U.S. Stock Futures Trim Gains on Durables Slump

By Michael P. Regan - Feb 28, 2012 8:32 PM GMT+0700

U.S. stock-index futures trimmed gains after orders for durable goods dropped more than forecast, damping confidence in the economy.

Futures on the S&P 500 expiring in March rose 0.1 percent to 1,369.2 at 8:30 a.m. in New York after climbing as much as 0.5 percent earlier. The index yesterday jumped to its highest level since June 2008 following better-than-forecast growth in pending home sales.

Bookings for goods meant to last at least three years slumped 4 percent, four times more than forecast, after a revised 3.2 percent gain the prior month, data from the Commerce Department showed today in Washington. Economists projected a 1 percent decline, according to the median forecast in a Bloomberg News survey.

The S&P 500 has increased 4.2 percent in February and is heading for a third straight month of gains amid better-than- estimated economic and corporate reports. The gauge trades at about 14.1 times reported earnings, compared with the average since 1954 of 16.4 times, according to data compiled by Bloomberg.

The Conference Board’s gauge of consumer confidence is due at 10 a.m. in New York. The measure climbed to 63 this month from 61.1 in January, according to the median estimate in a Bloomberg survey.

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

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European Economic Confidence Beats Estimates

By Simone Meier - Feb 28, 2012 6:01 PM GMT+0700
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Germany’s economy, Europe’s largest, has helped soften the impact of tougher austerity measures across the region as companies boost output and hiring to meet export demand. Photographer: Guenter Schiffmann/Bloomberg

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Feb. 28 (Bloomberg) -- Anita Nemes, global head of capital introduction at Deutsche Bank AG, talks about the outlook for the hedge-fund industry. She speaks with Mark Barton on Bloomberg Television's "On the Move." (Source: Bloomberg)

Economic confidence in the euro area improved more than forecast in February, adding to signs the economy is stabilizing after a fourth-quarter contraction.

An index of executive and consumer sentiment in the 17- nation euro area rose for a second month, increasing to 94.4 from 93.4 in January, the European Commission in Brussels said today. Economists had forecast a gain to 94, the median of 31 estimates in a Bloomberg News survey showed.

Germany’s economy, Europe’s largest, has helped soften the impact of tougher austerity measures across the region as companies boost output and hiring to meet export demand. German business confidence rose more than economists forecast to a seven-month high in February and investors became more optimistic. European Central Bank President Mario Draghi has said that while some euro-area nations may see a “mild” recession, the overall situation “seems to be stabilizing.”

Today’s report suggests that “the euro zone is past the worst,” said Howard Archer, chief European economist at IHS Global Insight in London. “Even so, sentiment is still at a pretty low level and the euro zone is far from out of the economic woods.”

The euro was little changed after the report, trading at $1.3441 at 11:11 a.m. in Frankfurt, up 0.3 percent on the day. The Stoxx Europe 600 Index (SXXP) rose 0.2 percent.

German Unemployment

Germany’s expansion may help temper a slump in the euro area this year, according to the commission. German gross domestic product may rise 0.6 percent in 2012, while the economies of Italy, Spain, the Netherlands, Belgium and Greece are seen shrinking. French GDP may increase 0.4 percent, it said on Feb. 23.

German consumer confidence will increase to a 12-month high in March, helped by declining unemployment, GfK SE (GFK) said today. German unemployment probably fell for a fourth month in February, a Bloomberg survey shows. The Federal Labor Agency in Nuremberg will release the report tomorrow.

The uptick in European confidence echoed encouraging economic news from Japan, where retail sales exceeded economists’ forecasts in January, signaling a recovery in consumer spending will help the world’s third-largest economy return to growth this quarter.

‘Unusual Surge’

Sales rose 1.9 percent from a year earlier, after a 2.5 percent increase in December, the Trade Ministry said in Tokyo today. The median forecast of 15 economists surveyed by Bloomberg News was for a 0.1 percent decline. Car sales jumped 24 percent, the most in 22 years, after the government re- introduced a subsidy for buyers of energy-efficient cars.

In the U.S., orders for durable goods probably declined in January for the first time in four months as aircraft demand slowed, economists said before a government report today. Bookings for goods meant to last at least three years fell 1 percent after a 3 percent increase the prior month, according to the median forecast of economists surveyed by Bloomberg News.

A gauge of sentiment among European manufacturers increased to minus 5.8 in February from minus 7 in the previous month, today’s report showed. That’s the highest since August. An indicator of services confidence slipped to minus 0.9 from minus 0.7, while a gauge of consumer sentiment rose to minus 20.3 from minus 20.7. Indicators of retail trade and construction also improved.

‘Danger Zone’

Still, the region may struggle to gather strength after the economy shrank 0.3 percent in the fourth quarter. Manufacturing output dropped more than economists estimated in February and services industries failed to expand. Euro-region unemployment probably held at 10.4 percent in January, the highest in more than a decade, according to a Bloomberg survey.

The world economy is “not out of the danger zone” amid fragile financial systems, high public and private debt and rising oil prices, International Monetary Fund Managing Director Christine Lagarde said after a G-20 meeting last weekend.

