European Stocks Retreat, Led by Carmakers

By Adria Cimino - Feb 23, 2012 6:23 PM GMT+0700

European (SXXP) stocks fluctuated between gains and losses as German business confidence exceeded forecasts, while the European (SXXP) Commission said the region’s economy will shrink this year. U.S. index futures and Asian shares were little changed.

Commerzbank AG (CBK) tumbled 5 percent after saying it won’t pay a dividend for 2011 and will ask investors to swap some hybrid instruments for shares. Swiss Re Ltd., the world’s second- biggest reinsurer, gained 2.5 percent after raising its shareholder payout.

The Stoxx Europe 600 Index dropped 0.1 percent to 264.33 at 11:21 a.m. in London. The gauge has still rallied 8.1 percent this year amid speculation that euro-area leaders will contain the region’s debt crisis and as U.S. economic data exceeded forecasts. Futures on the Standard & Poor’s 500 Index rose 0.1 percent. The MSCI Asia Pacific Index slid less than 0.1 percent.

“We’ve had four months of improving global growth,” Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment in London, with $11 billion in assets under management, said in a Bloomberg Television interview. “In the shorter term, I’m getting more positive.”

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, climbed to 109.6 in February from 108.3 in January. That’s the fourth straight gain and the highest reading since July. Economists predicted an increase to 108.8, according to the median estimates in a Bloomberg News survey.

Economic Forecast

The 17-nation euro economy will contract 0.3 percent, the European Commission said, abandoning a November forecast of 0.5 percent growth. The downgrade was mainly due to projected contractions of 1.3 percent in Italy and 1 percent in Spain.

“Although growth has stalled, we are seeing signs of stabilization in the European economy,” European Union Economic and Monetary Commissioner Olli Rehn said in the introduction to the quarterly forecasts today in Brussels. “Economic sentiment is still at low levels, but stress in financial markets is easing.”

German Chancellor Angela Merkel indicated she will maintain pressure on Greece to meet debt-cutting pledges required for its second financial rescue, saying fiscal discipline is needed to hold the euro area together.

Euro-area finance ministers this week approved a 130 billion-euro ($172 billion) aid package for Greece and persuaded investors to provide more debt relief to the nation.

A report at 8:30 a.m. Washington time may show U.S. initial jobless claims increased to 355,000 in the week ended Feb. 18.

Earnings Scorecard

Of the 202 companies on the Stoxx 600 that have reported quarterly earnings so far, 101 have missed analyst estimates, while 89 have surpassed them, according to data compiled by Bloomberg.

Commerzbank fell 5 percent to 1.97 euros. Germany’s second- largest lender said it won’t pay a dividend for 2011 and will ask investors to swap hybrid capital instruments trading below face value for new shares, in a plan to boost its financial strength. The measures could increase the core Tier 1 capital by more than 1 billion euros ($1.33 billion), the bank said.

Vallourec SA (VK), a French producer of steel pipes for the oil and gas industry, tumbled 5.8 percent to 53.30 euros. The company reported a fourth-quarter profit that beat analyst estimates and forecast a lower profit margin this year.

Deutsche Telekom, Swiss Re

Deutsche Telekom AG (DTE) fell 2.3 percent to 8.76 euros. The company forecast earnings will fall further this year after posting a 1.34 billion-euro quarterly net loss because of writedowns on T-Mobile USA and its Greek business.

Earnings before interest, taxes, depreciation and amortization excluding some items will be about 18 billion euros, or 3.7 percent less than in 2011, Germany’s largest phone company said today. That compares with the 18.5 billion-euro average analyst estimate compiled by Bloomberg.

Swiss Re (SREN) rose 2.5 percent to 54.30 francs. The world’s second-biggest reinsurer may use excess capital to pay a special dividend for this year, after increasing its 2011 payout as fourth-quarter profit exceeded analyst estimates.

The company posted a net income of $983 million following a loss of $725 million in the year-earlier period. That beat the $299 million average estimate of 16 analysts surveyed by Bloomberg.

Natixis (KN) SA, the investment-banking and asset-management unit of Groupe BPCE, jumped 6.5 percent to 2.49 euros. The bank said fourth-quarter profit fell 32 percent to 302 million euros after it wrote down Greek sovereign debt. That compares with the 215 million-euro average estimate of five analysts surveyed by Bloomberg.

Yara International ASA (YAR), the largest publicly traded nitrogen-fertilizer maker, added 0.7 percent to 274.70 kroner. A pick-up in the urea market may act as a “positive catalyst” for Yara shares, Morgan Stanley said in report.

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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Gillard Calls Australia Leadership Vote as She Seeks to Block Rudd Return

By Jason Scott and Jacob Greber - Feb 23, 2012 4:14 PM GMT+0700

Australian Prime Minister Julia Gillard called a leadership vote for Feb. 27, setting up a second showdown with her predecessor Kevin Rudd as weeks of growing tension damage the Labor government.

“We need a leadership ballot in order to settle this question once and for all,” Gillard, the nation’s first female prime minister, said at a press conference in Adelaide, after Rudd yesterday resigned as foreign minister. “For far too long we have seen squabbling within the Labor party which has obscured the government’s achievements.”

The move aims to bring to a head 11 days of escalating rivalry between Gillard and Rudd, as opinion polls show Labor’s popularity is hovering near a record low. At stake for Labor is survival of an administration that’s unveiled unprecedented taxes on natural resources and fees to address climate change -- an agenda Gillard calls “nation-changing reform” that has proved unpopular with voters.

“Gillard and her advisors have decided it’s better to lance this boil quickly,” said John Wanna, a professor of public administration at the Canberra-based Australian National University. “If Rudd doesn’t challenge, it’s probably the end of his career, but if he can assemble any numbers, she risks having a damaged prime ministership.”

Long Campaign

Gillard said there had been a long-running campaign to undermine her government and that she is best-placed to lead Labor to victory against opposition leader Tony Abbott in elections due in 2013. She sought to head off any attempt by Rudd to continue his campaign even if he loses the ballot.

“If, against my expectation, I do not receive the support of my colleagues I will go to the backbench and renounce any further” ambitions for the leadership, Gillard said. “Kevin Rudd should give a comparable commitment.”

Australia’s currency snapped a two-day decline as Asian stocks pared earlier losses. The so-called Aussie dollar strengthened to $1.0670 as of 6 p.m. in Sydney from $1.0638 yesterday in New York. Benchmark 10-year government bond yields dropped six basis points to 4.04 percent.

“I don’t think it does the confidence in investments particularly from offshore any good at all to see a nation at each others’ throats at the highest political level,’’ Simon Bennison, chief executive officer of the Perth-based Association of Mining and Exploration Companies, said by phone. “We would, like everybody else, like this resolved as quickly as possible.”

Tensions between Rudd and Gillard have simmered since she ousted him in a June 2010 party coup.

“It is now evident to me and I think it is evident to the Australian people that there has been a long-running destabilization campaign here to get to this point where Kevin Rudd is clearly going to announce that he wants to seek the Labor leadership,” Gillard said.

Rudd Encouraged

Rudd resigned at a 1 a.m. press conference yesterday in Washington, where he had been meeting U.S. government officials. In a news conference from Washington today shortly before Gillard spoke, Rudd said he was encouraged by support he has received from party colleagues and said he was best-placed to defeat Abbott.

“I do not believe that Prime Minister Gillard can lead the Australian Labor party to success in the next election. That is a deep belief,” Rudd said. “I believe it is also a belief shared right across the Australian community.”

He stopped short of declaring a challenge, saying he will make a statement on any decision after he returns tomorrow to Australia.

Rudd listed policy challenges facing the country, such as encouraging small businesses to boost investment through tax reform and continuing government support for manufacturing, including the nation’s car industry.

Swan’s Reaction

If Rudd contests the leadership ballot he will need the backing of 52 of the 103 Labor lawmakers. Gillard has the backing of 65 of the 103 caucus member who will vote, compared with 31 for Rudd and seven who are undecided, the Australian newspaper reported on its website without saying how it compiled the tally.

Treasurer Wayne Swan urged colleagues not to return Rudd to the job they ousted him from amid sinking poll ratings and concern about his autocratic style.

“The party has given Kevin Rudd all the opportunities in the world and he wasted them with his dysfunctional decision making and his deeply demeaning attitude towards other people including our caucus colleagues,” Swan said in an e-mailed statement late yesterday. “He sought to tear down the 2010 campaign, deliberately risking an Abbott prime ministership, and now he undermines the government at every turn.”

Backing Gillard

Attorney General Nicola Roxon, speaking with the Australian Broadcasting Corp., joined Communications Minister Stephen Conroy and Environment Minister Tony Burke in publicly backing Gillard since Rudd’s resignation.

Resources Minister Martin Ferguson told reporters he would back Rudd in a vote.

