Goldman Sachs Cuts CEO Blankfein’s Pay 35% for 2011

By Christine Harper - Apr 14, 2012 12:51 AM GMT+0700

Goldman Sachs Group Inc. (GS) awarded Chairman and Chief Executive Officer Lloyd C. Blankfein $12.4 million in compensation for 2011, down 35 percent from a year earlier, as the firm’s profit and stock fell.

Blankfein’s pay included a $3 million cash bonus, $7 million in restricted stock, $2 million in salary and $449,600 in other benefits, according to a proxy statement today from the New York-based firm. Last year it granted him $19.1 million, including $5.4 million in cash, $12.6 million in restricted stock, a $600,000 salary and $464,100 in benefits for 2010.

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Lloyd C. Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc., in Washington. Photographer: Joshua Roberts /Bloomberg

Goldman Sachs, the fifth-biggest U.S. bank by assets, set Blankfein’s compensation after earnings dropped 47 percent, the stock tumbled 46 percent and the firm eliminated 2,400 jobs. His pay compared with a $10.5 million package awarded to Morgan Stanley (MS) Chairman and CEO James Gorman, $15 million granted to Citigroup Inc. (C) CEO Vikram Pandit and $23 million for JPMorgan Chase & Co. (JPM) Chairman and CEO Jamie Dimon.

“That decrease from the prior year is pretty consistent with what we’ve seen in the industry,” said Joseph Sorrentino, a managing director at Steven Hall & Partners, a compensation- consulting firm in New York. “The tracking of the stock price to the payout may not always line up, but it should over the long term.”

‘Engaged’ Shareholders

Goldman Sachs’s compensation committee, which decides how much to pay top executives, has been led by James A. Johnson, a former CEO of Fannie Mae (FNMA), as long as Goldman Sachs has been a public company. At last year’s annual meeting, about 73 percent of shareholders voted in support of the board’s executive compensation decisions, down from 96 percent a year earlier.

“We engaged with many of our shareholders in advance of and following our 2011 annual meeting of shareholders in order to gain further insight and understanding into their views on our executive-compensation program, particularly as expressed through the advisory vote,” according to the proxy.

As a result, the board decided to cut each named executive officer’s annual variable compensation by about 44 percent “because of our decline in performance in 2011,” according to the proxy.

While pay is up from 2008, when Blankfein, 57, and six other senior officers were awarded no bonuses, it remains below his record-setting $67.9 million compensation package for 2007.

Viniar, Cohn

The firm spent $258,700 on security for Blankfein last year, or almost double the amount paid a year earlier. Goldman Sachs, which said costs are justified by the “elevated threat profile of the current environment,” was among Wall Street firms targeted by Occupy Wall Street protests.

Chief Financial Officer David A. Viniar, 56, President and Chief Operating Officer Gary D. Cohn, 51, Vice Chairmen J. Michael Evans, 54, and John S. Weinberg, 55, were each awarded $11.85 million, plus benefits. The value of their benefits ranged from $185,500 for Evans to $242,700 for Cohn, according to the filing.

Like Blankfein, their awards included $3 million cash bonuses and $7 million in restricted stock.

The firm disclosed in January 2011 that Blankfein’s salary would increase to $2 million in 2011 from $600,000 previously and that Cohn, Viniar, Evans and Weinberg get salaries of $1.85 million apiece. Each of them had received $600,000 salaries since 1999, the year the firm became a public company.

SEC’s Method

Blankfein and 10 deputies reaped a total of $107.8 million during 2011 from their investments in private equity and hedge funds managed by the firm, according to the proxy. That compared with $129.1 million paid out to Blankfein and eight deputies in 2010.

Blankfein’s payments, which included profits, any return of capital and a share in the so-called overrides the firm receives for managing the funds, totaled $22.2 million, down from $27.2 million in 2010, according to the proxy.

As of March 26, Blankfein owned 3.15 million shares in Goldman Sachs, according to the proxy. That stock was worth $380 million based on yesterday’s closing price of $120.39. Cohn owned 1.83 million shares, the proxy disclosed, worth $221 million at yesterday’s closing price.

Goldman Sachs slid $4.37, or 3.6 percent, to $116.02 at 1:15 p.m. in New York.

Board Recommendations

The board has recommended investors vote against all three shareholder proposals that are up for consideration at this year’s annual meeting, according to the proxy. One calls on the board to require each of the executives named in the proxy to retain the shares they receive as compensation for at least three years after they leave the firm.

The Securities and Exchange Commission requires that the company’s proxy disclose how much compensation executives received during the fiscal year. Under that methodology, which includes awards received during 2011 for performance in prior years, Blankfein received a total of $16.2 million in compensation, up from $14.1 million in 2010.

The firm is set to hold its annual shareholder meeting at 9:30 a.m. on May 24 at its office in Jersey City, New Jersey, according to the proxy.

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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Auto Supplier Warns of Resin Shortage Disrupting Output

By Craig Trudell, Saijel Kishan and Keith Naughton - Apr 14, 2012 7:11 AM GMT+0700

The global automotive industry faces a “severe” shortage of a resin used to make fuel and brake components that may interrupt production “in the next few weeks,” according to TI Automotive Ltd.

