined a global rally after Chinese manufacturing indexes rose and a U.K. manufacturing gauge jumped to an eight-month high. The Institute for Supply Management’s factory index rose to 54.5, the highest since June, from 53.1 in December, according to the median estimate of 81 economists surveyed by Bloomberg News. A spokesman said Greece expects to complete talks on a private sector debt swap and a second international financing deal for the country in the next days.

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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Greek Bondholders Said Set to Get GDP Sweetener in Debt Swap

By Fabio Benedetti-Valentini and Aaron Kirchfeld - Feb 1, 2012 7:28 PM GMT+0700
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Electronic screens displaying stock prices are seen above the reception desk inside the Greek stock exchange in Athens, Greece, on Tuesday, Jan. 31, 2012. Photographer: Kostas Tsironis/Bloomberg

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Feb. 1 (Bloomberg) -- Germany's Deputy Finance Minister Steffen Kampeter discusses the outlook for Greece's debt negotiations, the benefits of the monetary union to the German economy and the prospects for the European Banking Authority accepting Commerzbank AG's recapitalization plan. He spoke yesterday in New York with Bloomberg Television's Sara Eisen. (Source: Bloomberg)

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Feb. 1 (Bloomberg) -- Greek Finance Minister Evangelos Venizelos says the government is "one step from closing" a debt-swap deal with its private bondholders, who may get a sweetener tied to a revival in economic growth that would ease the impact of accepting a lower interest rate on the new bonds, people with knowledge of the talks said. David Tweed reports on Bloomberg Television's "Countdown" with Linzie Janis. (Source: Bloomberg)

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Feb. 1 (Bloomberg) -- Steven Major, global head of fixed-income research at HSBC Holdings Plc, talks about bondholders' negotiations with Greece over a debt-swap deal and the prospect of a similar arrangement being required in Portugal. Major, speaking with Owen Thomas and David Tweed on Bloomberg Television's "On the Move," also discusses the European Central Bank's longer-term refinancing operation. (Source: Bloomberg)

Bondholders negotiating a debt swap with Greece may get a sweetener tied to a revival in economic growth that would ease the impact of accepting a lower interest rate on the new bonds, people with knowledge of the talks said.

In discussions late last week in Athens, creditors lowered their demands for an average coupon on the new 30-year securities they would receive to as little as 3.6 percent from 4.25 percent after European officials demanded they take steeper losses, people familiar with the matter said at the time.

While the lower coupon would lead to an estimated loss of 70 percent or more for investors, adding a so-called gross domestic product warrant -- which would pay bondholders more if the Greek economy rebounds -- would trim the loss in net present value terms by an estimated 0.5 to 3 percentage points, said two people, who declined to be identified because the talks are confidential.

“It’s like a concession from the Greek government, so it’s something that presumably smoothed negotiations,” said Matthew Czepliewicz, a London-based bank analyst at Collins Stewart Hawkpoint Plc. “When you are in the middle of turmoil you’re going to be conservative, and bank investors are unlikely to attribute any value to these warrants, even if they could prove valuable in the future.”

‘One Step’ Away

Greece and private creditors are near an accord that would in principle include the warrants, the people said. As an additional inducement for creditors, the debt would probably be governed under U.K. rather than Greek law, providing more bondholder protection, people familiar with the situation said.

These matters may still change, and questions over whether Greece can fulfill conditions for a second aid package from the European Union and International Monetary Fund have put the accord on hold for the moment, they said.

The Greek government is “one step from closing” a debt- swap deal with its private bondholders, Finance Minister Evangelos Venizelos told reporters in Athens yesterday. The sides are close to completing a voluntary exchange within a framework outlined by Luxembourg Prime Minister Jean-Claude Juncker, the Washington-based Institute of International Finance, which is negotiating on behalf of creditors, said last week.

Talks with EU and IMF officials on a new financing package for Greece must be completed by Feb. 5, Venizelos also said at a Parliament hearing. A private-creditor debt swap, for which a public offer must be made by Feb. 13, can only proceed after a deal on the loan package is sealed, he said.

Debt Exchange

EU leaders on Jan. 30 held their 16th summit in the two years since the Greek debt emergency provoked a Europe-wide crisis, leading to aid packages for Greece, Ireland and Portugal. Greece pledged a last-ditch effort to prevent the collapse of its second rescue package from creditors, aiming to complete talks this week on a financial lifeline that’s been in the works for six months.

Prime Minister Lucas Papademos said in Brussels he would try to meet German-led demands for a bigger debt writedown by investors and deeper budget cuts by his government.

Greece and its creditors are seeking to seal a debt-swap deal three months after private bondholders agreed to a 50 percent cut in the face value of more than 200 billion euros ($262 billion) of debt by voluntarily exchanging bonds for new securities.

The aim is to reduce Greece’s debt burden to 120 percent of GDP in 2020 -- an objective complicated by a deepening economic contraction. An accord is tied to the second bailout for the country, which faces a 14.5 billion-euro bond payment March 20.

After two years of wage cuts and tax increases, the Greek economy was expected to shrink about 6 percent last year, according to the latest IMF estimates, compared with a forecast of 3.8 percent made in June.

To contact the reporters on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net;

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Amazon Shares Fall After Sales Miss Estimates

By Danielle Kucera - Feb 1, 2012 9:38 PM GMT+0700

Amazon.com Inc. (AMZN) fell the most in three months after sales missed estimates, signaling that its investments in media services, Kindle devices and shipping promotions have been slow to pay off.

Amazon dropped 10 percent to $174.40 at 9:31 a.m. in New York after the Seattle-based company said yesterday that fourth- quarter revenue was $17.4 billion, trailing the $18.3 billion estimated by analysts in a Bloomberg survey. Earlier the shares tumbled 11 percent for the biggest intraday decline since Oct. 26.

Amazon, the world’s largest Internet retailer, got less revenue from digital media than anticipated, especially in the video-game market. The company also is relying more on third- party sellers, which can bolster profit but generate less revenue than direct sales. Amazon has conditioned investors to expect stronger growth, making the latest results disappointing, said Colin Gillis, an analyst at BGC Partners LP in New York.

“To miss on the top line, that’s what breaks the momentum,” said Gillis, who recommends selling Amazon stock.

Net income fell 57 percent to $177 million, or 38 cents a share, from $416 million, or 91 cents, a year earlier, the company said in a statement.

First-quarter operating income may range from a loss of $200 million to a gain of $100 million, the company said. Analysts were projecting a profit of $268.1 million. Sales will be $12 billion to $13.4 billion, Amazon said, compared with an estimate at the top of that range.

Hard to Explain

Chief Executive Officer Jeff Bezos is squeezing margins in search of growth, looking to add customers by pushing free shipping and offering its Kindle devices at cut-rate prices. While investors were expecting profit to take a hit, the sales slowdown is harder to accept, said Brian Nowak, an analyst at Nomura Securities International Inc. in New York. The reasons outlined by the company don’t seem to fully account for the sluggishness, said Nowak, who rates Amazon shares “neutral.”

