Economic Calendar

Thursday, February 16, 2012

Facebook Value Slips to $98B in Private Sale

By Lee Spears and Mohammed Hadi - Feb 16, 2012 9:49 PM GMT+0700

Facebook Inc.’s (FB) implied value fell by almost 5 percent to about $98 billion in an auction of a fund that holds shares of the world’s biggest social-networking company.

SharesPost Inc. managed a Feb. 14 auction of 200,000 fund units, each equivalent to one Facebook share, at a price of $42 apiece, according to a statement from the private-stock marketplace yesterday. SharesPost estimates Facebook has 2.33 billion shares outstanding, including stock tied to options that may be issued, according to its website.

The price dropped from last week, when SharesPost handled an auction of 150,000 shares of Facebook’s Class B common stock for $44 each, or an implied value of $102.6 billion. Facebook filed for an initial public offering on Feb. 1, and people familiar with the matter have said the company is considering a sale that would value it at $75 billion to $100 billion.

“The real test of a company’s worth only occurs in the public market,” said Lawrence Creatura, a Rochester, New York- based money manager who helps oversee $370 billion at Federated Investors Inc. “It’s like trying to forecast an athlete’s performance in a game by looking at historic statistics. Those can help you make an educated guess on things, but anything can happen on game day.”

Facebook’s Stock

Facebook jumped about 73 percent in value on the secondary market last year to $71.2 billion, according to a report last week by Nyppex LLC, a Rye, New York-based broker-dealer and research firm. The biggest gainer was microblogging service Twitter Inc., which more than doubled to $8.52 billion. Yelp Inc., the consumer-review website that filed for an IPO in November, rose 44 percent to $705 million.

The valuation based on private-market transactions may change depending on the actual share count after the IPO. As of Dec. 31, Facebook had 117.1 million Class A shares and 1.76 billion Class B shares outstanding. There also are about 379 million restricted stock units that vest later, as well as about 259 million shares that may be issued if outstanding stock options are exercised, the IPO prospectus shows.

Facebook, run by Chief Executive Officer Mark Zuckerberg, is seeking to raise $5 billion, according to its IPO filing. At a valuation of $100 billion, the company would trade at 26.9 times 2011 sales, more than five times higher than search-engine operator Google Inc. (GOOG)

Revenue at Menlo Park, California-based Facebook jumped 88 percent last year to $3.71 billion, while net income climbed by almost two-thirds to $1 billion.

Jeremiah Hall, a spokesman for San Bruno, California-based SharesPost, confirmed the auction results. Jonathan Thaw, a spokesman for Facebook, declined to comment.

To contact the reporters on this story: Lee Spears in New York at; Mohammed Hadi in Hong Kong at

To contact the editor responsible for this story: Daniel Hauck at


Apple Speeds Mac ‘Mountain Lion’ Operating System to Challenge Windows 8

By Rich Jaroslovsky - Feb 16, 2012 8:31 PM GMT+0700

Apple Inc. (AAPL) will release an upgrade to its Mac operating system later this year, making its laptops and desktops more like iPhones and iPads just as Microsoft Corp. (MSFT) prepares a new version of its competing Windows software.

A preliminary version of the new software, dubbed “Mountain Lion,” will be made available to developers today, Phil Schiller, Apple’s senior vice president of product marketing, said in an interview. He didn’t disclose pricing for the upgrade, which will be available only via download from Apple’s online Mac App Store. Mountain Lion will be widely released in late summer, he said.

Like its predecessor, called “Lion,” the new operating system is designed to make Macs feel more like Apple’s mobile devices, which use an operating system called iOS. Windows 8, built to work on both traditional keyboard-centric computers and touch-based devices, represents Microsoft’s attempt to come from behind in the market for tablets such as the iPad.

Mountain Lion -- version 10.8 of the Mac’s OS X operating system -- comes more closely on the heels of its predecessor than other updates. While each of the last four Mac upgrades has come about two years after its predecessor, Version 10.7 was released just seven months ago.

Schiller said Apple was able to get an early start on Mountain Lion because of all the work done to prepare Lion, which reviewers said marked the most sweeping changes in OS X since its 2001 inception. He said the company has so far shipped 17 million copies of Lion, making it the company’s best-selling release ever.

Courting Chinese Users

As part of the effort to unify the user experience, Schiller said, the new Mac operating system will replace Lion’s iChat real-time messaging program with a version of iOS’s Messages application. The new software will let Mac users exchange text messages with iOS devices, as well as continue conversations seamlessly from one device to another.

Mountain Lion also expands Apple’s iCloud service to let Mac users access and share saved documents across the Internet, as well as letting them create and access reminders and notes, and receive notifications, on all their Apple devices.

The new software also provides the ability for users to easily share information on Twitter Inc.’s microblogging service from within Mac apps, and makes it easier to wirelessly mirror the Mac’s screen on a large-screen television hooked up to the company’s Apple TV adapter.

Schiller outlined a host of new features that will be specific to Chinese users, including changes aimed at making it easier for them to type in information and access local e-mail providers. Apple added built-in options to use the Baidu Inc. search engine, Sina Corp.’s Weibo microblogging service and Youku Inc. and Tudou Holdings Ltd.’s video sites.

To contact the reporter on this story: Rich Jaroslovsky in San Francisco at

To contact the editor responsible for this story: Tom Giles at


Summers, Clinton Lead World Bank Contenders

By Hans Nichols and Sandrine Rastello - Feb 16, 2012 3:46 PM GMT+0700

U.S. Secretary of State Hillary Clinton and former White House economic adviser Lawrence Summers are two leading candidates to succeed World Bank President Robert Zoellick when he leaves in June, said two people familiar with Obama administration discussions.

The U.S. promised a candidate “in the coming weeks” for the post that has always been held by one of its citizens, while officials from Brazil and Mexico vowed to make the selection process open to emerging markets.

“It is very important that we continue to have strong, effective leadership in this important institution,” Treasury Secretary Timothy F. Geithner said in an e-mail yesterday, four hours after Zoellick, 58, announced he will leave at the end of his five-year term. The U.S. choice will have “the experience and requisite qualities to take this institution forward,” Geithner said.

While Summers has expressed interest in the position and has supporters inside the administration, the position would be Clinton’s if she sought it, according to the people, who spoke on condition of anonymity about the private conversations.

Clinton, who said previously she doesn’t plan to remain in her post if President Barack Obama wins a second term, repeatedly has denied having an interest in the World Bank job. State Department spokesman Victoria Nuland repeated those denials yesterday.

View Not Changed

“The secretary has addressed this issue many times since last year,” Nuland said at a briefing in Washington. “She has said this is not happening. Her view has not changed.”

Summers was traveling and unavailable for comment, his assistant, Julie Shample, said.

Officials in China, Brazil and Mexico jumped in to support the chances of someone from outside the U.S., possibly from an emerging-market country, to head the Washington-based lender.

“There’s no reason for the principal leader to come from a specific country,” Brazil’s finance minister, Guido Mantega, told reporters. “Emerging markets have the right to seek the leadership of the World Bank.”

Mexican central bank Governor Agustin Carstens, speaking in Mexico City, echoed that sentiment, saying the World Bank chief should be selected by merit, not pre-arranged rules.

China’s Foreign Ministry spokesman Liu Weimin, asked if the candidate should come from a developing nation, said the selection should be “based on the merit principle and open competition.’’

Close Ranks

The campaign for the helm of an institution that made $57 billion in loans in the last fiscal year will test the capacity of emerging markets to close ranks behind a candidate eight months after they failed to agree on an International Monetary Fund nominee. The World Bank job has always been held by a U.S. national under an informal agreement that also has a European head the IMF. The nomination is subject to approval by the World Bank’s executive board.