“The shortage is real and immediate,” William Kozyra, chairman of Auburn Hills, Michigan-based TI Automotive, wrote in an April 12 letter to customers that was obtained by Bloomberg and confirmed yesterday by Frank Buscemi, a company spokesman. “The possibility of production interruptions at some of your facilities in the next few weeks is high.”

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Fire brigades work at the chemical industrial park in Marl, western Germany, on March 31, 2012. Photographer: Patrik Stollarz/AFP/Getty Images

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Fire brigades work at the chemical industrial park in Marl, western Germany, on March 31, 2012. Photographer: Patrik Stollarz/AFP/Getty Images

The March 31 blast at a plant of chemical maker Evonik Industries AG in the city of Marl in Germany’s Ruhr valley is leading to a shortage of a resin called PA-12, Kozyra wrote. The explosion, which killed two, resulted in a “complete loss” of making Cyclododecatriene, also called CDT and a key element of PA-12, he said. Global capacity of CDT is “very limited,” according to the letter.

Another resin, PA-10 or Vestamid Terra, may be a suitable substitute and a few other companies may produce PA-12, Itay Michaeli, an analyst for Citigroup Inc. in New York, said in a note, stressing that it was only his initial read in a fluid situation.

“The risk of disruptions appears serious, but our initial impression is that the scale of the problem isn’t very severe,” he wrote.

Brake-Line Coatings

The PA-12 resin is used in most fuel and brake-line coatings, flexible hoses and quick connectors supplied to automakers, Kozyra said in the letter. TI Automotive supplies brake and fuel lines, as well as fuel tanks and pumps to all major automakers, including General Motors Co. (GM), Ford Motor Co. (F), Toyota Motor Corp. (7203) and Volkswagen AG (VOW), according to its website.

Automakers haven’t canceled any production plans and are monitoring their supply chains, the companies’ spokesmen said.

“This could be very significant,” Michael Robinet, managing director for industry consultant IHS Automotive in Northville, Michigan, said yesterday by telephone. “They’re certainly looking very hard at substitutes. But if there were easy substitutes, they would have been thought of already.”

Evonik produces its own CDT and is a “key” supplier of the material to other manufacturers of PA-12, according to the letter.

Paint Pigment

The resin shortage illustrates potential sensitivities in the auto-supply base that also gained attention during the March 2011 tsunami in Japan, said David Cole, chairman emeritus for the Center for Automotive Research in Ann Arbor, Michigan. The disaster crippled plants for companies such as Merck KGaA, the sole producer of paint pigments supplied to Ford and other automakers.

“In many cases, the top level of the manufacturers don’t know down in the lower levels of the supply base where vulnerability may exist,” Cole said yesterday in a phone interview. “This was one of the factors in the tsunami and earthquake.”

TI Automotive and competitors including Cooper-Standard Automotive Inc. (COSH), Martinrea International Inc. (MRE), and Rayconnect Inc. are holding a summit involving automakers and large suppliers about the shortage on April 17, according to the letter. The meeting will be moderated by the Automotive Industry Action Group in Southfield, Michigan.

Joel Karczewski, director of commercial development for the Automotive Industry Action Group, deferred to TI Automotive for comment about the summit. Buscemi, the TI spokesman, had no immediate comment.

Automakers’ Reactions

“We are aware,” Mike Goss, a Toyota spokesman, said in an e-mail. “We are currently assessing the situation in North America. Until that assessment is complete, any impact on our production is unknown.”

Chrysler Group LLC is “monitoring the situation with our supply base,” Katie Hepler, a spokeswoman for the Auburn Hills, Michigan-based automaker, said in an e-mail. “At this time we do not anticipate any production impacts.”

GM is communicating with its supply base and information about the scope of the problem isn’t immediately available, Kelly Cusinato, a spokeswoman, said in a telephone interview.

“We’re aware of the situation and are monitoring it with our suppliers,” Todd Nissen, a Ford spokesman, said in an e- mail. “We have not experienced any production disruptions at this point.”

Nissan Motor Co. is monitoring the situation with suppliers, Brian Brockman, a spokesman, said in an e-mail.

“We are aware of the concern, and have been working with our suppliers on countermeasures to mitigate any risk,” Honda Motor Co.’s Ed Miller said in an e-mail.

Tony Cervone, a spokesman for Volkswagen, didn’t immediately respond to telephone and e-mail messages. Jim Trainor, a Hyundai Motor Co. (005380) spokesman, didn’t have an immediate comment.

To contact the reporters on this story: Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net; Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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Gehry Luxury Tower Boasts Hong Kong’s Priciest View

By Frederik Balfour - Apr 14, 2012 11:01 AM GMT+0700

For someone who describes himself as “a lefty do-gooder” who has avoided “doing rich guys’ houses” all his life, Frank Gehry sure has changed his spots.

He has lent his name to Opus Hong Kong, the most expensive piece of residential real estate ever built in the city. That’s saying something in a town where residential rents trump Tokyo, New York and London, according to expatriate location advisers ECA International.

