Treasuries Drop in Longest Losing Streak Since 2006

By Emma Charlton and Masaki Kondo - Mar 15, 2012 6:26 PM GMT+0700

Treasuries fell, with 10-year notes dropping for a seventh day in the longest losing streak in more than five years, before U.S. reports forecast to show jobless claims decreased and a regional index of manufacturing advanced.

Benchmark yields climbed to the highest level since October as a gauge of the inflation outlook increased to a seven-month high, damping demand for fixed-income securities. Government bonds around the world slumped after the Federal Reserve raised its assessment of the U.S. economy two days ago and said strains in global financial markets have eased.

“The market is on the back foot, so if the data is strong then Treasuries could decline more,” said Charles Diebel, head of market strategy at Lloyds TSB Bank Plc in London. “We’ve seen a fairly sharp move in a short space of time. The catalyst seemed to be the Fed acknowledging the better growth.”

Yields on 10-year notes advanced two basis points, or 0.02 percentage point, to 2.29 percent at 7:17 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 dropped 1/8, or $1.25 per $1,000 face amount, to 97 15/32.

The 10-year note yields touched 2.35 percent, the highest level since Oct. 28. The seven days of yield gains is the longest stretch of increases since the nine-day period ended June 26, 2006.

Last Year’s High

While 10-year note yields are rising, they are still below last year’s high of 3.77 percent and the average over the past 10 years of 3.87 percent.

Two-year Treasury yields were little changed at 0.38 percent after increasing to 0.41 percent, the highest level since July 29. Thirty-year bond yields advanced one basis point to 3.42 percent after reaching 3.49 percent, the highest level since Sept. 2.

Fed policy makers refrained at their March 13 meeting from new actions to lower borrowing costs, saying the U.S. labor market is gathering strength.

German 10-year bunds slid for a third day, with the yield rising two basis points to 1.97 percent. Ten-year gilt yields advanced three basis points to 2.37 percent. Standard & Poor’s 500 Index futures expiring in June gained 0.1 percent.

Applications in the U.S. for jobless benefits fell to 357,000 last week from 362,000 in the previous period, according to the median forecast in a Bloomberg News survey before today’s Labor Department report. The Philadelphia Fed’s general economic index rose to 12 this month, from 10.2 in February, a separate survey showed. Readings greater than zero signal expansion in eastern Pennsylvania, southern New Jersey and Delaware.

‘Recovery Path’

“The U.S. economy is on a recovery path,” said Yoshinori Shigemi, a strategist for non-yen debt at RBS Securities Japan Ltd. in Tokyo, a unit of Royal Bank of Scotland Group Plc. “We see an upward trend in Treasury yields in the near term.”

The Labor Department is also forecast to report that the producer-price index rose 0.5 percent in February, the most since September, according to another Bloomberg News survey.

The 10-year break-even rate, a gauge of the outlook for consumer prices derived from the difference between yields on conventional and inflation-linked notes, increased to as much as 2.40 percentage points, the highest level since Aug. 2.

Ten-year yields have more room to rise, said Societe Generale SA, citing technical indicators.

The 10-year note yield may reach the October high of 2.415 percent, after breaching a 2.175 percent technical level, Hugues Naka, an analyst in Paris, wrote in a research note today. The 10-year yield reached 2.4176 percent on Oct. 28, according to data compiled by Bloomberg.

Treasury Losses

Treasuries maturing in more than a year have lost 1.7 percent in 2012, according to an index compiled by the European Federation of Financial Analysts Societies and Bloomberg. The gauge had posted three consecutive quarterly gains since March last year.

The extra yield, or spread, investors receive from holding 10-year U.S. Treasury notes instead of similar-maturity German debt widened to as much as 39 basis points. That’s the most since Feb. 21, 2011, based on closing price data compiled by Bloomberg.

The Fed is scheduled to buy as much as $4.25 billion of Treasuries maturing from March 2018 to February 2020 today under its program to replace holdings of shorter-term securities with longer-term bonds. The central bank bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 to June 2011 to spur economic growth through lower borrowing costs.

Bernanke on Recovery

“Despite some recent signs of improvement, the recovery has been frustratingly slow,” Fed Chairman Ben S. Bernanke said yesterday at a convention in Nashville, Tennessee.

RBS’s Shigemi recommended investors hold debt due in five to seven years to profit from so-called roll-down gains. As a bond nears maturity or “rolls down” the yield curve, it is valued at successively lower yields and higher prices. Using the strategy, the security is held for a period of time as it rises in price and is sold to realize the gain. The strategy works when longer maturities yield more than shorter-dated ones.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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China Trade Hub Guangzhou Booms as New Area Rises From Dirt

By Kelvin Wong - Mar 15, 2012 1:32 PM GMT+0700

Guangzhou, a trading hub for China since the Ming Dynasty in the 16th century, is in the midst of the biggest commercial real estate boom in its history.

Developers including Guangzhou R&F Properties Co. (2777) and Poly Real Estate Group Co. (600048) plan to add more than 1.7 million square meters (18.3 million square feet) of prime office space to the city this year -- enough for about 120,000 workers. Almost 90 percent of the new space will be built in Zhujiang Xincheng, a zone twice the size of the City of London that Guangzhou’s government earmarked as its new central business district almost a decade ago, according to Cushman & Wakefield Inc.

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People discuss baby strollers in the Ningbo Shenma Childrens Products Co. Ltd. booth during the 110th China Import and Export Fair in Guangzhou. Guangzhou, named Canton by Portuguese traders in the 16th century, hosts the China Import and Export Fair, or Canton Fair, in April every year. Photographer: Forbes Conrad/Bloomberg

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Guangzhou, with a population of more than 12 million, is China’s third-largest city behind Shanghai and Beijing and is the capital of the Guangdong province. Photographer: Nelson Ching/Bloomberg

“Back in 2004, out there it was all just dirt,” said Adrian Chan, assistant to the chairman at Guangzhou R&F, which has completed five office projects in the area since then, including the 160,000-square-meter, 54-story R&F Center, where the interview took place. “Today, it turns out to be a good winner.”

Guangzhou R&F and its rivals will be seeking to fill the space at a time of slowing economic growth, with the nation’s expansion target for 2012 this month set at 7.5 percent, down from an 8 percent goal in place since 2005. China last week reported its biggest trade deficit in at least 22 years, the weakest January-February factory-production gain since 2009, and retail sales that trailed the median of economist estimates.

The new developments may push the prime office vacancy rate in the city to above 20 percent by 2015, from 12 percent now, according to Chicago-based Jones Lang LaSalle Inc.

“With that amount of new supply coming in, I don’t care how fast the absorption rate is, it will pull up vacancy,” said Alvin Lau, managing director for Southern China at CBRE Group Inc. “And if there isn’t enough demand, then rents will fall, though I don’t think there’ll be a crash.”

Opium Trade

Guangzhou, named Canton by Portuguese traders in the 16th century, hosts the China Import and Export Fair, or Canton Fair, in April every year. In the 19th century, British traders imported opium into China through the city until the Chinese government sought to ban it, triggering the Opium War that resulted in the ceding of Hong Kong.