“As a marker, the emerging markets will put forward some candidates,” said Uri Dadush, director of international economics at the Carnegie Endowment for International Peace in Washington. “But it is probably the most likely outcome that the U.S. candidate will prevail just like the European candidate prevailed at the fund.”

Christine Lagarde, then France’s finance minister, was picked last year over Mexico’s Carstens for the IMF job with support from the U.S. as well as nations including Brazil.

Obama’s spokesman, Jay Carney, refused to comment on possible successors to Zoellick, who was nominated for the position by then-President George W. Bush in 2007 for a term that ends June 30.

Salary and Benefits

Zoellick received a net salary of $450,378 in the year through June 30, 2011, plus $284,329 in pension and other benefits contributions, according to the bank’s annual report.

“There’s been a lot of speculation in the press,” Carney told reporters traveling with the president to an event in Wisconsin. “I’m not going to confirm any of it.”

While Clinton, 64, told State Department employees at a town hall last month that she is tired after 20 years in public life, many of her associates say she might be willing to take the World Bank presidency. It requires fewer hours and less travel than being secretary of state, the people said.

Summers, 57, was Obama’s first director of the National Economic Council and served as Treasury secretary in President Bill Clinton’s administration. He left the Obama administration at the end of 2010 and returned to Harvard University in Cambridge, Massachusetts, where he is a professor at the John F. Kennedy School of Government.

To contact the reporters on this story: Hans Nichols in Washington at; Sandrine Rastello in Washington at;

To contact the editor responsible for this story: Steven Komarow at; Christopher Wellisz in Washington at;


GM Earns Record $9.19B Profit; Opel Posts Loss

By Tim Higgins and Craig Trudell - Feb 16, 2012 10:19 PM GMT+0700
Enlarge image GM Earns Record $9.19 Billion Net Income While Opel Loses

GMC Sierra trucks move along the assembly line at General Motors Co. assembly plant in Flint, Michigan. Photographer: Jeff Kowalsky/Bloomberg

Feb. 16 (Bloomberg) -- Dan Ammann, chief financial officer of General Motors Co., talks about the company's fourth-quarter and full-year earnings reported today and outlook. GM, which regained the global auto sales lead in 2011, earned $9.19 billion last year, the largest profit in its 103-year-history, while its European business again lost money. Ammann speaks with Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Feb. 16 (Bloomberg) -- Juergen Pieper, an analyst at Bankhaus Metzler, discusses the outlook for the global auto industry, his "buy" recommendation on Renault SA and the outlook for General Motors Co. He speaks from Frankfurt with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

General Motors Co. (GM), which regained the global auto sales lead, earned $9.19 billion last year, the largest profit in its 103-year-history, while its European business again lost money.

Fourth-quarter net income attributable to stockholders slid 48 percent to $725 million, the lowest in two years. GM had earned more than $2 billion in each of the three previous quarters. Profit in the fourth quarter fell 25 percent to 39 cents a share, trailing the 41-cent average estimate of 17 analysts surveyed by Bloomberg.

GM North America earnings before interest and taxes more than tripled for the year to $7.19 billion on improved U.S. sales. The automaker’s Europe business, including the Opel brand, lost $747 million for the year. While that’s better than Europe’s restated $1.95 billion loss in 2010, it’s not break- even as GM had planned until November.

“GM’s results in Europe certainly dampen the positive results in the U.S. but you have to still say they had a really good year,” Rebecca Lindland, an industry analyst with IHS Automotive, said before the results were released. Before a government-backed bankruptcy in 2009, “they were making record losses, so they’ve made a tremendous amount of progress.”

GM global sales rose 7.6 percent last year to 9.03 million to outsell Toyota Motor Corp. (7203) as the world’s top-selling automaker. GM lost the sales crown in 2008 to Toyota. The shares rose 4.1 percent to $25.95 at 10:18 a.m. New York time.

‘Growth Story’

GM’s full-year profit in 2010 of $6.17 billion had been the automaker’s largest annual income since its predecessor earned $6.7 billion in 1997, excluding profit in 2009 to account for its post-bankruptcy recapitalization.

“This in my mind for the next couple years is a true growth story with some hiccups along the way in Europe, but tell me anyone who’s not facing issues in Europe,” Sarat Sethi, a New York-based portfolio manager at Douglas C. Lane & Associates, said in a Bloomberg Television interview.

“We clearly have work to do in Europe,” Chief Financial Officer Dan Ammann told reporters at GM’s headquarters in Detroit. “We have work to do in the South America business. Frankly we have work to do all around the company in terms of cost opportunities.”

Profit Sharing

GM announced it will pay profit-sharing bonuses of as much as $7,000 to 47,500 eligible UAW members under a formula negotiated last year as part of a four-year labor contract. A year ago, the automaker paid a record $4,300 on average to U.S. union workers. U.S. salaried workers’ bonus payout will decrease to 86 percent of the target for 2011 from 145 percent a year earlier, Katie McBride, a GM spokeswoman, said in a telephone interview.

Chief Executive Officer Dan Akerson wants to reduce costs to improve GM’s EBIT margin, which lags behind that of Ford Motor Co. (F), Volkswagen AG (VOW) and Hyundai Motor Co.

Revenue in the fourth quarter increased to $38 billion from $36.9 billion a year earlier, the company said. For 2011, revenue increased to $150.3 billion from $135.6 billion.

GM boosted U.S. sales last year by 13 percent while reducing incentive spending per vehicle by 5.1 percent to $3,223, according to researcher Autodata Corp., based in Woodcliff Lake, New Jersey.

Problems in Europe

“You’ve got a great turnaround going on in the United States that’ll continue to get better, especially in 2013,” David Whiston, an analyst with Morningstar Inc. in Chicago, said. “I’ve been telling clients 2012, still think of it as a transition year for the new GM to get totally up to speed, because they still have holes in their product lineup, most notably full-size pickups.”

In Europe, where GM hasn’t recorded an annual profit for more than a decade, the average of the industry analysts’ estimates was for the fourth-quarter loss to increase to $358 million from a deficit of $292 million in the third quarter.

GM Europe lost $562 million in the fourth quarter, little changed from a loss of $568 million a year earlier. Last quarter’s loss included about $200 million in restructuring costs that weren’t reflected in the estimates.

“The industry is over capacity,” Ammann said of Europe. GM is working on “the pieces of our business that we can control, working with all of our partners to get to the right answer overall.”

‘Drives Me Crazy’

GM, to improve capacity utilization in Europe, should reconsider plans to import Opel and Vauxhall vehicles to the region, Wolfgang Schaefer-Klug, chairman of the German Group Works Council, said today in a statement.

“The expansion and refreshment of the Opel product line up offers a good starting point,” Schaefer-Klug said.

Ammann declined to say whether Europe will break even this year.

“The thing about Europe that drives me crazy is I just don’t see it getting better anytime soon,” Whiston said. “You either need sales to pick up really, really strong. Or you need to fire a lot of people and close plants.”

GM’s international operations, which include China, earned $373 million in the fourth quarter while the South America business lost $225 million, the company said.

While GM shares have risen 23 percent this year through yesterday, they remain below the $33 level of the automaker’s 2010 initial public offering. With a market capitalization of $39 billion through yesterday, GM traded at 6.13 times earnings, less than half the 14 times earnings that investors pay for the S&P 500 Index.

Uncertainty Ahead

The U.S. Treasury Department sold 28 percent of GM in the IPO, and it still holds 32 percent of the Detroit automaker’s shares, acquired as part of the Obama administration’s $50 billion bailout. The U.S. wants to sell for at least the IPO price, people familiar with the matter have said.

“GM is caught between what they don’t know and what they should not promise,” Adam Jonas, an industry analyst with Morgan Stanley, wrote in a note to investors yesterday.