Some companies have relied on faster-growing markets to bolster sales. Hermes International (RMS) SCA, the French maker of Birkin bags, on Feb. 9 reported full-year sales that beat its own forecast amid demand in the Americas and most parts of Asia. BASF SE (BAS), the world’s biggest chemical maker, on Feb. 24 predicted its run of record earnings to extend to a third year after emerging markets in Asia helped boost sales.

ECB Bond Purchases

A gauge of euro-region manufacturers’ production expectations rose to 2.9 from 1.9 in January and an indicator of order books increased to minus 14.2 from minus 16.4. At the same time, manufacturers grew more pessimistic about export orders and employment conditions, today’s report showed.

The ECB, which has purchased government bonds and provided banks with unlimited cash, will publish its latest economic projections on March 8. The central bank earlier this month kept borrowing costs at 1 percent, matching a record low.

“We can see a tentative stabilization at low levels of activity but also with some signs, the very first signs of some improvement here and there,” Draghi said. “That’s for the average of the euro area. In some countries there will be a mild or more-than-mild recession.”

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Euro Strengthens Before ECB Lending

By Stephen Kirkland and Lynn Thomasson - Feb 28, 2012 7:29 PM GMT+0700
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European banks will probably tap the ECB for 470 billion euros in three-year funds in its long-term refinancing operation, according to a survey of analysts. Photographer: Chris Ratcliffe/Bloomberg

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Feb. 28 (Bloomberg) -- David Bloom, global head of currency strategy at HSBC Holdings Plc, talks about the impact of higher oil prices and the European Central Bank's long-term refinancing operation on the foreign-exchange market. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

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Feb. 28 (Bloomberg) -- Bilal Hafeez, global head of foreign-exchange strategy at Deutsche Bank AG, talks about the European Central Bank's second allotment of unlimited three-year funds tomorrow and the impact on the euro. Hafeez, speaking from Singapore, also discusses his favorite currencies for 2012 with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

The euro strengthened and bond risk declined before the European Central Bank provides a second round of unlimited funds tomorrow to support banks. U.S. stock index futures gained, while Brent crude fell for a second day.

The euro appreciated 0.4 percent to $1.3448 at 7:25 a.m. in New York and the cost of insuring European sovereign bonds fell to the lowest in a week. The Stoxx Europe 600 Index gained 0.2 percent after climbing 0.4 percent. Standard & Poor’s 500 Index futures added 0.4 percent. The difference in yield between two- and 10-year Italian debt widened to the most since June 2009. Brent oil retreated 0.7 percent to $123.26 a barrel.

European banks will probably tap the ECB for 470 billion euros ($632 billion) in three-year funds in its long-term refinancing operation, according to a Bloomberg News survey of analysts. Italy sold 3.75 billion euros of a new 10-year bond at 5.5 percent, meeting its target for the auction. Consumer confidence may have increased this month, economists said before data from the Conference Board.

“In the short term, the LTRO operation should be risk- and euro-supportive,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The liquidity that the operations have injected into the market has reduced some of the solvency fears, particularly in the European banking market, and that’s provided a much better risk environment.”

Three shares gained for every two that fell in the Stoxx 600. (SXXP) PSA Peugeot Citroen jumped 6 percent after people familiar with the matter said that the Paris-based carmaker may announce a plan to sell a 7 percent stake to General Motors Co. this week.

Persimmon Jumps

Persimmon Plc surged 13 percent for the biggest gain on the Stoxx 600 (SXXP) after the U.K.’s largest housebuilder by market value said it plans to return 1.9 billion pounds ($3 billion) to shareholders by 2021.

KBC Groep NV (KBC), Belgium’s biggest bank and insurer by market value, rallied 5 percent after announcing an agreement with Banco Santander SA to merge their Polish banking units.

The gain in U.S. index futures indicated that the S&P 500 will climb for a fourth day. A measure of consumer confidence will increase to 63 in February from 61.1 last month, according to economists surveyed before the Conference Board’s report at 10 a.m. in New York. A Commerce Department report due at 8:30 a.m. in Washington may show durable-goods orders declined in January, economists said.

The euro appreciated 0.2 percent against the yen, while the Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, declined 0.3 percent.

Debt Sales

The Portuguese bond due in April 2021 rose, sending the yield down four basis points. The Italian 10-year bond yield fell eight basis points, while the nation’s two-year yield dropped 10 basis points. Belgium’s two-year note yield slipped four basis points as the government sold 3.01 billion euros of short-term debt, meeting its target for the auction as borrowing costs fell to the lowest level in 20 months.

The Markit iTraxx SovX Western Europe Index of contracts on 15 governments dropped three basis points to 343.5, the lowest in a week.

Gold for immediate delivery gained for the first time in three days, climbing 0.6 percent to $1,778.75 an ounce, on signs investment demand increased. Copper rose a third day, gaining 0.9 percent.

Emerging Markets

The MSCI Emerging Markets Index (MXEF) rose 1 percent. The BSE India Sensitive Index (SENSEX) climbed 1.6 percent on lower oil. South Korea’s Kospi rose 0.6 percent. Hynix Semiconductor Inc. (000660), the world’s No. 2 maker of computer-memory chips, jumped 6.8 percent to a nine-month high and Samsung Electronics Co. (005930) added 1.2 percent after their Japanese competitor Elpida Memory Inc. filed for bankruptcy.