Guangzhou’s government in 2003 decided to turn the Zhujiang Xincheng district into a financial center rivaling Shanghai and Shenzhen. That was followed two years later by a 200 billion yuan ($32 billion) plan to upgrade the whole city’s infrastructure.

GM, Tesco

While finance firms didn’t respond, export and domestic- industrial companies have. The 6.6 square kilometer-district features the regional headquarters of China Mobile Ltd., the world’s biggest phone carrier by users, General Motors Co., the largest foreign automaker in China, and Tesco Plc, the U.K.’s biggest retailer.

“It was never going to work as Guangzhou doesn’t even have a capital market,” said Eric Lam, managing director for Southern China at property adviser Colliers International. “The ones who ended up here are the South China or regional headquarters of companies, not banks. At the end it was the market that directed the district’s positioning.”

Even with the new office supply, Lam said rents in top tier buildings will rise because of “very strong” demand.

Average monthly rent at Zhujiang Xincheng was 279 yuan per square meter in the fourth quarter, compared with 255 yuan a square meter at Tianhe, Guangzhou’s former central business district, New York-based Cushman said. That compares with 507 yuan in Beijing and 414 yuan in Shanghai.

Trading Hub

China will overtake the U.S. as the world’s biggest trading nation by 2016 as intra-Asia commerce and rising demand from emerging markets boosts shipments, according to a report from HSBC Holdings Plc last month.

“The government has always wanted to create a hub for trade operators,” said Donald Choi, managing director of Hong Kong-based Nan Fung Development Ltd., which is spending 6 billion yuan building commercial projects in the city. “So everything here, the excellent infrastructure, the policies, are all being backed by the government.”

Zhujiang Xincheng, which means Pearl River New Town in Mandarin, is home to the Guangzhou Opera House, the biggest performing center in Southern China, and the 1,969-foot Canton Tower, an observation tower that was the world’s tallest when it was completed in 2010.

Guangzhou, with a population of more than 12 million, is China’s third-largest city behind Shanghai and Beijing and is the capital of the Guangdong province. Nearby Foshan was identified by the World Health Organization as the probable source of outbreak of the 2003 Severe Acute Respiratory Syndrome epidemic, or SARS.

Recovery Project

While its economy was recovering from that outbreak, Guangzhou’s government began awarding land in Zhujiang Xincheng to developers including Guangzhou R&F, with the aim of building a financial hub that could replace the city’s existing downtown area of Tianhe.

To encourage investment from developers, Guangzhou, a two- hour train ride north of Hong Kong, went on to spend about 200 billion yuan to build roads and subways in Zhujiang Xincheng and the city. That includes a nine-stop, 4-kilometer long automated people mover similar to the light-rail system in Singapore.

“If some guys say they’re going to put in $10 and ask you to put in only $2, that’s a good bargain,” said Guangzhou R&F’s Chan. “They were drilling all these subways and roads and they ask whether you want to be part of this. And we said OK, though back then it was a pretty big risk to take.”

Guangzhou R&F’s shares have risen 61 percent in Hong Kong this year, while Poly Real Estate has advanced 8 percent in Shanghai.

Zhujiang Xincheng

Investment in real estate in Guangzhou jumped about 40 percent last year, according to estimates by Cushman. Guangzhou’s gross domestic product grew 11 percent in 2011 to 1.24 trillion yuan, ranking it third among all Chinese cities, according to the city government’s website.

Guangzhou heeded central government calls in late 2010 to restrict foreigners from buying homes and offices in the city. It said this month the curbs on foreigners purchasing retail real estate remained in place, according to Zhai Zhongqi, a Centaline Property Agency Ltd. analyst based in the city.

Almost 80 percent of the 2.8 million square meters of prime office space already under construction in Guangzhou is at Zhujiang Xincheng, Cushman said. The district had prime office space of about 1.2 million square meters at the end of 2011, over 50 percent more than the Tianhe district.

Beijing-Style Boom

“If domestic companies’ expansion continues, rental growth will probably be stable over the next few years,” said Marcos Chan, head of research for Greater Pearl River Delta at Jones Lang, the world’s second-biggest commercial broker by market value. “We’re talking about a market that hasn’t seen anything like this before. So when the new buildings are all in place, we may see a boom like what happened in Beijing last year.”

Beijing’s central business district’s prime office rent surged 73 percent in 2011 to be Asia’s third most-expensive office market after Hong Kong and Tokyo, according to Cushman.

Government-led commercial districts in some of China’s second-tier cities, including Chengdu and Hangzhou, “may face a market supply glut” because of over-building fueled by developers wanting to diversify from residential development, according to Cushman.

Pazhou District

The expectation of growing demand for office space in Zhujiang Xincheng has prompted the government to plan the development of another business district in Guangzhou’s Pazhou, the district where the venue of the Canton Fair is. Companies including Nan Fung are building at least 4.5 million square meters of commercial space there in addition to the 335,000 square meters already there.

“Guangzhou’s market for convention and exhibition is still developing,” said Nan Fung’s Choi. “It’s the center of trading of southern China and we’re very confident in its future.”

The company, one of Hong Kong’s two biggest closely held builders, is investing at least HK$6 billion ($773 million) building a hotel, exhibition venue, and an office building in the district.

“The next five years in Pazhou will be like Zhujiang Xincheng five years ago,” said Colliers’ Lam. “At the moment there’ll still land available, but that’ll change fast.”

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

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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Treasuries Extend Longest Drop Since 2006

By Stephen Kirkland and Lynn Thomasson - Mar 15, 2012 6:40 PM GMT+0700

Treasuries fell for a seventh day, the longest run of declines since June 2006, before data that may show U.S. manufacturing expanded and fewer Americans filed for unemployment benefits. U.S. stock-index futures rose, European shares were little changed and the pound weakened.

The 10-year Treasury yield climbed two basis points to 2.29 percent at 7:35 a.m. in New York, with the similar-maturity German bund yield advancing one basis point. Standard & Poor’s 500 Index futures rose 0.2 percent and the Stoxx Europe 600 Index (SXXP) was little changed near the highest level since July. The pound depreciated against 11 of its 16 most-traded peers, while the euro snapped a two-day drop versus the dollar. Soybeans jumped to a six-month high.

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The number of Americans applying for jobless benefits fell last week while manufacturing in the Philadelphia region expanded, economists said before reports today. Photographer: Paul Taggart/Bloomberg

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March 15 (Bloomberg) -- Sarat Sethi, a principal and portfolio manager at Douglas C. Lane & Associates, talks about the outlook for U.S. Treasuries and investment strategy. Sethi speaks with Sara Eisen and Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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March 15 (Bloomberg) -- Brinda Jagirdar, general manager and head of economic research at the State Bank of India, discusses the Reserve Bank of India's decision to leave interest rates unchanged at 8.5 percent and growth expectations for the country. She speaks from Mumbai with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

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March 12 (Bloomberg) -- Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., talks about the outlook for the euro, dollar and currency market volatility. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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March 15 (Bloomberg) –- Craig Ferguson, a currency hedge fund manager at Antipodean Capital Management in Melbourne, talks about U.S. stocks. Ferguson also talks about Federal Reserve monetary policy, the U.S. bond market and the outlook for the dollar. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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March 9 (Bloomberg) -- Liran Blum, head of foreign exchange and local market trading at Nomura Holdings Inc., talks about the February U.S. employment report and its impact on the value of the dollar. Liran, speaks with Stephanie Ruhle on Bloomberg Television's "In Business With Margaret Brennan." (Source: Bloomberg)

The number of Americans applying for jobless benefits fell last week while manufacturing in the Philadelphia region expanded, economists said before reports today. U.K. borrowing costs rose at the sale of 30-year bonds after Fitch Ratings said Britain risks losing its top investment-grade status.