By saying the ballot should settle the leadership matter once and for all, Gillard is seeking to avoid a repeat of the showdown between Prime Minister Bob Hawke and Paul Keating 20 years ago. After unsuccessfully challenging Hawke, Keating retreated to the backbench, where he prepared a second leadership bid six months later that toppled the prime minister.

Abbott’s Lead

Abbott, a former amateur boxer who studied for the priesthood in the 1980s, leads Gillard as preferred prime minister among voters, with 40 percent support to her 37 percent, according to a Newspoll survey conducted Feb. 10-12. Labor’s primary vote rose 2 points to 32 percent, behind Abbott’s coalition on 46 percent. The survey of 1,141 people had a margin of error of plus or minus 3 percentage points.

A Feb. 2-4 Nielsen poll revealed 57 percent of voters surveyed preferred Rudd as Labor leader, compared with 35 percent for Gillard. The survey of 1,400 people had a margin of error of plus or minus 2.6 percentage points.

“What I think the Australian people yearn for right now is a prime minister who they chose, not a prime minister that the faceless men chose,” Abbott told reporters today. “The only way we can get away from a government based on dodgy backdoor deals, deals done in the dark, is to have an election.”

Bets on Gillard

Australian bookmaker Sportsbet.com.au, which says it’s the nation’s largest online betting agency by revenue, is offering to return A$1.25 on every A$1 bet that Gillard will win a leadership contest, from A$1.33 yesterday. It will pay A$3.75 for Rudd, from A$3.15.

“We’ve currently taken more individual bets on Rudd, but there has been five times the amount of money wagered on Gillard,” Haydn Lane, a spokesman for sportsbet.com.au, said in a statement. “Those punters who routinely clean us up on political markets have all stepped into Gillard at short odds.”

After the nation’s closest election in seven decades in August 2010, Gillard cobbled together a minority government with the backing of independent lawmakers and the Greens, giving her a majority of one in the lower house of parliament. Labor risks triggering the collapse of that arrangement if Rudd takes the helm, according to independent lawmaker Tony Windsor.

“I did a deal with the current prime minister,” Windsor told Sky News yesterday after Rudd’s resignation. “If the Labor party suddenly wants to change arrangements in the middle of the stream, all bets are off.”

To contact the reporters on this story: Jason Scott in Canberra at jscott14@bloomberg.net; Jacob Greber in Sydney at jgreber@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Gillard Calls Australia Leadership Vote as She Seeks to Block Rudd Return

By Jason Scott and Jacob Greber - Feb 23, 2012 4:14 PM GMT+0700

Australian Prime Minister Julia Gillard called a leadership vote for Feb. 27, setting up a second showdown with her predecessor Kevin Rudd as weeks of growing tension damage the Labor government.

“We need a leadership ballot in order to settle this question once and for all,” Gillard, the nation’s first female prime minister, said at a press conference in Adelaide, after Rudd yesterday resigned as foreign minister. “For far too long we have seen squabbling within the Labor party which has obscured the government’s achievements.”

The move aims to bring to a head 11 days of escalating rivalry between Gillard and Rudd, as opinion polls show Labor’s popularity is hovering near a record low. At stake for Labor is survival of an administration that’s unveiled unprecedented taxes on natural resources and fees to address climate change -- an agenda Gillard calls “nation-changing reform” that has proved unpopular with voters.

“Gillard and her advisors have decided it’s better to lance this boil quickly,” said John Wanna, a professor of public administration at the Canberra-based Australian National University. “If Rudd doesn’t challenge, it’s probably the end of his career, but if he can assemble any numbers, she risks having a damaged prime ministership.”

Long Campaign

Gillard said there had been a long-running campaign to undermine her government and that she is best-placed to lead Labor to victory against opposition leader Tony Abbott in elections due in 2013. She sought to head off any attempt by Rudd to continue his campaign even if he loses the ballot.

“If, against my expectation, I do not receive the support of my colleagues I will go to the backbench and renounce any further” ambitions for the leadership, Gillard said. “Kevin Rudd should give a comparable commitment.”

Australia’s currency snapped a two-day decline as Asian stocks pared earlier losses. The so-called Aussie dollar strengthened to $1.0670 as of 6 p.m. in Sydney from $1.0638 yesterday in New York. Benchmark 10-year government bond yields dropped six basis points to 4.04 percent.

“I don’t think it does the confidence in investments particularly from offshore any good at all to see a nation at each others’ throats at the highest political level,’’ Simon Bennison, chief executive officer of the Perth-based Association of Mining and Exploration Companies, said by phone. “We would, like everybody else, like this resolved as quickly as possible.”

Tensions between Rudd and Gillard have simmered since she ousted him in a June 2010 party coup.

“It is now evident to me and I think it is evident to the Australian people that there has been a long-running destabilization campaign here to get to this point where Kevin Rudd is clearly going to announce that he wants to seek the Labor leadership,” Gillard said.

Rudd Encouraged

Rudd resigned at a 1 a.m. press conference yesterday in Washington, where he had been meeting U.S. government officials. In a news conference from Washington today shortly before Gillard spoke, Rudd said he was encouraged by support he has received from party colleagues and said he was best-placed to defeat Abbott.

“I do not believe that Prime Minister Gillard can lead the Australian Labor party to success in the next election. That is a deep belief,” Rudd said. “I believe it is also a belief shared right across the Australian community.”

He stopped short of declaring a challenge, saying he will make a statement on any decision after he returns tomorrow to Australia.

Rudd listed policy challenges facing the country, such as encouraging small businesses to boost investment through tax reform and continuing government support for manufacturing, including the nation’s car industry.

Swan’s Reaction

If Rudd contests the leadership ballot he will need the backing of 52 of the 103 Labor lawmakers. Gillard has the backing of 65 of the 103 caucus member who will vote, compared with 31 for Rudd and seven who are undecided, the Australian newspaper reported on its website without saying how it compiled the tally.

Treasurer Wayne Swan urged colleagues not to return Rudd to the job they ousted him from amid sinking poll ratings and concern about his autocratic style.

“The party has given Kevin Rudd all the opportunities in the world and he wasted them with his dysfunctional decision making and his deeply demeaning attitude towards other people including our caucus colleagues,” Swan said in an e-mailed statement late yesterday. “He sought to tear down the 2010 campaign, deliberately risking an Abbott prime ministership, and now he undermines the government at every turn.”

Backing Gillard

Attorney General Nicola Roxon, speaking with the Australian Broadcasting Corp., joined Communications Minister Stephen Conroy and Environment Minister Tony Burke in publicly backing Gillard since Rudd’s resignation.

Resources Minister Martin Ferguson told reporters he would back Rudd in a vote.

By saying the ballot should settle the leadership matter once and for all, Gillard is seeking to avoid a repeat of the showdown between Prime Minister Bob Hawke and Paul Keating 20 years ago. After unsuccessfully challenging Hawke, Keating retreated to the backbench, where he prepared a second leadership bid six months later that toppled the prime minister.

Abbott’s Lead

Abbott, a former amateur boxer who studied for the priesthood in the 1980s, leads Gillard as preferred prime minister among voters, with 40 percent support to her 37 percent, according to a Newspoll survey conducted Feb. 10-12. Labor’s primary vote rose 2 points to 32 percent, behind Abbott’s coalition on 46 percent. The survey of 1,141 people had a margin of error of plus or minus 3 percentage points.

A Feb. 2-4 Nielsen poll revealed 57 percent of voters surveyed preferred Rudd as Labor leader, compared with 35 percent for Gillard. The survey of 1,400 people had a margin of error of plus or minus 2.6 percentage points.

“What I think the Australian people yearn for right now is a prime minister who they chose, not a prime minister that the faceless men chose,” Abbott told reporters today. “The only way we can get away from a government based on dodgy backdoor deals, deals done in the dark, is to have an election.”

Bets on Gillard

Australian bookmaker Sportsbet.com.au, which says it’s the nation’s largest online betting agency by revenue, is offering to return A$1.25 on every A$1 bet that Gillard will win a leadership contest, from A$1.33 yesterday. It will pay A$3.75 for Rudd, from A$3.15.

“We’ve currently taken more individual bets on Rudd, but there has been five times the amount of money wagered on Gillard,” Haydn Lane, a spokesman for sportsbet.com.au, said in a statement. “Those punters who routinely clean us up on political markets have all stepped into Gillard at short odds.”

After the nation’s closest election in seven decades in August 2010, Gillard cobbled together a minority government with the backing of independent lawmakers and the Greens, giving her a majority of one in the lower house of parliament. Labor risks triggering the collapse of that arrangement if Rudd takes the helm, according to independent lawmaker Tony Windsor.

“I did a deal with the current prime minister,” Windsor told Sky News yesterday after Rudd’s resignation. “If the Labor party suddenly wants to change arrangements in the middle of the stream, all bets are off.”