Amazon’s third-party sellers use the company’s site to hawk their products and then provide a commission. Unit sales by outside retailers increased 65 percent during the holiday quarter and now make up 36 percent of units sold, Bezos said in the statement. Total sales rose 35 percent.

“Whenever there’s a mix-shift toward third party, it helps margins, but it reduces revenue,” said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. He has an “outperform” rating on Amazon’s stock.

Earnings Top Estimates

The shift helped earnings top estimates last quarter, even with the sales shortfall. Analysts projected 16 cents a share. Still, the operating margin tightened to 1.5 percent in the period, from 3.7 percent a year earlier.

“Trying to predict during a seasonal Q4 is challenging,” Tom Szkutak, Amazon’s chief financial officer, said on a conference call. “That third-party increase is great for customers, great for sellers and helped our bottom line.”

Amazon’s Prime program, which offers unlimited two-day shipping for $79 a year, boosted expenses over the holiday shopping season, said Jason Helfstein, an analyst at New York- based Oppenheimer & Co.

“With shipping, if you look at that net loss number as a percentage of revenue, it keeps going up,” he said. “They’re trying their best to offset that in other ways.”

The money-losing Kindle Fire tablet also has raised expenses. At $199, the device is less than half the price of Apple Inc. (AAPL)’s cheapest iPad. The expectation is that consumers will spend the money they save on Amazon’s e-books and video content, Jordan Rohan, an analyst at Stifel Nicolaus & Co., said in a note this week. That eventually will more than make up for revenue lost selling the device, he said.

Video-Game Decline

For now, Amazon’s media sales aren’t growing as quickly as anticipated. U.S. media revenue climbed 8.1 percent last quarter, about half the 15 percent that Sebastian was predicting. The decline in video-game sales hurt the unit’s results, Szkutak said.

Investors had speculated that the company would get a bigger boost from a 15 percent gain in industrywide holiday e- commerce spending, which ComScore Inc. (SCOR) pegged at a record $37.2 billion.

Shareholders may now be wondering if the stock has become too expensive, Gillis said. It trades at 141.9 times earnings over the past 12 months, according to data compiled by Bloomberg. By comparison, Apple’s price-to-earnings ratio is 13.

“When you have revenue growth start to stall, then the valuation question marks start to rise,” he said.

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

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Apple Invades Wintel $3.8 Trillion Office Market With IPad as Wedge: Tech

By Peter Burrows - Feb 1, 2012 12:01 PM GMT+0700

Apple Inc. (AAPL), without much effort on its part, is making rapid headway in selling to corporations.

After years of being the also-ran to Microsoft Corp. (MSFT) in the workplace, Apple has seen its iPad become a standard business tool. According to an IDG Connect survey, 51 percent of managers with iPads say they “always” use the device at work, and another 40 percent sometimes do. Seventy-nine percent of the respondents use the iPad for business when outside the office.

Even as Amazon.com Inc. (AMZN)’s Kindle Fire and other tablets play catch-up in the consumer market, the iPad faces little competition among corporations such as financial services and pharmaceutical firms. Apple’s iPhone, meanwhile, is the top- selling smartphone, forcing businesses to accommodate workers who use it. That has helped set the stage for Apple’s Mac computer to make its own inroads in the corporate world.

“We haven’t seen a single pharma deploy on anything but the iPad,” said Matt Wallach, co-founder of Veeva Systems Inc., a Pleasanton, California-based maker of sales software for drug companies. “I’ve seen a lot of devices come and go over the years. Nothing touches the speed of adoption of the iPad.”

Microsoft and Intel Corp. (INTC) have dominated the office- technology market for three decades, accounting for almost all the personal computers on workers’ desks. The seeds for the “Wintel” hegemony were planted in 1981, when International Business Machines Corp. tapped the two companies to help create its first PC. That fueled an information-technology industry that now generates $3.8 trillion a year, according to research firm Gartner Inc.

Making an Effort?

Microsoft and Intel have struggled in their efforts to compete with the iPad, though that may change later this year when a tablet-friendly version of Windows debuts. Windows PCs also are under attack. While total PC shipments dropped 5.9 percent in the fourth quarter, the Mac grew almost 21 percent, according to Gartner.

The real threat to the corporate-technology industry is if Apple decides to pursue the market more aggressively, said Frank Gillett, an analyst at Cambridge, Massachusetts-based Forrester Research Inc. Apple can take advantage of its popular iTunes and App Store platforms to distribute software to companies in a user-friendly way, he said. That in turn would help promote the company’s hardware products.

Bill Evans, a spokesman for Cupertino, California-based Apple, declined to discuss the company’s corporate strategy.

Big Opportunity

Apple sold 3.8 million Mac computers to companies in the past fiscal year, according to data compiled by Bloomberg. That amounts to 3 percent of the market.

If Apple were to boost that to 18 million Macs a year, similar to the sales level of No. 3 PC maker Lenovo Group Ltd. (992), it would bring in about $23 billion. Given workers’ desire to use Apple products, the company would probably be able to reach that point with far less investment than rivals such as Hewlett- Packard Co. (HPQ) or Dell Inc., said Anand Srinivasan, an analyst at Bloomberg Industries.

Because companies also pay for warranties and additional services, profit margins might be higher than for Apple’s consumer Mac business, he said.

“Apple has lots of room to grow in the commercial space,” Srinivasan said.

In any case, iPad sales to companies will accelerate this year, said Tom Mainelli, an analyst at Framingham, Massachusetts-based IDC, a sister firm to IDG Connect. Many large companies focused in 2011 on testing the device and running trials for ways to use the tablet, he said. Now, those pilot programs are turning into mass purchases by customers.

Corporate Ecosystem

Mainelli expects iPad shipments into commercial markets, which includes education and health care, to rise to 52.6 million in 2013 from 38.3 million this year. The device was a common sight at last week’s World Economic Forum in Davos, Switzerland. Apple’s iPhone also has pushed into the business world, often supplanting Research In Motion Ltd. (RIMM)’s BlackBerry. The company shipped 37 million of the phones last quarter, making it the market leader in smartphones.

Fidelity Investments has developed iPad applications that let clients check mutual funds and retirement accounts without having to boot up a PC, said Richard Blunck, executive vice president of digital distribution at the firm. At pharmaceutical companies, salespeople use iPads to show product information to doctors on a moment’s notice. During Apple’s quarterly conference call last week, Chief Financial Officer Peter Oppenheimer cited Royal Dutch Shell Plc, Credit Suisse Group AG and Nike Inc. (NKE) as companies that have issued iPads to employees.

Android Software

For companies considering tablets, the main alternatives are devices that run Google Inc. (GOOG)’s Android operating system. Many chief information officers are concerned that Android isn’t as secure as Apple’s iOS software, said Santiago Becerra, CEO of MeLLmo, a corporate app developer.

Companies also have to go through a lengthy testing phase before letting a device access its networks, and it’s easier to qualify the iPad than each of the many Android tablets on the market. For now, MeLLmo only makes apps for the iPad.

“There are so few CIOs looking at Android that it’s not worth it for us right now,” Becerra said.