While Ford is targeting a little changed profit for this year with improvements in North America, he said, “GM would have a difficult time promising the same given the restructuring efforts in Europe, the disruption of the truck changeover and pension headwinds.”

GM’s global pension plans were underfunded by $24.5 billion, an increase from $22.2 billion at the end of 2010, the company said today.

Pension Changes

The company decreased the discount rate it uses to calculate the present value of future cash flows, which hurt the funded status by $8.4 billion.

The pension plans achieved 11 percent asset returns, exceeding the company’s 8 percent target. Pension expense in 2012 will be “unfavorable” because GM is lowering its expectation for returns to 6.2 percent as it allocates more assets to fixed-income investments, Ammann told reporters.

Cindy Brinkley, GM vice president for global human resources, yesterday said 19,000 U.S. salaried workers who were hired prior to 2001 were being moved from defined benefit pension plans to defined contribution 401(k)s on Oct. 1.

Those workers will stop accruing fixed retirement benefits on Sept. 30 and begin receiving defined contributions to 401(k) programs, she said.

U.S. salaried workers won’t get across-the-board salary increases this year while the automaker will offer bonuses, Brinkley said in a conference call with reporters. GM’s U.S. salaried workers haven’t had an across the board pay increase since February 2010.

GM is considering initiatives beyond the changes it made to salaried workers’ pension plans to improve the funded status, Ammann said today.

To contact the reporters on this story: Tim Higgins in Detroit at; Craig Trudell in Southfield, Michigan at

To contact the editor responsible for this story: Jamie Butters at


Stocks in U.S. Gain on Economic Data as European Shares, Euro Pare Losses

By Stephen Kirkland and Rita Nazareth - Feb 16, 2012 10:47 PM GMT+0700
Enlarge image Stocks in U.S. Advance on Economic Data

Trader Michael Capolino, right, and specialist Anthony Majestic, left, at the New York Stock Exchange. Photographer: David Karp/AP

Feb. 16 (Bloomberg) -- Ken Adams, who helps oversee 140 billion pounds ($219 billion) as head of global strategy at Scottish Widows Investment Partnership, discusses asset allocation strategy. He talks from Edinburgh with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

U.S. stocks rose, rebounding from a two-day drop in the Standard & Poor’s 500 Index, as data on jobless claims, housing starts and manufacturing bolstered optimism in the world’s largest economy. European shares and the euro pared losses triggered by concern over Greece.

The Standard & Poor’s 500 Index advanced 0.4 percent to 1,348.28 at 10:44 a.m. in New York. The Stoxx Europe 600 Index lost 0.1 percent after tumbling as much as 1.1 percent. The euro was down 0.1 percent at $1.3052 after dipping below $1.30 earlier for the first time since Jan. 25. The S&P GSCI gauge of 24 commodities was little changed. Ten-year Treasury yields increased three basis points to 1.96 percent.

U.S. equities halted a global slump as jobless claims slid to a four-year low while housing starts and the Federal Reserve Bank of Philadelphia’s economic index topped forecasts. Europe’s creditor countries struggled to bridge divisions over a rescue of Greece yesterday, delaying a decision on 130 billion euros ($170 billion) of aid until Feb. 20. Ratings for global banks may be cut as lenders face risks of rising funding costs amid Europe’s debt woes, Moody’s Investors Service said.

“We’re more important to Europe than Europe is to us,” Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp., said in a telephone interview. Her firm has $1.68 trillion in client assets. “U.S. economic numbers have been much better than expected. I’m pretty optimistic, but I don’t think we’re going to boom. The debt overhang puts a lid on how fast the U.S. economy can grow.”

Dow Leaders

Microsoft Corp., American Express Co. and Hewlett-Packard Co. rose more than 1 percent for the biggest gains in the Dow Jones Industrial Average. (INDU) Nine of the 10 main industry groups in the S&P 500 advanced.

General Motors Co. (GM) rallied 4.3 percent after posting full- year earnings of $9.19 billion, the largest profit in its 103- year history.

Applications for jobless benefits decreased by 13,000 last week to 348,000, less than the lowest forecast in a Bloomberg survey of economists and the fewest since March 2008. The Philadelphia Fed’s general economic index increased to 10.2, topping the median economist forecast for a reading of 9. Housing starts increased 1.5 percent to a 699,000 annual rate and building permits increased. The Bloomberg Consumer Comfort Index increased to the highest level in a year.

European Stocks

Almost two shares declined for each that rose in the Stoxx 600. Spanish banks led losses as regulators lifted a six-month ban on short-selling the nation’s lenders. Banco Santander SA lost 2.5 percent, the most in six weeks. Banco Bilbao Vizcaya Argentaria SA and Bankia SA retreated more than 4.5 percent.

Ratings for UBS AG, Credit Suisse Group AG and Morgan Stanley may be lowered by as many as three levels, while those for Goldman Sachs Group Inc. (GS), Deutsche Bank AG, JPMorgan Chase & Co. and Citigroup Inc. may be cut two levels, Moody’s said in a statement.

The euro slipped 0.2 percent to $1.3046. The Dollar Index, which tracks the U.S. currency against six trading partners, rose 0.1 percent.

Italian 10-year bond yields decreased five basis points to 5.69 percent and Spain’s yields lost 11 basis points to 5.33 percent. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose for a seventh day, its longest run of increases since November 2010. The gauge climbed six basis points to 351, the highest since Jan. 18.

Yield Spread

The difference in yield investors demand to own Spain’s 10- year bonds compared with Germany benchmark bunds decreased 13 basis points after rising earlier. Spain sold 4.07 billion euros of debt maturing in 2015 and 2019, more than the 4 billion-euro maximum target. The yield spread between French bonds and the bund decreased five basis points. France sold 8.45 billion euros of debt at lower borrowing costs.

The MSCI Emerging Markets Index (MXEF) fell 1.1 percent, erasing most of yesterday’s gain. Taiwan’s Taiex index and South Korea’s Kospi Index lost at least 1.4 percent. Catcher Technology Co. (2474) and Foxconn Technology Co., which make casings for Apple Inc.’s iPhones, slumped more than 6 percent in Taipei after Apple shares lost 2.3 percent yesterday. The Shanghai Composite Index (SHCOMP) retreated 0.4 percent.

To contact the reporters on this story: Stephen Kirkland in London at; Rita Nazareth in New York at

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


U.S. Stocks Gain on Better-Than-Estimated Data

By Rita Nazareth - Feb 16, 2012 10:58 PM GMT+0700

Feb. 16 (Bloomberg) -- David Kotok, chief investment officer at Cumberland Advisors Inc., talks about investment strategy and global central bank policy. Kotok also discusses Comcast Corp. authorizing a $6.5 billion stock buyback and increasing its annual dividend 44 percent to 65 cents a share. He speaks with Tom Keene and Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

U.S. stocks advanced, following a two-day decline in the Standard & Poor’s 500 Index, as better- than-estimated housing, manufacturing and jobless claims data outweighed concern about a Greek debt default.

Microsoft Corp. (MSFT) and American Express Co. added at least 1.6 percent to pace gains in the Dow Jones Industrial Average. General Motors Co. (GM) advanced 4.3 percent after the automaker posted the biggest profit in its 103-year-history. NetApp (NTAP) Inc. increased 5.8 percent as the maker of data-storage products reported revenue that beat analysts’ estimates. Morgan Stanley (MS) tumbled 1.6 percent as it is among the financial companies that may be downgraded at Moody’s Investors Service.

The S&P 500 rose 0.3 percent to 1,346.67 at 10:57 a.m. New York time, after falling as much as 0.2 percent earlier. The Dow increased 51.42 points, or 0.4 percent, to 12,832.37 today.