“The U.S. economy is undoubtedly getting better,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $71 billion in Tokyo. “The bond market is likely to remain weak.”

The yield on the 10-year U.S. Treasury bond rose to as high as 2.35 percent, the most since Oct. 28. The average yield on 1,277 government debt securities in Merrill Lynch’s Global Sovereign Broad Market Plus Index climbed to 1.743 percent yesterday from 1.647 percent on March 7. The yield was 2.274 percent a year ago.

Average Rate

While Treasury yields are rising, the 10-year rate is about 1.5 percentage points less than last year’s high of 3.77 percent reached on Feb. 9. The yield averaged 3.87 percent in the past decade.

The gain in S&P 500 futures indicated the U.S. equities gauge will rebound from yesterday’s 0.1 percent drop. The Dow Jones Industrial Average (INDU) has risen for the past six days, its longest rally in more than a year.

A government report at 8:30 a.m. in Washington may show the number of Americans applying for jobless benefits fell by 5,000 to 357,000 last week, according to the median forecast in a Bloomberg survey of economists. Other data may show manufacturing in the Philadelphia region expanded in March, while growth in New York factory output slowed.

The Stoxx 600 fell less than 0.1 percent. HeidelbergCement AG, the world’s third-largest maker of cement, jumped 3.5 percent after predicting operating profit and sales will rise this year. Pernod-Ricard SA declined 2.7 percent as Groupe Bruxelles Lambert SA sold a 499 million-euro ($651 million) stake in the producer of wines and spirits.

Gilts Fall

The 10-year U.K. gilt yield climbed two basis points to 2.36 percent, while sterling depreciated 0.3 percent against the euro. The U.K. sold 2 billion pounds ($3.1 billion) of bonds maturing in December 2042 at an average yield of 3.431 percent, up from 3.287 percent at an auction of similar-maturity debt in December.

The Spanish 10-year bond yield fell one basis points as the government sold 3 billion euros of bonds, compared with a maximum target of 3.5 billion euros it set for the sale. The bid-to-cover ratio for notes maturing in April 2016 was 4.13, compared with 2.21 when the notes were sold in January.

The 10-year French bond declined for the second day, with the yield rising three basis points, as the debt office auctioned sold 8.46 billion euros of notes, at the top end of the 8.5 billion euros targeted.

Swiss Central Bank

The Swiss franc strengthened 0.4 percent against the dollar and 0.2 percent versus the euro as the Swiss central bank kept its cap on the franc unchanged and said deflation still threatens the economy even as growth shows signs of stabilizing.

The Swiss National Bank, led by interim Chairman Thomas Jordan, maintained the franc ceiling at 1.20 francs per euro, as forecast by all 14 economists in a Bloomberg News survey. The Zurich-based central bank said in an e-mailed statement today that it also kept its benchmark interest rate at zero.

The MSCI Emerging Markets Index (MXEF) fell less than 0.1 percent, halting a two-day, 1.6 percent advance. The Shanghai Composite Index slipped 0.7 percent after foreign direct investment in China dropped for a fourth straight month, taking its two- decline to 3.3 percent, the most since Aug. 9. The BSE India Sensitive Index lost 1.4 percent, its first retreat in five days, as the central bank kept rates on hold. The Micex Index (MICEX) lost 0.3 percent in Moscow, snapping two days of gains.

Soybeans rose as much as 1 percent to $13.635 a bushel, the highest price since Sept. 16. Natural gas dropped 1.3 percent to $2.3866 per a million British thermal units. Oil rose 0.3 percent to $105.78 a barrel, and copper gained 0.5 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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Obama Praises Cameron’s Strength Over Death of His Son

By Robert Hutton and Kate Andersen Brower - Mar 15, 2012 6:49 PM GMT+0700

Barack Obama praised David Cameron for the strength he showed following the death of his son, Ivan, and the British prime minister responded by comparing the U.S. president to Franklin Roosevelt.

The leaders toasted each other at a banquet on the White House lawn last night that capped two days of bonding between the Democratic president and Conservative prime minister. Obama, after talking about Cameron’s “commitment to human dignity” and “resolve” over Libya, went on to talk about his British counterpart’s experience as a parent.

“I will say something else, David,” Obama said. “All of us have seen how you as a parent along with Samantha have shown a measure of strength that few of us will ever know. Tonight I thank you for bringing that same strength and solidarity to our partnership.”

Ivan, who had suffered from cerebral palsy and life- threatening epileptic fits since birth, died at the age of six in February 2009 after being rushed to hospital in the night. Cameron, 45, was in the opposition at the time. His son’s illness often caused him to sleep on hospital floors after emergency admissions. The couple had two younger children then and in 2010 had a daughter.

The prime minister responded by all but endorsing Obama’s re-election in his own nine-minute toast. He cited the U.S.-led coalition effort in Libya, the surge in Afghanistan and the troop withdrawal from Iraq. The president “has pressed the reset button on the moral authority of the entire free world,” he said.

Oil Prices

Obama and Cameron talked during their meeting yesterday about releasing oil from strategic petroleum reserves without reaching a decision, according to a U.K. official who spoke on condition of anonymity because the talks were confidential.

Democrats in the U.S. Congress have called on Obama to use the oil stockpile to fight an increase in gasoline prices spurred by tensions with Iran over its nuclear program. Regular gasoline at the pump, averaged nationwide, rose 0.6 cents yesterday to $3.811 a gallon, according to AAA data. Prices are 7.2 percent higher than a year earlier.

The U.S. has withdrawn oil 18 times since 1985, including in 2008 after hurricanes struck the Gulf Coast. The U.S. reserve was used in July and August last year, under an International Energy Agency effort to ease shortages of Middle East supply.

U.K. Chancellor of the Exchequer George Osborne said yesterday that rising oil prices are something “all economies will be concerned about.”

A Different Feeling

“It’s doesn’t quite have the same spike feeling that it did a year ago,” Osborne said in an interview on the “Charlie Rose” show broadcast on PBS and Bloomberg Television. “It seems more like a sustained increase, partly driven by demand.”

Cameron, who has made attracting businesses to Britain the main focus of his foreign policy, will conclude his U.S. trip today with visits to the New York Stock Exchange (NYX) and the Sept. 11 memorial.

On the prime minister’s first stop in Newark, he’ll meet Mayor Cory Booker to discuss his experience trying to regenerate the New Jersey city and view urban renewal projects. Cameron is trying to increase the number of directly elected mayors in Britain.