Microsoft could still slow Apple’s momentum. Tablets with the new Windows 8 may have an easier time running Microsoft Office, a staple for most office workers. That could give Windows 8-based tablets a big advantage, since Microsoft hasn’t created an iPad-compatible version of Office.

Doing Nothing?

Apple has succeeded with corporations without building a large sales force or a corps of consultants and field technicians. Wallach, who sold pharmaceutical-sales software for years before co-founding Veevo, says he has only dealt with one person at Apple who focused on his industry.

“It would be strong to say they’re doing absolutely nothing, but it’s pretty close,” Wallach said.

According to Apple’s website, the company is now seeking a salesperson dedicated to pharmaceutical companies in eastern Pennsylvania.

“If Apple is starting to hire reps around the country focused just on accounts in their region within one industry, that would be a definite signal of their intention to sell with a stronger vertical focus,” Wallach said.

About 10 other corporate-focused positions are listed on Apple’s website, including sales positions in New York, Seattle and Austin, Texas, as well as a “B2B Quality Coach,” to help Apple salespeople “deliver exceptional business-to-business experiences.”

Apple has made other moves to ease corporate buying. The company rolled out a volume purchasing program, letting businesses place large orders for iPad apps, rather than requiring each employee to go to iTunes and enter a code and their own credit card number.

Not every company wants Apple to focus more on their needs. Fidelity’s Blunck would rather have Apple continue to make breakthrough consumer products that create new ways for its customers to use Fidelity’s services.

“I’ll take that all day long, versus having them spend all their time on enterprise’s needs,” he said.

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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Facebook Picks Morgan Stanley to Lead IPO

By Douglas MacMillan, Lee Spears and Serena Saitto - Feb 1, 2012 12:01 PM GMT+0700

Facebook Inc., the world’s largest social-networking service, chose Morgan Stanley to take the lead on its planned initial public offering, four people with knowledge of the matter said.

Facebook will file plans with regulators today to raise $5 billion, though the amount may increase, two people said. Morgan Stanley stands to earn a larger share of the fees collected by securities firms for arranging the IPO. Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM), Barclays Plc (BARC) and Bank of America Corp. will help with the sale, said the people, who asked not to be identified because the matter is private.

Getting picked for the IPO is a coup for Morgan Stanley and Michael Grimes, the global co-head of the bank’s technology investment banking unit. The securities firm won the biggest share of business underwriting U.S. initial offers by Internet companies last year, data compiled by Bloomberg show. Taking the lead on Facebook may catapult the New York-based bank to the top of the U.S. IPO league table for a third year running.

“This means a huge windfall for them,” said Jack Ablin, who helps oversee $55 billion as chief investment officer for Chicago-based Harris Private Bank. “The fact that they have led so many high-profile social media deals in the last year is proof positive that Morgan Stanley (MS) is most likely to be able to get this deal done.”

Bankers’ Fees

Investment banks working on behalf of Facebook may generate as much as $500 million in fees, depending on the company’s ultimate valuation, Ablin said.

Jonathan Thaw, a spokesman for Menlo Park, California-based Facebook, declined to comment, as did representatives of Morgan Stanley, Goldman Sachs, JPMorgan, Bank of America and Barclays Capital, the investment banking division of Barclays.

Facebook had been discussing raising as much as $10 billion, a person with knowledge of the matter said late last year. At that size, Facebook’s IPO would be the biggest ever by an Internet or technology company, data compiled by Bloomberg show, trumping the combined U.S. and German debut from Infineon Technologies AG (IFX) totaling about $5.85 billion in 2000.

Silicon Valley relationships may have paid off for Morgan Stanley after it took the lead on last year’s biggest Internet IPOs, from companies such as Zynga Inc. and Groupon Inc. (GRPN)

“Morgan Stanley was able to leverage its dominance among Internet companies going public,” said Anupam Palit, head of research at GreenCrest Capital Management LLC.

League Table Leader

On underwriting league tables, Morgan Stanley took 20 percent market share for IPOs by Internet companies on U.S. exchanges in 2011, according to data compiled by Bloomberg. New York-based Morgan Stanley also led all U.S. IPOs last year with 13 percent share, selling an estimated $4.6 billion of shares and generating an estimated $262 million in fees, the data show.

Grimes, a Los Angeles native who graduated from the University of California at Berkeley, meets regularly with investors in search of promising startups, has close ties to venture capitalists at such firms as Sequoia Capital and is an early adopter of his clients’ products.

A banker with Morgan Stanley since 1995, Grimes also may have benefited from longstanding ties to Facebook Chief Operating Officer Sheryl Sandberg, who was a senior executive at Google at the time of its IPO. Morgan Stanley led that deal.

Morgan Stanley usually allocates a portion of initial offerings for clients of its retail brokerage, Morgan Stanley Smith Barney, a joint venture with Citigroup Inc.

Gorman’s Goal

Morgan Stanley Chief Executive Officer James Gorman has said that new equity issuances provide investment banking revenue to the brokerage and drive higher trading activity.

That may help the brokerage, the world’s largest, with more than 17,000 advisers and $1.65 trillion in client assets, make strides toward Gorman’s goal of a 20 percent pretax profit margin. The unit had a 10 percent margin in 2011. Morgan Stanley owns 51 percent of the joint venture and has the chance to increase that stake to 65 percent starting in May.

Morgan Stanley also worked on IPOs by Yandex NV, Zynga and LinkedIn Corp. (LNKD), among the biggest Internet debuts in the U.S. last year. It was one of the lead managers on Google’s IPO in 2004 and led Apple Inc.’s IPO in 1980. Goldman Sachs, which placed fourth in U.S. Internet IPOs in 2011 behind Deutsche Bank AG and Bank of America, helped take Yandex, Zynga and Groupon public, while losing out on LinkedIn, the data show.

Goldman Sachs-Facebook ‘Strain’

Goldman Sachs’s 2010 investment in Facebook alongside Digital Sky Technologies didn’t go off without a hitch. The bank halted an offering of the shares to U.S. investors, it said in a January 2011 statement, on concern that “intense media attention” toward the deal could violate U.S. rules limiting the marketing of private securities. Goldman Sachs instead restricted the offering to non-U.S. clients.

“It would seem that the Goldman Sachs-Facebook relationship was strained as a result of that deal,” Ablin said.

Morgan Stanley, for its part, was lead-left in 2011 on U.S. Internet IPOs from companies including Zynga, Groupon and Pandora Media Inc. (P) that handed declines to some investors. Zynga dropped as much as 20 percent after its $1 billion IPO before rising back above the offer price. Groupon slid as much as 24 percent before recouping losses. Pandora’s stock declined as much as 39 percent. The doubling of LinkedIn’s shares on their debut raised concern that Morgan Stanley and the IPO’s other banks could have set a higher initial price.

The average fee on the IPOs of Yandex, Zynga, Renren Inc. (RENN) and Groupon, the four Internet companies that each raised more than $500 million in U.S. initial offerings last year, was 5.1 percent, data compiled by Bloomberg show. At that percentage, a $10 billion Facebook IPO would generate fees of as much as $510 million for its underwriters.

