Stocks, Commodities Gain on Spanish Debt Auction, IMF

By Claudia Carpenter and Lynn Thomasson - Apr 17, 2012 9:34 PM GMT+0700

Stocks and commodities advanced after Spain sold more debt than targeted and the International Monetary Fund increased its forecasts for global economic growth. The pound climbed as U.K. inflation unexpectedly accelerated.

The Standard & Poor’s 500 Index gained 1 percent at 10:33 a.m. in New York and the Stoxx Europe (SXXP) 600 Index advanced 1.6 percent. The yield on the Spanish 10-year bond fell 17 basis points to 5.90 percent, with the similar-maturity Italian yield 10 basis points lower. Ten-year Treasury yields increased two basis points to 2.00 percent. The pound strengthened against 12 of its 16 most-traded peers after U.K. consumer prices rose 3.5 percent in March, the first increase in six months.

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A Spanish national flag flies above the headquarters of the Madrid Stock Exchange in Madrid. Photographer: Angel Navarrete/Bloomberg

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April 17 (Bloomberg) -- David Bloom, global head of currency strategy at HSBC Holdings Plc, talks about the euro, dollar, Norwegian krone, yen and Australian dollar. He speaks with Mark Barton Bloomberg Television's "On the Move." (Source: Bloomberg)

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April 17 (Bloomberg) -- Dominic Schnider, global head of commodity research at UBS AG's wealth management unit, discusses the outlook for commodity prices and demand. He speaks from Singapore with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

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April 16 (Bloomberg) -- Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, discusses the outlook for the Chinese economy and yuan, the European firewall and his forecast for the euro. He speaks with Caroline Hyde on Bloomberg Television's "First Look." (Source: Bloomberg)

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April 17 (Bloomberg) -- Matthew McLennan, portfolio manager at First Eagle Funds, talks about his investment strategy. He speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

The IMF increased its outlook for global growth in 2012 to 3.5 percent from 3.3 percent and lifted its forecast for the U.S. expansion to 2.1 percent from 1.8 percent. Spain sold 12- month and 18-month bills a day after yields on its 10-year bonds reached the highest level this year. German’s ZEW survey of investor confidence unexpectedly rose to a two-year high.

“Today is a decent day in building investor confidence,” said Kit Juckes, head of foreign exchange at Societe Generale SA in London. “Better data out of Germany and decent support for Spain’s bill auction have at least stopped the rot for now.”

Oil Discovery

The S&P 500 climbed for the first time in three days, with energy and technology shares leading gains in nine of the 10 main industries. Apple Inc. climbed 2.4 percent, rebounding from a five-day, 8.8 percent tumble. Coca-Cola Co. rose 2.5 percent after profit topped estimates, helped by demand in North America.

Goldman Sachs Group Inc. swung between gains and losses after reporting earnings that beat estimates and boosting its dividend by 31 percent, while posting revenue from trading bonds, currencies and commodities that lagged behind Citigroup Inc. and JPMorgan Chase & Co..

The Stoxx 600 extended its rebound from four straight weeks of losses. Banco Santander SA, Spain’s biggest lender, and London-based Barclays Plc rose more than 2 percent to help lead banking shares to the biggest advance among 19 industries. Afren Plc soared 7.3 percent after reporting a “significant” oil discovery in the Kurdistan region of Iraq.

Repsol YPF SA, Spain’s largest oil company, dropped 6.6 percent after the Argentine government took control of one of its units. Argentine President Cristina Fernandez de Kirchner seized control of YPF, replacing Chief Executive Officer Sebastian Eskenazi with Planning Minister Julio De Vido.

Euro Weakens

The euro weakened against 12 of 16 major peers, while gaining 0.3 percent against the yen. The shared currency was little changed versus the dollar at $1.3130.

The yield premium investors demand to hold Spanish 10-year government debt instead of benchmark German bunds declined 20 basis points to 416 basis points, or 4.16 percentage points, after yesterday reaching the highest level since November. Spain sold 3.18 billion euros of bills, compared with a maximum target of 3 billion euros.

Germany’s ZEW Center for European Economic Research’s index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased to 23.4 from 22.3 in March. Economists forecast a drop to 19, according to the median of 39 estimates in a Bloomberg survey.