In New York, the premier will host a lunch with business leaders, including billionaire investor George Soros; Blackstone Group LP Chief Executive Officer Stephen Schwarzman; Morgan Stanley CEO James Gorman and Goldman Sachs Group Inc. CEO Lloyd Blankfein, according to the prime minister’s office.

‘Inevitable’ Policies

With banks facing costs of as much as 7 billion pounds ($11 billion) as a result of plans in the U.K. to make them insulate consumer units from investment banking, Cameron may look to reassure financial institutions they can continue to base themselves in London.

Osborne said that such policies are “inevitable.”

“In the United States, you’ve had Dodd-Frank,” Osborne said on the “Charlie Rose” show. “We’ve got to get away from a situation where the U.S. Treasury secretary or the British chancellor has no other option on the night but to bail out a financial institution.”

The prime minister will also take questions today from students at New York University after visiting the Sept. 11 memorial. Cameron’s wife, Samantha, who is traveling with him, was in New York when the terrorists struck, and he spoke last year of the five hours he spent trying to get through to her mobile phone to find out if she was safe.

“I remember exactly where I was when I finally did get through and how pleased I was to hear her voice,” the prime minister told Al Jazeera television.

To contact the reporters on this story: Robert Hutton in Washington at rhutton1@bloomberg.net; Kate Andersen Brower in Washington at kandersen7@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net; James Hertling at jhertling@bloomberg.net

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Chinese Economy Already in ‘Hard Landing,’ JPMorgan’s Mowat Says

By Weiyi Lim - Mar 15, 2012 2:45 PM GMT+0700

China’s economy is already in a so- called “hard landing,” according to Adrian Mowat, JPMorgan Chase & Co.’s chief Asian and emerging-market strategist.

“If you look at the Chinese data, you should stop debating about a hard landing,” Mowat, who is based in Hong Kong, said at a conference in Singapore yesterday. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.” His team was a runner-up for best Asian equity strategists in a 2011 Institutional Investor magazine poll.

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Wen Jiabao, China's premier, said home prices are still far from reasonable levels. Photographer: Nelson Ching/Bloomberg

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March 15 (Bloomberg) -- Adrian Mowat, chief Asian and emerging-market strategist at JPMorgan Chase & Co., talks about the outlook for the Chinese economy. He speaks with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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March 14 (Bloomberg) -- Lu Ting, a Hong Kong-based economist at Bank of America Corp., talks about the outlook for China's economic growth and government leadership change. Lu speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

The Shanghai Composite Index fell 2.6 percent yesterday, the most since Nov. 30, after Premier Wen Jiabao said home prices are still “far from a reasonable level.” His comments fueled concern the government will maintain restrictions on the property market for an extended period even as the curbs threaten to slow economic growth.

Wen announced at the beginning of a national lawmakers’ congress on March 5 an economic growth target of 7.5 percent for this year, down from 8 percent over the past seven years. Data last week showed China’s factory output in the first two months of the year rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months. A report today showed foreign direct investment in China fell in February.

Mowat said in May the risk of a hard landing was building in China as fixed-asset investment in real estate had increased even as property demand remained weak. That meant residential inventories will increase and lead to a contraction in construction activity, he said in a May 17 interview.

Excessive Decline

“One should be concerned about what’s happening in the China property market,” Mowat said at yesterday’s conference. “People are too complacent that the government can turn what’s going on in this market.”

The slump in Chinese stocks to Wen’s speech yesterday was “overdone” as his comments on property were only a reiteration and don’t reflect consensus in the government, Jason Todd, global head of equity strategy at Religare Capital Markets Ltd., wrote in a report. The Shanghai Composite (SHCOMP) slid 0.7 percent today for the biggest two-day loss since August.

Wen, set to leave office next year after a decade in power, also said yesterday his nation must adopt political change to support an economic transformation that has produced rapid development at the cost of a widening wealth gap.

‘Vastly Overblown’

Gary Shilling, president of A. Gary Shilling & Co., a Springfield, New Jersey-based consultancy firm, said on Feb. 2 that China’s economy is headed for a “hard landing” this year as weaker demand overseas chokes off exports. Shilling, who correctly forecast the U.S. recession that began in December 2007, defines a hard landing as a growth rate below 6 percent.

Shilling and Mowat’s views are in contrast with Yale University Professor Stephen Roach, a former non-executive chairman for Morgan Stanley in Asia, who said on March 8 that concerns China will enter a hard landing are “vastly overblown.”

“I don’t think the banking system will collapse and the property bubble will burst,” Roach said at a conference in Shanghai. “These are all exaggerations.”

China is easing restrictions on lending capacity at three of the nation’s four biggest banks after new loans dropped to a four-year low, officials at the banks with knowledge of the matter said. The government’s two-year effort to control the property market helped spur a 25 percent drop in home sales in the first two months of the year after surging 26 percent in January and February of 2011.

“What you can look forward to is to see a pickup in property demand that will clear up the inventory; that doesn’t appear likely,” Mowat said in an interview after the conference yesterday. “I don’t see any evidence of a policy move that will cause the economy to reaccelerate.”

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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Goldman Roiled by Op-Ed Loses $2.2 Billion for Shareholders

By Christine Harper - Mar 15, 2012 5:25 PM GMT+0700

Goldman Sachs Group Inc. (GS) saw $2.15 billion of its market value wiped out after an employee assailed Chief Executive Officer Lloyd C. Blankfein’s management and the firm’s treatment of clients, sparking debate across Wall Street.

The shares dropped 3.4 percent in New York trading yesterday, the third-biggest decline in the 81-company Standard & Poor’s 500 Financials Index, after London-based Greg Smith made the accusations in a New York Times op-ed piece.

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Lloyd Blankfein, chairman and chief executive officer of The Goldman Sachs Group Inc., right, talks to Gene Sperling, director of the National Economic Council, during the U.S.-China Business Roundtable at the Chamber of Commerce in Washington, D.C., U.S. Photographer: Andrew Harrer/Bloomberg

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March 15 (Bloomberg) -- William Cohan, author of "Money and Power: How Goldman Sachs Came to Rule the World" and a Bloomberg View columnist, and Bloomberg's Christine Harper talk about Goldman Sachs Group Inc.'s corporate culture and departing executive Greg Smith's op-ed piece attacking the firm. They speak with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Cohan is a Bloomberg View columnist. The opinions expressed are his own. Source: Bloomberg)

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Employees walks across the interconnecting walkway linking the two Goldman Sachs offices in London. Photographer: Jason Alden/Bloomberg

Smith, who also wrote that he was quitting after 12 years at the company, blamed Blankfein, 57, and President Gary D. Cohn, 51, for a “decline in the firm’s moral fiber.” They responded in a memo to current and former employees, saying that Smith’s assertions don’t reflect the firm’s values, culture or “how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.”

Former Federal Reserve Chairman Paul Volcker, 84, whose “Volcker rule” would limit banks like New York-based Goldman Sachs from making bets with their own money, called Smith’s article “a radical, strong” piece. “I’m afraid it’s a business that leads to a lot of conflicts of interest,” Volcker said at a conference in Washington sponsored by the Atlantic.