To contact the reporters on this story: Jason Scott in Canberra at jscott14@bloomberg.net; Jacob Greber in Sydney at jgreber@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Euro Strengthens After German Confidence Report; U.S. Futures Erase Gains

By Stephen Kirkland and Lynn Thomasson - Feb 23, 2012 6:18 PM GMT+0700

The euro strengthened and commodities advanced after German business confidence climbed more than forecast. European stocks erased gains and U.S. equity-index futures were little changed.

The euro appreciated 0.4 percent to $1.3297 at 6:15 a.m. in New York. The yield on the 10-year German bund increased one basis point. The Stoxx Europe 600 Index slipped 0.1 percent as the European Commission predicted the region’s economy will contract this year. Standard & Poor’s 500 Index futures added 0.1 percent, paring gains of as much as 0.5 percent. The S&P GSCI gauge of 24 commodities rose 0.5 percent and platinum jumped to a five-month high.

A gauge of business climate climbed for a fourth month in February to the highest reading since July, the Munich-based Ifo institute said. Economists predicted an increase to 108.8, according to the median of 38 estimates in a Bloomberg survey. U.S. jobless claims probably held near the lowest level since 2008, economists said before a Labor Department report today.

“Today’s Ifo report is very good news for Germany,” Annalisa Piazza, a fixed-income analyst at Newedge Group in London, said in an e-mail. It “seems to show further resilience of the economy to the ongoing external shocks,” she said.

The euro advanced against 12 of its 16 major peers, appreciating 0.4 percent versus the yen. The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, dropped 0.3 percent.

The yield on Italy’s 10-year bond jumped five basis points to 5.56 percent, climbing for the second straight day.

Greek March Note

The Greek 4.3 percent note due March 20 erased a decline, trading at 26.76 percent of face value. The price slid the four previous days, down from 42 a week ago. The drop reflects the probability the nation will force losses on investors by implementing and triggering so-called collective action clauses, Societe Generale SA said.

“Those who bought the bond in the hope of a free ride are now paying the price,” Vincent Chaigneau, global head of interest-rate strategy in Paris, wrote in a research report today.

The 17-nation euro economy will contract 0.3 percent, the commission said, abandoning a November forecast of 0.5 percent growth. The downgrade was mainly due to projected contractions of 1.3 percent in Italy and 1 percent in Spain. Benchmark equity gauges in the two countries fell more than 1 percent.

Commerzbank Hybrid Swap

Commerzbank AG (CBK) slipped 4.8 percent as Germany’s second- largest bank said it will ask investors to swap hybrid capital instruments trading below face value for new shares. Gamesa Corp. Tecnologica SA, Europe’s second-biggest wind-turbine maker, slid 9 percent after cutting its sales forecast. Swiss Re Ltd. advanced 2.8 percent after the world’s second-biggest reinsurer increased its 2011 dividend as fourth-quarter profit exceeded analyst estimates.

The increase in S&P 500 futures indicated the U.S. gauge will rebound from yesterday’s 0.3 percent drop. Initial jobless claims rose last week to 355,000 after reaching a four-year low the prior week, according to the median of 47 estimates in a Bloomberg survey.

Hewlett-Packard Co. slid 1.9 percent in Germany after it forecast fiscal second-quarter profit that fell short of analysts’ estimates as consumers curtailed personal-computer purchases.

The MSCI Emerging Markets Index (MXEF) declined 0.4 percent, the most in a week. South Korea’s Kospi Index (KOSPI) dropped 1 percent as technology companies fell after Hewlett-Packard’s profit forecast. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong slipped 0.9 percent.

South Africa’s rand strengthened 0.7 percent against the dollar after Finance Minister Pravin Gordhan said a move to rein in the budget deficit faster than planned will shield the economy and prevent a credit-rating downgrade.

The GSCI climbed to the highest since June 10, led by gains in silver futures, nickel and natural gas. Platinum rose as much as 0.5 percent to $1,733.25 an ounce, the highest since Sept. 22, because of a strike in South Africa at the world’s biggest platinum mine.

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

To contact the editor responsible for this story: Mark Gilbert at magilbert@bloomberg.net

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RBS Posts Loss Twice as Big as Expected

By Gavin Finch - Feb 23, 2012 3:24 PM GMT+0700

Royal Bank of Scotland Group Plc, Britain’s biggest state-owned lender, reported a wider-than- estimated loss on impairments in Ireland, writing down Greek debt and compensating customers for improperly sold insurance.

The net loss for 2011 was 2 billion pounds ($3.1 billion) compared with 1.1 billion pounds a year earlier, the U.K.’s second-largest bank by assets said in a statement today. That was worse than the 1.1 billion-pound median estimate of 11 analysts surveyed by Bloomberg.

RBS took a sovereign-debt impairment of 1.1 billion pounds to write off Greek securities and said it “exceeded run-off targets” in its non-core businesses, bringing forward some of its losses. Chief Executive Officer Stephen Hester, 51, who has said his job is equivalent to defusing the “biggest time bomb in history,” has shrunk the bank’s assets by more than 700 billion pounds and cut more than 35,000 jobs since he took over from Fred Goodwin in 2007.

“While there is still work to be done to get RBS into a position where it is generating attractive returns for shareholders, the glide path to normality is increasingly clear,” UBS AG analysts John-Paul Crutchley and Alastair Ryan said in an e-mailed note.

RBS’s loss would have been narrower if it hadn’t taken 850 million pounds in charges relating to compensation for U.K. customers who were improperly sold personal-loan insurance. The loss at RBS’s Irish unit, Ulster Bank Ltd., increased to 1.02 billion pounds in 2011 from 760 million pounds in the previous year on impaired mortgages.

Lower ROE Target

The lender reduced its medium-term target for return on equity to 12 percent from 15 percent.

“We have three jobs at RBS -- to support our customers, to defuse our legacy risks and rebuild a successful, profitable bank,” Hester said in the statement. “In 2011 we showed results across all three goals, though with much still to do.”

Shares (RBS) of RBS rose 3 percent to 28.14 pence as of 8:20 a.m. in London, compared with a 0.5 percent drop by the Bloomberg Europe Banks Index. After sinking 48 percent last year, the stock has rebounded 39 percent this year.

The U.K. rescued RBS at the height of the financial crisis, injecting 45.5 billion pounds of taxpayer money into the lender, making it the costliest bailout of any bank.

RBS’s results were also affected by rising borrowing costs as the bank weans itself off low-interest government loans and takes on costlier funding in wholesale markets. The bank opted in December to go the European Central Bank for an emergency 5 billion euro loan as its own costs of borrowing reached an unsustainable level, a person familiar with the matter said.

Banker Pay

RBS’s compensation ratio, a measure of pay against revenue, rose to 41 percent compared with 34 percent for 2010. The bank’s bonus pool fell 21 percent to 985 million pounds, and total salaries fell 1 percent to 5.42 billion pounds.

“We have aligned the longer-term rewards our people receive with our shareholders’ interests,” RBS Chairman Philip Hampton said in a letter to shareholders. “We have led the way in changing how we pay our people.” Hampton and Hester last month relinquished their bonuses for 2011 amid a storm on the issue in the U.K. media.

The investment-banking unit set aside 390 million pounds of bonus, including cash, shares and deferred awards, a 58 percent drop from the year earlier, and an average of 22,941 pounds per worker.

U.K. Prime Minister David Cameron said last month banks must show “proper regard” in limiting bonuses. “What needs to happen is a sense of restraint,” Cameron told reporters in Brussels after a meeting of European leaders. “They need to do a better job of demonstrating how pay is related to performance. What I care about is the taxpayer going to get the money back.”

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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Romney as Audit Chair Saw Marriott Son of BOSS Shelter Defy IRS

By Jesse Drucker - Feb 23, 2012 12:01 PM GMT+0700

Mitt Romney has long had close ties to hotel operator Marriott International Inc. (MAR) The candidate for the Republican presidential nomination, whose full name is Willard Mitt Romney, was named after the chain’s founder, J. Willard Marriott, a friend of his father. He joined the company’s board in 1993, and has served on it for 11 of the past 19 years, including six as chairman of the audit committee.

During Romney’s tenure as a Marriott director, the company repeatedly utilized complex tax-avoidance maneuvers, prompting at least two tangles with the Internal Revenue Service, records show. In 1994, while he headed the audit committee, Marriott used a tax shelter known to attorneys by its nickname: “Son of BOSS.”

A federal appeals court invalidated the maneuver in a 2009 ruling, siding with the U.S. Department of Justice, which called Marriott’s transaction and attempted tax benefits “fictitious,” “artificial,” “spectral,” an “illusion” and a “scheme.” Marriott had argued the plan predated government efforts to close such shelters.

Employing another strategy, Marriott legally avoided hundreds of millions of dollars in income taxes thanks to a federal tax-credit program criticized and allowed to expire by Congress. Marriott has also shifted profits to a Luxembourg shell company. During Romney’s years on the board, Marriott’s effective tax rate dipped as low as 6.8 percent, compared with the federal corporate statutory rate of 35 percent.