“We’re more important to Europe than Europe is to us,” Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp., said in a telephone interview. Her firm has $1.68 trillion in client assets. “U.S. economic numbers have been much better than expected. I’m pretty optimistic, but I don’t think we’re going to boom. The debt overhang puts a lid on how fast the U.S. economy can grow.”

Stocks rose as a report showed that manufacturing in the Philadelphia region expanded in February at the fastest pace in four months as new orders and sales picked up. Claims for jobless benefits unexpectedly dropped last week to the lowest level in four years. Builders broke ground on more homes than forecast in January, helped by warmer weather and adding to signs the U.S. residential real estate market is stabilizing.

Europe’s Woes

European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second bailout program for Athens, two people familiar with the discussions said.

Benchmark gauges fell earlier today as Europe’s creditor countries struggled to bridge divisions over Greece’s bailout yesterday, delaying a decision on 130 billion euros ($170 billion) of aid until Feb. 20. Ratings for global banks may be cut as global lenders face risks of rising funding costs amid Europe’s debt woes, Moody’s said.

Twenty nine out of 30 companies in the Dow gained today. Microsoft, the world’s largest software maker, gained 2.1 percent to $30.68. American Express (AXP) added 1.6 percent to $52.32.

GM surged 4.3 percent to $26.01. North America earnings before interest and taxes more than tripled for the year to $7.19 billion. The automaker’s Europe business, including the Opel brand, lost $747 million for the year.

New Customers

NetApp rallied 5.8 percent to $42.20. The maker of data- storage products said revenue in the third quarter was $1.57 billion, above the average analyst estimate of $1.56 billion. The company said it won a record number of new customers and significantly increased the amount of units shipped.

Morgan Stanley dropped 1.6 percent to $18.66. Its credit rating may be cut by as many as three levels by Moody’s, which is reviewing 17 banks and securities firms with global capital markets operations. Goldman Sachs Group Inc. (GS), JPMorgan (JPM) Chase & Co. and Citigroup Inc. (C) are among companies that may be downgraded by two levels, Moody’s said in a statement, adding that the “guidance is indicative only.” Bank of America Corp. (BAC) may be lowered by one grade.

Goldman Sachs fell 0.4 percent to $112.69. JPMorgan rose 0.6 percent to $37.61. Citigroup declined 0.1 percent to $31.70. Bank of America gained 0.5 percent to $7.82.

Amazon Sinks Inc. (AMZN) sank 4 percent to $177.17. The shares fell after Scott Devitt, an analyst at Morgan Stanley, cut the rating to “equal-weight,” meaning the total return is expected to be in line with the average total return of the analyst’s industry or industry team’s coverage universe, on a risk-adjusted basis, over the next 12-18 months.

CBS Corp. (CBS) dropped 1.9 percent to $29.01. The owner of the most-watched U.S. television network posted fourth-quarter sales that missed analysts’ estimates as advertising declined.

J.M. Smucker Co. (SJM) slumped 8.5 percent to $71.50. The maker of Folgers coffee forecast 2012 earnings excluding some items of $4.65 a share at most. On average, the analysts surveyed by Bloomberg estimated profit of $5.

Price swings by the S&P 500 have narrowed to a nine-month low following the measure’s biggest rally to start a year since 1997. The distance between its intraday low and high has averaged 0.86 percent since Feb. 2, a 10-day level last seen on May 5, according to data compiled by Bloomberg.

Out of Steam

Volatility (SPX) has diminished after the S&P 500 advanced 6.8 percent in 2012. When the 10-day average swing was this low in May, the index had just peaked on April 29 and went on to slump 19 percent through October. The current narrowing signals the rally may be running out of steam, said Katie Stockton, chief market technician at Greenwich, Connecticut-based MKM Partners.

“It reflects a loss of momentum, which had been very strong until last week,” Stockton wrote in an e-mail.

The S&P 500 yesterday reversed its gain after hitting 1,355.87, near its July intraday peak of 1,356.48. Stocks have rallied this year as companies reported earnings that beat analysts’ estimates for the 12th straight quarter and better- than-expected data on manufacturing and employment bolstered optimism about the world’s largest economy.

The market has gone without the S&P 500 losing at least 0.7 percent for 33 consecutive days, the longest streak since January 2011, according to data compiled by Bloomberg.

Yesterday’s reversal “could put some real pressure on the bulls as they try to avert a follow-through down session.” Frank Cappelleri, a market technician at Instinet Inc. in New York, wrote in an e-mail.

To contact the reporter on this story: Rita Nazareth in New York at

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


Morgan Stanley, UBS May Be Cut by Moody’s

By Sanat Vallikappen and Stephanie Tong - Feb 16, 2012 7:54 PM GMT+0700
Enlarge image UBS May Be Cut Up to Three Levels by Moody’s

The UBS offices in New York. Photographer: JB Reed/Bloomberg

Feb. 16 (Bloomberg) -- Frederic Oudea, chief executive officer of Societe Generale SA, says the start of 2012 is better than expected due to the European Central Bank's long-term refinancing operations. France's second-largest bank said fourth-quarter profit declined 89 percent as the investment bank posted a loss. Linzie Janis and Owen Thomas report on Bloomberg Television's "Countdown." (Source: Bloomberg)

UBS AG, Credit Suisse Group AG (CSGN) and Morgan Stanley’s credit ratings may be cut by as many as three levels by Moody’s Investors Service, which is reviewing 17 banks and securities firms with global capital markets operations.

Goldman Sachs Group Inc. (GS), Deutsche Bank AG (DBK), JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) are among companies that may be downgraded by two levels, Moody’s said in a statement, adding that the “guidance is indicative only.” Moody’s today cut some European insurers’ ratings based on risks stemming from the region’s sovereign debt crisis.

The potential downgrades, which may raise borrowing costs and force banks to increase collateral, put the ratings company at odds with bond investors, who are sticking with bets that new capital rules and trading limits will make the financial firms safer in the long run. Funding costs have climbed for banks worldwide as Greece’s debt woes roil markets.

“In the next two years, these big banks will be less robust than they used to be, that’s for sure,” Jim Antos, a Hong Kong-based financial analyst at Mizuho Securities Co., said by telephone. “For any bank that has to raise capital today, it’s already very difficult. This makes it just that much more expensive and difficult.”

Barclays Plc (BARC), BNP Paribas SA, Credit Agricole SA, HSBC Holdings Plc (HSBA), Macquarie Group Ltd. (MQG) and Royal Bank of Canada may also be cut by two levels, Moody’s said. Bank of America Corp. (BAC), Nomura Holdings Inc. (8604) Royal Bank of Scotland Group Plc and Societe Generale SA may be lowered by one grade, it said.

Evolving Challenges

“Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions,” Moody’s said. “These difficulties, together with inherent vulnerabilities such as confidence- sensitivity, interconnectedness and opacity of risk, have diminished the longer-term profitability and growth prospects of these firms.”

The 43-member Bloomberg Europe Banks and Financial Services Index fell 2.4 percent as of 8:56 a.m. local time in London. Deutsche Bank shares dropped as much as 4.2 percent to the lowest intraday price since Jan. 30. Barclays declined as much as 3.2 percent while Credit Agricole fell as much as 5 percent and UBS (UBSN) retreated as much as 1.9 percent.

Bond Prices

Credit Suisse’s 2.25 billion euros ($2.92 billion) of 3.875 percent bonds due in 2017 rose 2.3 percent to 103.792 cents on the euro, according to Bloomberg Bond Trader prices. UBS’s 1.5 billion euros of 3.125 percent notes maturing in 2016 were little changed at 101.121 cents on the euro, the prices show.