Goldman Sachs slid $4.17 to $120.37 yesterday, leaving the shares still up 33 percent this year. The stock advanced 0.7 percent to $121.20 by 11:16 a.m. in Germany today.

David Wells, a spokesman for Goldman Sachs in New York, declined to comment beyond the contents of the memo and an earlier e-mailed statement in which the firm said it disagrees with the views expressed in the op-ed.

Fraud Lawsuit

Executives at Goldman Sachs haven’t changed their behavior even after the firm paid $550 million to settle a fraud lawsuit with the Securities and Exchange Commission and was accused by the U.S. Senate’s Permanent Subcommittee on Investigations of misleading clients, Smith wrote. The company published a report in January 2011 with 39 recommendations on how to improve its business practices and client focus.

“Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail,” Smith wrote. “It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you.”

The article was e-mailed across Wall Street. One employee at Bank of America Corp.’s Merrill Lynch division, a competitor to Goldman Sachs, said his team was told not to send copies to clients. Parodies such as “Why I am leaving the Empire, by Darth Vader” on thedailymash.co.uk and theborowitzreport.com’s “A Response from Goldman Sachs” also circulated.

‘Does Hurt’

“It does hurt them,” said Stephane Rambosson, managing partner at executive search firm Veni Partners in London and a former Citigroup Inc. banker. “The perception of the firm has gone down, and a lot of the winners of tomorrow are sitting back and thinking, ‘Do I want to be with Goldman?’”

There’s little evidence that the firm’s popularity with clients has been hurt by the SEC lawsuit, the Senate’s criticism or a recent ruling by Delaware Chancery Court Judge Leo Strine, who faulted Goldman Sachs’s handling of a conflict of interest. The bank won more business than any other in advising companies on takeovers and equity offerings last year, according to data compiled by Bloomberg.

Some clients of Goldman Sachs’s sales and trading department, the business in which Smith worked, said they are always cautious in dealings with Wall Street banks, understanding that their interests can diverge.

‘Prostitution in Vegas’

“The argument that Goldman has become increasingly profit- driven, sometimes at the expense of clients’ best interests, and that some employees use vulgar and disrespectful language, is hardly news,” Whitney Tilson, founder of hedge fund T2 Partners LLC, wrote in an e-mailed commentary. “What’s the next ‘shocking’ headline: ‘Prostitution in Vegas!?’”

Smith was an executive director in London, a title equal to vice president in New York. The firm employs almost 12,000 vice presidents, and most said in a recent internal survey that “the firm provides exceptional service” to clients, Blankfein and Cohn said in the memo. Smith, who sold U.S. equity derivatives to clients in Europe, the Middle East and Africa, didn’t respond to calls seeking comment.

Seven former Goldman Sachs partners and managing directors, positions that are more senior than vice president, said in interviews that Smith shouldn’t be taken seriously because he was a junior employee and may have been disgruntled about his pay or career. All asked not to be identified because they didn’t want to risk ruining their relationship with the firm.

Still, six of the seven said they agreed with Smith’s criticism of how the firm has treated clients under Blankfein and Cohn’s management and that current members of the management committee would, too. Even so, they said they don’t expect the board of directors to take action or that anything will change because the firm has made money and outperformed most rivals.

‘On a Pedestal’

“He may have aired a few comments that are true, but he’s placed himself on a pedestal,” said Jason Kennedy, CEO of the Kennedy Group, a London-based recruitment firm. “The reason he’s been at Goldman Sachs for 12 years is that he liked the name and probably liked the money.”

It’s rare for people on Wall Street, especially at Goldman Sachs, to speak out publicly against their employers or former employees, said Roy Smith, a former Goldman Sachs partner who’s now a finance professor at New York University’s Stern School of Business.

“Who’s going to hire someone who would do that?” he said. “The industry will close ranks on such things as whistle- blowing in this context.”

Sales and Trading

NYU’s Smith, who’s not related to the author of the op-ed, said Wall Street’s culture has changed because trading has become a more important source of revenue than the fees banks get from advising companies on takeovers or financing. Goldman Sachs generated 60 percent of its 2011 revenue from sales and trading.

The relationship with clients in the trading department differs from the investment bank, Smith said. Firms often are on the opposite side of a client’s trade, and can profit at the client’s expense. Still, it’s not as simple as the article describes, he said.

“It just doesn’t happen that it’s easy to make money by ripping off your clients or counterparties because they’re pretty smart people for the most part,” he said.

Though some competitors relished the criticism of Goldman Sachs, which was the most profitable securities firm in Wall Street history before it converted to a bank in 2008, they may not be so different.

Smith’s opinion piece “seems to be symptomatic of many, if not most, of the banks around the world,” said Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics. “It might be that Goldman, as one of the most successful ones, is also one of the most extreme.”

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

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

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Twitter Feed Is Fed’s Latest Effort to Reach Out to Public

By Joshua Zumbrun and Jeff Kearns - Mar 15, 2012 12:17 AM GMT+0700

First there were town hall meetings, then press conferences. Now comes @federalreserve, Ben S. Bernanke’s latest effort to reach out to the public, this time via Twitter.

The Federal Reserve said it will post messages about its press releases, speeches, testimony and reports to Congress -- even its weekly balance sheet. It will also post “educational frequently asked questions,” according to a statement released today in Washington.

Federal Reserve Chairman Ben Bernanke checks his phone before President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Photographer: Win McNamee/Getty Images

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Ben Bernanke, chairman of the US Federal Reserve Chairman. Photographer: Joshua Roberts/Bloomberg

“It allows the Fed to communicate in a more frictionless manner and in real time,” said Phil Pearlman, New York-based executive editor of StockTwits Inc., an online investing community for traders and investors. “If everyone is talking about you, then you have to be there as part of that conversation, and it’s harder and harder not to be there as that conversation grows.”

The feed is part of the Fed’s effort to improve public understanding of its policies and how it functions. Bernanke started holding quarterly press conferences last year and is making appearances ranging from speaking at a military base in Texas to teaching a four-part lecture series at George Washington University later this month.

Treasury, SEC

The Fed’s followers surged to more than 1,500 in the hour after the statement announcing the channel at 9 a.m. Washington time and to almost 5,000 by 12:45 p.m. Most regional Fed banks already have Twitter feeds, including San Francisco, Philadelphia and Boston.

San Francisco-based Twitter Inc. is a microblogging service that lets its more than 100 million users send 140-character messages.

“Twitter is great for breaking news because it goes to people fast, but I have a hard time believing that the Fed is going to break news on it,” said Jamie Lissette, founder of the Hammerstone Group, a Westport, Connecticut-based operator of online discussion forums for investors.

“Will we be getting tweets at 3 a.m. saying ‘Falling asleep, concerned about inflation?’” he said.

To contact the reporters on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Jeff Kearns in Washington at jkearns3@bloomberg.net

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

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Senate Passes U.S. Highway Bill Penalizing Privatization

By Jeff Plungis - Mar 15, 2012 12:35 AM GMT+0700

The U.S. Senate passed a two-year, $109 billion surface-transportation bill as states began to assess the impact of a provision that penalizes them for hiring companies to run highways.