Morgan Stanley’s assignment was initially reported by IFR.

To contact the reporters on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net.

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net

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European Stocks Advance on Signs Manufacturing Growth is Gaining Traction

By Adria Cimino - Feb 1, 2012 7:33 PM GMT+0700

European (SXXP) stocks advanced for a second day, with the Stoxx Europe 600 Index extending its best start to a year since 1998, amid signals that manufacturing growth is gathering pace from America to China. U.S. index futures climbed, while Asian shares were little changed.

Carmakers and banks led gains. ICAP Plc (IAP) jumped 6.6 percent after saying annual pretax profit will be at the “upper end” of the range of analysts’ estimates. RWE AG (RWE) climbed after Morgan Stanley added the stock to its best ideas list.

The Stoxx 600 rose 1.5 percent to 258.29 at 12:32 p.m. in London. The benchmark gauge rallied 4 percent last month, the biggest January gain since 1998, as the U.S. economy maintained its recovery and speculation grew that European (SXXP) policy makers will contain the region’s debt crisis. Standard & Poor’s 500 Index futures added 0.7 percent, while the MSCI Asia Pacific Index increased 0.1 percent.

“U.S. manufacturing data is key,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. “The markets have rebounded as U.S. economic reports were better than expected. Industrial activity is doing well. Jobs data at the end of the week will be important. As long as there are good economic surprises, that will support stocks.”

Manufacturing in the world’s largest economy probably grew at a faster pace last month, a report at 10 a.m. New York time may show. The Institute for Supply Management’s factory index rose to 54.5, the highest since June, from 53.1 in December, according to the median estimate of 81 economists surveyed by Bloomberg News. Readings greater than 50 signal growth.

China, Euro Area

Chinese manufacturing rose last month as the world’s second-biggest economy withstood weaker exports driven by the euro-area debt crisis and a government-induced property slowdown. The official purchasing managers’ index increased to 50.5 in January from 50.3 in December, exceeding the median estimate in a Bloomberg News survey for a reading below the 50 level that divides expansion from contraction.

In the euro area, a gauge of manufacturing beat estimates in the first month of 2012. The Markit Economics final purchasing managers’ index rose to 48.8 from 46.9 in the prior month. That surpassed a forecast for 48.7 by 27 economists in a Bloomberg News survey.

A U.K. (PMITMUK) manufacturing index jumped to an eight-month high in January and unexpectedly returned to growth after a quarter of contraction as production rebounded.

Sweeter Greek Deal

Greek bondholders may get a sweetener tied to a revival in economic growth that would ease the impact of accepting a lower interest rate on new bonds, people with knowledge of the talks said.

Greece’s ASE Index jumped 3.1 percent, for the biggest gain among benchmark measures in the 18 western European markets. Banks led the rally, with Alpha Bank SA surging 15 percent to 1.75 euros and National Bank of Greece SA (ETE) rising 8.4 percent to 2.98 euros.

Three out of 5 European companies on record are missing profit estimates, according to data compiled by Bloomberg News.

Siemens AG (SIE) and Ericsson AB are among the 59 percent of Stoxx Europe 600 Index companies reporting earnings that fell short of forecasts during the current quarter, the data show. That’s the worst ratio since Bloomberg started collating estimates in 2006, with 39 percent of companies missing projections in an average quarter.

Bank Stocks

Bank shares rose 2.8 percent for the second-best performance on the Stoxx 600. Banco Santander SA, Spain’s biggest lender, advanced 2.7 percent to 6.11 euros. Santander remains Nomura’s preferred Spanish bank, analysts wrote in a note. Nomura maintained its “underweight” position on the country’s lenders. Credit Agricole SA (ACA), France’s third-largest bank, rallied 5.3 percent to 4.96 euros.

RWE (RWE), Germany’s second-largest utility, added 4.2 percent to 30.48 euros. Morgan Stanley added the shares to its best ideas list, saying the company has a more focused disposal program.

Fortum Oyj (FUM1V), Finland’s biggest utility, gained 5.2 percent to 17.67 euros. The company reported fourth-quarter net income of 421 million euros ($550 million), surpassing analyst estimates of 339 million euros.

BP Plc, Europe’s second-biggest oil company, gained 2.4 percent to 482 pence.

ICAP jumped 6.6 percent to 358.2 pence. The world’s largest broker of inter-bank transactions said pretax profit for the year ending March 31 will be at the “upper end” of the current range of analyst estimates of 336 million pounds ($528 million) to 358 million pounds. ICAP had said in November it expected full-year profit to be within analysts’ projections at that time of 358 million pounds to 390 million pounds.

Deutsche Boerse

Deutsche Boerse AG (DB1) rose 1.1 percent to 45.30 euros, paring gains of as much as 3.2 percent after the European Commission blocked the plan for Deutsche Boerse’s merger with NYSE Euronext.

Infineon Technologies AG (IFX) advanced 5.1 percent to 7.33 euros after its operating profit fell less than analysts’ projections. Profit (IFX) in the fiscal first quarter ended Dec. 31 was 20 percent lower at 141 million euros compared to 177 million euros a year ago, as sales rose 2.6 percent to 946 million euros. Twelve analysts polled by Bloomberg had expected an average operating profit of 127 million euros and sales of 934 million euros.

Yara, Renault

Yara International ASA (YAR) gained 2.7 percent to 242.40 kroner. The company bought 16 percent of Burrup Holdings Ltd. for $143 million, increasing its stake to 51 percent. Apache Energy has signed a deal with Yara for 49 percent of the company, Yara said.

Renault SA (RNO) jumped 4 percent to 33.85 euros. Renault-Nissan 2011 global sales rose 10 percent to a record, driven by emerging markets and the U.S., the company said.

Sandvik AB (SAND) lost 1.8 percent to 98.65 kronor. The world’s biggest maker of metal-cutting tools reported fourth-quarter profit that missed analysts’ estimates as the company booked costs related to job cuts.

Net income fell to 731 million kronor ($107 million) from 2.09 billion kronor a year earlier, the company said. Ten analysts on average had estimated profit of 1.19 billion kronor in a Bloomberg News survey.

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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Czechs Stick to Deficit Cut Amid Debt Woes

By Peter Laca - Feb 1, 2012 7:32 PM GMT+0700

The Czech government will stick to its budget-deficit reduction goal after the Finance Ministry cut the 2012 economic forecast to near-zero growth and didn’t rule out a recession because of the euro-area debt crisis.

Gross domestic product will expand 0.2 percent this year, according to the new forecasts published yesterday, less than the previous estimate of a 1 percent expansion. The new outlook carries “marked downward risks” because of uncertainty about developments in the euro area, which buys about 70 percent of Czech exports, the ministry said.

Lower growth will prompt spending cuts to meet the Cabinet’s deficit target, which has helped shield government bonds from the effects of the euro area’s sovereign-debt crisis. The budget adjustments will come from the government’s operational expenses and won’t require an amendment to the budget law, Kalousek said in an interview yesterday after the forecasts were released.