Hungary’s BUX Index jumped 0.9 percent as Gedeon Richter Nyrt., the country’s biggest drugmaker, rose the most in almost five months after saying its antipsychotic drug helped patients with schizophrenia. Kredyt Bank SA (KRB), the Polish unit of KBC, jumped 17 percent on plans to merge with Santander’s Bank Zachodni WBK SA. (BZW) Zachodni slid 3 percent.

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

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net

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European Stocks Erase Gains as U.S. Durable Goods Orders Slump in January

By Tom Stoukas - Feb 28, 2012 8:41 PM GMT+0700

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Feb. 28 (Bloomberg) -- Peter Dixon, global equities economist at Commerzbank AG, talks about the European Central Bank's longer-term refinancing operation and the outlook for Germany. He speaks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

European (SXXP) stocks erased their gains, leaving the benchmark Stoxx Europe 600 Index little changed, after a report showed U.S. durable goods orders fell in January by the most in three years.

The Stoxx 600 fell less than 0.1 percent to 263.74 at 1:38 p.m. in London, after earlier gaining as much as 0.4 percent. The gauge has rallied 7.9 percent so far this year as the European Central Bank lent unlimited cash to the region’s banks. Standard & Poor’s 500 Index (SPH2) futures advanced 0.1 percent, while the MSCI Asia Pacific Index increased 0.8 percent.

In the U.S., bookings for goods meant to last at least three years slumped 4 percent, more than forecast, after a revised 3.2 percent gain the prior month, data from the Commerce Department showed today in Washington. Economists projected a 1 percent decline, according to the median forecast in a Bloomberg News survey.

The ECB will allocate cash from its long-term refinancing operation tomorrow. It will probably provide 470 billion euros ($632 billion) of three-year cash, according to a Bloomberg News survey of analysts.

Germany’s Chancellor, Angela Merkel, won a parliamentary vote on Greek aid after the close of European (SXXP) trading yesterday. She warned lawmakers that pushing Greece out of the euro risked “incalculable” damage.

“The German vote I don’t think was a great surprise, although the degree of support it had was marginally positive,” said Guy Foster, an analyst at Brewin Dolphin Securities Ltd. in London.

Vote on Bailout

In a vote that showed dissent in her coalition has grown, 496 members of the lower house, or Bundestag, voted in favor of the 130 billion-euro package. Ninety voted against and five abstained. Merkel’s government pushed through the measure to prevent Greece’s economy from collapsing.

Greece’s credit ratings were cut to “selective default” by S&P after the Mediterranean nation negotiated the biggest sovereign-debt restructuring in history. S&P lowered Greece’s rating from CC, two levels above default, after the government added clauses to its debt designed to include investors unwilling to take part in the exchange, the New York-based company said in a statement yesterday.

An index of executive and consumer sentiment in the 17- nation euro area rose for a second month, increasing to 94.4 from 93.4 in January, the European Commission in Brussels said today. Economists had forecast a gain to 94, the median of 31 estimates in a Bloomberg News survey showed.

German business confidence rose more than economists forecast to a seven-month high in February and investors became more optimistic. German consumer confidence will increase to a 12-month high in March, helped by declining unemployment, GfK SE said today.

To contact the reporter on this story: Tom Stoukas in Athens at astoukas@bloomberg.net

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

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European Stocks Erase Gains as U.S. Durable Goods Orders Slump in January

By Tom Stoukas - Feb 28, 2012 8:41 PM GMT+0700

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Feb. 28 (Bloomberg) -- Peter Dixon, global equities economist at Commerzbank AG, talks about the European Central Bank's longer-term refinancing operation and the outlook for Germany. He speaks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

European (SXXP) stocks erased their gains, leaving the benchmark Stoxx Europe 600 Index little changed, after a report showed U.S. durable goods orders fell in January by the most in three years.

The Stoxx 600 fell less than 0.1 percent to 263.74 at 1:38 p.m. in London, after earlier gaining as much as 0.4 percent. The gauge has rallied 7.9 percent so far this year as the European Central Bank lent unlimited cash to the region’s banks. Standard & Poor’s 500 Index (SPH2) futures advanced 0.1 percent, while the MSCI Asia Pacific Index increased 0.8 percent.

In the U.S., bookings for goods meant to last at least three years slumped 4 percent, more than forecast, after a revised 3.2 percent gain the prior month, data from the Commerce Department showed today in Washington. Economists projected a 1 percent decline, according to the median forecast in a Bloomberg News survey.

The ECB will allocate cash from its long-term refinancing operation tomorrow. It will probably provide 470 billion euros ($632 billion) of three-year cash, according to a Bloomberg News survey of analysts.

Germany’s Chancellor, Angela Merkel, won a parliamentary vote on Greek aid after the close of European (SXXP) trading yesterday. She warned lawmakers that pushing Greece out of the euro risked “incalculable” damage.

“The German vote I don’t think was a great surprise, although the degree of support it had was marginally positive,” said Guy Foster, an analyst at Brewin Dolphin Securities Ltd. in London.

Vote on Bailout

In a vote that showed dissent in her coalition has grown, 496 members of the lower house, or Bundestag, voted in favor of the 130 billion-euro package. Ninety voted against and five abstained. Merkel’s government pushed through the measure to prevent Greece’s economy from collapsing.