UBS, Switzerland’s biggest bank, has a long-term rating of Aa3 at Moody’s, and a three-level downgrade would reduce it to A3, the fourth-lowest investment grade. Domestic rival Credit Suisse is currently rated one level higher than UBS at Aa2 at the group level, while its operating subsidiary Credit Suisse AG is rated Aa1. New York-based Morgan Stanley (MS) is A2, and a three- level cut would drag it to Baa2, the second-lowest investment grade.

“Today’s announcement by Moody’s does not immediately affect UBS’s ratings” because it has been on review since September, the Zurich-based bank wrote in an e-mailed statement to Bloomberg News. “UBS’s financial position is strong and a source of competitive advantage.”

Macquarie, Nomura

Spokesmen for Morgan Stanley, New York-based JPMorgan and Charlotte, North Carolina-based Bank of America declined to comment on the review. Spokesmen in Singapore for London-based Barclays, Frankfurt-based Deutsche Bank (DBK), Zurich-based Credit Suisse and Edinburgh-based RBS also declined to comment, as did Macquarie in Sydney and Nomura in Tokyo. Spokesmen for Toronto- based Royal Bank of Canada, Paris-based BNP Paribas (BNP) and London- based HSBC weren’t available to comment.

As well as UBS, Credit Suisse, Macquarie and Nomura were already on review before today and those examinations are being extended, Moody’s said. A one-level downgrade for Nomura would push its long-term rating to Baa3, one grade above junk.

Citigroup has “a strong capital base, robust structural liquidity and ample reserves,” said Jon Diat, a spokesman for the New York-based bank, which is facing a cut to as low as Baa2.

The review by Moody’s “is likely to have very limited consequences on financial markets, which have adjusted over the past few months to a new environment in which banks’ ratings overall are lower,” said Kate Henley, a spokeswoman for Societe Generale in Hong Kong. A one-level cut would bring the Paris- based bank to A2, still the sixth-highest investment grade.

U.S. Downgrade

The threat of downgrades hasn’t deterred investors from buying financial debt. The response is similar to that taken in August when financial markets dismissed the U.S.’s loss of AAA status at Standard & Poor’s by pushing the yield on the 10-year Treasury note to a record-low 1.6714 percent seven weeks later.

Bank bonds from the U.S. to Europe and Asia have returned 5.8 percent from the end of November through Feb. 13, poised for the biggest three-month gain since the period ended September 2009, according to Bank of America Merrill Lynch index data.

“The downgrade is unlikely to shake the market a lot as this has been expected for quite some time,” said Lewis Wan, Hong Kong-based chief investment officer of Pride Investments Group Ltd., which manages $250 million of assets. “The banking industry -- including investment banks, retail banks and commercial banks -- will run their business more conservatively because of the increasingly tougher regulations.”

Moody’s wrote on Jan. 19 that credit profiles of many global lenders are weakening amid worsening government finances, economic uncertainty and higher funding costs.

S&P, Fitch

Richard Noonan, a spokesman for S&P in Melbourne, said the company unveiled fresh criteria for assessing banks worldwide in November and implemented a number of rating actions. “We’re always looking at bank ratings, and they’re under constant review by our analysts,” Noonan said in a telephone interview.

Matt Robinson, a spokesman for Fitch Ratings in Sydney, declined to comment on Moody’s action. Fitch released a Feb. 13 report on its decision to review in the fourth quarter of 2011 large banks around the world, which “resulted in a significant increase in the number of rating downgrades,” he said.

Moody’s took action on European insurers today on risks tied to the region’s sovereign debt and banks. Allianz SpA (R), the Italian unit of Allianz SE (ALV), Europe’s largest insurer, had its insurance financial strength rating cut to A1 from Aa3 with a negative outlook, Moody’s said separately today.

The company affirmed the insurance financial strength rating for Allianz, AXA SA (CS), Aviva Plc (AV/) and their subsidiaries, while changing their outlook to negative because of weaker economies in the euro area.

To contact the reporters on this story: Sanat Vallikappen in Singapore at; Stephanie Tong in Hong Kong at

To contact the editors responsible for this story: David Scheer at; Chitra Somayaji at


Europe Demands More Greek Budget Controls

By James G. Neuger - Feb 16, 2012 6:01 AM GMT+0700

Europe’s creditor countries struggled to bridge divisions over a rescue of Greece, seeking more control over how future aid is spent as the clock ticked toward a possible default next month.

In a replay of the brinkmanship that marked the early stages of the Greek crisis two years ago, euro-area finance ministers extracted concessions from political leaders in Athens intended to pave the way for the endorsement of a 130 billion- euro ($171 billion) aid package next week.

While “further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of program implementation,” Europe is set to make “all the necessary decisions” on Feb. 20, Luxembourg Prime Minister Jean-Claude Juncker said in an e-mailed statement after chairing a conference call of finance chiefs late yesterday.

Greece’s plea for more aid on top of the 110 billion euros awarded in 2010 has stirred recriminations on both sides of Europe’s north-south economic divide, with taxpayers in better- off countries rebelling against further handouts. Each day lost brings Greece closer to a March 20 bond redemption when it must make a 14.5 billion-euro payment or become the first country in the euro’s 13-year history to default.

Greece made “substantial further progress” by outlining 325 million euros in additional savings and providing written pledges from the leaders of its two main parties not to backslide on the budget cuts, Juncker said.

Meeting Conditions

Greece has now met all conditions set by the European Union and International Monetary Fund for the lifeline, Finance Minister Evangelos Venizelos told reporters in Athens after the 3 1/2-hour telephone consultations.

Before the call, Finland and the Netherlands had appealed for the postponement of a new program until elections as early as April produce a full-time Greek government that replaces the caretaker administration, one European official said. In that scenario, the euro area would arrange a bridge loan to get Greece past the March payment, the official said.

“Ultimately the question is whether Greece has political will to sort out their economy and fulfill the conditions,” Finnish Finance Minister Jutta Urpilainen told reporters in Helsinki yesterday.

Juncker’s post-call statement didn’t address the question of a possible interim loan. It indicated that there is no accord yet on a proposal to set up an escrow account to ensure that the aid money goes to paying creditors.


Tensions over Greece pushed the euro down 0.5 percent to $1.3065 at 10:15 p.m. in Brussels. Meantime, evidence mounted that the euro’s guardians have made progress ring-fencing Greece’s woes. Portugal raised 3 billion euros yesterday, selling debt maturing in up to 12 months after increasing the amount to meet investor demand.

A delayed decision on public support for Greece until after the still-unscheduled election would risk snagging a separate component of the package: a bond exchange by private investors designed to wipe 100 billion euros off of Greece’s debt.

While some German finance officials see the merits of putting back approval of a multi-year aid program until after the Greek election, Chancellor Angela Merkel hasn’t made her stance clear yet, the European official said.

Merkel’s Concern

Buoyed by an uptick in opinion polls, unemployment at a two-decade low of 6.7 percent and European backing for a German- designed fiscal discipline treaty, Merkel has warned in recent weeks of the risks of letting Greece default or pushing it out of the euro.

The leader of Europe’s dominant economy is also under pressure from Italy’s new prime minister, Mario Monti, who has emerged as the spokesman for economically depressed southern European countries struggling against German-imposed austerity.

A former European commissioner who leads an interim government in Rome, the nonpartisan Monti said Greece is being put under unbearable strains and traced the origins of the crisis to moves by prior German and French leaders to soften the euro’s deficit rules.

“The very tough approach being taken toward Greece today may lead us to regard this as being excessive, and it probably is,” Monti told the European Parliament in Strasbourg, France yesterday. “There are no good guys and bad guys. We all need to feel jointly responsible.”