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Wrap around balconies on Opus Hong Kong are meant to give the impression of standing on a boat deck while enjoying the view of Hong Kong Harbor. Source: Swire Properties via Bloomberg

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A view of Opus Hong Kong showing exterior columns designed to represent swaying reeds. Blocks of Spanish marble are stacked as if the site was quarried out of the mountainside. Photographer: Alex Liu/Swire Properties via Bloomberg

An aerial view of Opus Hong Kong. The Gehry-designed building offers the most expansive -- and expensive -- views of the city. Source: Swire Properties via Bloomberg

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Opus Hong Kong, designed by architect Frank Gehry, stands on Stubbs Road in Hong Kong. Photographer: Jerome Favre/Bloomberg

Frank Gehry, the architect of the acclaimed titanium-clad Guggenheim Museum in Bilbao, Spain; and the Walt Disney Concert Hall in Los Angeles. Photographer: Jerome Favre/Bloomberg

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Frank Gehry, Pritzker-prize winning architect. He has just completed his first residential project in Asia, Opus Hong Kong. The 12-story building overlooks the city's famous skyline and harbour. Photographer: Jerome Favre/Bloomberg

Sitting in the living room of the ninth-floor apartment at the 12-story Opus overlooking the city’s skyline and harbor, Pritzker Architecture Prize-winner Gehry displays no qualms about having designed such an extravagant edifice.

“This is somehow different,” he says. “There is a different culture here. Chinese families live in high-rise buildings. Trying to make a house in the sky is interesting. Hong Kong lends itself to it.”

Conspicuous consumption always has been a defining characteristic of Hong Kong, where people pay as much as $1 million to buy a vanity license plate for their Maybachs and Maseratis, and think nothing of betting tens of thousands of dollars on a horse at the Happy Valley Race Course, or quaffing $13,000 bottles of Chateau Lafite.

High Rise

Built for Swire Properties Ltd. (1972), the structure cost HK$27,000 ($3,477) per square foot to construct, including land premium. A standard high-rise apartment in the city can cost as little as $HK4,000 per square foot to build, according to Swire Properties Chief Executive Officer Martin Cubbon.

“Of course, it’s going to be enormously expensive by any standards,” says Cubbon. “In rental values and capital values, it’s going to command the highest numbers that Hong Kong has ever seen.”

Set apart on a steep windswept hill on 53 Stubbs Road, surrounded by lush greenery, the Opus has just 12 apartments, one per floor except for the bottom two stories, which house two duplexes complete with gardens and private pools.

Each unit averages about 6,000 square feet. Cubbon declined to provide figures until marketing begins by the end of this month. He expects most flats to be rented, though “if someone writes us a big enough check,” he says, Swire will sell too.

While fans of the 83-year-old architect will recognize the Gehry DNA, Opus is a far cry from the titanium-clad Guggenheim Museum Bilbao or the Walt Disney Concert Hall in Los Angeles.

Spanish Stone

The building rests on huge blocks of Spanish limestone (the same kind used at Bilbao) stacked randomly to make it look like the space was quarried out of the landscape.

Its facade is defined by exterior columns sheathed in glass that climb the building “like reeds swaying in the wind,” says Gehry. Placing the supporting columns outside enables maximum flexibility for the interior space floor and the wraparound glass windows and balconies he likens to a ship’s deck.

Opus is Gehry’s first residential project in Asia, and unlike Herzog & de Meuron, Zaha Hadid and Rem Koolhaas’s Office for Metropolitan Architecture, he has yet to crack mainland China.

His Los Angeles-based firm has submitted a design for a competition to build the prestigious National Art Museum of China in Beijing, but so far the process has been frustrating.

“There’s a political interpretation,” Gehry says. “Every time you do something, they say ‘Well, in China, that means something else.’ Almost everything I’ve done that I’ve thought was good they say, ‘No, you can’t do that.’ I feel very much like a blind man. It’s a difficult climate in which to make really good architecture.”

Architectural DNA

Gehry declines to give details on his proposed Chinese design, describing it as a “fairly simple box” that doesn’t look like the Bilbao museum, yet still bears his stamp. “Whatever I do, you can’t escape your signature, your DNA.”

His longevity is genetic too, and Canadian-born Gehry has no intention of slowing down. Though he hung up his ice-hockey skates a few years ago, he still works out with a personal trainer most mornings and spends six days in the office.

“I don’t know what old means,” Gehry says. “Chronologically when I think of my age, I think well, I’m old, so I use it as an excuse sometimes to complain about things. It’s great cover and sometimes it’s true, I really run out of gas. But they don’t believe me.”

(Frederik Balfour is a reporter at large for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)

To contact the writer on the story: Frederik Balfour in Hong Kong at fbalfour@bloomberg.net or on Twitter @frederikbalfour.

To contact the editor responsible for this story: Manuela Hoelterhoff at mhoelterhoff@bloomberg.net.

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Bankrupt Agent’s $87 Million Estate Goes on Auction Block

By John Gittelsohn - Apr 14, 2012 2:16 AM GMT+0700

A bankrupt real estate agent’s hilltop mansion, conceived during Southern California’s property boom and once given an estimated value of $87 million, is going up for auction after failing to sell for two years.