Oversight Role

Romney’s business experience is the cornerstone of his presidential campaign. Opponents have focused on his leadership of the investment company Bain Capital LLC and his personal income tax rate of 13.9 percent. As a Marriott director, his responsibilities included oversight over the tax planning conducted by management, according to a company statement.

Romney’s position as chairman of the board’s audit committee for six years gave him and the other members responsibility to review financial reporting, according to Marriott’s annual proxy filings. Members of that committee review “the results of internal and external audits, the accounting principles applied in financial reporting, and financial and operational controls,” according to the company proxy filed covering his first year heading that committee.

Romney, 64, regularly attended the meetings of the audit committee and board, said Gilbert M. Grosvenor, who overlapped with Romney for more than nine years on the Marriott board and also sat on the audit committee.

‘Accurate and Fair’

As the committee chairman, Romney examined the financial statements, “certainly deeper than we did as members,” recalled Grosvenor, a former president and chairman of the board of the National Geographic Society. Romney was “trying as much as possible to make sure they were accurate and fair.”

The audit committee “would have been certainly informed” of the IRS dispute stemming from the Son of BOSS transaction, said Grosvenor, 80, who lives in Virginia. “It certainly came before the board, that’s for sure.”

Such transactions can have a direct impact on the company’s financial results, putting them squarely in the purview of the audit committee, said Lynn E. Turner, former chief accountant of the U.S. Securities and Exchange Commission and a managing director at LitiNomics Inc., an economic and forensic consulting firm. “You have responsibility to oversee financial reporting and that includes getting into tax aspects. If you’re not compliant with the IRS, that also turns out to be a financial reporting issue,” he said.

‘Accordance’ With Code

Andrea Saul, a Romney campaign spokeswoman, declined to answer written questions about Romney’s role at Marriott. “For details of Marriott’s tax planning, we refer you to Marriott,” she said.

“Tax planning is conducted by the company’s management and is, like all aspects of our business, subject to board oversight,” said Thomas O. Marder, a Marriott spokesman. “Marriott only engages in transactions that we believe are in accordance with the tax code and that we think will create shareholder value.”

In 2004, Marriott’s tax planning drew the ire of Senator John McCain. Marriott received hundreds of millions of dollars in federal tax credits meant to promote so-called synthetic fuel through a business purchased by Marriott in 2001 while Romney sat on the board’s audit committee.

“One of the greatest beneficiaries of this tax shelter -- and that is all that it is, a tax shelter -- is a very profitable hotel chain: Marriott,” McCain said at the time. He called the program an “expensive hoax” and a “scam.” Congress let the subsidy expire in 2007 because of perceived abuses. McCain, a Republican, endorsed Romney in January.

Campaigning for Cuts

During the presidential campaign, Romney has called for lower taxes almost across the board. He wants to reduce the corporate tax rate to 25 percent from 35 percent; end the estate tax; end taxes on corporate profits reported offshore; cut the top personal income tax rate to 28 percent and eliminate taxes on investment income for people with adjusted gross income below $200,000.

In its “Believe in America” jobs plan released last year, the Romney campaign criticized federal policy for fostering corporate tax avoidance: “Corporations, for their part, are subject to rules and regulations that all too often encourage tax gamesmanship while discouraging reinvestment in the American economy.”

Son of BOSS

Romney’s first stint on Marriott’s board lasted from 1993 to 2002, when he stepped down before running for and serving as Massachusetts governor. For all but the last year he was a member of the audit committee, which he headed from 1993 to 1998. During his time on the committee, Marriott implemented the Son of BOSS shelter attacked by the Department of Justice, bought a synthetic fuels business reliant on tax credits criticized by Congress as a tax shelter and took deductions that eventually led to a $220 million settlement with the IRS on another issue.

He rejoined in 2009 and left again early last year. He earned $380,788 from Marriott in those final two years, during which the board met in person eight times.

Restore our Future, a political action committee raising money to support Romney’s campaign, has received $1.5 million in contributions from J.W. Marriott Jr., the company’s chief executive officer and son of the founder, and his brother Richard, making them among the so-called Super PAC’s biggest contributors. The brothers hosted a Romney fundraiser last year.

In his 2010 book, “No Apology” (St. Martin’s Press, 336 pages, $25.99), Romney lauded J.W. Marriott Jr.’s leadership.

Friends, Family

“For many years, as a friend and as a Marriott International board member, I’ve watched J.W. ‘Bill’ Marriott lead his company,” he wrote. “He personally visits as many as 250 hotels a year and knows a remarkable number of his longest- serving employees by name -- and not just hotel managers, but doormen, telephone operators and cleaning staff as well. He doesn’t just call them associates, he considers them such, and among the company’s corporate management ranks are people who began their Marriott careers as hourly workers.”

In late 1992, Romney joined the board of the company’s precursor, Marriott Corp. He had recently left the private equity firm he helped found, Bain Capital, to rescue and run the firm where he once worked, Bain & Co. Marriott was almost like a family company: his father, George Romney, and J. Willard Marriott were friends, according to “The Real Romney,” a 2012 biography by Michael Kranish and Scott Helman (Harper, 416 pages, $27.99).

At various points during his Marriott tenure, Romney also served on the board’s compensation and finance committees.

Triggering a Loss

In January 1994, an investment banker faxed a presentation to a longtime Marriott tax-department executive, according to a court filing. The proposal laid out how the company could use a series of newly created partnerships to trigger a tax loss without any real economic harm.

This so-called Son of BOSS shelter helped a Marriott subsidiary sell about $81 million of mortgage notes and yet report a roughly $71 million tax loss. After the IRS challenged the benefit, Marriott sued the government.

In 2008, a U.S. Federal Court of Claims judge ruled against Marriott. The company appealed and, in 2009, lost again in federal appellate court.

Marriott attorneys said in court filings that the company was using a legitimate tax-reduction strategy.

“This is pretty much the poster child for those classic early tax shelters: you use a hyper-technical reading of the tax law to obtain what are, by any standard, unwarranted tax benefits,” said Robert Willens, a tax-accounting analyst in New York who advises investors.

A version of that same strategy got others in bigger trouble. Partners at KPMG LLP counseled their clients on Son of BOSS structures, leading to a $456 million deferred prosecution agreement with the Department of Justice and causing the indictment of several former partners there, along with partners at Ernst & Young LLP. (The nickname is derived from an acronym for an earlier version of the shelter -- Bond Options Sales Strategy.)

IRS Challenged Deductions

Marriott clashed with the IRS on another issue. In 2000, 2001 and 2002 the company took $1 billion of deductions related to an employee stock ownership program from the forgiveness of principal and interest on a loan, Marriott securities filings show. The IRS challenged the deductions and, in 2007, Marriott agreed to pay about $220 million in income taxes, excise taxes and interest to the Treasury and various states.

Marriott has no outstanding disputes with the IRS, said Marder, the company spokesman.

Synthetic Fuels

“All years through 2009 have been closed,” he said. “The IRS is in the process of finishing its 2010 audit and has raised no new issues that have not been resolved.”

Another tax-avoidance strategy that prompted criticism took advantage of a federal tax credit for synthetic fuels. The government offered companies the opportunity to claim potentially lucrative subsidies for attempts to turn coal into unconventional fuel.

In 2001, Marriott bought four synthetic fuel plants to use the credit. Companies could get the benefit by producing fuel after they sprayed coal with various substances, regardless of environmental improvement from the procedure. The process gave rise to a derisive nickname for the subsidy: “Spray and pray.”

Such credits cut Marriott’s tax bill sharply. In 2002, its first year receiving the benefit, Marriott legally claimed $159 million of such credits, cutting its effective tax rate to 6.8 percent. That’s far below the U.S. federal statutory corporate rate of 35 percent. The following year, the tax credits more than eliminated Marriott’s federal income-tax provision and helped the company report a negative income-tax rate.

Luxembourg Subsidiary

Faced with criticism from McCain and others, Congress let that tax credit expire at the end of 2007.

Marriott has also cut its taxes by legally sending profits overseas, in part through a Luxembourg subsidiary created in 2008 called Global Hospitality Licensing S.à.r.l., which reported having a single employee.

The unit collected $229 million in revenue in 2009, primarily from royalty, licensing and franchise fees letting hotel owners and operators use various Marriott brand names. It also owns rights to license the brand name for Ritz-Carlton, owned by Marriott. These transactions help Marriott attribute profits from those brands to the offshore subsidiary instead of to the U.S. parent company, where they would be taxed at the 35 percent federal income-tax rate.

The profit generated by the offshore unit is unclear because the page containing its income statement is missing for its only two public annual reports from 2009 and 2008, according to the Luxembourg corporate registry.