The focus on the highway and transit package, which both parties framed as necessary for job creation, now returns to the House.

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Freeway near Los Angeles International Aiprort. Photographer: Kevork Djansezian/Getty Images

The Chicago Skyway was purchased by Cintra in 2005. Illinois, Indiana, and Colorado are the three states directly affected by the amendment, according to Senator Jeff Bingaman’s office. Photo: Karen Bleier/AFP/Getty Images

Speaker John Boehner has said the House may work from the Senate bill, which passed 74-22, if enough Republicans can’t be persuaded to support a reworked version of a five-year, $260 billion bill proposed by Representative John Mica, a Florida Republican.

“Presidents, Republicans and Democrats have always said you can’t have a thriving economy if you can’t move goods and you can’t move people, and you can’t do it efficiently,” Senator Barbara Boxer, the California Democrat who is chairman of the Environment and Public Works Committee, said after the vote.

The current law authorizing transportation programs expires March 31.

Senators voted down most efforts to modify the bill, including several that Boxer said would gut the U.S. government’s role in financing and planning a national road network.

Bingaman Amendment

One exception was an amendment by Senator Jeff Bingaman, a New Mexico Democrat, to discourage states from leasing roads to private operators. The amendment, which passed 50-47, added to language already in the bill that would limit tax breaks for companies such as Macquarie Infrastructure Co. (MIC) that operate highways for states.

Bingaman’s amendment excludes privately operated toll roads from the formula that calculates U.S. highway aid to states. Those proposals counter other parts of the bill and President Barack Obama’s fiscal 2013 budget that encourage states to attract investment in infrastructure.

“This will hinder and constrain our ability to be innovative,” Steve Faulkner, spokesman for the Ohio Department of Transportation (51398MF), said in a telephone interview.

Officials in Ohio, who are studying whether to lease operation of the state’s turnpike, are “adamantly opposed” to the amendment, Faulkner said. He declined to say what impact it may have on specific projects.

Tolls Backed

Indiana, Illinois and Colorado are the three states directly affected by the amendment, according to Bingaman’s office. States without private roads would get more U.S. highway money.

Indiana in 2006 leased its turnpike for 75 years to Cintra, a unit of Madrid-based Ferrovial SA (FER), and Sydney-based Macquarie Infrastructure, in the largest U.S. public-private road lease deal to date.

Lawmakers and Obama are looking to companies and investors to help pay for toll roads and other projects as the Highway Trust Fund, which pays for infrastructure from U.S. fuel taxes, faces insolvency as soon as October.

The Bingaman amendment was backed by the American Trucking Associations and AAA, the former American Automobile Association. It was opposed by the U.S. Chamber of Commerce, the largest business lobbying group, and the American Road and Transportation Builders Association, a construction trade group.

“At a time when all levels of government are under increasing budgetary pressures, we should be incentivizing states who seek to leverage their limited resources,” ARTBA President Peter Ruane said in a letter to senators March 12.

The most recent surface-transportation legislation, which was passed in 2005, allocated about $286 billion over six years. Highway programs have operated on eight short-term extensions at about the same spending level since 2009, when the bill was set to expire.

The White House budget released earlier in February that proposed $476 billion over six years on surface transportation, with an immediate $50 billion this year.

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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S&P 500 Falls After Rising to the Highest Since June 2008

By Rita Nazareth - Mar 15, 2012 3:47 AM GMT+0700

The Standard & Poor’s 500 Index (SPX) fell, snapping a five-day advance, after the benchmark gauge for U.S. equities rallied to the highest level since June 2008.

A gauge of financial shares in the S&P 500 swung between gains and losses following the Federal Reserve’s stress test results. Citigroup Inc. (C) and MetLife Inc. (MET) lost more than 3.3 percent. Bank of America Corp. (BAC) and Zions Bancorporation rose at least 4.1 percent. The Dow Jones Transportation Average (TRAN) fell 1.4 percent as the Fed’s better economic assessment caused investors to reduce bets on more monetary easing. Apple Inc. (AAPL) added 3.8 percent as Morgan Stanley raised its share-price estimate.

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March 14 (Bloomberg) -- Bloomberg's Pimm Fox and Deborah Kostroun report on the performance of the U.S. equity market today. The Standard & Poor’s 500 Index fell, snapping a five-day advance, after the benchmark gauge for U.S. equities rallied to the highest level since June 2008. (Source: Bloomberg)

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March 14 (Bloomberg) -- Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., talks about the results of the Federal Reserve's bank stress tests and the U.S. economy. El-Erian speaks with Betty Liu and Michael McKee on Bloomberg Television's "In the Loop." (This is an excerpt of the full interview. Source: Bloomberg)

The S&P 500 fell 0.1 percent to 1,394.28 at 4 p.m. New York time, after closing yesterday at 14.4 times reported earnings, the highest valuation level since July. The Dow Jones Industrial Average advanced 16.42 points, or 0.1 percent, to 13,194.10. The Russell 2000 Index (RTY) of small companies dropped 0.9 percent to 823.40. About 7.5 billion shares changed hands on U.S. exchanges, or 13 percent above the three-month average.

“It’s an issue of confidence,” Robert Zagunis, co- portfolio manager at Jensen Investment Management Inc., said in a telephone interview from Portland, Oregon. His firm oversees $5.7 billion. “Little by little, things are improving. You have symbolic announcements like the Fed stress tests. Longer-term, the market will be higher, but there may be a scale back. The question is -- are you in for the short term or the long term?”

Concern that stock gains have outpaced economic prospects grew as the S&P 500 capped the best start to a year since 1991, approaching the median 2012 projection of strategists surveyed by Bloomberg of 1,400. The benchmark measure rose amid better- than-estimated economic data and corporate earnings.

Bank Stocks

A measure of financial shares in the S&P 500 added less than 0.1 percent, after rising as much as 0.4 percent and falling 1 percent earlier today. After the close of trading yesterday, the Fed said 15 of 19 banks would be able to maintain capital levels above a regulatory minimum in an “extremely adverse” economic scenario, even while continuing to pay dividends and repurchasing stock.

Citigroup slumped 3.4 percent to $35.21. MetLife fell 5.8 percent to $37.16. Bank of America added 4.1 percent to $8.84. Zions Bancorporation (ZION) soared 11 percent, the most in the S&P 500, to $21.58. Regions Financial Corp. (RF) jumped 6.9 percent to $6.17.

“You have the Fed putting an approval rating on a lot of these banks saying: we’re comfortable with their financial position,” Andrew Slimmon, managing director of global investment solutions at Morgan Stanley Smith Barney, said in a phone interview from Chicago. His firm had $1.6 trillion in client assets at the end of 2011. “Then, you look at their valuation and boy, these stocks are very cheap.”

Improving Profits

The KBW Bank Index (BKX) rose 1.3 percent, extending this year’s gain to 22 percent, on expectations of stronger economic growth and improving profits. Concern that the nation’s banks may be damaged by Europe’s debt crisis helped drive down the index 25 percent in 2011, its worst annual performance since 2008.