The unfinished Italianate villa on 12.5 acres (5.1 hectares) in Newport Beach comes with a man-made lake, horse stables, vineyard, tennis court, 17-car garage and views of the Pacific Ocean and Santa Ana Mountains, Auction.com said today in a statement. The property is being marketed by the Irvine, California-based company at the request of debtors after an unsuccessful listing at $37 million.

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The exterior of the unfinished Italianate villa in Newport Beach, California, is seen in this handout photo released to the media on April 12, 2012. Source: Auction.com via Bloomberg

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The unfinished Italianate villa in Newport Beach, California, is seen in this aerial handout photo released media on April 12, 2012. Source: Auction.com via Bloomberg

The interior of the unfinished Italianate villa in Newport Beach, California, is seen in this handout photo released to the media on April 12, 2012. Source: Auction.com via Bloomberg

“At the time when money was in abundance, I can see the grand focus,” Tom Iovenitti, executive vice president of the closely held real estate auction firm, said in a telephone interview. “Unfortunately, this particular property was under construction when nobody could forecast the impact of the real estate downturn and what that would mean to building something of this magnitude.”

The Newport Beach estate is the priciest single-family home ever offered by Auction.com, which has sold “several” properties with prices as high as $10 million, Iovenitti said. Other sellers of mansions at auction have been less successful. A Mercer Island, Washington, estate with a list price of $28.8 million failed to find a buyer in an August auction.

A March 25 open house at the Newport Beach estate attracted 600 people including at least 20 “serious” shoppers from as far away as Seattle, Miami and Israel, Iovenitti said. Another showing is scheduled for four days before the April 26 auction.

‘Very Specific Buyer’

Several qualified bidders already have registered for the auction, said Rob Giem, an agent with Sotheby’s International Realty who was awarded the listing for the estate in bankruptcy court.

“While we all know this will take a very specific buyer, and one who is willing to see the project through to completion, the interested buyers thus far are all aware there is a unique opportunity in front of them,” Giem said today in an e-mail.

Originally named Villa del Lago, the estate was conceived by John McMonigle, the No. 1 U.S. sales agent for Coldwell Banker in 2004 and 2005, at a time Orange County’s real estate market was fueled by wealth from locally based -- and now defunct -- subprime lenders, including Ameriquest Mortgage Co. and New Century Financial Corp. (NEW)

Rolls-Royce Marketing

McMonigle attracted luxury buyers to his open houses by cross-marketing the properties with vendors for Rolls-Royce, NetJets Inc. and jeweler David Yurman. He filed for Chapter 7 bankruptcy protection last year, listing assets of $1 million to $10 million, and liabilities of $10 million to $50 million.

McMonigle, who left Coldwell Banker at the beginning of last year, declined to comment on the planned auction.

Home prices in the Los Angeles area, including Newport Beach, have fallen 41 percent from their September 2006 peak after soaring 150 percent in the previous six years, according to an S&P/Case-Shiller index.

The estate’s buyer will need to spend at least $5 million to finish construction of the 17,700-square-foot (1,644-square- meter) main house, said Bill Cote, a broker with First Team Real Estate in Newport Beach, who specializes in luxury properties.

“If it sells for $15 million, I’d be surprised,” Cote, who’s sold homes in the area for 30 years, said in a telephone interview. “You might have the biggest lot in Newport Beach, but so what?”

Asking Price Drops

McMonigle paid $3.2 million for the land in 2003. Six years later, the property had an expected value of $87 million, according to the Orange County Register, a local newspaper. The estate was first placed on the Multiple Listing Service in May 2010 for $57 million. The asking price dropped to $37 million in January 2011, after OneWest Bank FSB cut off construction funding and as McMonigle tried to avoid bankruptcy.

McMonigle lost the estate, now renamed One Pelican Hill Road North, to a group of investors who put $10 million into the project. The property also has a $20 million construction loan held by OneWest, which acquired the debt after the original lender, La Jolla Bank, failed in 2010, according to bankruptcy court documents.

The minimum sale price at auction must exceed OneWest’s secured claim, property taxes, closing costs, a 5 percent auction fee and other administrative costs, according to a bankruptcy court filing. No dollar figure was given for the total, and the minimum bid wasn’t made public.

The bankruptcy case is In re One Pelican Hill Road North LP, 08:11-bk-17998, U.S. Bankruptcy Court, Central District of California (Santa Ana).

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net

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S&P 500 Caps Biggest Weekly Decline in 2012 on Economy

By Rita Nazareth - Apr 14, 2012 3:43 AM GMT+0700

U.S. stocks fell, giving the Standard & Poor’s 500 Index its biggest weekly decline in 2012, as consumer confidence dropped, China’s growth slowed and the cost of insuring against a Spanish default rose to a record.

Financial (S5FINL) shares dropped the most among 10 industries in the S&P 500, following a plunge in European lenders. JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) retreated at least 3.6 percent. Technology shares, which account for 21 percent of the S&P 500, fell 1.6 percent as a group today and had the first weekly slump this year. Google Inc. (GOOG) tumbled 4.1 percent as the world’s largest Internet-search company plans a new stock structure that gives management more leeway in issuing shares.