Greece’s credit ratings were cut to “selective default” by S&P after the Mediterranean nation negotiated the biggest sovereign-debt restructuring in history. S&P lowered Greece’s rating from CC, two levels above default, after the government added clauses to its debt designed to include investors unwilling to take part in the exchange, the New York-based company said in a statement yesterday.

An index of executive and consumer sentiment in the 17- nation euro area rose for a second month, increasing to 94.4 from 93.4 in January, the European Commission in Brussels said today. Economists had forecast a gain to 94, the median of 31 estimates in a Bloomberg News survey showed.

German business confidence rose more than economists forecast to a seven-month high in February and investors became more optimistic. German consumer confidence will increase to a 12-month high in March, helped by declining unemployment, GfK SE said today.

To contact the reporter on this story: Tom Stoukas in Athens at astoukas@bloomberg.net

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

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Merkel Wins Greek Aid Vote After Warning

By Patrick Donahue and Tony Czuczka - Feb 28, 2012 3:14 PM GMT+0700

Chancellor Angela Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk “incalculable” damage, defying a public backlash against more bailout funds.

In a ballot that showed dissent in her coalition growing, 496 members of the lower house, or Bundestag, backed the 130 billion-euro ($174 billion) package yesterday in Berlin; 90 voted against and five abstained. While questions on Greece’s remaining in the euro “have their justification,” Merkel warned that a failure of the euro might endanger the European Union and the global economy.

“Angela Merkel’s strident insistence that bailing out Greece is vastly preferable to the alternative was important,” Kit Juckes, head of foreign-exchange research at Societe Generale SA, said in a note today as he forecast the euro rising to $1.50. “Europe’s leaders have always stepped back from the edge of the abyss after flirting with disaster.”

Merkel’s government pushed through the measure to stave off a collapse of the Greek economy amid signs of growing resistance and as one of her Cabinet ministers said Greece should leave the single currency. Euro leaders will now shift their focus on whether to bolster the region’s bailout firewall as they prepare for a summit meeting in Brussels on March 1-2.

Euro Gains

The euro added 0.4 percent to $1.3445 at 9:10 a.m. Frankfurt time. The Stoxx Europe 600 Index (SXXP) opened up 0.2 percent to 264.28.

The chancellor’s Christian Democratic bloc and its Free Democratic Party coalition partner were joined by most opposition Social Democratic and Green lawmakers in voting for the bailout. Yet 17 lawmakers within Merkel’s coalition opposed it -- another three abstained and six didn’t vote.

That left the government with a majority of 304 votes of the 591 cast, though short of an absolute majority in the lower chamber. That would have required 311 votes. Thus Merkel failed to achieve a “chancellor’s majority,” a politically sensitive bar measuring support among her allies.

Merkel said euro leaders this week will discuss moving up capital payments for the permanent fund, the European Stability Mechanism, and that Germany is willing to pay in 11 billion euros this year if other countries speed up payments as well.

“There’s no need now for a debate on increasing the capacity” of the temporary and permanent bailout funds, Merkel said, citing lower bond yields for Italy and Spain.

‘Stop’

The stakes of the Bundestag vote were underscored by a headline yesterday in Germany’s best-selling Bild newspaper calling on lawmakers to reject the Greek bailout package. Exhorting Bundestag members to “Stop!” in a front-page headline, the Axel Springer AG (SPR)-owned newspaper capitalized on public distaste over the rescue package.

Bild reported on Feb. 26 that 62 percent of Germans wanted lawmakers to vote down the package, versus 33 percent who approved, according to a poll.

Interior Minister Hans-Peter Friedrich became the first German Cabinet member to raise the prospect of a Greek departure from the euro area. Friedrich told Der Spiegel magazine in an interview that while Greece shouldn’t be expelled from the monetary union, it would have better chances outside the area.

“I think those risks are incalculable, and therefore indefensible,” Merkel told lawmakers in the Bundestag. As chancellor, “I should and have to take risks, but I cannot embark on adventures. My oath forbids that,” she said.

Merkel Pushes Back

Merkel continued to push back against plans to combine the 250 billion euros remaining in the region’s temporary fund and the 500 billion-euro permanent rescue fund that is due to come into force in July.

This week’s summit in Brussels likely won’t reach a decision on an increase of the 500 billion-euro lending ceiling, putting off a final verdict on the issue until later in March, European Commission President Jose Barroso said. “March of course has 31 days,” Barroso said at the Lisbon Council in Brussels yesterday. “During March this matter is going to be addressed.”

Elsewhere, parliaments in Finland and the Netherlands plan to vote on the same Greek aid package tomorrow, while the European Central Bank is preparing to issue a second round of unlimited three-year loans to help shore up the region’s banks.

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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Merkel Wins Greek Aid Vote After Warning

By Patrick Donahue and Tony Czuczka - Feb 28, 2012 3:14 PM GMT+0700

Chancellor Angela Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk “incalculable” damage, defying a public backlash against more bailout funds.

In a ballot that showed dissent in her coalition growing, 496 members of the lower house, or Bundestag, backed the 130 billion-euro ($174 billion) package yesterday in Berlin; 90 voted against and five abstained. While questions on Greece’s remaining in the euro “have their justification,” Merkel warned that a failure of the euro might endanger the European Union and the global economy.

“Angela Merkel’s strident insistence that bailing out Greece is vastly preferable to the alternative was important,” Kit Juckes, head of foreign-exchange research at Societe Generale SA, said in a note today as he forecast the euro rising to $1.50. “Europe’s leaders have always stepped back from the edge of the abyss after flirting with disaster.”