Japan said it will provide $60 billion to the International Monetary Fund’s effort to expand its resources and shield the global economy against any deepening of Europe’s debt crisis. Finance Minister Jun Azumi made the commitment while speaking to reporters in Tokyo today before semiannual meetings of the IMF and World Bank in Washington April 20-22.

Commodities Gain

The S&P GSCI index of raw materials rose 0.8 percent, halting a two-day drop, as oil, aluminum and nickel gained at least 1.7 percent to lead an advance in 20 of 24 commodities.

The MSCI Emerging Markets was little changed. Taiwan’s TAIEX dropped 1.9 percent. China’s inbound investment fell for a fifth month, the government said. The Shanghai Composite Index fell 0.9 percent.

The Sensex (SENSEX) index of Indian shares rose 1.2 percent on a higher-than-forecast benchmark interest rate cut. The Reserve Bank of India cut the repurchase rate by 0.5 percentage points to 8 percent, as predicted by three of 25 economists in a Bloomberg survey.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

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

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European Stocks Advance as Spanish Debt Demand Increases

By Adria Cimino - Apr 17, 2012 9:46 PM GMT+0700

Ralph Orlowski/Bloomberg

Traders walk across the trading floor by the DAX Index in Frankfurt.

European stocks gained the most in a month as demand increased at a Spanish debt sale, German investor confidence topped forecasts and the International Monetary Fund boosted its global growth outlook.

Banks contributed the most to the Stoxx Europe 600 Index’s advance as Banco Popolare SC (BP) and Barclays Plc (BARC) climbed. Danone advanced as the world’s biggest yogurt maker reported higher first-quarter sales. Repsol YPF SA (REP) plunged 6.5 percent as Argentina took control of the Spanish company’s YPF unit following a dispute over slumping oil output and investments.

The Stoxx 600 rose 1.6 percent to 258.37 at 3:44 p.m. in London, the biggest jump since March 13. The benchmark index has climbed 5.7 percent this year as the European Central Bank flooded financial markets with 1 trillion euros ($1.3 trillion) of cheap loans for three years to ease credit. ECB Governing Council member Ewald Nowotny said late yesterday that he doesn’t see an “immediate need” for an extension of the measures, known as the longer-term refinancing operation, or LTRO.

“The Spanish debt auction today shows there is still liquidity in the market,” said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, where he helps oversee $55 billion. “We’ve cleared some smaller tests on sentiment surrounding the euro area ahead of the real tests late in the week when France and Spain sells debt maturing later than the LTRO’s.”

National benchmark indexes advanced in all of the 18 western European markets. France’s CAC 40 Index climbed 2 percent, while Germany’s DAX rose 1.8 percent. The U.K.’s FTSE 100 (UKX) added 1.5 percent.

Spain Auction

Spain sold 3.18 billion euros of bills today, compared with a maximum target of 3 billion euros the Treasury set for the sale. The average 12-month yield was 2.623 percent, compared with 1.418 percent at the last auction on March 20, the Bank of Spain said. The Treasury also sold 18-month bills at 3.11 percent, compared with 1.71 percent last month.

Demand for the 12-month bills was 2.9 times the amount sold, compared with 2.14 times last month. Demand for the longer maturity notes rose to 3.77 times from 2.93. Spain will sell 10- year bonds on April 19 and France will auction securities maturing between 2014 and 2018.

German investor confidence unexpectedly rose for a fifth month in April to the highest in almost two years, suggesting Europe’s largest economy can weather the resurgent debt crisis in the euro region’s periphery. The ZEW Center for European Economic Research’s index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 23.4 from 22.3 in March.

‘Macro Risk’

“Better-than-expected reports are allowing for a reduction in some of the macro risk we’ve seen over the last couple of sessions, and will give room to shareholders to focus on the strong micro fundamentals,” said Henk Potts, an equity strategist at Barclays Wealth in London, which oversees $239 billion.

The world economy will expand 3.5 percent this year and 4.1 percent in 2013, the Washington-based IMF said today in its World Economic Outlook, raising forecasts made in January from 3.3 percent for 2012 and 4 percent for next year.