“Meeting the deficit targets remains a priority, even if the economic development is worse than the forecast and requires more measures,” Kalousek said. “Even though the new forecast has downside risks, it’s better than I had anticipated and the government will be able to carry out the corrections alone without the need to amend the budget.”

Bond Premium

The premium investors demand for holding the Czech 10-year government bond over a similar German security was 128 basis points, or 1.28 percentage points as of 1:07 p.m. in Prague, compared with 371 points for Poland, the largest eastern economy in the European Union, data compiled by Bloomberg show. The spread for euro-area member Slovakia was 269 basis points.

The cost of insuring against a Czech default is the second lowest in emerging Europe after euro-region member Estonia at 143 basis points, compared with 240 points for Poland, CMA’s data on credit-default swaps show. The Czech koruna strengthened 0.7 percent to 25.159 per euro today, the biggest gain among 25 emerging-market currencies tracked by Bloomberg.

The public-finance deficit, the fiscal yardstick for assessing a EU member’s readiness to adopt the euro, would account for as much as 3.8 percent of GDP this year if “measures” are not taken, compared with the target of 3.5 percent of GDP as set in the budget law, the Finance Ministry said.

Prime Minister Petr Necas’s plan to trim the budget gap to less than the EU’s limit of 3 percent of economic outlook by 2013 kept the Czech funding costs at the lowest level in emerging Europe while the koruna outperformed the Polish zloty and the Hungarian forint last year, according to data compiled by Bloomberg.

Spending Cuts

The 18-month-old government has cut state subsidies, reduced public wages, raised the value-added tax and increased the retirement age to overhaul public finances and slow down an increase in government debt, which, at 38 percent in 2010, was the smallest among the largest three post-communist economies in the EU.

The Finance Ministry estimates the total value of fiscal measures at 34 billion koruna ($1.76 billion) in 2012 and 59 billion koruna in 2013, with the biggest impact coming from the higher sales tax. The additional spending cuts may be between 20 billion koruna and 26 billion koruna this year, Kalousek said.

While the austerity measures will curtail GDP growth, economic developments will depend mainly on how Europe tackles the euro area’s debt crisis, the Finance Ministry said.

“Given the large openness of the economy, eventual negative external shocks are very likely to have a fundamental impact,” it said. “Therefore, it’s not possible in the current situation to rule out a repetition of the recession similar to the one from the turn of 2008 and 2009.”

Standard & Poor’s on Aug. 24 raised the Czech Republic’s long-term foreign-currency debt rating two steps to AA-, the fourth-highest grade and on a par with Japan. The upgrade reflected a change in rating criteria that highlighted the Czech government’s low indebtedness and the “prudently managed and balanced economy,” S&P said.

‘Adequately Conservative’

The economy will expand 1.6 percent next year, less than the previous forecast of a 2 percent expansion, the ministry said. It sees average inflation at 3.2 percent this year and 1.5 percent in 2013. Government-sector debt in 2012 will probably rise to 43.1 percent of GDP from an estimated 40.7 percent last year.

“It’s not a result we should rejoice over, but it doesn’t represent any disaster either,” Pavel Sobisek, a Prague-based analyst at UniCredit SpA (UCG), wrote in a report. “Overall we regard the Finance Ministry’s forecast as realistic and adequately conservative.”

The economy will expand 2.7 percent and 3.6 percent in 2014 and 2015, respectively, according to the forecast.

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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Most Asia Stocks Rise as China, India Manufacturing Temper Economy Concern

By Jonathan Burgos - Feb 1, 2012 4:35 PM GMT+0700
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Pedestrians walk past an electronic stock board outside a securities firm in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

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Feb. 1 (Bloomberg) -- Peter So, co-head of research at CCB International Securities Ltd., talks about China's stock market, economy, and central bank monetary policy. China’s manufacturing unexpectedly expanded last month on increased new orders, suggesting the world’s second-biggest economy is withstanding Europe’s debt crisis and a government-induced property slowdown at home. So speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Jan. 31 (Bloomberg) -- Gao Ting, chief China strategist at UBS AG, talks about China's economy growth and stock market. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Feb. 1 (Bloomberg) -- Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd., talks about the outlook for China and Hong Kong stock markets. Sullivan also discusses Hong Kong's budget, and a possible Facebook Inc. initial public offering. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Most Asian stocks advanced as expanding manufacturing activity in India and China tempered evidence that economies across the region and the U.S. may be slowing down.

Tata Power Co., India’s biggest electricity generator outside of state control, jumped 5.5 percent in Mumbai. Shipping stocks rallied on speculation rising cargo rates will shore up earnings. Sumitomo Heavy Industries Ltd. sank 9.6 percent in Tokyo after the machinery maker cut its full-year profit forecast by 28 percent. Australian banks fell after a gauge of home prices retreated by a record in 2011.

The MSCI Asia Pacific Index (MXAP) was little changed at 122.98 as of 6:34 p.m. in Tokyo, with about five shares rising for every four that fell. In January, the measure posted its biggest monthly advance since September 2010 amid bets China will ease lending curbs, the U.S. economy is improving and Europe is containing its debts crisis.

“Signs that the Chinese economy is heading towards a soft landing are a very good scenario.” said Ng Soo Nam, Singapore- based chief investment officer at Nikko Asset Management Asia Ltd., which oversees about $165 billion. “Some investors may be disappointed because they were hoping for faster easing of monetary policy.”

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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European Stocks Rise on Chinese Manufacturing

By Adria Cimino - Feb 1, 2012 5:14 PM GMT+0700

European (SXXP) stocks advanced for a second day, with the Stoxx Europe 600 Index extending its best start to a year since 1998, amid signals that manufacturing growth is gaining pace from America to China. U.S. index futures climbed, while Asian shares were little changed.

Banks and utilities led gains. ICAP Plc (IAP) jumped 8.6 percent after saying annual pretax profit will be at the “upper end” of the range of analysts’ estimates. RWE AG (RWE) climbed after Morgan Stanley added the stock to its best ideas list. Roche Holding AG (ROG), the world’s biggest maker of cancer drugs, fell 1.5 percent after earnings fell short of analysts’ estimates.

The Stoxx 600 rose 1.3 percent to 257.82 at 10:11 a.m. in London. The benchmark gauge rallied 4 percent last month, the biggest January gain since 1998, as the U.S. economy maintained its recovery and speculation grew that European (SXXP) policy makers will contain the region’s debt crisis. Standard & Poor’s 500 Index futures added 0.7 percent, while the MSCI Asia Pacific Index increased less than 0.1 percent.

“U.S. manufacturing data is key,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. “The markets have rebounded as U.S. economic reports were better than expected. Industrial activity is doing well. Jobs data at the end of the week will be important. As long as there are good economic surprises, that will support stocks.”

Manufacturing in the world’s largest economy probably grew at a faster pace last month, a report at 10 a.m. New York time may show. The Institute for Supply Management’s factory index rose to 54.5, the highest since June, from 53.1 in December, according to the median estimate of 81 economists surveyed by Bloomberg News. Readings greater than 50 signal growth.