Merkel’s government pushed through the measure to stave off a collapse of the Greek economy amid signs of growing resistance and as one of her Cabinet ministers said Greece should leave the single currency. Euro leaders will now shift their focus on whether to bolster the region’s bailout firewall as they prepare for a summit meeting in Brussels on March 1-2.

Euro Gains

The euro added 0.4 percent to $1.3445 at 9:10 a.m. Frankfurt time. The Stoxx Europe 600 Index (SXXP) opened up 0.2 percent to 264.28.

The chancellor’s Christian Democratic bloc and its Free Democratic Party coalition partner were joined by most opposition Social Democratic and Green lawmakers in voting for the bailout. Yet 17 lawmakers within Merkel’s coalition opposed it -- another three abstained and six didn’t vote.

That left the government with a majority of 304 votes of the 591 cast, though short of an absolute majority in the lower chamber. That would have required 311 votes. Thus Merkel failed to achieve a “chancellor’s majority,” a politically sensitive bar measuring support among her allies.

Merkel said euro leaders this week will discuss moving up capital payments for the permanent fund, the European Stability Mechanism, and that Germany is willing to pay in 11 billion euros this year if other countries speed up payments as well.

“There’s no need now for a debate on increasing the capacity” of the temporary and permanent bailout funds, Merkel said, citing lower bond yields for Italy and Spain.

‘Stop’

The stakes of the Bundestag vote were underscored by a headline yesterday in Germany’s best-selling Bild newspaper calling on lawmakers to reject the Greek bailout package. Exhorting Bundestag members to “Stop!” in a front-page headline, the Axel Springer AG (SPR)-owned newspaper capitalized on public distaste over the rescue package.

Bild reported on Feb. 26 that 62 percent of Germans wanted lawmakers to vote down the package, versus 33 percent who approved, according to a poll.

Interior Minister Hans-Peter Friedrich became the first German Cabinet member to raise the prospect of a Greek departure from the euro area. Friedrich told Der Spiegel magazine in an interview that while Greece shouldn’t be expelled from the monetary union, it would have better chances outside the area.

“I think those risks are incalculable, and therefore indefensible,” Merkel told lawmakers in the Bundestag. As chancellor, “I should and have to take risks, but I cannot embark on adventures. My oath forbids that,” she said.

Merkel Pushes Back

Merkel continued to push back against plans to combine the 250 billion euros remaining in the region’s temporary fund and the 500 billion-euro permanent rescue fund that is due to come into force in July.

This week’s summit in Brussels likely won’t reach a decision on an increase of the 500 billion-euro lending ceiling, putting off a final verdict on the issue until later in March, European Commission President Jose Barroso said. “March of course has 31 days,” Barroso said at the Lisbon Council in Brussels yesterday. “During March this matter is going to be addressed.”

Elsewhere, parliaments in Finland and the Netherlands plan to vote on the same Greek aid package tomorrow, while the European Central Bank is preparing to issue a second round of unlimited three-year loans to help shore up the region’s banks.

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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Santorum: Romney ‘Uniquely Unqualified’

By John McCormick and Lisa Lerer - Feb 28, 2012 6:02 AM GMT+0700

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Feb. 27 (Bloomberg) -- Bloomberg Businessweek's Elizabeth Dwoskin reports on traders profiting from politics at Intrade.com from a story in this week's edition of Bloomberg Businessweek. She speaks on Bloomberg Television's "Inside Track." (Source: Bloomberg)

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Rick Santorum at a Latin Builders Association conference in Miami on Jan. 27, 2012. Photographer: Eric Thayer/The New York Times/Redux

Rick Santorum pressed his case today that the Republican Party would hurt its chances in November’s election if it nominates Mitt Romney because he has taken too many positions similar to those of President Barack Obama.

“We have an opportunity in this race to make this about Barack Obama and his failed policies,” Santorum told a business group in Livonia, Michigan. “We need a candidate who can make that point, who can make it on the big issues of the day -- energy, jobs and manufacturing, limited government -- important issues like health care and its effect on the economy.”

On the eve of primaries in Michigan and Arizona, Santorum charged that Romney’s support of health-care legislation as governor of Massachusetts would damage the party’s standing because it is similar to the federal law Obama pushed through Congress.

“Why would we give this issue away?” Santorum asked. “It is the biggest issue in this race. It’s about taking control of your economic lives.” Calling Romney “uniquely unqualified” to make the case against Obama, he said the party would be foolish to pick someone who “did Obamacare-lite.”

‘Washington Insider’

Andrea Saul, a Romney spokeswoman, responded in a statement by saying Santorum is a “Washington insider who is lashing out at Mitt Romney because his campaign is floundering.”

She noted that Santorum endorsed Romney’s failed 2008 presidential bid because of his “conservative” record. “Now, Rick’s changed his tune,” she said. “This sounds like another case of Rick Santorum abandoning his principles for his own political advantage.”

As the campaign in Michigan evolved over the last two weeks, Romney’s camp spotlighted Santorum’s career in Congress after polls showed the former Pennsylvania senator ahead. A Romney loss in Michigan, where he spent his boyhood and where his father, George Romney, served three terms as governor and was an automobile company chief executive, would undermine his claim of front-runner status in the Republican presidential nomination race.