A gauge of bank shares gained 3.2 percent today as Banco Popolare, Italy’s fifth-largest lender, increased 6.8 percent to 1.13 euros. Barclays, the U.K.’s second-biggest bank by assets, increased 4.6 percent to 220.4 pence. BNP Paribas SA (BNP), France’s largest bank, rallied 5.2 percent to 30.52 euros and Societe Generale SA (GLE), the country’s second-biggest lender, rose 5.9 percent to 18.11 euros.

Greek Banks

Greek banks jumped amid optimism the government is close to completing its plans to restructure the country’s banks. Prime Minister Lucas Papademos has said terms of bank recapitalizations must be agreed upon before national elections are held on May 6. EFG Eurobank Ergasias SA (EUROB) surged 7.3 percent to 71.9 euro cents and National Bank of Greece SA (ETE) climbed 1.1 percent to 1.88 euros.

“Volatility remains high as there is a lot of speculation about the recapitalization terms, while the involved parties are looking for ways to reduce the eventual recapitalization needs,” Panagiotis Kladis, an analyst at Athens-based National Securities, said in a note to clients today.

Baby Food

Danone (BN) advanced 2 percent to 52.59 euros after reporting higher first-quarter sales, led by bottled water and baby food. Revenue rose to 5.12 billion euros from 4.76 billion euros a year earlier, the company said. That beat the 5.05 billion-euro average estimate of 11 analysts surveyed by Bloomberg.

Sky Deutschland AG (SKYD) soared 10 percent to 2.21 euros. The broadcaster beat rivals in an auction of broadcasting rights for Germany’s Bundesliga soccer matches, expanding its license to show the country’s most watched sports through 2017.

Afren Plc (AFR) surged 7.6 percent to 144.5 pence as the company reported a “significant” oil discovery in the Kurdistan region of Iraq. The Simrit-2 exploration well encountered an estimated 409 meters of net oil pay.

Aker Solutions ASA (AKSO), Norway’s biggest maker of oil platforms, jumped 6.7 percent to 95.85 kroner. The company won a $1.9 billion rig contract from Statoil ASA.

Repsol, Spain’s largest oil company, plunged 6.7 percent to 16.32 euros. The Spanish government pledged to take “decisive” action against Argentina within days, after President Cristina Fernandez de Kirchner seized YPF, the Argentine oil company majority-owned by Repsol. Fernandez took control of Argentina’s largest crude producer late yesterday, replacing Chief Executive Officer Sebastian Eskenazi with Planning Minister Julio De Vido.

M&S, Burberry

Marks & Spencer Group Plc (MKS) slid 2.9 percent to 357 pence. The U.K.’s largest clothing retailer said sales of general merchandise at U.K. stores open at least a year fell 2.8 percent in the 13 weeks ended March 31. The average estimate of 10 analysts was for an unchanged performance.

Burberry Group Plc (BRBY) sank 5.6 percent to 1,497 pence. The U.K.’s largest luxury-goods maker reported fiscal fourth-quarter sales that trailed analysts’ estimates and said it remains vigilant as Europe’s economy slows.

Wincor Nixdorf AG (WIN) lost 9.8 percent to 30.45 euros, for the worst performance in the Stoxx 600. (SXXP) The maker of banking machines and cash registers said that it sees “significant” reduction in full-year operating profit, citing a “continued and substantial” decline in banking sales and pressure on margins in hardware.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

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

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Merkel Offers Spain No Respite as Debt Cuts Seen As Key

By Tony Czuczka and Rainer Buergin - Apr 17, 2012 10:04 PM GMT+0700

Chancellor Angela Merkel opened her campaign to win back Germany’s most populous state in May 13 elections by appealing to voters to endorse her message of austerity as the prime means to tackle Europe’s debt crisis.

“It’s partly about still being able to shape our own future,” Merkel said late yesterday at a rally in the city of Muenster in North Rhine-Westphalia. Countries in Europe that have run up debt “are so tightly in the hands of the financial markets that they can’t make independent decisions anymore. We have to watch out that high interest rates on our debt don’t lead to the point where we can’t decide and shape anything anymore” in Germany.

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German Chancellor Angela Merkel speaks during the debate with students in Prague. Photographer: CTK via AP Images

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German Chancellor Angela Merkel delivers a speech during her meeting with students at the Faculty of Law of the Charles University in Prague. Photographer: Matej Divizna/AFP/Getty Images.