China, Euro Area

Chinese manufacturing rose last month as the world’s second-biggest economy withstood weaker exports driven by the euro-area debt crisis and a government-induced property slowdown. The official purchasing managers’ index increased to 50.5 in January from 50.3 in December, exceeding the median estimate in a Bloomberg News survey for a reading below the 50 level that divides expansion from contraction.

In the euro area, a gauge of manufacturing beat estimates in January. The Markit Economics final purchasing managers’ index rose to 48.8 from 46.9 in the prior month. That surpassed a forecast for 48.7 by 27 economists in a Bloomberg News survey.

Sweeter Greek Deal

Greek bondholders may get a sweetener tied to a revival in economic growth that would ease the impact of accepting a lower interest rate on new bonds, people with knowledge of the talks said.

Three out of 5 European companies on record are missing profit estimates, according to data compiled by Bloomberg News.

Siemens AG (SIE) and Ericsson AB are among the 59 percent of Stoxx Europe 600 Index companies reporting earnings that fell short of forecasts during the current quarter, the data show. That’s the worst ratio since Bloomberg started collating estimates in 2006, with 39 percent of companies missing projections in an average quarter.

Bank shares rose 2.1 percent for the best performance on the Stoxx 600. Banco Santander SA, Spain’s biggest lender, advanced 2.1 percent to 6.07 euros. Santander remains Nomura’s preferred Spanish bank, analysts wrote in a note. Nomura maintained its “underweight” position on the country’s lenders. Credit Agricole SA (ACA), France’s third-largest bank, rallied 4.2 percent to 4.91 euros.

RWE, Fortum

RWE (RWE), Germany’s second-largest utility, added 4.2 percent to 30.47 euros. Morgan Stanley added the shares to its best ideas list, saying the company has a more focused disposal program.

Fortum Oyj (FUM1V), Finland’s biggest utility, gained 4.1 percent to 17.49 euros. The company reported fourth-quarter net income of 421 million euros ($550 million), surpassing analyst estimates of 339 million euros.

BP Plc, Europe’s second-biggest oil company, gained 3 percent to 485.05 pence.

ICAP jumped 8.6 percent to 365 pence. The world’s largest broker of inter-bank transactions said pretax profit for the fiscal year ending March 31 will be at the “upper end” of the current range of analyst estimates of 336 million pounds ($528 million) to 358 million pounds. ICAP had said in November it expected full-year profit to be within analysts’ projections at that time of 358 million pounds to 390 million pounds.

Infineon Technologies AG (IFX) advanced 5.2 percent to 7.34 euros after its operating profit fell less than analysts’ projections.

Profit in the fiscal first quarter, ended Dec. 31, was 20 percent lower at 141 million euros compared to 177 million euros a year ago as sales rose 2.6 percent to 946 million euros, the company said. Twelve analysts polled by Bloomberg had expected an average operating profit of 127 million euros and sales of 934 million euros.

Deutsche Boerse

Deutsche Boerse AG rose 1.3 percent to 45.40 euros. The shares pared gains of as much as 3.2 percent after the European Commission blocked the plan for Deutsche Boerse’s merger with NYSE Euronext.

Yara International ASA (YAR) gained 2.4 percent to 241.8 kroner. The company has bought 16 percent of Burrup Holdings Ltd. for $143 million, increasing its stake to 51 percent. Apache Energy has signed a deal with Yara for 49 percent of the company, Yara said.

Roche, Sandvik

Roche Holding fell 1.5 percent to 153.50 Swiss francs. Net income last year rose to 9.5 billion francs ($10.3 billion) from 8.9 billion francs a year earlier, the company said. Earnings per share excluding some items were 12.30 francs, falling short of the 12.46-franc average estimate of 26 analysts surveyed by Bloomberg.

Roche forecast high single-digit percentage growth in earnings per share this year as pharmaceutical sales increase and a cost-cutting program takes effect. The company said it sees a challenging market environment.

Sandvik AB (SAND) lost 3.6 percent to 96.90 kronor. The world’s biggest maker of metal-cutting tools reported fourth-quarter profit that missed analysts’ estimates as the company booked costs related to job cuts.

Net income fell to 731 million kronor ($107 million) from 2.09 billion kronor a year earlier, the company said. Ten analysts on average had estimated profit of 1.19 billion kronor in a Bloomberg News survey.

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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Goldman Sachs Is Said to Be in Talks to Hire Former Geithner Aide Siewert

By Cristina Alesci and Christine Harper - Feb 1, 2012 12:00 PM GMT+0700

Goldman Sachs Group Inc. (GS) may hire Richard “Jake” Siewert Jr., a former counselor to U.S. Treasury Secretary Timothy F. Geithner, to manage the bank’s communications department, according to three people familiar with the situation.

Siewert, who turns 48 today, is in talks about a role similar to the one held by Lucas van Praag, 62, who has worked at Goldman Sachs for 12 years, said the people, who asked for anonymity because the talks aren’t public and an agreement hasn’t been reached. Siewert worked as a press secretary for President Bill Clinton and managed corporate development and public strategy at Alcoa Inc. (AA) before joining Treasury in 2009.

Goldman Sachs, the most profitable securities firm in Wall Street history before converting to a bank in 2008, has been criticized by regulators and politicians for activities leading up to 2008’s financial crisis. Chief Executive Officer Lloyd C. Blankfein, 57, settled a Securities and Exchange Commission lawsuit against the firm in 2010, reviewed the company’s business standards and rolled out an advertising campaign.

Hiring Siewert may help bolster Goldman Sachs’s links with the Democratic Party in the U.S., which controls the Senate and the White House under President Barack Obama. Obama will face a Republican challenger in an election in November. Former Massachusetts Governor Mitt Romney, 64, is locked in a primary contest with former House Speaker Newt Gingrich, 68, and two other candidates for that party’s nomination.

Donations to Romney

Goldman Sachs employees have donated at least $367,200 to Romney’s campaign in the 2012 election cycle so far, more than workers at any other company, according to the Center for Responsive Politics’s donation-tracking website, opensecrets.org. Obama, who has called for higher taxes on the wealthy and stricter regulation of the financial industry, got $50,124 from Goldman Sachs workers during the same period, the data show.

Four years ago, employees of New York-based Goldman Sachs gave $1.01 million to Obama’s presidential campaign, according to the website.

Goldman Sachs set aside enough money to pay each of its 33,300 employees an average of $367,057 in salary, bonuses and benefits for 2011, according to the company’s 2011 financial statement published on Jan. 18. A decline in trading revenue helped drive down the average payout per worker from $430,700 in 2010.

Van Praag, Goldman Sachs’s global head of corporate communications, has become known for his disparaging rebuttals to negative stories about the firm, favoring phrases like “nonsense” and “extraordinarily ill-informed.” He was elected in 2006 to become a partner, the highest rank of employee at the Goldman Sachs. He paid $7.85 million in August 2008 for a townhouse on New York’s Upper West Side, the Real Deal reported at the time, citing public records.