Sarkozy’s Campaign

By twinning fiscal savings with an economic overhaul in Italy, Monti has earned respect in Germany just as Merkel’s chief crisis-management partner, French President Nicolas Sarkozy, plunges into a reelection campaign that polls indicate he will lose.

Greece has squandered credibility by missing targets for deficit reduction, economic reforms and asset sales that were set for the first aid package. As a result, the once-taboo notion of a departure or expulsion from the euro has crept into the mainstream political debate.

In Athens, political leaders responded with alarm to the threats from northern Europe. Early yesterday, Venizelos said wealthier countries are “playing with fire” by toying with the idea of booting Greece out of the euro.

The head of Greece’s second-biggest party, New Democracy’s Antonis Samaras, was dragged into another German-Greek spat when he was blamed by German Finance Minister Wolfgang Schaeuble for holding up economic reforms.

Papoulias’s Pushback

Samaras was defended by Karolos Papoulias, Greece’s largely ceremonial president, a veteran of the anti-Nazi resistance during World War II.

“I don’t accept the ridiculing of my country by Mr. Schaeuble,” the 82-year-old Papoulias said in Athens. “I don’t accept it as a Greek. Who is Mr. Schaeuble to ridicule Greece? Who are the Dutch? Who are the Finns? We always had the pride to defend not just our own freedom, not just our own country, but the freedom of all of Europe.”

In solidarity with 11 million Greeks reeling from two years of spending cuts and tax increases, Papoulias said he would work for free, giving up an annual salary estimated by Bloomberg at 300,000 euros.

To contact the reporter on this story: James G. Neuger in Brussels at

To contact the editor responsible for this story: James Hertling at


Obama Looks to Hollywood to Raise Millions for Re-Election Bid

By Kate Andersen Brower - Feb 16, 2012 1:15 AM GMT+0700

President Barack Obama will be tapping into Hollywood money in his first California fundraising trip since anti-piracy legislation backed by the film industry was scuttled in Congress.

Over the next three days Obama is seeking to raise more than $8 million for his re-election, the bulk of it coming from six fundraisers in Los Angeles, San Francisco and Corona Del Mar, California, including one event co-hosted by comedian Will Ferrell. He also plans to raise money in Washington state.

Californians have given more to the president’s campaign than donors from any other state, according to the Center for Responsive Politics, a Washington-based group that tracks political money. The state also is home to two of Obama’s top donor groups, the entertainment industry and Silicon Valley, which were at odds over the legislation to curb pirated content on the Internet.

Andrew Schwartzman, senior vice president of the Washington-based advocacy group Media Access Project, said Obama probably should expect questions from entertainment industry executives about future attempts to revive the anti-piracy measure.

Movie executives will have to “lick their wounds and accept that, if legislation is going to be enacted, it is going to require a very substantial revision,” said Schwartzman, whose group promotes freedom of expression and universal access to communications.

Legislation Shelved

Leaders in the House and Senate on Jan. 20 shelved anti- piracy legislation backed by the movie and music industries days after a global online protest led by Mountain View, California- based Google Inc. and Wikipedia eroded congressional support. Internet companies objected, saying the measures would promote online censorship, disrupt the Web’s architecture and harm their ability to innovate.

The Obama administration, without taking a direct stand on the legislation before Congress, said it wouldn’t support measures that encourage censorship or disrupt the structure of the Internet.

Former Democratic Senator Chris Dodd, chairman of the Washington-based Motion Picture Association of America, said he hopes Obama will use the trip as an opportunity to make the case that the Internet and entertainment industries must find a consensus on stopping content theft.

Common Approach

“Now is the time to come together to find meaningful solutions to protect American intellectual property from foreign criminals,” Dodd said in an e-mail. “We strongly believe that the content and tech industries need each other in order to succeed and grow.”

White House press secretary Jay Carney told reporters traveling with the president today that the administration is committed to finding a solution that will protect copyrights and intellectual property without impinging on the free flow of information.

“We believe its a ’both and,’ not an ’either or’ proposition,” Carney said.

Some of Obama’s top bundlers are entertainment industry giants, including Dreamworks Animation SKG Inc. Chief Executive Officer Jeffrey Katzenberg, the co-founder of Miramax Film Corp., Harvey Weinstein, and Katzenberg’s political consultant, Andy Spahn. Weinstein, through his publicist, declined to be interviewed. Katzenberg and Spahn didn’t respond to requests for comment.

Political Committee

Priorities USA Action, a super-PAC backing Obama, got one of its first checks from Katzenberg, who contributed $2 million a July Federal Election Commission filing shows. Steven Spielberg, the movie director, contributed $100,000 in July.

Still, there was a decline in contributions from employees and their families associated with the television, movie and music industries to Obama in the last three quarters of 2011 compared with the same period in 2007, according to the Center for Responsive Politics. In the last three quarters of 2011, the entertainment industry gave Obama $1.2 million compared with $1.8 million during the same period in 2007, according to the center.

The opposite was true for the computer and Internet industry, which gave to Obama’s re-election more in the last three quarters of 2011 than they did during the same period in 2007, according to the center. In 2011, the employees of computer and Internet companies gave Obama $1.7 million compared with $1.1 million during the same period in 2007, according to the center. Employees of Google, the world’s most popular search engine, were the third-biggest corporate source of Obama’s campaign cash.

Support From Both

Carney said Obama “enjoys support from people in both industries.”

Fred Wilson a managing partner at New York-based Union Square Ventures who has helped fund Web-based technology companies, said Obama “has been pro-innovation and technology and he should enjoy strong support from the tech community.”

Harold Feld, legal director of Public Knowledge, a Washington-based digital advocacy group, said that, while entertainment executives may be upset with Obama for not pressing on anti-piracy, they won’t hold a grudge for long.

Tough Questions

“I think Obama’s going to face tough questions, but after they’ve had a little time to think about how much they rely on the administration, to enforce trade agreements in particular, they are not going to want to jeopardize that relationship,” Feld said.

The president is seeking to raise more than $3 million today at the Los Angeles home of television producer Bradley Bell and his wife, Colleen, co-hosted by Ferrell and his wife, Viveca Paulin, according to a campaign official. The rock band Foo Fighters will perform for approximately 1,000 people, with tickets costing $250 and $500 each. A dinner will be held later at the home for approximately 80 people who paid $35,800, the legal limit.

Tomorrow, approximately 125 people are expected to pay at least $2,500 per person to attend a luncheon at the Corona del Mar home of Jeff and Nancy Stack. He is the managing director of Irvine-based developer Sares-Regis Group. The president will then travel to San Francisco where he will attend three more fundraisers. The next day Obama will attend a fundraising lunch with 65 people at a private residence in Medina, Washington, and a reception later in Bellevue, Washington.

The president will bookend the trip with remarks on the economy and about moving jobs back to the U.S. during a visit to a Master Lock Co. factory in Milwaukee, Wisconsin, today and at a Feb. 17 stop at a Boeing Co. factory in Everett, Washington, outside of Seattle. Obama is seeking re-election with an unemployment rate that been at or above 8 percent for three years.

To contact the reporter on this story: Kate Andersen Brower in Milwaukee at

To contact the editor responsible for this story: Steven Komarow at


Sole Apple Analyst With ‘Sell’ Rating Clings to View Even as Stock Surges

By Peter Burrows - Feb 16, 2012 4:34 AM GMT+0700

Feb. 15 (Bloomberg) -- Robert Doll, chief equity strategist at BlackRock Inc., talks about BlackRock's investment philosophy and strategy, the outlook for corporate dividend increases and share buybacks in 2012, the U.S. budget deficit and economic growth. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

Edward Zabitsky is the only person among at least 56 analysts whose Apple Inc. (AAPL) ratings are tracked by Bloomberg who recommends that investors “sell” the shares.