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German Chancellor Angela Merkel. Photographer: Matej Divizna/AFP/Getty Images

Merkel’s comments underscore a focus on her government’s record of pressing for deficit cuts as a core campaign theme for the state elections next month even as investors and economists call for Germany to step up its response to the debt crisis now marauding Spain. The ballots will offer a snapshot of public support for her crisis handling as well as a foretaste of voter sentiment before the next federal election due in 2013.

Merkel’s message was reinforced by Finance Minister Wolfgang Schaeuble, who said separately that any amount of bailout funds and financial firewalls “won’t solve the problem” without a commitment to reduce debt and raise competitiveness, the root causes of the crisis.

Debt-Cut Push

“That’s why the countries with too high debt, Germany included, have to reduce debt,” Schaeuble said in an interview with SWR television in Berlin as Merkel spoke in Muenster. “And the countries with insufficient competitiveness have to become more competitive. Then you need a common finance policy in Europe -- that’s the fiscal pact. And if you need anything else, then you build the firewall. If you only build the firewall, you can take 10 trillion and it’s not going to solve the problem.”

Spanish government bonds advanced, pushing the 10-year yield down almost 17 basis points to 5.89 percent, after Spain sold more than the 3 billion-euro ($3.9 billion) maximum target set at a debt auction today. The euro was little changed at $1.3143 as of 5:01 p.m. in Berlin.

Spanish bond yields touched 6.16 percent yesterday, their highest this year and closer to the 7 percent level that caused its neighbors to seek bailouts. Credit-default swaps signaled a 37 percent chance the euro area’s fourth-biggest economy will default, prompting Spanish officials to call for additional help from the European Central Bank. Economy Minister Luis de Guindos was due to meet ECB President Mario Draghi in Frankfurt today.

‘Warning Shot’

“The expectation is that Spain can make it -- while the widening bond spreads we’ve seen should be taken as a warning shot from markets,” Norbert Barthle, the parliamentary budget spokesman for Merkel’s Christian Democratic Union, said by phone today. “There’s no Spanish bailout talk in Berlin.”

Spanish Prime Minister Mariano Rajoy has the capacity to calm financial-market jitters by “sticking to his word on budget savings,” CDU deputy caucus chairman Michael Meister said in a separate interview. Further spending cuts may be necessary to meet budget targets Germany because “we in Germany can accept one revision only.”

Germany faces criticism for its anti-crisis policy of spending cuts from economists such as Nobel laureate Paul Krugman. Spain needs a new remedy to its ills since its story “bears no resemblance to the morality tales so popular among European officials, especially in Germany,” Krugman said yesterday in a New York Times article headlined “Europe’s economic suicide.”

Soros Concerns

Billionaire investor George Soros told a conference in Berlin last week that Europe’s German-inspired fiscal compact to promote budgetary discipline can’t work in its current format and that the euro is “broken and needs to be fixed.”

“I know the concerns” of Soros, Schaeuble said in his interview. “I don’t share them.”

“I think many haven’t really understood what European integration is,” he said. “It’s something new and that’s something they don’t really understand. We’re creating step by step a common financial policy in addition to the monetary policy we already have. And the fact that we didn’t have this from the start is something he couldn’t really understand.”

Muenster Cathedral Address

Merkel may be propelled by domestic electoral arithmetic to listen to opposition calls to do more to fight the crisis. With support collapsing for her Free Democratic national coalition partner, Merkel’s chances of winning a third term next year might hinge on her willingness to hook up with the Social Democrats in a rerun of her “grand coalition” of 2005-2009. The opposition SPD backs joint euro-area bonds to stop what it calls the “downward spiral” of “eternal rescues.”

Merkel, addressing CDU supporters yesterday on the square outside Muenster cathedral, did not mention Spain during what was the first of 15 campaign stops in 25 days. Schleswig- Holstein votes on May 6, followed by North Rhine-Westphalia, which with almost a quarter of Germany’s 82 million people is a bellwether for national political fortunes.