Delegate Allocation

Polls now show a close contest in Michigan (BEESMI), while Romney leads in Arizona (BEESAZ). Michigan will award 30 delegates based on how the candidates do in each of the state’s congressional districts, while the winner in Arizona will get all 29 delegates there. That’s one reason Santorum has concentrated on Michigan, and it might mean that the overall vote-total winner in the state won’t necessarily collect the most convention delegates.

Neither of the two other Republican presidential contenders -- former U.S. House Speaker Newt Gingrich and U.S. Representative Ron Paul of Texas -- has competed aggressively in Michigan, concentrating instead on states voting next month. Gingrich’s efforts appear set to get a boost -- Sheldon Adelson, chairman of the Las Vegas Sands Corp., is giving a fresh infusion of cash to a group supporting Gingrich, according to a person close to the organization who wasn’t authorized to publicly discuss its finances.

The undisclosed amount of money will fund pro-Gingrich television ads to run in seven states that hold contests in early March, the person said.

The PAC, Winning Our Future, had $2.4 million as February started, according to Federal Election Commission reports. Almost all of its $11 million in donations in January came from Adelson and his wife, Miriam, each of whom gave $5 million, and Texas billionaire Harold Simmons, who donated $500,000. Data compiled by Bloomberg show that Adelson is among the top 20 wealthiest people in the world.

Changing Subject

As Romney wrapped up his Michigan campaigning, he sought to change the subject of the campaign debate following several days where Santorum highlighted social issues such as abortion, religion and birth control.

“It’s time for him to really focus on the economy,” Romney said today in Rockford, Michigan.

Asked about that comment following his Livonia appearance, Santorum responded: “Tell him to watch my speech.”

At a stop in Albion, Romney pointed to the government- related work Santorum and Gingrich, another Republican presidential candidate, did after leaving Congress.

“They worked for companies, for lobbying firms in Washington,” Romney said. “They worked as elected officials in Washington. That’s what they know. I spent 25 years working business. That’s what I know.”

Super Tuesday Momentum

Tomorrow’s primaries will determine who has the momentum heading into so-called Super Tuesday on March 6, when 11 states will hold contests. More than 400 of the 1,144 delegates needed to win the nomination will be at stake then.

In one of those March 6 states -- Ohio -- Santorum holds a lead over Romney among likely Republican voters, 36 percent to 29 percent, according to a poll by Hamden, Connecticut-based Quinnipiac University. The survey was taken Feb. 23-26 and has a margin of error of plus or minus 3.4 percentage points.

One unknown in Michigan is how many Democrats and independents will cast ballots in the open primary. Some members of the United Auto Workers have said they plan to vote for Santorum or Paul in a bid to extend the primary fight and prevent Romney from winning the state.

Romney, a former private equity executive, has made economic issues his campaign’s focus and has tried to use that experience to distinguish himself from his Republican rivals. Santorum’s focus on religion has diverted attention away from Romney’s economic message, forcing him to tackle issues he tends to be less comfortable discussing.

‘Nice Guy’

Romney, 64, today contrasted his business experience with Santorum’s background in Congress, casting his rival as a creature of Washington with little private-sector experience.

“I’ve spent 25 years in business. I understand why jobs go why they come,” Romney said. “Senator Santorum is a nice guy, but he’s never had a job in the private sector.”

Santorum continued to talk about the importance of religion in U.S. society.

“We hear so much about separation of church and state,” he said. “I’m for separation of church and state. The state has no business” telling churches what to do.

Santorum, 53, told reporters after his speech that he is pleased with his place in the race.

“We’re doing remarkably well for being as outspent as we are,” he said. “We feel very, very good about the reaction we’re getting as we travel around the state of Michigan, getting good crowds and obviously people are reacting well to our message.”

Ad Spending

Spending in Michigan on television commercials by Romney’s campaign and a political action committee backing him has outpaced expenditures on behalf of Santorum by a ratio of about 3-to-2, according to data from New York-based Kantar Media’s CMAG, a company that tracks advertising.

The Romney campaign and Restore Our Future spent $2.85 million to air ads 5,544 times on Michigan broadcast television stations through yesterday, CMAG reported. Santorum and the Red White and Blue Fund, a PAC supporting him, spent $1.94 million to air ads 4,749 times.

To contact the reporters on this story: John McCormick in Livonia, Michigan at jmccormick16@bloomberg.net; Lisa Lerer in Albion, Michigan at llerer@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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Merkel Wins Greek Aid Vote After Warning Lawmakers

By Patrick Donahue and Tony Czuczka - Feb 28, 2012 6:00 AM GMT+0700

Chancellor Angela Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk “incalculable” damage, defying a public backlash against more bailout funds.

In a vote that showed dissent in her coalition growing, 496 members of the lower house, or Bundestag, voted in favor of the 130 billion-euro ($174 billion) package yesterday in Berlin; 90 voted against and five abstained. While questions on Greece’s remaining in the euro “have their justification,” Merkel warned that a failure of the euro might endanger the Europe Union and the global economy.

“I think those risks are incalculable, and therefore indefensible,” Merkel told lawmakers in the Bundestag. As chancellor, “I should and have to take risks, but I cannot embark on adventures. My oath forbids that,” she said.