In 2010, foreign operations cut 3.7 percentage points off Marriott’s effective tax rate. In 2011, they cut just under a percentage point off the rate, according the company’s annual report. As of the end of 2011, the company had $451 million in offshore earnings on which it hadn’t paid any U.S. federal income tax. Multinationals have been lobbying Congress and the White House for a tax holiday to return such profits to the U.S. Until companies bring those profits home, the taxes are deferred indefinitely.

Romney has said he wants to end altogether the federal income-tax obligation for such offshore profits, a change his campaign promises will begin on day one of his administration.

To contact the reporter on this story: Jesse Drucker in New York at jdrucker4@bloomberg.net

To contact the editor responsible for this story: Dan Golden at dlgolden@bloomberg.net

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IPad Battle Reveals BOC as Apple Opponent

By Bloomberg News - Feb 23, 2012 9:41 AM GMT+0700

Apple Inc. (AAPL)’s legal fight for the iPad name in China doesn’t just pit the world’s most-valuable company against a failed Hong Kong display maker. Some of the nation’s biggest banks also are opposing the technology giant.

Apple is appealing a Chinese court ruling that the trademark belongs to a mainland unit of Proview International Holdings Ltd. (334) At the time Apple says it bought those rights, the Shenzhen subsidiary was controlled by creditors including Bank of China Ltd. (3988) and China Minsheng Banking Corp. (1988), according to Proview founder Rowell Yang.

Losing its Feb. 29 appeal would open Apple to lawsuits seeking damages and enable a nationwide ban on iPad sales in the Cupertino, California-based company’s biggest market outside the U.S. The dispute revolves on whether Proview’s Taiwan unit, to which Apple paid 35,000 British pounds ($55,163) to use the iPad name in China, had the right to sell it or whether that rested with the Shenzhen unit and its creditors.

“Right now, the most valuable asset of Proview Group is the iPad trademark registration in China,” said Eugene Low, a trademark lawyer at Mayer Brown JSM in Hong Kong. “Assuming the creditors have control of the affairs of Proview Shenzhen, it might be in their best interest to get a settlement as quickly as possible to monetize the Proview assets.”

‘Not True’

After Proview Technology (Shenzhen) Co. defaulted on loans, the Shenzhen Intermediate People’s Court in March 2009 appointed Bank of China and Minsheng to lead a reorganization of the company, Yang, who remains chairman of the unit, said in a Feb. 21 interview.

“We can’t make any agreements without the creditors,” Yang said. “We are under the monitoring and control of the court.” Chinese court documents are not publicly available to verify the claim.

No one in Shenzhen, a city neighboring Hong Kong, knew the Taiwan unit signed away the China trademarks, Yang said.

Apple says that’s not true. Proview “refuses to honor their agreement with Apple in China,” said Carolyn Wu, a Beijing-based Apple spokeswoman. She declined to comment further, as the case is pending before the courts.

Proview’s wholly owned Shenzhen subsidiary obtained the iPad trademark in China in 2001, according to a Feb. 3, 2010, regulatory filing with the Hong Kong stock exchange.

The mark was obtained for a desktop terminal with touch- screen display called the Internet Personal Access Device, or iPad, that the company developed starting in 1998, Yang said.

Court Rejects

Apple sued Proview’s Shenzhen-based unit in 2010, claiming ownership of the iPad trademark in China on the basis of the December 2009 contract that the U.S. company says gave it global rights to the name, including in China. The Shenzhen Intermediate People’s Court rejected Apple’s claims on Nov. 17.

“If the plaintiff wants to buy trademarks from the defendant, it should do so according to China’s laws and regulations by signing contracts with the defendant,” the judgment said.

The court said the purchase agreement was signed in the name of Proview’s Taipei-based subsidiary, Proview Electronics Co., which failed to demonstrate that the transfer was approved by the Shenzhen unit that owned the mark.

Apple appealed to the Higher People’s Court of Guangdong, said Ma Dongxiao, a lawyer representing Proview at Grandall Law Firm in Beijing. Hearings begin Feb. 29.

London Link

Proview “hasn’t yet decided the final claim amount” it will seek from Apple, the company’s lawyer, Roger Xie, said last week. A 10 billion-yuan ($1.6 billion) sum cited by China’s state-run Xinhua News Agency in December was “preliminary,” he said.

Apple bought Proview’s trademarks through a U.K.-based unit called IP Application Development Ltd., or IPADL. Haydn Wood, who signed the agreement with Proview Electronics on behalf of IPADL, declined to comment on the agreement or lawsuits when contacted by Bloomberg News.

Sales of iPads reached 32 million worldwide last year, earning revenue of $20.4 billion. At $480 billion, Apple’s market capitalization surpasses the $454 billion value of all of Mexico’s listed companies, data compiled by Bloomberg show.

Apple has itself to blame for failing to properly secure rights for the China market, said Ray Mai, the Shanghai-based lawyer who represented Proview in the 2009 talks with IPADL.

Apple Rush

“At that time, Proview was not in good condition,” said Mai, whose signature is on the sales agreement. “On one side is this nearly bankrupt company, on the other is one of the strongest companies in the world. When we signed, Apple dispatched a lot of famous lawyers in front of me, very big law firms.”

Mai was outside counsel for Proview at the time and no longer represents the company, he said in a Feb. 17 phone interview. A copy of a business card from 2009 with Mai’s name on it described him as “director and lawyer” of Proview Technology (Shenzhen)’s legal department.

Apple was rushing to obtain trademark rights for the iPad name so it could roll out the product, Yang said. Then-Chief Executive Officer Steve Jobs announced the iPad on Jan. 27, 2010, more than a month after the Proview contract was signed Dec. 23. Apple didn’t grasp the nature of the relationship between the Shenzhen trademark holder, its banks and the courts, Yang said.

“The banks controlled Proview Shenzhen from March 2009,” Yang said. “We needed bank approval for any sale of assets.”

Bank of China is still a Proview creditor, according to the Shenzhen-based press officer of the nation’s fourth-largest lender by market value, who declined to be identified citing company policy. An official at Minsheng Bank, who also declined to be identified, confirmed creditors control Proview’s Shenzhen assets. The banks declined to comment on the Apple case.

Rise, Fall

The Proview Group was founded by Yang in Taiwan in 1989 as a maker of televisions and computer displays, and went public eight years later in Hong Kong.

By September 1999, it was among the world’s 10 biggest makers of computer monitors and planned to reach the top five “in the near future,” its annual report for that year shows. Sales expanded 10-fold from HK$1.77 billion ($228 million) in 1997 to HK$17.4 billion in 2008, when the U.S. subprime mortgage crisis expanded into a global slowdown.

Proview’s sales plunged 74 percent to HK$4.46 billion in 2009, when it lost HK$2.91 billion. As falling sales eroded cash flow, Proview units defaulted on payments to suppliers and creditors, the company said in its annual report that year.

Delisting Move

“The Shenzhen factory, the group’s primary manufacturing base, could only continue its operation with the assistance of the municipal government and the Bank of China and other creditor banks,” it said.

The company last published results in March 2010, for the six months ended Dec. 31, 2009. It had a loss of HK$755.8 million and a deficit attributable to equity holders of HK$2.37 billion. Bank borrowings stood at HK$1.8 billion.

Proview’s Hong Kong shares have been suspended since Aug. 2, 2010. The Hong Kong stock exchange on Dec. 30 gave Proview a third and final warning that it would be removed from the bourse by June 29 if it failed to publish results and demonstrate sufficient working capital for 12 months.

On Dec. 2, Proview announced it had struck an agreement with investor Rally Praise Ltd. to restructure the company and raise capital. No record of a company with that name could be found using Internet and registry searches.

Export Threat

Meantime, Proview is taking the fight to Apple. The company filed complaints to more than 40 local branches of the Administration for Industry and Commerce, according to Proview lawyer Ma. Court actions have been lodged in Shanghai, Shenzhen and Huizhou, he said.

Pudong District Court in Shanghai yesterday heard Proview’s application for an injunction against sales of iPads in the city. No ruling was made, he said.

The decision of the Guangdong Higher People’s Court will likely be final, said He Fang, an intellectual property lawyer at Rouse & Co. International in Shanghai. In exceptional cases, litigants who lose a second decision can refer their cases to the Supreme People’s Court, the nation’s highest, He said.

Proview has also applied to the Customs Bureau to block exports as well as imports of iPads, it said last week.

“China’s Customs Bureau has powers not just on imports, but on exports, too, making it different from other countries,” He said. “Most of Apple’s iPads are manufactured in China, so if the Customs Bureau imposes restrictions on exports, then it becomes a global issue for Apple.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net

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

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Most Stocks Drop in Europe After RBS, Credit Agricole Earnings; Oil Falls

By Lynn Thomasson and Jonathan Burgos - Feb 23, 2012 3:15 PM GMT+0700
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South Korean won bank notes are arranged for a photograph in Seoul, South Korea. Photographer: SeongJoon Cho/Bloomberg

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Feb. 22 (Bloomberg) -- Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, talks about global financial markets. Halmarick also discusses Europe's sovereign debt crisis and China's economy. He speaks in Hong Kong with John Dawson, Rishaad Salamat, Mia Saini and Zeb Eckert on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Most European stocks fell as earnings from Credit Agricole SA (ACA) to Royal Bank of Scotland Group Plc disappointed investors. The dollar dropped against most of its peers, while oil declined from a nine-month high.