The chancellor is campaigning to recapture North Rhine- Westphalia after the Social Democrats took the state from the CDU at a vote in May 2010, days after she backtracked and agreed to a first bailout in Greece. The result deprived Merkel of her majority in the national parliament’s upper house, the Bundesrat, where states are represented.

Polls suggest her party is facing an uphill struggle to win back the state. The Social Democrats lead by 40 percent to the CDU’s 29 percent, an Info poll for Wirtschaftswoche magazine showed on April 14. With the Greens at 10 percent and the Free Democrats at 3 percent, the SPD-Greens coalition government that displaced her bloc in 2010 may be poised to resume power. Info polled 1,005 voters on April 4-7. No margin of error was given.

Voters in the state face a choice between “living on borrowed money” and “a good future for you and your children” that requires reducing debt, Merkel said. Differences over the importance of cutting debt are “the focus” of the campaign.

To contact the reporters on this story: Tony Czuczka in Muenster, Germany at aczuczka@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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

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RIM Is Said to Discuss Hiring Bank to Weigh Options

By Serena Saitto and Hugo Miller - Apr 17, 2012 9:39 PM GMT+0700

Research In Motion Ltd. (RIM), the troubled maker of the BlackBerry smartphone, is in talks to hire a financial adviser to help it weigh strategic options, according to four people with knowledge of the matter.

A decision to work with at least one bank could come in the next few days, said one of the people, who asked to remain anonymous because the deliberations are private. RIM would prefer an agreement to license its mobile-phone software, and its next choice is a strategic investment, one person said. RIM doesn’t plan to sell itself, the person said.

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BlackBerrys in Jakarta. Photographer: Mast Irham/EPA/Corbis

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April 16 (Bloomberg) -- Research In Motion Ltd., the troubled maker of the BlackBerry smartphone, is in talks to hire a financial adviser that can help it weigh strategic options, according to three people with knowledge of the matter. Trish Regan reports on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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April 16 (Bloomberg) -- RIM the troubled maker of the BlackBerry smartphone, is in talks to hire a financial adviser that can help it weigh strategic options, according to three people with knowledge of the matter. Bloomberg’s Emily Chang reports on Bloomberg Television’s “Bloomberg West.” (Source: Bloomberg)

RIM said last month that it’s weighing strategic changes after market-share losses to Apple Inc. (AAPL)’s iPhone and handsets that use Android software led to five straight quarters of sales shortfalls. RIM Chief Executive Officer Thorsten Heins said that while the Waterloo, Ontario-based company would consider a sale, that wasn’t “the main direction” he’s pursuing.

A deal to license the BlackBerry operating system to a partner such as Samsung (005930) Electronics Co. would be the “best option,” said Matt Thornton, an analyst at Avian Securities LLC in Boston. Given RIM’s cash holdings, a strategic investment “doesn’t make a ton of sense,” he said. The company had $1.77 billion in cash and short-term investments as of early March.

Tenille Kennedy, a spokeswoman for RIM, declined to comment, citing company policy not to discuss market rumor or speculation.

Canadian, Global Banks

The company is considering hiring one Canadian bank and one global bank, two of the people said. RIM’s stock has declined 75 percent in the past 12 months amid rivalry from Apple and smartphone makers that rely on Google Inc. (GOOG)’s Android software. RIM shares fell 0.5 percent to $13.35 at 10:34 a.m. in New York.

Heins, who replaced co-CEOs Jim Balsillie and Mike Lazaridis in January, said on March 29 that RIM will redouble efforts to attract business customers while reviewing options, such as licensing, partnerships, joint ventures and other ways to “leverage” assets.

Other options include finding ways to wring more money from its messaging service and patents portfolio, which are its most valuable assets, the people said. Microsoft Corp. (MSFT) and Samsung could be among the interested parties, the people said.

If RIM were to put its patents up for sale, Microsoft would be interested in taking a look, according to a person with knowledge of the matter. The company is unlikely to seek a strategic investment in RIM or an outright acquisition, this person said.

Kevin Kutz, a spokesman for Redmond, Washington-based Microsoft, declined to comment, as did Chris Goodhart, a U.S. spokeswoman for Suwon, South Korea-based Samsung.

RIM’s top priority is finding a bank that can advise the company on potentially licensing the new BlackBerry 10 operating system, currently under development, a person said.