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A trader on the floor of the New York Stock Exchange on April 9, 2012. Photographer: Spencer Platt/Getty Images

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April 13 (Bloomberg) -- Bloomberg's Dominic Chu breaks down this week's earnings reports from S&P 500 companies where 71 percent of the 7 companies to report saw their earnings beat analyst estimates. He speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

The S&P 500 slid 1.3 percent to 1,370.26 at 4 p.m. New York time, extending its weekly decline to 2 percent. It fell a second week for the longest losing streak since November. (SPX) The Dow Jones Industrial Average lost 136.99 points, or 1.1 percent, to 12,849.59. About 6.2 billion shares changed hands on U.S. exchanges today, or 9 percent below the three-month average.

“Let’s not get overly concerned, but yes, there are concerns out there that we need to look at,” Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp., which has $1.81 trillion in client assets, said in a telephone interview. “China has been disappointing, U.S. consumer confidence adds to the pressure and Europe is not out of the woods yet.”

Stocks fell as confidence among U.S. consumers cooled in April from a one-year high. China’s growth slowed to the least in almost three years. Credit-default swaps on Spain surged as Prime Minister Mariano Rajoy struggles to prevent the nation from becoming the fourth euro-region member to need a bailout.

Back-to-Back

Today’s decline in stocks follows the biggest two-day rally in 2012. The S&P 500, which had the best first-quarter since 1998, was still up 9 percent this year as investors bought stocks amid better-than-estimated economic data and expectations that Europe would tame its debt crisis.

“The first quarter was a relief that things were not going to be as bad,” said Virginie Maisonneuve, head of global equities at Schroder Investment Management Ltd., which oversees $291 billion, said in a phone interview from London. “Since then, there are question marks of liquidity. We have a lot of liquidity in the world, but what next?”

Concern about the global financial system drove banks lower even after JPMorgan and Wells Fargo & Co. (WFC) reported earnings that beat estimates. The KBW Bank Index (BKX) slumped 3.1 percent as all of its 24 stocks retreated. Bank of America sank 5.3 percent, the most in the Dow, to $8.68. JPMorgan lost 3.6 percent to $43.21. Wells Fargo dropped 3.5 percent to $32.84.

Earnings Season

Quarterly reports scheduled for next week include Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), Bank of America and some of the largest technology companies. International Business Machines Corp., which comprises 12 percent of the Dow; Intel Corp., the world’s biggest chipmaker; and Microsoft Corp. (MSFT), the largest software maker, are due to announce their results. Yum! Brands Inc. (YUM), which surged 2.8 percent to $72.86 today for the biggest gain in the S&P 500, is also scheduled to report.

While S&P 500 per-share profit growth slowed to 1.7 percent during the first three months of the year from 4.9 percent in the fourth quarter, it will accelerate to 8.6 percent during all of 2012, according to analyst estimates compiled by Bloomberg.

Google tumbled 4.1 percent to $624.60 even as earnings beat estimates. The bid to preserve control for founders Larry Page and Sergey Brin raised concern among corporate-governance watchdogs. Google unveiled a plan that lets the company issue new shares without diluting the founders’ voting power.

New Class

The stock change would create a new class of nonvoting shares that will be distributed to existing shareholders in what is effectively a 2-for-1 stock split. For investors, the result is a lack of input on decision making, said Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance.

“Shareholder voting rights are pretty limited in Google,” he said. “And this basically perpetuates that reality.”

Apple Inc. (AAPL) sank 2.8 percent, the most since October, to $605.23. After rising to a record on April 9, the most valuable technology company fell for a fourth day in the longest losing streak since December.

Coinstar Inc. (CSTR) surged 7.3 percent to $65.78. The owner of the Redbox movie-rental kiosks said first-quarter sales and profit exceeded its previous projection and lifted its earnings forecast for 2012 to at least $4.40 a share.

Dow Chemical Co. (DOW) advanced 1.6 percent to $33.20. The largest U.S. chemicals producer increased its quarterly dividend to 32 cents a share from 25 cents.

Leveraged Buyout

Safeway Inc. (SWY) rose 2.5 percent to $21.19. The grocer may be considering options such as a leveraged buyout or Reverse Morris Trust, according to JPMorgan.

Johnson Controls Inc. (JCI) added 2.3 percent to $32.57. The largest U.S. auto supplier was boosted to buy from hold at Deutsche Bank AG.

Concern about the global financial system’s stability has grown so much during the past two weeks that investors ought to take less risk, according to Bank of America’s Merrill Lynch unit.

Forty market-related gauges go into the Bank of America indicator, and 10 of them surged far enough to send a so-called critical stress signal three days ago. The “risk-off” warning was the first since July 12, just before a second-half retreat in stocks got under way.

“We recommend caution,” Benjamin Bowler, head of global derivatives research, and two colleagues wrote in a report two days ago. The MSCI All-Country World Index declined by an average of 3.8 percent in periods when the signal was in place since 2000, the report said.

Stress Index

The stress index’s components reflects the potential worsening of a euro-region debt crisis, according to Bowler, based in San Francisco, and Anders Armelius and Abhinandan Deb, his London-based colleagues.

Credit-default swap rates for government borrowers are showing the most stress, according to their data. A CDS-based based indicator was at 4.1 three days ago. Readings above zero show stress is higher than normal.