To contact the reporters on this story: Cristina Alesci in New York at calesci2@bloomberg.net; Christine Harper in New York at charper@bloomberg.net

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

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Hong Kong Homes Face 25% Drop as Loans Fall in Year of Dragon: Mortgages

By Kelvin Wong - Feb 1, 2012 12:05 PM GMT+0700

The Year of the Dragon, representing wealth and power in China, is shaping up to be the opposite for the world’s costliest housing market, Hong Kong.

Mortgages (HKMGLEND) that need to be insured by the government because of risk experienced the steepest plunge in six years in 2011, a sign the biggest home price decline since the global credit crisis is accelerating. Property prices that have slid 6 percent since June may fall as much as 25 percent by 2013, estimates Andrew Lawrence of Barclays Capital, who predicted the initial slide in April.

Asian real estate markets from Singapore to Beijing to Mumbai are stalling or have started declining as governments seek to curb the type of housing bubble that brought down the U.S. economy. In Hong Kong, rising borrowing costs, extra transaction taxes and higher down-payment requirements imposed by the government have fueled the slump.

“We’re in for a very challenging first half,” said Wong Leung-sing, associate director of research at Centaline Property Agency Ltd., the city’s biggest closely held realtor. “The drop in secondary mortgages means buyers are having trouble borrowing from the banks the full amounts they need. The ones that are taking the biggest hits right now are the middle- to lower- priced housing segment.”

Prices had surged 70 percent from 2009 to their 14-year high in June. Home deals in December fell for a sixth straight month to the lowest since November 2008, according to the Land Registry.

Hong Kong will continue measures to maintain stable home prices, Financial Secretary John Tsang said at his annual budget speech today.

36 Percent Drop

Loans covered by the Hong Kong Mortgage Corp.’s insurance program decreased 36 percent in 2011 from a year earlier to HK$26 billion ($3.4 billion), according to figures released Jan. 11. It was the biggest drop since 2006, said the body, which was set up in 1999 to provide government insurance for mortgages exceeding 70 percent of a property’s value -- also known as secondary mortgages -- in a bid to revive slumping home prices at that time.

The HKMC in June 2011 reduced the maximum value of property that can be covered by its insurance program to HK$6 million from HK$6.8 million, the second reduction since late 2010.

Hong Kong’s median home price of HK$3.15 million is a record 12.6 times the annual median household income of HK$249,000, according to a Jan. 23 report by Belleville, Illinois-based Demographia. Second-place Vancouver had a 10.6 multiple, followed by Sydney with 9.2.

Falling Transactions

The number of property transactions with a value of below HK$2 million will probably fall to less than 900 this month, the lowest since record-keeping began in 1996, according to Midland Holdings Ltd. (1200), Hong Kong’s biggest publicly traded realtor.

The Hang Seng Property Index (HSP), which tracks the city’s seven biggest developers including Sun Hung Kai Properties Ltd. (16) and billionaire Li Ka-shing’s Cheung Kong Holdings Ltd. (1), fell 24 percent in 2011, after gaining more than 75 percent over the previous two years.

The gauge fell 0.5 percent at the noon trading break today, reversing an earlier gain. It has gained 12 percent this year, compared with the 11 percent increase in the benchmark Hang Seng Index.

Chinese New Year began on Jan. 23. Dragon years in the 12- year zodiac are associated with wealth and power because the creature is the icon of China’s emperors.

A three-room, 880-square-foot apartment in Tai Koo Shing, one of Hong Kong’s biggest middle-class private housing projects, was sold for HK$7 million this month, HK$1.5 million lower than the original asking price, according to Kenneth Chiu, a district sales manager at Centaline.

Rising Lending Rates

Last year’s decline in prices and transactions coincided with the rise in borrowing costs. Hong Kong banks, led by HSBC Holdings Plc (HSBC) and BOC Hong Kong Holdings Ltd. (2388), increased mortgage rates at least six times since April as liquidity dried up.

Despite the Jan. 25 announcement by U.S. Federal Reserve officials that benchmark interest rates would probably remain below 1 percent through 2014, average mortgage rates in Hong Kong are forecast to rise.

They could reach as high as 4 percent by the end of 2012 from the current 2.38 percent, said Sharmaine Lau, chief economist at mReferral Mortgage Brokerage Services. Borrowing costs were 0.9 percent in early 2011, almost the lowest in 20 years, the company’s data shows.

‘Slightly Faster Fall’

The increase “should weigh on transaction volume and suggests we will see a slightly faster fall in prices,” said Lawrence, the Hong Kong-based analyst at Barclays. “It’s incremental that each time mortgage rates go up, there are less people in the market.”

Liquidity is falling as tightening measures in China have driven companies to borrow in Hong Kong, while capital outflows from the city continue as foreign banks repatriate funds from Asia because of the European sovereign debt crisis.

The Hong Kong Monetary Authority, the city’s de-facto central bank, has asked lenders to keep more reserves as part of their counter-cyclical measures, Chief Executive Norman Chan said in November.

“Hong Kong banks are very reluctant about raising mortgage rates further because of what it may do to transactions,” said Lau. “But at the same time they’re facing a steep increase in funding costs.”

For a HK$2 million, 20-year mortgage, the increased interest rate of 4 percent from 2.38 percent means an extra HK$19,656, or 16 percent, in annual repayments, Bloomberg calculations show.

‘Irrationally Low’

“The last couple years mortgage rates have been irrationally low,” said Lau. “Bringing them back to the 3 to 4 percent range would bring things to a more reasonable level from a historical perspective.”

The HKMA, which doesn’t have an independent interest-rate policy because of the local currency’s peg to the U.S. dollar, has kept its base rate at a record-low 0.5 percent since December 2008.

Hong Kong’s property prices halved between 1997 and 2003 as the city fell into recession brought on by the Asian financial crisis, the Sept. 11 terrorist attacks and the SARS epidemic. Since 2004, prices have recovered while loans drawn down from the HKMC rose for four straight years from 2007 to a record HK$41 billion in 2010.

The government’s mortgage insurance program has been “the way many first-time buyers managed to get into what is an extremely expensive market,” said Lawrence. The next group to be affected will be “the equity-rich, first-time buyers who are going to get priced out of the market.”

‘Determined’

Lawrence forecast in April that home prices might drop because of rising mortgage rates.

To temper surging housing demand, the government has imposed extra stamp duties since 2010 on all homes sold within two years of the date of purchase, while raising minimum down- payment requirements on some property transactions. It has also increased land supply for private housing, and pledged to build more subsidized homes and ensure the supply of land for private housing.

The government is “determined” to increase land supply and will make available at least 47 residential sites for auctions, Financial Secretary Tsang said today. The sites will provide about 13,500 homes, he said.

Buyers Sidelined

“At a time like this, most buyers are staying on the sideline,” said Simon Lo, head of Asia research and advisory for property broker Colliers International. “The general expectation is that home prices will drop further so they are all postponing their homebuyer plans.”

Home prices are also stalling because of the threat of a slowdown in wage increases, Lo said. About 13 percent of Hong Kong firms plan staff cuts in the first quarter, exceeding the previous quarter’s 8 percent, according to a report by New York- based headhunter Hudson Highland Group Inc.