The Stoxx Europe 600 Index (SXXP) lost less than 0.1 percent as of 8:14 a.m. in London, with six stocks declining for every five that rose. Standard & Poor’s 500 Index futures were little changed. The dollar fell 0.2 percent to $1.3270 per euro and 10- year Treasury yields increased one basis point to 2.01 percent. Italian 10-year bond yields rose four basis points to 5.55 percent. Oil slid 0.2 percent to $106.03 a barrel.

RBS, Britain’s biggest government-owned lender, and Credit Agricole, France’s third-largest bank, reported wider-than- estimated losses after writing down Greek debt. Earnings have missed estimates at half of the 202 companies in the Stoxx Europe 600 that have released quarterly results since Jan. 9, data compiled by Bloomberg show.

“Investors are very skeptical about whether a recovery can proceed without another hurdle jumping up again,” said Angus Gluskie, who oversees about $350 million as managing director at White Funds Management in Sydney. “The austerity measures running through Europe are likely to take the edge off growth.”

Target Corp., Sears Holdings Corp. and Kohl’s Corp. are among U.S. companies scheduled to report earnings today. Data today may show German business confidence rose to the highest in seven months in February, while initial claims for U.S. jobless benefits stayed near a four-year low, according to economists’ estimates from a Bloomberg survey.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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Wen Seen Paring China Growth Target

By Bloomberg News - Feb 23, 2012 10:14 AM GMT+0700
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Chinese Premier Wen Jiabao. Photographer: Michele Tantussi/Bloomberg

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Feb. 22 (Bloomberg) -- Bhanu Baweja, head of emerging-market fixed-income and currency strategy at UBS AG, discusses China's economy and currencies including the Brazilian real, Indian rupee and Turkish lira. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

China’s Premier Wen Jiabao is seen signaling next month that curbing pollution, inequality and the risk of financial instability eclipse the benefits of faster economic growth, a survey of analysts indicated.

Wen will target an expansion of less than 8 percent in his report to the National People’s Congress in Beijing on March 5, the equivalent of the U.S. President’s State of the Union address, according to 8 of 15 economists surveyed by Bloomberg News. The median estimate of 7.5 percent compares with the 8 percent goal maintained from 2005 to 2011, even amid the 2008-09 world recession.

A cut may indicate policy makers are prepared to tolerate a slower expansion as they move the economy’s drivers to consumption from exports and investment, a shift that may address global imbalances blamed for the last financial crisis. The survey results tally with state economist Fan Jianping’s prediction last week that a reduced goal will be set to send a message to local officials bent on chasing growth.

“A lower target should be seen more as a signal that there’s more emphasis on economic transformation and quality of growth over speed rather than a real goal,” said Ding Shuang, a Hong Kong-based economist with Citigroup Inc., who previously worked for the International Monetary Fund and China’s central bank. “Slower growth could provide more room to proceed with reforms that are required for rebalancing.”

Stocks Fall

Asian stocks today fell the most in a week and the Australian dollar weakened as reports signaled slowing global growth and Hewlett-Packard Co. forecast profit that missed estimates. The MSCI Asia Pacific Index lost 0.3 percent as of 11:47 a.m. in Tokyo after dropping as much as 0.6 percent, while the Shanghai Composite Index gained 0.3 percent at 10:48 a.m.

Average annual growth of 10 percent in the past three decades turned China into the world’s biggest emitter of carbon dioxide in addition to the second-largest economy and top exporter. The nation overtook the U.S. in 2009 to become the biggest energy consumer, according to the Paris-based International Energy Agency, a description China rejected.

As the Communist Party prepares for President Hu Jintao and Wen to hand over to a younger generation of leaders, officials aim to limit discontent over home costs, land seizures and the gap between rich and poor.

Gross domestic product expanded 9.2 percent in 2011 from 10.4 percent the previous year, as the government wound back stimulus measures and cracked down on property speculation. The nation’s five-year plan running through 2015 targets an average 7 percent expansion. Such goals are routinely exceeded and growth reached 14 percent as recently as 2007, according to the statistics bureau.

‘Didn’t Translate’

“For most people in China, the stellar double-digit growth rates of a few years ago didn’t translate into equivalent increases in income or spending,” said Mark Williams, a London- based economist at Capital Economics Ltd. who formerly advised the U.K. Treasury on China. Benefits would flow through “if the balance of the economy shifted towards services, light manufacturing and other areas that create a lot of jobs,” he said.

Elsewhere in the region, Taiwan’s industrial output probably fell a third month in January, with the median of 11 estimates in a Bloomberg News survey predicting a 15.3 percent decline in a report due later today.

Hong Kong’s trade deficit may have narrowed to HK$29.9 billion (US$3.86 billion) in January from HK$48.9 billion in December, according to a Bloomberg News survey of 10 economists. Singapore’s consumer prices probably rose 4.7 percent in January from a year earlier, a survey of 15 economists shows, easing from a 5.5 percent pace the prior month.

U.S. Jobless Claims

U.S. initial jobless claims rose by 7,000 to 355,000 in the week ended Feb. 18, according to a Bloomberg survey of 47 economists, ticking up from a four-year low the previous week. December home prices rose 0.1 percent from the previous month, according to a survey of 18 economists.

In Europe, German business confidence probably rose to the highest in seven months in February as progress in taming Europe’s debt crisis tempered the risk of a recession. The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 108.8 from 108.3 in January, according to the median of 38 economists in a Bloomberg News survey. That would be the fourth straight gain and the highest value since July.

An index of factory orders in the U.K. probably rose to minus 13 in February from minus 16 in January, the Confederation of British Industry will say, according to a Bloomberg survey of 11 economists.

Unstable Model

China’s Premier Wen has described the country’s growth model as unstable, unbalanced, uncoordinated and unsustainable, a phrase echoed by Jin Qi, an assistant governor of the central bank, as recently as last week. In last year’s work report, the premier highlighted resource and environmental constraints, an imbalance between investment and consumption, the wealth gap, and uneven development of urban and rural areas.

Signs of unrest have included December’s two-week blockade of the village of Wukan in Guangdong, linked to residents protesting disputed land sales and the death of a local man in police custody.

A high-speed rail crash last July killed 40 people, prompting the People’s Daily, a Communist Party mouthpiece, to call for economic development that is not “stained with blood.” Pollution incidents this year include a cadmium spill in Guangxi province that threatened the drinking water of millions of people.

Income Distribution

China’s Gini coefficient, an income-distribution gauge used by economists, has climbed to near 0.5 from less than 0.3 a quarter century ago, according to Li Shi, a professor of economics at the School of Economics and Business at Beijing Normal University. The measure ranges from 0 to 1, and the 0.4 mark is used as a predictor by analysts for social unrest.

So-called mass incidents, including strikes, riots and other disturbances, doubled to at least 180,000 in 2010 from 2006, according to Sun Liping, a sociology professor at Beijing’s Tsinghua University.

“What’s sustainable is growth that’s more inclusive, less energy intensive and less polluting,” Murtaza Syed, the IMF’s resident representative in Beijing, said in an interview yesterday. “You can keep growth very high by investing a lot but you create a problem in the medium term that could actually lead to a slowdown that’s very, very severe over the next 10 to 15-year horizon.”

Rural Poor

The government’s efforts to help the worst-off citizens have included raising the rural poverty line so 128 million people are eligible for subsidies, and pledging to build 36 million units of low-cost housing from 2011 to 2015.

Fan, the chief economist at the State Information Center, said this year’s growth target may be 7 or 7.5 percent to “act as guidance for local authorities to not focus on chasing speed.” In other forecasts from the survey of analysts, a majority said the nation’s inflation target will be set at 4 percent, the same as last year.

--Zheng Lifei. With assistance from Ailing Tan and Rina Chandran in Singapore and Victoria Ruan and Nerys Avery in Beijing. Editors: Scott Lanman,

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

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

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Gillard Calls Leadership Vote After Rudd Resigns

By Jason Scott and Jacob Greber - Feb 23, 2012 10:45 AM GMT+0700

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Feb. 23 (Bloomberg) -- Zareh Ghazarian, a lecturer at Monash University in Melbourne, talks about the rivalry between Australia's Prime Minister Julia Gillard and former Foreign Minister Kevin Rudd, and the prospects for the Labour Party leadership ballot. Ghazarian speaks with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)

Australian Prime Minister Julia Gillard called a leadership vote for Feb. 27, setting up a second showdown with her predecessor Kevin Rudd as weeks of growing tension damage the Labor government.