U.S. bank shares will rally further, building on yesterday’s gains, even as the S&P 500 looks set to retreat, according to a technical analyst at UBS AG.

“It’s not like we’re getting super bullish, but the breakout in financials is game-changing,” Michael Riesner said in a telephone interview from Zurich.

Transportation (S5TRAN) stocks dropped the most in the S&P 500 among 24 industries, falling 1.5 percent. The group is considered a proxy for economic growth. The Fed said yesterday that strains in global financial markets have eased and the labor market is gathering strength, adding to speculation that it will refrain from additional stimulus. CSX Corp. (CSX) slid 2.9 percent to $20.21. Union Pacific Corp. (UNP) fell 2.4 percent to $107.71.

Another Round

Pacific Investment Management Co.’s Mohamed El-Erian said the Fed’s stress tests on financial institutions were a good sign for an economy that may still receive another round of asset purchases from the bank.

“They were credible, and unambiguously this is good news,” El-Erian, the chief executive officer of the world’s largest manager of bond funds, said of the bank tests during an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “The big hope for everybody is that they’ll start lending into the real economy.”

Gold producers tumbled on speculation that an economic recovery will curb demand for the metal. Gold has surged since December 2008 as the Fed held U.S. borrowing costs at a record low and bought $2.3 trillion in housing and government debt during two rounds of so-called quantitative easing.

Newmont, Freeport

Newmont Mining Corp. (NEM), the largest U.S. gold producer, dropped 1 percent to $54.30. Freeport-McMoRan Copper & Gold Inc. (FCX) retreated 2.5 percent to $38.12.

Technology shares had the biggest gain among 10 groups. Apple climbed 3.8 percent to a record $589.58, rising for a sixth day. The world’s largest technology company had its share price estimate raised to $720 from $515 at Morgan Stanley. (MS)

Cliffs Natural Resources Inc. (CLF) rose 7.1 percent to $69.50. The largest U.S. iron-ore producer more than doubled its dividend and said it’s refocusing on the execution of expansion projects.

The Chicago Board Options Exchange Volatility Index, called the “fear gauge” because it typically moves in a direction opposite to stock prices, may stay near the five-year low it hit yesterday, according to blogger Bill Luby.

“I can sense that quite a few are ready to grab the nearest pitchfork and riot about the inhumanity of the wayward VIX,” Luby wrote in his blog yesterday, referring to those who expect the VIX to increase. “Of course, not all bull markets are the same and every wall of worry is made of different types of stones, but at some point, investors need to come to terms with the reality of a VIX (VIX) of 15.”

The VIX yesterday fell as much as 11 percent to 13.99, the lowest intraday level since June 2007, and closed at 14.80. The VIX today rose 3.5 percent to 15.31, snapping a five-day retreat.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Russian Billionaire Rybolovlev Sued Over Penthouse Purchase

By Chris Dolmetsch - Mar 15, 2012 6:01 AM GMT+0700

Russian billionaire Dmitry Rybolovlev was sued by his wife over the $88 million purchase of a Central Park West penthouse in Manhattan from former Citigroup Inc. (C) Chairman Sanford Weill.

Elena Rybolovleva, 45, of Geneva, who is seeking a divorce, today sued her 45-year-old husband in New York State Supreme Court in Manhattan. She accused him of fraudulently transferring property acquired during his marriage in violation of a Swiss court order to buy the New York penthouse “with the specific intent of hiding and diverting his personal interest in the property.”

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President of the football club AS Monaco, Dmitry Rybolovlev of Russia, center, on Feb. 13, 2012 in Monaco stadium. Photographer: Lionel Cironneau/AP

A company associated with the billionaire’s daughter, Ekaterina Rybolovleva, signed a contract to purchase the 6,744- square-foot (627-square-meter), full-floor condominium at 15 Central Park West, Alan Basiev, a spokesman for Rybolovlev, said in December. The purchase closed Feb. 15, according to the complaint.

Ekaterina Rybolovleva, who is studying at a U.S. university, plans to stay at the apartment when visiting New York, Basiev said. Her father, ranked number 100 on Forbes Magazine’s 2012 list of the world’s billionaires with a net worth of $9 billion, is the former owner of fertilizer maker OAO Uralkali.

Divorce Filing

Elena Rybolovleva filed for divorce in Geneva in December 2008, and the court later imposed a provisional freeze on shares and assets of Rybolovlev, including stakes in Russian potash producers OAO Uralkali and OAO Silvinit, according to the complaint. The pair married in July 1987 and lived in Geneva starting in 1995.

His wife is asking the court to establish a trust over the property so that it “cannot be alienated, conveyed, encumbered, transferred or wasted” pending the final determination of the Swiss court.

Basiev and Rybolovlev couldn’t immediately be reached for comment after normal business hours in Russia.

Marc I. Salis, a New York-based lawyer who represented the penthouse’s buyer, didn’t immediately return a phone call seeking comment on the lawsuit.

The condo was listed for $88 million. The prior record for a Manhattan residence was the $53 million sale of a townhouse to private-equity investor J. Christopher Flowers in 2006, according to Jonathan Miller, president of New York appraiser Miller Samuel Inc.

Potash Producer

The condominium was listed for sale by brokerage Brown Harris Stevens in November. Weill and his wife, Joan, paid $43.7 million for the property in 2007, according to city records. The apartment has a wraparound terrace, two wood-burning fireplaces and a library, according to a floor plan on Brown Harris’s website.

Rybolovlev sold 53 percent of OAO Uralkali (URKA) in June 2010 to billionaire Suleiman Kerimov and his partners, who also took control over rival OAO Silvinit as part of a plan to create the world’s largest potash producer.

Rybolovlev, who lives in Monaco, liquidated his interests in Uralkali and Silvinit and used part of the proceeds to acquire the penthouse, according to the suit.

“During the marriage, and during the pendency of the divorce proceedings and this time in violation of the Swiss court order, defendant Dmitri Rybolovlev used property acquired during the marriage to purchase a multitude of new assets, using for this purpose vehicles such as trusts and limited liability companies to place them beyond the reach of plaintiff Elena Rybolovleva,” according to the lawsuit.

Student Housing

Rybolovlev and his daughter planned the purchase of the penthouse since 2008 despite his assertion that it is student housing for her, and she doesn’t attend school in New York, according to the lawsuit.

Rybolovleva has also sued her husband in Florida over a house he purchased from Donald Trump in Palm Beach for $95 million, which at the time was the most expensive house in the U.S., according to that lawsuit.

The case is Rybolovleva v. Rybolovlev, 102168/2012, New York State Supreme Court (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Apple May Climb Above $700: Analysts

By Sarah Frier - Mar 15, 2012 4:15 AM GMT+0700

Apple Inc. (AAPL), getting a boost from anticipation of the new iPad, rose to a record today and may climb 19 percent to $700, according to analysts who raised their price targets for the stock.

At least four analysts, including Katy Huberty at Morgan Stanley in New York, have increased price targets to $700 or higher in the past two weeks. Apple, based in Cupertino, California, rose 3.8 percent to $589.58 at the close in New York and has gained 46 percent this year.