Zabitsky, who analyzes equities for Toronto-based ACI Research, said he’s sticking to the view even after the shares soared past $500 and extended Apple’s lead as the world’s most valuable company, reported on its Tech Blog.

Margins on the iPhone, Apple’s best-selling product, will come under pressure as competing handsets, such as those sporting Microsoft Corp. and Google Inc. software, gain wider acceptance, Zabitsky said. Rivals, including Samsung Electronics Co. (005930), may get a boost from a new Web standard called HTML5 that’s designed to improve access to software tools on mobile devices, bolstering alternatives to the iPhone, he said.

“I should have waited for there to be more adoption, but intellectually, I feel good about the call,” Zabitsky said.

Prices on the iPhone may decline as Apple takes steps to compete with Android and Windows phones, he predicted. The gross margin on the device may fall to 25 percent, putting it on par with the iPad and Mac computers, from more than 50 percent now, Zabitsky predicted.

One of the biggest beneficiaries may be Samsung, which can undercut competitors because it also makes many of the parts used in devices, the analyst said.

“If a price war breaks out in Android phones, Samsung wins hands down,” he says.

IPhone Alternatives?

Zabitsky is placing a big bet on HTML5. Applications based on the standard will give users added flexibility in accessing Web-based tools on a handset, creating a more viable alternative to the iPhone, according to Zabitsky.

If that standard takes off, customers will be able to get to most of their favorite services without the need of Apple’s app ecosystem. The move to speedier 4G cellular networks and the increased availability of Wi-Fi hot spots will also make the Web apps more useful.

Zabitsky is not the only one to predict the fall of Apple. The AAPLinvestors blog maintains a list of bearish predictions on its iPhone Death Watch page.

That list includes a few of Zabitsky’s calls. In 2009, for instance, he predicted that Apple’s hardware “will eventually become irrelevant.” Apple’s shares were about $210 then.

Apple’s stock slipped 2.3 percent to $497.67 today, two days after closing above $500 for the first time. Zabitsky had a target price of $270 as of January. That compares with $575.56, the 12-month consensus estimate among analysts surveyed by Bloomberg, and the $700 price set by Daniel Ernst, an analyst at Hudson Square Research.

Zabitsky said it hasn’t been easy sticking by his sell recommendation, which is more than a year old. Zabitsky said he didn’t foresee how poorly Nokia Oyj (NOK1V) and Research In Motion Ltd. (RIM) would fare in comparison with Apple.

Apple isn’t the only one on his negative list. He’s got a sell on 12 of 15 companies, including Cisco Systems Inc. (CSCO), Broadcom Corp. (BRCM) and Juniper Networks Inc. (JNPR) His only buys are on Alcatel-Lucent (ALU), the European telecommunications equipment maker, and a company called Emcore Corp. (EMKR), which makes optical components for the networking industry.

To contact the reporter on this story: Peter Burrows in San Francisco at

To contact the editor responsible for this story: Tom Giles at


John Paulson Says Greece May Default, Spurring Euro Breakup

By Saijel Kishan - Feb 16, 2012 3:48 AM GMT+0700

Paulson & Co., the $23 billion hedge fund whose founder John Paulson is seeking to recover from record losses last year, said Greece may default by the end of March, triggering the breakup of the euro.

Greece may need an unprecedented 90 billion euros ($117 billion) to meet funding requirements under the anticipated agreement on private sector involvement, the recapitalization of the banks and other funding needs, Paulson estimated in a year- end letter sent to clients this month.

“We believe a Greek payment default could be a greater shock to the system than Lehman’s failure, immediately causing global economies to contract and markets to decline,” the hedge fund said in the letter, a copy of which was obtained by Bloomberg News. The euro is “structurally flawed and will likely eventually unravel,” it said.

Two years after pledging to pull Greece back from the brink, European leaders are torn between pouring more aid into the country or risking an unprecedented national bankruptcy that might force the nation out of the euro and spur renewed market turmoil.

“It seems likely that the pressure to keep the euro together becomes too great and it ultimately falls apart,” Paulson said in the 100-page letter. The firm said its biggest concern are European banks, which have borrowed more than their U.S. counterparts and don’t have enough equity to withstand a credit crisis.

‘Biggest Disappointment’

Paulson, who became a billionaire in 2007 by betting against the U.S. subprime mortgage market, lost 51 percent in one of his largest funds last year as his wagers on a U.S. economic recovery went awry. He sold his entire stakes in Citigroup Inc. and Bank of America Corp. last quarter before the shares rallied this year.

“Bank of America has been the biggest disappointment in our banking portfolio,” Paulson said.

The holdings, which he began aggressively building in 2009, were among his largest last year.

“While we have seen a reasonable recovery in the U.S. with leading indicators in early 2012 trending positive and equity valuations well below historical norms, the European sovereign debt crisis remains the overriding risk in the markets,” the hedge fund said.

As a result, Paulson said it cut its so-called net exposure in its Advantage funds, which are among the firm’s largest, to 32 percent as of Jan. 31 from 82 percent at the start of last year. Those funds seek to profit from corporate events such as takeovers and bankruptcies.

Demand for Gold

Armel Leslie, a spokesman for New York-based Paulson, declined to comment on the letter.

The hedge fund reiterated its view that government spending around the world will fan inflation, supporting demand for gold and that now is the time to invest in the metal.

“By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold,” the hedge fund said, adding that it expects the price differences between bullion and gold miners to narrow this year.

Paulson said it expects continued market volatility and the European debt crisis to affect merger activity in 2012. The firm said it still sees opportunities for investment gains in Motorola Mobility Holdings Inc., which Google Inc. is planning to acquire, as well as AMC Networks Inc., Ralcorp Holdings Inc. (RAH) and Delphi Automotive Plc.

M&A Outlook

Paulson started 2011 expecting an increase in mergers and acquisitions, a position that cost the Paulson Partners Enhanced Fund, which invests in shares of merging companies and lost 19 percent last year. Heightened price swings affected the firm’s positions in takeover targets, Paulson said.

Paulson partners’ capital in the firm’s credit funds climbed to 69 percent at the end of last year from 57 percent at the end of 2010, while the portion of outside investor money dwindled after the Credit Opportunities Fund fell 18 percent in 2011. Paulson reduced its credit exposure, which includes investment-grade corporate bonds, high-yield and distressed securities, because risks related to the European debt crisis remain, the firm said.

To contact the reporter on this story: Saijel Kishan in New York at

To contact the editor responsible for this story: Christian Baumgaertel at


Greek President Papoulias Slams German ‘Insults’ as Aid Discussions Stall

By Eleni Chrepa - Feb 16, 2012 2:42 AM GMT+0700

Greek President Karolos Papoulias slammed Germany’s finance minister for recent comments about his country as stalled bailout talks stoked tensions between Greece and the northern European countries funding its rescue.

“I don’t accept insults to my country by Mr. Schaeuble,” Papoulias, who fought in the resistance against the Nazis during World War II, said in a speech today. “I don’t accept it as a Greek. Who is Mr. Schaeuble to ridicule Greece? Who are the Dutch? Who are the Finns? We always had the pride to defend not just our own freedom, not just our own country, but the freedom of all of Europe.”

Papoulias’s comments came as Wolfgang Schaeuble and other European officials pushed Greece to gouge more cuts out of its budget to qualify for a new bailout that would stave off an economic collapse. Schaeuble today blamed Greece’s New Democracy party, the second largest, for holding up agreement on a new rescue package and his deputy, Steffen Kampeter, compared Greece to a “bottomless pit.”