“We need a leadership ballot in order to settle this question once and for all,” Gillard, the nation’s first female prime minister, said at a press conference in Adelaide, after Rudd yesterday resigned as foreign minister. “For far too long we have seen squabbling within the Labor party which has obscured the government’s achievements.”

The move aims to bring to a head 11 days of escalating rivalry between Gillard and Rudd, as opinion polls show Labor’s popularity is hovering near a record low. At stake for Labor is survival of an administration that’s unveiled unprecedented taxes on natural resources and fees to address climate change -- an agenda Gillard calls “nation-changing reform” that has proved unpopular with voters.

“Gillard and her advisors have decided it’s better to lance this boil quickly,” said John Wanna, a professor of public administration at the Canberra-based Australian National University. “If Rudd doesn’t challenge, it’s probably the end of his career, but if he can assemble any numbers, she risks having a damaged prime ministership.”

Gillard said there had been a long-running campaign to undermine her government and that she is best-placed to lead Labor to victory against opposition leader Tony Abbott in elections due in 2013. She sought to head off any attempt by Rudd to continue his campaign even if he loses the ballot.

“If, against my expectation, I do not receive the support of my colleagues I will go to the backbench and renounce any further” ambitions for the leadership, Gillard said. “Kevin Rudd should give a comparable commitment.”

‘Destabilization Campaign’

Australia’s currency maintained two days of declines after stocks declined worldwide on concern reports from Europe and China indicate global growth is slowing. The so-called Aussie dollar bought $1.0635 as of 2:29 p.m. in Sydney from $1.0638 yesterday in New York. Benchmark 10-year government bond yields dropped four basis points to 4.06 percent.

Tensions between Rudd and Gillard have simmered since she ousted him in a June 2010 party coup.

“It is now evident to me and I think it is evident to the Australian people that there has been a long-running destabilization campaign here to get to this point where Kevin Rudd is clearly going to announce that he wants to seek the Labor leadership,” Gillard said.

Doubting Gillard

Rudd resigned at a 1 a.m. press conference yesterday in Washington, where he had been meeting U.S. government officials. In a news conference from Washington today shortly before Gillard spoke, Rudd said he was encouraged by support he has received from party colleagues and said he was best-placed to defeat Abbott.

“I do not believe that Prime Minister Gillard can lead the Australian Labor party to success in the next election. That is a deep belief,” Rudd said. “I believe it is also a belief shared right across the Australian community.”

He stopped short of declaring a challenge, saying he will make a statement on any decision after he returns tomorrow to Australia.

Rudd listed policy challenges facing the country, such as encouraging small businesses to boost investment through tax reform and continuing government support for manufacturing, including the nation’s car industry.

Swan’s Reaction

If Rudd contests the leadership ballot he will need the backing of 52 of the 103 Labor lawmakers. Treasurer Wayne Swan urged colleagues not to return Rudd to the job they ousted him from amid sinking poll ratings and concern about his autocratic style.

“The party has given Kevin Rudd all the opportunities in the world and he wasted them with his dysfunctional decision making and his deeply demeaning attitude towards other people including our caucus colleagues,” Swan said in an e-mailed statement late yesterday. “He sought to tear down the 2010 campaign, deliberately risking an Abbott prime ministership, and now he undermines the government at every turn.”

Attorney General Nicola Roxon, speaking with the Australian Broadcasting Corp., joined Communications Minister Stephen Conroy and Environment Minister Tony Burke in publicly backing Gillard since Rudd’s resignation.

Resources Minister Martin Ferguson told reporters he would back Rudd in a vote.

By saying the ballot should settle the leadership matter once and for all, Gillard is seeking to avoid a repeat of the showdown between Prime Minister Bob Hawke and Paul Keating 20 years ago. After unsuccessfully challenging Hawke, Keating retreated to the backbench, where he prepared a second leadership bid six months later that toppled the prime minister.

Abbott’s Lead

Abbott, a former amateur boxer who studied for the priesthood in the 1980s, leads Gillard as preferred prime minister among voters, with 40 percent support to her 37 percent, according to a Newspoll survey conducted Feb. 10-12. Labor’s primary vote rose 2 points to 32 percent, behind Abbott’s coalition on 46 percent. The survey of 1,141 people had a margin of error of plus or minus 3 percentage points.

A Feb. 2-4 Nielsen poll revealed 57 percent of voters surveyed preferred Rudd as Labor leader, compared with 35 percent for Gillard. The survey of 1,400 people had a margin of error of plus or minus 2.6 percentage points.

Money on Gillard

“What I think the Australian people yearn for right now is a prime minister who they chose, not a prime minister that the faceless men chose,” Abbott told reporters today. “The only way we can get away from a government based on dodgy backdoor deals, deals done in the dark, is to have an election.”

Australian bookmaker Sportsbet.com.au, which says it’s the nation’s largest online betting agency by revenue, is offering to return A$1.25 on every A$1 bet that Gillard will win a leadership contest, from A$1.33 yesterday. It will pay A$3.75 for Rudd, from A$3.15.

“We’ve currently taken more individual bets on Rudd, but there has been five times the amount of money wagered on Gillard,” Haydn Lane, a spokesman for sportsbet.com.au, said in a statement. “Those punters who routinely clean us up on political markets have all stepped into Gillard at short odds.”

After the nation’s closest election in seven decades in August 2010, Gillard cobbled together a minority government with the backing of independent lawmakers and the Greens, giving her a majority of one in the lower house of parliament. Labor risks triggering the collapse of that arrangement if Rudd takes the helm, according to independent lawmaker Tony Windsor.

“I did a deal with the current prime minister,” Windsor told Sky News yesterday after Rudd’s resignation. “If the Labor party suddenly wants to change arrangements in the middle of the stream, all bets are off.”

To contact the reporters on this story: Jason Scott in Canberra at jscott14@bloomberg.net; Jacob Greber in Sydney at jgreber@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Gillard Calls Leadership Vote After Rudd Resigns

By Jason Scott and Jacob Greber - Feb 23, 2012 10:45 AM GMT+0700

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Feb. 23 (Bloomberg) -- Zareh Ghazarian, a lecturer at Monash University in Melbourne, talks about the rivalry between Australia's Prime Minister Julia Gillard and former Foreign Minister Kevin Rudd, and the prospects for the Labour Party leadership ballot. Ghazarian speaks with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)

Australian Prime Minister Julia Gillard called a leadership vote for Feb. 27, setting up a second showdown with her predecessor Kevin Rudd as weeks of growing tension damage the Labor government.

“We need a leadership ballot in order to settle this question once and for all,” Gillard, the nation’s first female prime minister, said at a press conference in Adelaide, after Rudd yesterday resigned as foreign minister. “For far too long we have seen squabbling within the Labor party which has obscured the government’s achievements.”

The move aims to bring to a head 11 days of escalating rivalry between Gillard and Rudd, as opinion polls show Labor’s popularity is hovering near a record low. At stake for Labor is survival of an administration that’s unveiled unprecedented taxes on natural resources and fees to address climate change -- an agenda Gillard calls “nation-changing reform” that has proved unpopular with voters.

“Gillard and her advisors have decided it’s better to lance this boil quickly,” said John Wanna, a professor of public administration at the Canberra-based Australian National University. “If Rudd doesn’t challenge, it’s probably the end of his career, but if he can assemble any numbers, she risks having a damaged prime ministership.”

Gillard said there had been a long-running campaign to undermine her government and that she is best-placed to lead Labor to victory against opposition leader Tony Abbott in elections due in 2013. She sought to head off any attempt by Rudd to continue his campaign even if he loses the ballot.

“If, against my expectation, I do not receive the support of my colleagues I will go to the backbench and renounce any further” ambitions for the leadership, Gillard said. “Kevin Rudd should give a comparable commitment.”

‘Destabilization Campaign’

Australia’s currency maintained two days of declines after stocks declined worldwide on concern reports from Europe and China indicate global growth is slowing. The so-called Aussie dollar bought $1.0635 as of 2:29 p.m. in Sydney from $1.0638 yesterday in New York. Benchmark 10-year government bond yields dropped four basis points to 4.06 percent.

Tensions between Rudd and Gillard have simmered since she ousted him in a June 2010 party coup.

“It is now evident to me and I think it is evident to the Australian people that there has been a long-running destabilization campaign here to get to this point where Kevin Rudd is clearly going to announce that he wants to seek the Labor leadership,” Gillard said.

Doubting Gillard

Rudd resigned at a 1 a.m. press conference yesterday in Washington, where he had been meeting U.S. government officials. In a news conference from Washington today shortly before Gillard spoke, Rudd said he was encouraged by support he has received from party colleagues and said he was best-placed to defeat Abbott.

“I do not believe that Prime Minister Gillard can lead the Australian Labor party to success in the next election. That is a deep belief,” Rudd said. “I believe it is also a belief shared right across the Australian community.”