Home prices may need to fall at least 10 percent in 2012 before buyers are lured back, Benjamin Hung, chief executive officer of Standard Chartered Plc (STAN)’s local unit, Hong Kong’s fourth-biggest mortgage lender, said in an interview on Dec. 13.

To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net; Rob Urban in New York at robprag@bloomberg.net.

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Apple Invades $3.8T Workplace Market With IPad

By Peter Burrows - Feb 1, 2012 12:01 PM GMT+0700

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The iPad faces little competition among corporations such as financial services and pharmaceutical firms. Photographer: Ramin Talaie/Bloomberg

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Jan. 31 (Bloomberg) -- Warren East, chief executive officer of ARM Holdings Plc, discusses the company's product range, deployment and competitive landscape. He speaks with Owen Thomas on Bloomberg Television's "On the Move." (Source: Bloomberg)

Apple Inc. (AAPL), without much effort on its part, is making rapid headway in selling to corporations.

After years of being the also-ran to Microsoft Corp. (MSFT) in the workplace, Apple has seen its iPad become a standard business tool. According to an IDG Connect survey, 51 percent of managers with iPads say they “always” use the device at work, and another 40 percent sometimes do. Seventy-nine percent of the respondents use the iPad for business when outside the office.

Even as Amazon.com Inc. (AMZN)’s Kindle Fire and other tablets play catch-up in the consumer market, the iPad faces little competition among corporations such as financial services and pharmaceutical firms. Apple’s iPhone, meanwhile, is the top- selling smartphone, forcing businesses to accommodate workers who use it. That has helped set the stage for Apple’s Mac computer to make its own inroads in the corporate world.

“We haven’t seen a single pharma deploy on anything but the iPad,” said Matt Wallach, co-founder of Veeva Systems Inc., a Pleasanton, California-based maker of sales software for drug companies. “I’ve seen a lot of devices come and go over the years. Nothing touches the speed of adoption of the iPad.”

Microsoft and Intel Corp. (INTC) have dominated the office- technology market for three decades, accounting for almost all the personal computers on workers’ desks. The seeds for the “Wintel” hegemony were planted in 1981, when International Business Machines Corp. tapped the two companies to help create its first PC. That fueled an information-technology industry that now generates $3.8 trillion a year, according to research firm Gartner Inc.

Making an Effort?

Microsoft and Intel have struggled in their efforts to compete with the iPad, though that may change later this year when a tablet-friendly version of Windows debuts. Windows PCs also are under attack. While total PC shipments dropped 5.9 percent in the fourth quarter, the Mac grew almost 21 percent, according to Gartner.

The real threat to the corporate-technology industry is if Apple decides to pursue the market more aggressively, said Frank Gillett, an analyst at Cambridge, Massachusetts-based Forrester Research Inc. Apple can take advantage of its popular iTunes and App Store platforms to distribute software to companies in a user-friendly way, he said. That in turn would help promote the company’s hardware products.

Bill Evans, a spokesman for Cupertino, California-based Apple, declined to discuss the company’s corporate strategy.

Big Opportunity

Apple sold 3.8 million Mac computers to companies in the past fiscal year, according to data compiled by Bloomberg. That amounts to 3 percent of the market.

If Apple were to boost that to 18 million Macs a year, similar to the sales level of No. 3 PC maker Lenovo Group Ltd. (992), it would bring in about $23 billion. Given workers’ desire to use Apple products, the company would probably be able to reach that point with far less investment than rivals such as Hewlett- Packard Co. (HPQ) or Dell Inc., said Anand Srinivasan, an analyst at Bloomberg Industries.

Because companies also pay for warranties and additional services, profit margins might be higher than for Apple’s consumer Mac business, he said.

“Apple has lots of room to grow in the commercial space,” Srinivasan said.

In any case, iPad sales to companies will accelerate this year, said Tom Mainelli, an analyst at Framingham, Massachusetts-based IDC, a sister firm to IDG Connect. Many large companies focused in 2011 on testing the device and running trials for ways to use the tablet, he said. Now, those pilot programs are turning into mass purchases by customers.

Corporate Ecosystem

Mainelli expects iPad shipments into commercial markets, which includes education and health care, to rise to 52.6 million in 2013 from 38.3 million this year. The device was a common sight at last week’s World Economic Forum in Davos, Switzerland. Apple’s iPhone also has pushed into the business world, often supplanting Research In Motion Ltd. (RIMM)’s BlackBerry. The company shipped 37 million of the phones last quarter, making it the market leader in smartphones.

Fidelity Investments has developed iPad applications that let clients check mutual funds and retirement accounts without having to boot up a PC, said Richard Blunck, executive vice president of digital distribution at the firm. At pharmaceutical companies, salespeople use iPads to show product information to doctors on a moment’s notice. During Apple’s quarterly conference call last week, Chief Financial Officer Peter Oppenheimer cited Royal Dutch Shell Plc, Credit Suisse Group AG and Nike Inc. (NKE) as companies that have issued iPads to employees.

Android Software

For companies considering tablets, the main alternatives are devices that run Google Inc. (GOOG)’s Android operating system. Many chief information officers are concerned that Android isn’t as secure as Apple’s iOS software, said Santiago Becerra, CEO of MeLLmo, a corporate app developer.

Companies also have to go through a lengthy testing phase before letting a device access its networks, and it’s easier to qualify the iPad than each of the many Android tablets on the market. For now, MeLLmo only makes apps for the iPad.

“There are so few CIOs looking at Android that it’s not worth it for us right now,” Becerra said.

Microsoft could still slow Apple’s momentum. Tablets with the new Windows 8 may have an easier time running Microsoft Office, a staple for most office workers. That could give Windows 8-based tablets a big advantage, since Microsoft hasn’t created an iPad-compatible version of Office.

Doing Nothing?

Apple has succeeded with corporations without building a large sales force or a corps of consultants and field technicians. Wallach, who sold pharmaceutical-sales software for years before co-founding Veevo, says he has only dealt with one person at Apple who focused on his industry.

“It would be strong to say they’re doing absolutely nothing, but it’s pretty close,” Wallach said.

According to Apple’s website, the company is now seeking a salesperson dedicated to pharmaceutical companies in eastern Pennsylvania.

“If Apple is starting to hire reps around the country focused just on accounts in their region within one industry, that would be a definite signal of their intention to sell with a stronger vertical focus,” Wallach said.

About 10 other corporate-focused positions are listed on Apple’s website, including sales positions in New York, Seattle and Austin, Texas, as well as a “B2B Quality Coach,” to help Apple salespeople “deliver exceptional business-to-business experiences.”

Apple has made other moves to ease corporate buying. The company rolled out a volume purchasing program, letting businesses place large orders for iPad apps, rather than requiring each employee to go to iTunes and enter a code and their own credit card number.

Not every company wants Apple to focus more on their needs. Fidelity’s Blunck would rather have Apple continue to make breakthrough consumer products that create new ways for its customers to use Fidelity’s services.

“I’ll take that all day long, versus having them spend all their time on enterprise’s needs,” he said.

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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