Greek politicians are expressing their frustration after European finance ministers last week rejected a Greek austerity package worth 7 percent of gross domestic product. That prompted New Democracy leader Antonis Samaras to complain that a gun was being held to the country’s head. George Karatzaferis, head of Laos, the third party in the governing coalition, said the country “could do without the German boot.”

Playing With Fire

“We are continually faced with new terms,” Finance Minister Evangelos Venizelos told reporters in Athens today. “In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”

Luxembourg Prime Minister Jean-Claude Juncker later said after a conference call with euro region finance ministers that he’s confident a decision on Greece will be made on Feb. 20.

Papoulias, 82, asked today to have his public salary stopped as a gesture of solidarity with Greeks amid the country’s economic crisis, Venizelos told reporters.

Papoulias receives about 300,000 euros ($392,400) a year, according to Bloomberg calculations based on government documents. The press office of the president couldn’t confirm the data. U.S. President Barack Obama received a total of $395,188 in 2010, according to his tax return published on the White House website.

Papoulias has decided to forfeit his annual compensation “as a symbolic gesture at a moment when the Greek people are called upon to undergo such sacrifices,” Venizelos said.

Demonstrators in Athens tore up marble in front of parliament, clashed with police and set 45 buildings on fire on Feb. 12, protesting against the government’s new package of spending cuts.

To contact the reporter on this story: Eleni Chrepa in Athens at

To contact the editor responsible for this story: Maria Petrakis at


Stocks in U.S. Fall Amid Concern Greece May Be Closer to Default on Debt

By Rita Nazareth - Feb 16, 2012 4:29 AM GMT+0700

U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for a second day, as concern grew that Greece was moving closer to default and the Federal Reserve said policy makers were divided on buying more assets.

Apple Inc. (AAPL) decreased 2.3 percent, reversing a 3.3 percent rally and snapping an eight-day advance. Industrial shares had the biggest decline in the S&P 500 among 10 groups as Deere & Co. tumbled 5.4 percent after lowering its 2012 U.S. farmer revenue forecast. The Dow Jones Transportation Average, a proxy for the economy, slumped 2 percent as CSX Corp. (CSX) and Union Pacific Corp. (UNP) retreated more than 2.8 percent.

The S&P 500 declined 0.5 percent to 1,343.23 at 4 p.m. New York time, reversing an earlier increase of as much as 0.4 percent. The Dow Jones Industrial Average decreased 97.33 points, or 0.8 percent, to 12,780.95 today.

“People just keep trying to delay the Greece situation,” Peter Sorrentino, a fund manager who helps oversee $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “What’s haunting everyone is that if this thing is delayed too much longer, you’ve another series of hurdles. We’re a prisoner of that.”

Stocks fell as concern that Greece will miss a debt payment next month grew. A decision slated for tonight on 130 billion euros ($171 billion) of aid was postponed until at least Feb. 20 and possibly until after a full-time Greek government emerges from elections later in the year. Minutes of the Fed’s last meeting showed a few policy makers said the central bank may have to consider purchasing more securities soon, while others said the economic outlook would have to worsen.

‘More Involved’

Equities gained earlier today as China said it will “get more involved” in supporting Europe and sustain its holdings of euro assets, spurring optimism the debt crisis would be overcome.

“It’s very clear that China realized the costs of a possible European recession that spreads to the rest of the world,” James Swanson, who oversees about $200 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview. “Yet they haven’t fixed their problems and China can’t fix their problems.”

The S&P 500 has rallied 6.8 percent this year as the U.S. economy showed signs of accelerating and European leaders moved closer to a solution on the region’s debt crisis. The U.S economy is forecast to grow 2.2 percent in 2012, according to the median projection in a survey of economists, up from the estimate of 2.1 percent in December.

Nine out of 10 groups in the S&P 500 fell today. The Morgan Stanley Cyclical Index dropped 0.8 percent amid concern about economic growth.

Cash Pile

Apple retreated 2.3 percent to $497.67, two days after closing above $500 for the first time. The shares rose earlier today as CEO Tim Cook yesterday asked for forbearance from investors while the company discusses how to best use its growing cash pile.

“Apple’s CEO Tim Cook indicated that the board of directors continues to focus more time on the use of cash, which seems to increase the likelihood of a dividend and/or stock buyback,” William Power, a Robert W Baird & Co. analyst, wrote in a note to clients today. “We continue to believe that even a conservative 2 percent dividend yield could help attract an additional wave of investors.”

Deere (DE) lost 5.4 percent to $84.28. Total U.S. farm receipts will be $371.9 billion in 2012, down from a November forecast for $374.2 billion and lower than the record $381.4 billion in 2011, as corn, wheat and soybean prices decline, the Moline, Illinois-based company said today in a presentation accompanying its fiscal first-quarter results.

Transportation Shares

A measure of transportation shares had the biggest decline in the S&P 500 among 24 industries, slumping 2 percent as a group. CSX decreased 2.9 percent to $21.19. Union Pacific retreated 3.3 percent to $109.41.

The biggest component of Warren Buffett’s most-watched index is falling, and the decline may depress first-half earnings at U.S. railroads. Buffett follows a gauge of freight- train traffic that’s compiled by the Association of American Railroads, as he told ABC News in a 2009 interview. This indicator tracks the number of carloads, and coal accounts for a bigger percentage of the shipments than any other category.

“Coal results have been significantly below our prior expectations for the first quarter,” Gary Chase, a Barclays Capital analyst, wrote yesterday in a report. Shipments in the first five weeks of this year dropped 2.9 percent from the same period of last year. The total of 120,052 carloads for the week ended Feb. 4 was the lowest for that time of year since 2004.

Profit Estimates

Earnings per share swing by 0.5 percent at CSX and Norfolk Southern Corp. and by 0.2 percent at Union Pacific for every 1 percent change in the amount of coal they ship, Chase wrote. The New York-based analyst cut first- and second-quarter profit estimates on the railroads because of the current slump. Buffett’s Berkshire Hathaway Inc. (BRK/A) owns a competitor, Burlington Northern Santa Fe.

Zynga Inc. retreated 18 percent to $11.80. The biggest developer of games for Facebook Inc.’s site fell the most since it first started trading after product-development costs weighed on profit in the fourth quarter.

Dean Foods Co. (DF) rallied 10 percent, the most in the S&P 500, to $11.99. The biggest U.S. milk processor reported lower raw- milk costs at its fresh dairy business.

Abercrombie & Fitch Co. (ANF) increased 8.3 percent to $48.30. The operator of its namesake and Hollister teen-clothing stores said international sales growth would boost profit this year.

Potato Chips

Kellogg Co. (K) jumped 5.1 percent to $52.87 after agreeing to acquire Procter & Gamble Co. (PG)’s Pringles potato chip business for about $2.7 billion in cash to triple its global snacks sales after a deal with Diamond Foods Inc. fell through.

Comcast Corp. (CMCSA) added 4.7 percent to $28.52. The largest U.S. cable company climbed after fourth-quarter profit rose more than analysts estimated and video-customer losses narrowed for the fifth straight period.

Blackstone Group LP’s Byron Wien, whose prediction for the U.S. economy and stock market in 2011 proved too optimistic, said he may need to lift his estimate for the S&P 500 for this year. Wien, chairman of Blackstone’s advisory services unit, said in January in his annual “10 Surprises” list the benchmark gauge for U.S. stocks may exceed 1,400. He said today in a Bloomberg Radio interview he may have to raise the projection.

“1,400 when the market was 1,250 at the beginning of the year was a reasonable target, a conservative target,” Wien said in an interview today on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene. “But I think we could well exceed it. Look, S&P 500 operating earnings are going to be in excess of $100. Very often, almost always, the S&P 500 sells at 15 times, that would take you over 1,500.”

To contact the reporter on this story: Rita Nazareth in New York at

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