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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China Murder Suspect’s Sisters Ran $126 Million Empire

By Bloomberg News - Apr 14, 2012 8:12 AM GMT+0700

The sisters of Gu Kailai, who is suspected of murdering a U.K. citizen and is the wife of disgraced Chinese official Bo Xilai, controlled a web of businesses from Beijing to Hong Kong to the Caribbean worth at least $126 million, regulatory and corporate filings show.

Gu Kailai, 53, was the youngest of five daughters of a People’s Liberation Army general, according to a Chinese- language website affiliated with the Communist Youth League. She rose from a butcher’s assistant during the 1966-1976 Cultural Revolution to become a lawyer who argued cases in the U.S.

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China's Chongqing Municipality Communist Party Secretary Bo Xilai at the opening ceremony of the National People's Congress (NPC) at the Great Hall of the People on March 5, 2012 in Beijing. Photographer: Feng Li/Getty Images

Now China says she is suspected of murdering businessman Neil Heywood in November, and her husband this week was suspended from the Communist Party’s elite Politburo.

Her sisters focused on business rather than politics. Gu Wangjiang, 64, the oldest, is a Hong Kong national who owns $114 million in shares of an eastern China printing company, according to a Shenzhen exchange filing tracked by Bloomberg.

Wangjiang and her sister, Gu Wangning, serve as directors of several other companies, including some that Hong Kong company registry records trace to the British Virgin Islands. They also have made millions selling Hong Kong real estate. Another sister, Gu Zhengxie, 62, was a top official at one of the country’s biggest state-owned companies.

Their wealth -- and the fact they put some assets offshore where ownership is harder to trace -- illustrate how the politically connected thrive in China, a country where Bo himself last month warned of the dangers of a rising wealth gap. While many of the country’s top leaders, including President Hu Jintao and Premier Wen Jiabao, have children who are top executives, the Gu sisters have left a paper trail that details some of their activities.

Old Networks

“Networks have always been of prime importance in China dating back to imperial times,” said Jonathan Fenby, author of the forthcoming book “Tiger Head, Snake Tails: China Today.”

“Economic growth has spawned a web of people connected to the centers of power who have profited, and who often choose to move their wealth to places where they feel it is safer given the risk of political reversals of fortune, as seen in the defenestration of Bo Xilai,” he said in an e-mail.

Gu Wangjiang is chairman of publicly traded Tungkong Security Printing Co. (002117), a Jinan, Shandong-based company, according to data compiled by Bloomberg. It in turn controls a chain of other companies across China linked to her Hong Kong holding company, Hongkong Hitoro Holdings Ltd., according to a September 2010 share prospectus that also says Wangjiang is a Hong Kong national. Hitoro’s Chinese characters mean “lots of happiness coming.”

Tungkong Shares

Hitoro’s 37,827,385 shares in Tungkong, which also counts government bureaus and state-owned companies as customers, were worth 720.2 million yuan ($114.3 million) as of the close of trading in Shenzhen yesterday.

Efforts to reach Wangjiang and Wangning were unsuccessful. A man answering the phone at Tungkong’s Jinan headquarters said Gu Wangjiang wasn’t there. During a visit yesterday to the 37th floor offices of the sisters’ companies in the Hong Kong offices of Hitoro and Hangang Worldwide, a man who declined to be identified said the sisters were not there.

Boris Chan, listed on Hitoro’s corporate filings as an official of the company, declined to comment when reached by telephone. A faxed request for an interview went unanswered.

In 1992, Hitoro purchased a luxury 16th-floor apartment in Parkview Crescent, a Hong Kong complex, for HK$13.3 million ($1.7 million). Gu Wangjiang sold it for HK$88 million early last year, land registry documents show.

Island Postal Boxes

The buyer was Topwell Rich Ltd., a Hong Kong company owned by British Virgin Islands-based Ampere Management Ltd., the land registry records show. Hitoro’s controlling shareholder, Infomatic Resources Ltd., shares the same post office box address in the offshore jurisdiction, according to a Nov. 21 filing with the company registry.

So does the owner of Hangang Worldwide Ltd., a Hong Kong- based company affiliated with a Chinese steelmaker for which Gu Wangning also acts as a director, a Feb. 8 filing shows.

That’s not unusual: P.O. boxes in jurisdictions such as the Cayman Islands and British Virgin Islands can serve as the address for thousands of companies. While the majority of tax haven-based companies are set up for legitimate reasons, offshore jurisdictions have been linked to multiple frauds and corruption cases, including the $1.7 billion scam at Japan’s Olympus Corp. (7733) that was unearthed last year.

Nine Companies?

Gu Wangjiang, known as Kuk Mong Kong in Hong Kong, has held directorships of at least nine companies in the former British territory over the course of more than two decades, also including Panama-registered Sitoro Shipping Enterprises Co. and a venture with Malaysian billionaire Vincent Tan’s Berjaya Group Bhd., Hong Kong registry and bond documents show.

Hitoro also invested in an $85-million industrial park in the eastern China coastal city of Rizhao in a joint venture with Isocab N.V., a subsidiary of German steelmaker ThyssenKrupp AG (TKA). Tungkong’s 2010 prospectus puts the value of its investment at $47.6 million. That investment is part of the underlying assets of Tungkong, the printing company.