He stopped short of declaring a challenge, saying he will make a statement on any decision after he returns tomorrow to Australia.

Rudd listed policy challenges facing the country, such as encouraging small businesses to boost investment through tax reform and continuing government support for manufacturing, including the nation’s car industry.

Swan’s Reaction

If Rudd contests the leadership ballot he will need the backing of 52 of the 103 Labor lawmakers. Treasurer Wayne Swan urged colleagues not to return Rudd to the job they ousted him from amid sinking poll ratings and concern about his autocratic style.

“The party has given Kevin Rudd all the opportunities in the world and he wasted them with his dysfunctional decision making and his deeply demeaning attitude towards other people including our caucus colleagues,” Swan said in an e-mailed statement late yesterday. “He sought to tear down the 2010 campaign, deliberately risking an Abbott prime ministership, and now he undermines the government at every turn.”

Attorney General Nicola Roxon, speaking with the Australian Broadcasting Corp., joined Communications Minister Stephen Conroy and Environment Minister Tony Burke in publicly backing Gillard since Rudd’s resignation.

Resources Minister Martin Ferguson told reporters he would back Rudd in a vote.

By saying the ballot should settle the leadership matter once and for all, Gillard is seeking to avoid a repeat of the showdown between Prime Minister Bob Hawke and Paul Keating 20 years ago. After unsuccessfully challenging Hawke, Keating retreated to the backbench, where he prepared a second leadership bid six months later that toppled the prime minister.

Abbott’s Lead

Abbott, a former amateur boxer who studied for the priesthood in the 1980s, leads Gillard as preferred prime minister among voters, with 40 percent support to her 37 percent, according to a Newspoll survey conducted Feb. 10-12. Labor’s primary vote rose 2 points to 32 percent, behind Abbott’s coalition on 46 percent. The survey of 1,141 people had a margin of error of plus or minus 3 percentage points.

A Feb. 2-4 Nielsen poll revealed 57 percent of voters surveyed preferred Rudd as Labor leader, compared with 35 percent for Gillard. The survey of 1,400 people had a margin of error of plus or minus 2.6 percentage points.

Money on Gillard

“What I think the Australian people yearn for right now is a prime minister who they chose, not a prime minister that the faceless men chose,” Abbott told reporters today. “The only way we can get away from a government based on dodgy backdoor deals, deals done in the dark, is to have an election.”

Australian bookmaker Sportsbet.com.au, which says it’s the nation’s largest online betting agency by revenue, is offering to return A$1.25 on every A$1 bet that Gillard will win a leadership contest, from A$1.33 yesterday. It will pay A$3.75 for Rudd, from A$3.15.

“We’ve currently taken more individual bets on Rudd, but there has been five times the amount of money wagered on Gillard,” Haydn Lane, a spokesman for sportsbet.com.au, said in a statement. “Those punters who routinely clean us up on political markets have all stepped into Gillard at short odds.”

After the nation’s closest election in seven decades in August 2010, Gillard cobbled together a minority government with the backing of independent lawmakers and the Greens, giving her a majority of one in the lower house of parliament. Labor risks triggering the collapse of that arrangement if Rudd takes the helm, according to independent lawmaker Tony Windsor.

“I did a deal with the current prime minister,” Windsor told Sky News yesterday after Rudd’s resignation. “If the Labor party suddenly wants to change arrangements in the middle of the stream, all bets are off.”

To contact the reporters on this story: Jason Scott in Canberra at jscott14@bloomberg.net; Jacob Greber in Sydney at jgreber@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Wen Seen Setting China Growth Below 8% in 2012

By Bloomberg News - Feb 23, 2012 10:14 AM GMT+0700




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H-P Forecast Misses Estimates Amid Slump

By Aaron Ricadela - Feb 23, 2012 9:10 AM GMT+0700

Hewlett-Packard Co. forecast fiscal second-quarter profit (HPQ) that missed analysts’ estimates as consumers curtail personal-computer buying, doing more computing on smartphones and tablets made by rivals.

Profit excluding some items will be 88 cents to 91 cents a share for the period that ends in April, Hewlett-Packard said today in a statement. That fell short of 95 cents, the average analyst estimate, according to data compiled by Bloomberg.

Sales in the PC group dropped 15 percent to $8.87 billion in the period that ended in January, as consumers held off on buying new machines in the first full quarter under Chief Executive Officer Meg Whitman. Revenue from servers, printers and storage gear also declined, suggesting that Whitman’s attempts to reverse a sales slump aren’t yet taking hold.

“Headwinds will likely continue through the second quarter,” Abhey Lamba, an analyst at Mizuho Securities USA Inc., said in a research note today. “The company is again being conservative for the second quarter and remains cautious.” The New York-based analyst began coverage of Hewlett-Packard on Feb. 8 with a “neutral” rating.

On a conference call today, Whitman said the company’s PCs, printers and information-technology services haven’t been compelling enough to attract customers’ spending.

“For years, we’ve been basically running our business in silos,” she said. “We underinvested in innovation.”

Waiting to Buy

First-quarter sales of home computers fell 25 percent and business-PC revenue was down 7 percent, the Palo Alto, California-based company said. Consumers may wait to buy new PCs until Microsoft Corp. (MSFT) releases its Windows 8 software later this year. Rival Dell Inc. yesterday forecast lower sales for the current period amid tepid demand from consumers and governments.

Hewlett-Packard’s printer group also has too many unsold products sitting in dealers’ inventory, Lamba said in an interview. Sales in the printer group declined 7 percent to $6.26 billion.

Information-technology services revenue rose 1.1 percent to $8.63 billion, though profit margin narrowed. Shifting to more profitable types of services will take time, Lamba said.

“It’s not going to be a one-year turnaround,” he said.

Sales of servers, storage and networking equipment declined 10 percent to $5.02 billion, Hewlett-Packard said. Software revenue climbed 30 percent to $946 million.

Hewlett-Packard shares slipped to $28.58 in extended trading after the report. They had fallen 1.4 percent to $28.94 at the close in New York. The shares have climbed 12 percent this year after losing 39 percent of their value in 2011.

Paring Product Lines

In the first quarter, which ended Jan. 31, profit excluding some items declined to 92 cents a share, compared with analysts’ average estimate of 87 cents.

Net income fell 44 percent to $1.47 billion, or 73 cents a share, from $2.61 billion, or $1.17 a share, a year earlier, Hewlett-Packard said. Sales fell 7 percent to $30 billion. Analysts had projected $30.8 billion.

Whitman said she is attacking inefficient product-design and sales processes and investing in research and development to try to make the company more competitive. In an interview, she said she’s paring the number of PCs and printers Hewlett-Packard sells and making it easier for salespeople to adjust price quotes to book an order. She’s also been holding roundtables in Houston and other cities with chief information officers of big customers to suss out their needs.

“We’ve got everyone we can get calling on customers,” Whitman said. “I’ve got board members calling on customers.”

Whitman’s Rebuilding Effort

When the company reported fourth-quarter results Nov. 21, it forecast profit for fiscal 2012, which began Nov. 1, of at least $4 a share; analysts had previously expected $4.58. The company said today there has been no change to its annual forecast.

Since she took the helm, Whitman has been seeking to halt the missed sales forecasts and strategy shifts that marked the tenure of her predecessor, Leo Apotheker, who resigned Sept. 22. She has also said she’ll eschew big acquisitions. Apotheker left after a year and a half of management turmoil, falling computer demand and reduced growth forecasts. Whitman told analysts a complete turnaround of results could take two years or more.

Investing in Research

Whitman has also said she will attempt to rebuild Hewlett- Packard’s balance sheet and invest in research and development. R&D in the first quarter was 2.6 percent of sales, compared with 2.5 percent a year ago.

Whitman reversed a proposal, floated under Apotheker, to jettison Hewlett-Packard’s $39.6 billion PC business. She’s also opted to turn the WebOS operating system into an open-source project, letting outside programmers tinker with the code and use it in their own electronics devices.

U.S. PC shipments declined last year for the first time in a decade, and the industry is wrestling with a shortage of hard drives after flooding crippled factories in Thailand last year. Meanwhile, Apple Inc.’s iPad is cutting into PC sales, and Lenovo Group Inc. is gaining market share.

Hewlett-Packard, Dell and other PC makers are counting on a new crop of thin-and-light laptops called ultrabooks to spur sales. In addition, Hewlett-Packard is readying a lineup of PCs that would run Windows 8 and go on sale in time for the holidays.

Whitman likened her push to streamline the company’s operations to the efficiencies implemented by former CEO Mark Hurd in his tenure from 2005 to 2010. Hurd departed after a company investigation found he had violated its business conduct standards.

“Mark Hurd did a lot of good for this company,” she said in the interview. “Had he stayed, he might have gone after some of the things I’m going after,” she said. “I’m standing on his shoulders in some ways.”

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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

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