Merkel’s government pushed through the measure to stave off a collapse of the Greek economy amid signs of growing resistance and as one of her Cabinet ministers said Greece should leave the single currency. Euro leaders will now shift their focus on whether to bolster the region’s bailout firewall as they prepare for a summit meeting in Brussels on March 1-2.

Merkel Lawmakers Rebel

The chancellor’s Christian Democratic bloc and its Free Democratic Party coalition partner were joined by most opposition Social Democratic and Green lawmakers in voting for the bailout. Yet 17 lawmakers within Merkel’s coalition opposed it -- another three abstained and six didn’t vote. That left the government with a majority of 304 votes of the 591 cast, though short of an absolute majority in the lower chamber. That would have required 311 votes. Thus Merkel failed to achieve a “chancellor’s majority,” a politically sensitive bar measuring support among her allies.

The Stoxx Europe 600 Index (SXXP) slid 0.3 percent to 263.86 at the close, after earlier falling as much as 1.2 percent. The benchmark measure extended last week’s 0.4 percent retreat. The euro was 0.3 percent weaker at $1.3404 at 6:19 p.m. Frankfurt time.

“There’s no need now for a debate on increasing the capacity” of the temporary and permanent bailout funds, Merkel said, citing lower bond yields for Italy and Spain.

She said euro leaders this week will discuss moving up capital payments for the permanent fund, the European Stability Mechanism, and that Germany is willing to pay in 11 billion euros this year if other countries speed up payments as well.

‘It Makes Sense’

Thomas Straubhaar, president of Germany’s HWWI economic institute, said the Bundestag had no choice other than backing the Greek rescue.

“It’s expensive but it makes sense because every other option to save Greece would end up being even more expensive,” Straubhaar said in an N24 television interview.

The stakes of the Bundestag vote were underscored by a headline yesterday in Germany’s best-selling Bild newspaper calling on lawmakers to reject the Greek bailout package. Exhorting Bundestag members to “Stop!” in a front-page headline, the Axel Springer AG (SPR)-owned newspaper capitalized on public distaste over the rescue package.

Bild reported on Feb. 26 that 62 percent of Germans wanted lawmakers to vote down the package, versus 33 percent who approved, according to a poll.

Greek Euro Exit

Interior Minister Hans-Peter Friedrich became the first German Cabinet member to raise the prospect of a Greek departure from the euro area. Friedrich told Der Spiegel magazine in an interview that while Greece shouldn’t be expelled from the monetary union, it would have better chances outside the area.

“The path that Greece has to take is a long one, and certainly one not without risks,” Merkel said. “This is also for the success of the new program. Nobody can give a 100 percent guarantee of success.”

As euro leaders consider plans to combine rescue funds and produce a potential firewall of 750 billion euros, German officials hit an impasse with Group of 20 finance ministers over the weekend in Mexico City. The G-20 rebuffed pleas for additional funding through the International Monetary Fund until the euro area first ratchets up its own resources, placing the onus on Germany to overcome its objections.

The U.S. led calls for Europe to step up, with Treasury Secretary Timothy F. Geithner saying in a Feb. 25 speech in Mexico that the region needed to make their crisis-fighting commitments “credible.” The same day, German Finance Minister Wolfgang Schaeuble said the deal struck for Greece’s 130 billion-euro bailout showed “Europe has done its homework.”

Merkel Pushes Back

Merkel continued to push back against plans to combine the 250 billion euros remaining in the region’s temporary fund and the 500 billion-euro permanent rescue fund that is due to come into force in July.

This week’s summit in Brussels likely won’t reach a decision on an increase of the 500 billion-euro lending ceiling, putting off a final verdict on the issue until later in March, European Commission President Jose Barroso said. “March of course has 31 days,” Barroso said at the Lisbon Council in Brussels yesterday. “During March this matter is going to be addressed.”

Elsewhere, parliaments in Finland and the Netherlands plan to vote on the same Greek aid package tomorrow, while the European Central Bank is preparing to issue a second round of unlimited three-year loans to help shore up the region’s banks.

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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Greece Cut to Selective Default by S&P

By Greg Chang - Feb 28, 2012 5:29 AM GMT+0700

Greece’s credit ratings were cut to “Selective Default” by Standard & Poor’s after it negotiated the biggest sovereign debt restructuring in history.

S&P dropped Greece’s rating from CC, two levels above default, after the government added clauses to its debt designed to mop up investors unwilling to take part in the exchange, the New York-based company said in a statement today.

The downgrade follows a reduction last week by Fitch Ratings to C, while Moody’s Investors Service has said it will cut the nation to its lowest rating. Greece published the formal offer document last week for its agreement to exchange bonds for new securities, with investors taking a haircut of 53.5 percent. The restructuring uses so-called collective action clauses to discourage holdouts, the use of which would trigger credit- default swap insurance contracts on the nation’s debt, according to the rules of the International Swaps & Derivatives Association.

“Everyone knew there was going to be some kind of swap,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York. “I suspect that it will be pretty much shrugged off and it’s in the market.”

Debt Restructuring

Greece negotiated the biggest debt restructuring in history as it seeks to reduce national debt to 120 percent of gross domestic product by 2020, from 160 percent last year, and to meet the terms of a 130 billion-euro ($170 billion) international bailout. An agreed debt swap, known as private- sector involvement, or PSI, will slice 100 billion euros off more than 200 billion euros of privately held debt if all investors participate.