Through Hitoro, Wangjiang and Wangning, who retained her Chinese citizenship, owned Beijing Jiahua Investment Consulting Co. An Internet search shows the address in room 1430 of a building southwest of Tiananmen Square. The room numbers on the fourth floor of the budget hotel stop at 1423, a visit shows.

While the extent of the wealth of China’s political elite is unknown, “the few figures available suggest the amounts are often staggering,” said Kenneth Lieberthal, director of the John L. Thornton China Center at the Brookings Institution in Washington. “It comes from the state being involved pervasively in the economy.”

Generated by Families

“The wealth is generally not money they themselves have,” he said of Chinese government leaders. “It is money their families generate. The families of various members of the Politburo have very large assets.”

Gu Zhengxie, the second-oldest sister, became a Communist Party member and rose to become the deputy party secretary of Beijing-based China National Machinery Industry Corp (CNMICZ)., a centrally administered state-owned company with assets of 139.2 billion yuan as of March, 2011, according to its latest bond prospectus. The conglomerate makes everything from power grids to tractors.

The final sister, Gu Dan, is married to Li Xiaoxue, until last year the top discipline official at the China Securities Regulatory Commission, according to a report on the official website of Zuoquan county in Shanxi, the home province of both the Gu and Li families.

Bo Guagua, the son of Gu Kailai and Bo Xilai, was escorted from his home by law enforcement officers in Cambridge, Massachusetts late in the night on April 12, the Telegraph reported, citing a source it didn’t name. Bo Guagua is a student at Harvard University’s John F. Kennedy School of Government.

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net; Natasha Khan in Hong Kong at nkhan51@bloomberg.net; Ben Richardson in Hong Kong at brichardson8@bloomberg.net

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

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Obamas Paid 20.5 Percent Tax on $789,674 in 2011 Income

By Richard Rubin - Apr 14, 2012 11:01 AM GMT+0700

President Barack Obama and his wife, Michelle, paid 20.5 percent in federal taxes on $789,674 in adjusted gross income for 2011, injecting his personal finances into the political fight over tax policy.

The Obamas reported earning less than half of the $1.7 million they made in 2010 and less than 20 percent of the $5.5 million they made in 2009, according to tax returns released yesterday by the White House. Their tax rate declined from 26.3 percent in 2010 and 32.6 percent in 2009.

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President Barack Obama and first lady Michelle Obama at the White House. Photographer: Mark Wilson/Getty Images

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President Barack Obama, right, and Vice President Joe Biden at the Eisenhower Executive Office Building in Washington. Photographer: Andrew Harrer/Bloomberg

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Copies of the U.S. Department of the Treasury Internal Revenue Service 1040 Individual Income Tax forms for the 2011 tax year belonging to U.S. President Barack Obama, his wife first lady Michelle Obama, and U.S. President Joseph Biden, and his wife Jill Biden, are arranged for a photograph in Tiskilwa, Illinois. Photographer: Daniel Acker/Bloomberg

Obama, whose salary as president is $400,000 a year, received most of the rest of his 2011 income from sales of his books. His gross income from book sales declined to $487,928 for 2011 from more than $1.5 million the previous year.

As the April 17 tax-filing deadline nears, Obama has been emphasizing his tax-fairness campaign theme and promoting a proposal to impose a minimum tax on those earning $1 million or more a year. That measure, known as the Buffett Rule, is scheduled for a procedural vote in the Senate on April 16.

The administration put a Buffett Rule calculator on the White House and campaign websites. With a few keystrokes, a taxpayer can determine “how many millionaires pay a lower effective tax rate than you.”

If the Buffett Rule were in effect, the Obamas wouldn’t be subject to its provisions because they earned less than $1 million for 2011. They would be affected by other tax policies the president is proposing.

Paying More Taxes

“Under the president’s own tax proposals, including the expiration of the high-income tax cuts and limitations on the value of tax preferences for high-income households, he would pay more in taxes while ensuring we cut taxes for the middle class and those trying to get in it,” Jay Carney, the White House press secretary, said in a blog post.

The Obamas overpaid taxes during the year and requested that their $24,515 refund be applied to their 2012 tax payment. They donated $172,130 to charitable organizations, or 21.8 percent of their adjusted gross income.

The charitable donation figure is a lower dollar amount and a greater percentage of their income than for 2011, and it’s a big reason why their tax rate is lower than that of many households with incomes in that range.

According to the nonpartisan Tax Policy Center in Washington, households with cash income of between $500,000 and $1 million in 2011 paid an average of 23.7 percent of their adjusted gross incomes in federal income taxes.

Military Charity

The largest recipient of the Obamas’ donations was the Fisher House Foundation, which provides lodging to relatives of hospitalized members of the military and scholarships to children of deceased and disabled soldiers. The Obamas gave $117,130 to the organization in 2011.

In 2011 they donated $5,000 each to the Boys & Girls Club, Habitat for Humanity, the United Negro College Fund and Sidwell Friends School, which their daughters attend.

Unlike last year, the Obamas were subject to the alternative minimum tax, the parallel tax system for high earners. The AMT added $12,491 to their tax bill for 2011.