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Attendees and members of the media view Apple Inc.'s new version of the iPad tablet computer after its unveiling at an Apple event in San Francisco, California, U.S., on Wednesday, March 7, 2012. Photographer: Tony Avelar/Bloomberg

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The iPad’s new display has four times as many pixels as the previous version, making on-screen text, images and video appear crisper and more realistic. Photographer: Tony Avelar/Bloomberg

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A new version of Apple Inc.'s iPad tablet computer sits on display during an Apple event in San Francisco. Photographer: Tony Avelar/Bloomberg

More are likely to boost targets as they quantify the market share of the new iPad, said Michael Walkley, an analyst at Canaccord Genuity, who raised his target to $710 yesterday. The average price target of 43 analysts surveyed by Bloomberg is $605, which could mean updates are lagging behind, he said.

“As they do their checks in the quarter and stronger numbers come through, it leads to better earnings power than we were seeing even six weeks ago,” Walkley said in an interview. “Some analysts are behind the curve on estimates.”

Shares of some Apple competitors have languished as the company takes market share. Hewlett-Packard Co. (HPQ), which has tried competing with Apple through smartphones, tablets and personal computers, has tumbled 41 percent in the past 12 months. Nokia Oyj has fallen 40 percent. Research In Motion Ltd., the maker of BlackBerry smartphones, has dropped 79 percent.

As of today, Apple gave investors a 555 percent return in the past five years and has outperformed the Standard & Poor’s 500 Index by 543 percent. Since 2007, investors paid an average 43 percent premium for Apple’s earnings compared with the S&P 500’s earnings.

IPad Upgrade

The new iPad, set to go on sale March 16, has been upgraded with a sharper screen and faster chip as Apple Chief Executive Officer Tim Cook seeks to widen the company’s lead in tablets over Amazon.com Inc. (AMZN), Microsoft Corp. and Google Inc. (GOOG) Slashing the price of the older iPad by $100 also helps cut into competition, said Huberty, who raised her price target to $720 yesterday.

Huberty also cited the company’s expansion in emerging markets such as China and Brazil and a new TV product as reasons to lift her price target.

“Apple’s earnings power is potentially far greater than investors believe and our prior bull case model suggested,” Huberty said in a note to investors.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

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

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Goldman Employee Criticizes Firm for Ripping Off Clients

By Ambereen Choudhury and Christine Harper - Mar 15, 2012 12:59 AM GMT+0700

A departing Goldman Sachs Group Inc. (GS) employee mounted an unprecedented public attack on its “toxic and destructive” culture in a New York Times opinion piece, becoming the first serving insider to openly criticize the firm.

Greg Smith, identified by the newspaper as an executive director and head of the bank’s U.S. equity derivatives business in Europe, will leave the firm after 12 years, blaming Chief Executive Officer Lloyd C. Blankfein and President Gary D. Cohn for losing hold over the firm’s culture. Executive directors are junior to managing directors and partners, the most senior rank.

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Pedestrians walk past Goldman Sachs Group Inc. headquarters in New York. Photographer: Jin Lee/Bloomberg

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March 14 (Bloomberg) -- A departing Goldman Sachs Group Inc. employee mounted an unprecedented public attack on its "toxic and destructive" culture in a New York Times opinion piece, becoming the first serving insider to openly criticize the firm. Goldman Sachs said it disagreed with comments made by Greg Smith, identified by the newspaper as an executive director and head of the firm’s U.S. equity derivatives business in Europe. Gigi Stone and Christine Harper report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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March 14 (Bloomberg) -- Richard Bove, an analyst at Rochdale Securities LLC, talks about the results of Federal Reserve bank stress tests and a New York Times opinion piece by a departing Goldman Sachs Group Inc. employee. Bove speaks on Bloomberg Television's “InBusiness With Margaret Brennan.” (Source: Bloomberg)

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March 14 (Bloomberg) -- Bloomberg's Erik Schatzker, Stephanie Ruhle, Sara Eisen and Scarlet Fu report on an opinion piece in today's New York Times written by Greg Smith, a departing employee from Goldman Sachs, attacking the firm's culture. They speak on Bloomberg Television's "Inside Track." (Source: Bloomberg)

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March 15 (Bloomberg) -- Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC, talks about the outlook for U.S. stocks and the nation's banking industry. Luschini also discusses Goldman Sachs Group Inc.'s outlook after a former employee criticized the firm. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Lloyd C. Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc. Photographer: Chris Kleponis/Bloomberg

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients,” Smith, a Stanford University graduate, wrote in the New York Times. “It’s purely about how we can make the most possible money off of them.”

The attack adds to criticism from politicians and protesters who blame the company for triggering the financial crisis and profiting at clients’ expense. Goldman Sachs has faced congressional hearings probing its role in the financial crisis and paid $550 million in 2010 to settle a lawsuit accusing it of misleading investors in a collateralized debt obligation.

‘Heartfelt Piece’

“This will certainly be damaging for the firm,” said John Purcell, founder of London-based executive search firm Purcell & Co. “It’s obviously a very heartfelt piece. Maybe he’s made a sufficient amount of money in his life that he isn’t particularly bothered if he isn’t employed in financial services again and works in a completely different world like teaching.”

Goldman Sachs fell $4.17, or 3.4 percent, to $120.37 in New York trading at 1:34 p.m.

A call to Smith’s mobile phone in London wasn’t answered. Goldman Sachs said it disagreed with his criticism.

“In our view, we will only be successful if our clients are successful,” the firm said in a statement. “This fundamental truth lies at the heart of how we conduct ourselves.”

“It makes me ill how callously people talk about ripping their clients off,” Smith wrote. “‘Over the last 12 months I have seen five different managing directors refer to their own clients as ‘‘muppets,’’ sometimes over internal e-mail.’’

‘Not Shocking’

Blankfein and Cohn addressed the criticism in a memo to employees today. ‘‘In a company of our size, it is not shocking that some people could feel disgruntled,’’ they said in the memo. ‘‘A recent survey of employees found that 89 percent believe the firm provides ‘exceptional service’ to clients and that a similar percentage of the firm’s 12,000 vice presidents, the rank held by Smith, felt that way, they said.

Employees are allowed to express concerns anonymously, according to the memo. ‘‘We are not aware that the writer of the opinion piece expressed misgivings through this avenue, however, if an individual expresses issues, we examine them carefully and we will be doing so in this case,’’ they said.

Smith blamed the company’s management for promoting employees who made money for the firm, often by getting customers to buy products that Goldman Sachs was trying to get rid of. If clients can’t trust the firm, they will stop doing business with it, however smart its employees, Smith wrote in the Times.

‘Spirit of Humility’

‘‘Culture was always a vital part of Goldman Sachs’s success,” he wrote in the New York Times. “It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients,” he said. “It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm.”

Goldman Sachs’s score was among the lowest in a recent study of corporate reputations, according to a Feb. 13 statement from Harris Interactive Inc. (HPOL), a market research firm.

To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net; Christine Harper in New York at charper@bloomberg.net

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

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