S&P’s decision to downgrade Greece and the list of PSI eligible securities to D, was “pre-announced and all its consequences have been anticipated, planned for and addressed” by the European Council and the Eurogroup, the Greek Finance Ministry said in an e-mailed statement today.

The downgrade has “no impact in the Greek banking sector as its liquidity effect has been address by the Bank of Greece and consequently by the EFSF,” the Ministry said in the statement.

The Greek sovereign rating is expected to be upgraded from SD once the private sector swap on Greek sovereign debt is completed, the Ministry said.

To contact the reporter on this story: Greg Chang at gchang1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Buffett Says $2 Billion Energy Future Bond Bet at Risk of Being Wiped Out

By Noah Buhayar - Feb 28, 2012 4:12 AM GMT+0700

Warren Buffett, who bought about $2 billion in bonds of power company Energy Future Holdings Corp., said the investment is at risk of losing all its value after natural gas prices fell.

Buffett’s Berkshire Hathaway Inc. (BRK/A) wrote down the debt by $390 million last year, following a $1 billion impairment in 2010, the billionaire said in his annual letter to shareholders posted Feb. 25 on the company’s website. The market value of the investment was $878 million at the end of December, he said.

“If gas prices remain at present levels, we will likely face a further loss, perhaps in an amount that will virtually wipe out our current carrying value,” wrote Buffett, Berkshire’s chairman and chief executive officer. “Conversely, a substantial increase in gas prices might allow us to recoup some, or even all, of our writedown.”

Buffett, 81, invested in the bonds in 2007 after Energy Future, then called TXU Corp., was bought by KKR & Co. (KKR) and TPG Capital in the largest leveraged buyout. The private-equity firms wagered that gas prices would rise, pushing up wholesale electricity rates. Instead, prices fell amid an expansion of drilling, forcing down what Energy Future charges in unregulated markets for power produced from sources including coal.

The $1.87 billion of 10.25 percent bonds from Energy Future’s Texas Competitive unit due in November 2015 have tumbled to 29 cents on Feb. 24 from 62 cents on the dollar a year earlier, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Subordinating Debt

Energy Future has sought to reduce its risk of default by pushing out debt maturities and asking bondholders to swap their investments at discounted prices for new securities. Berkshire didn’t participate in an exchange in the fourth quarter of 2010, further subordinating its investment, the company said in a letter last year to the U.S. Securities and Exchange Commission.

While Energy Future has “significant exposure” to natural gas prices, it has almost fully hedged that risk this year, said Allan Koenig, a spokesman for the company, in an e-mailed statement yesterday.

“Having reworked our capital structure to extend our debt maturities until 2014 and beyond, we continue to service our investors’ holdings,” Koenig said. Berkshire has received annual interest payments of about $102 million since its purchase, Buffett said in his letter.

‘By Storm’

Natural-gas drillers have been using hydraulic fracturing, or “fracking,” and other technology to develop gas in shale fields from Texas to Pennsylvania. The new sources have driven the price from a high of more than $13 per million British thermal units in 2008 to as low as $2.23 on Jan. 23. Gas for March delivery fell about 4.1 percent to $2.45 today on the New York Mercantile Exchange.

Fracking “has taken the business by storm,” Peter Beutel, president of trading advisory company Cameronhanover.com in New Canaan, Connecticut, said in a phone interview. “All the sudden, we’ve got more natural gas than we can use.”

Energy Future needs a gas price of $6.15 per million Btu for profit margins wide enough to cover interest and operating expenses, according to Andy DeVries, a New York-based analyst for CreditSights Inc. Futures prices indicate gas won’t reach that level until 2022. Omaha, Nebraska-based Berkshire made the bet by buying issues from Texas Competitive maturing in 2015 and 2016, according to the letter to the SEC.

Credit-Default Swaps

Storage levels are 42 percent more than last year and 39 percent above the five-year average, according to Hsulin Peng, an analyst at Robert W. Baird & Co. Prices will average between $2 and $3 per million Btu this year and won’t rise to $5 until 2015, she said in a phone interview.

Contracts protecting against Energy Future’s default for five years climbed 1.2 percentage points to 46.5 percent upfront as of 2 p.m. in New York, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s in addition to 5 percent a year, meaning it would cost $4.65 million initially and $500,000 annually to protect $10 million of the power company’s debt.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. The contracts, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decline as investor confidence improves and rise as it deteriorates.

Energy Future posted a net loss of $136 million in the three months ended Dec. 31, its fourth consecutive unprofitable period. The benchmark wholesale power price in northern Texas, where Energy Future has plants, fell 2.7 percent from a year earlier to average $30.97 a megawatt-hour during the fourth quarter, according to data compiled by Bloomberg.

‘Unforced Error’

Buffett often uses his annual letter to point out his blunders, such as buying ConocoPhillips stock near the peak of an energy boom, even as he has built book value per share by more than 5,000-fold over 47 years. This year, he called his bet on Energy Future a “big mistake,” even if gas prices rise and some of the writedown is recouped.

“However things turn out, I totally miscalculated the gain/loss probabilities when I purchased the bonds,” Buffett wrote. “In tennis parlance, this was a major unforced error by your chairman.”

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net;

To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Susan Warren at susanwarren@bloomberg.net

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