Steven Bankler, an accountant in San Antonio, Texas, said the president’s returns don’t show smart money management because his investments are in low-yield U.S. government securities and he is most likely paying interest on the mortgage of his Chicago home at a higher rate than he is earning.

“He manages his money pathetically,” Bankler said. “He’s got it backwards. This is a man that’s trying to tell us how to make decisions on managing our money.”

Book Earnings

Bankler also questioned Obama’s decision to report his book earnings as business income subject to self-employment payroll taxes. He wouldn’t have to pay those taxes if he reported the income as royalties.

More than half of Obama’s book sales occurred outside the U.S., according to his foreign tax credit form.

Anthony Nitti, a tax partner at WithumSmith & Brown in Aspen, Colorado, said Obama appears to have taken a relatively conservative approach to his tax return.

“To me, his return looks like it’s been carefully considered for public release,” he said.

Use of the White House doesn’t count as income under a section of the tax code that allows the exclusion for people who are provided meals and lodging for their employer’s convenience. Presidents haven’t reported the personal use of government resources tied to their security, such as Air Force One, as income.

Secretary’s Rate

Obama pays a slightly higher tax rate than his secretary, said Amy Brundage, a White House spokeswoman. Anita J. Breckenridge is paid $95,000 a year, according to the 2011 White House report to Congress on staff salaries. Brundage declined to provide details about Breckenridge’s tax rate or return. The Buffett Rule is named for billionaire investor Warren Buffett, who says he pays a higher tax rate than his secretary does.

Vice President Joseph Biden and his wife, Jill, reported paying $87,900 in federal taxes for 2011 on $379,035 in adjusted gross income for a 23.2 percent rate. The White House released the Bidens’ tax returns yesterday.

Citizens “ought to be able to know that everyone one else is paying their fair share as well,” Biden said April 12 at a campaign event in Exeter, New Hampshire.

“But the truth is you know they’re not,” he said. “The truth is, when you pay those taxes, you know not everyone is paying their fair share.”

The Bidens donated $5,540, or 1.5 percent of their adjusted gross income, to charity in 2011.

Romney Estimate

Republican presidential candidate Mitt Romney, a former Massachusetts governor, released an estimated 2011 tax return earlier this year. Yesterday, Romney requested an extension to delay filing his final 2011 return for six months, spokeswoman Andrea Saul said in an e-mail. She said he will file the return before the Nov. 6 election.

Romney’s 2010 return was signed by his accountant on Oct. 15, 2011, indicating that he had received an extension of the time to file. That’s common for taxpayers who receive income from partnerships that can take months to provide information to the partners.

The Obama campaign has called on Romney, a former private- equity executive, to release more tax returns from prior years.

For 2010, Romney paid a 13.9 percent effective tax rate on more than $21 million in income, largely because he receives most of his income from capital gains and dividends taxed at preferential rates capped at 15 percent.

Obama, by contrast, is subject to ordinary income tax rates of as much as 35 percent on almost all of his income.

“You have two wealthy individuals, both in the top 1 percent, that have as disparate tax returns as humanly possible,” Nitti said.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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Traders Walk Out of CME Eurodollar Pit to Protest Trade

By Matthew Leising - Apr 14, 2012 3:01 AM GMT+0700

Local traders in the CME Group Inc. (CME)’s Eurodollar options pit walked off the job today to protest a block trade yesterday.

“These guys that stand in there all day and make prices would have loved to participate in that particular price, but they weren’t able to,” Rocco Chierici, a broker at R.J. O’Brien & Associates on the floor of the Chicago Mercantile Exchange, said in a telephone interview.

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Traders in the Eurodollar pit on the CME Group trading floor in Chicago. Photographer: Scott Olson/Getty Images

Prices for the block trades of options on Eurodollar futures were higher than offers in the pit, which wouldn’t be allowed in open-outcry trading, Chierici said. Local traders buy and sell for their own account and in the process help add liquidity to a market. Block trades are privately negotiated transactions that are conducted outside the normal pit or via computer-based trading systems used by exchanges.

“There are rules that prohibit that in the pit, but you can circumvent the pit” in a block trade, Chierici said. “I believe they wanted to make the point that the system is not fair.”

Six block trades totaling 215,200 options traded at 8:11 a.m. Chicago time yesterday, according to CME Group’s website. The trade was rolling positions from April contracts, which expired today, into June contracts.

‘Longstanding Rules’

“The block trade in question was managed by longstanding rules and processes of our exchanges,” Michael Shore, a CME Group spokesman, said in an e-mail. “It was a legitimate, well- managed trade, which was executed within one tick of the market and in one trade.”

Other traders continued to help buy and sell options on Eurodollars, which are contracts tied to three-month expectations for interest rates, Shore said.

While volume has been down recently, the walk-off cut the number of orders to buy and sell today, Chierici said. “There was a small drop because a lot of the volume is local,” he said.

CME Group has seen demand for Eurodollars, once the largest contract by volume, fall as the Federal Reserve has kept its benchmark interest rate near zero since December 2008. Eurodollar options volume last month averaged 811,000 contracts per day, compared with 1.3 million on average in the same month in 2007, according to CME statements.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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