RIM plans to give software developers prototypes for the first BB10 phones in early May. It’s preparing a consumer device with the software to revive U.S. sales, which plunged by more than half last quarter.

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.

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Senate Blocks Buffett Rule 30% Tax Floor on Top Earners

By Richard Rubin - Apr 17, 2012 10:12 PM GMT+0700

The U.S. Senate blocked the proposed Buffett rule that would set a minimum 30 percent federal tax rate for the highest earners, stopping the legislation while an election-year debate on tax policy and income inequality continues.

The 51-45 vote yesterday in Washington fell short of the 60 needed to advance the measure, and Republicans derided the Buffett rule as a political stunt. President Barack Obama has been campaigning for the legislation across the country, maintaining that it’s unfair that some high-income taxpayers use deductions and preferential tax treatment of investment income to pay lower rates than many middle-income wage earners.

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President Obama has been campaigning for the proposed Buffet rule in advance of an April 16 procedural vote in the U.S. Senate. Photo: Andrew Harrer/Bloomberg

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April 16 (Bloomberg) -- U.S. Senator John Cornyn, a Texas Republican, talks about the so-called Buffett rule and the outlook for U.S. economic growth. Cornyn speaks with Peter Cook on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

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Berkshire Hathaway Inc. Chief Executive Officer Warren Buffett, left, meets with President Barack Obama in the Oval Office of the White House in Washington, D.C., on July 14, 2010. Photographer: Pete Souza/White House via Bloomberg

“Let’s be clear,” said Senator Pat Toomey, a Pennsylvania Republican. The proposal “is not a serious attempt to deal with tax reform or the budget.”

The Republican roadblock of the measure may intensify partisan wrangling as Democrats seek to take advantage of public support for the idea. A Gallup poll last week showed about six in 10 voters favor the idea.

Senator Charles Schumer of New York said his fellow Democrats will return to the issue repeatedly and propose the minimum tax to pay for such items as a research and development tax credit or spending for college aid.

‘Common Sense’ Idea

“Republicans want to give even further tax breaks to millionaires and billionaires, while we think the very wealthy should share in more sacrifice so the burden doesn’t fall on the middle class,” Schumer said.

In a statement released after the vote, Obama criticized Republicans for blocking what he called a “common sense” idea.

“At a time when we have significant deficits to close and serious investments to make to strengthen our economy, we simply cannot afford to keep spending money on tax cuts that the wealthiest Americans don’t need and didn’t ask for,” he said.

Speaking to Tea Party supporters in Philadelphia last night, Republican presidential candidate Mitt Romney said the Buffett rule would do little to help the struggling economy or to reduce the federal budget deficit.

“Someone calculated that the taxes he would raise in his Buffett rule would pay for 11 hours of government,” Romney said of Obama at an anti-tax rally. “This is not exactly a grand idea.”

Along Party Lines

The vote on advancing the measure was along party lines, with two exceptions. Republican Susan Collins of Maine voted to move the bill forward and Democrat Mark Pryor of Arkansas voted against it. Four senators -- one Democrat, two Republicans and independent Joseph Lieberman of Connecticut -- were absent.

“There is no disputing that the wealthy should pay their fair share in taxes,” Pryor said in a statement. “This inequity should be fixed as part of broad tax reform, not as a political ploy meant to score points.”

The bill, sponsored by Senator Sheldon Whitehouse, a Democrat from Rhode Island, would impose a minimum tax rate of 30 percent for households with adjusted gross incomes of at least $2 million. Those with at least $1 million in income would pay the tax on a sliding scale to bring their rates closer to 30 percent.

The calculation includes payroll taxes as well as a 3.8 percent tax on unearned income set to take effect for high earners next year. Taxpayers would still be able to deduct charitable contributions.

High-Income Households

The tax would affect a minority of high-income households that manage to pay relatively low rates because of deductions and preferential tax rates on investment income. The bill is named for billionaire investor Warren Buffett, who says he pays a lower tax rate than his secretary.

The bill would raise $47 billion over the next decade, assuming that existing income tax cuts are allowed to expire as scheduled at the end of 2012. If those tax cuts were extended, the measure would raise about $162 billion, according to Whitehouse’s office.

By 2015, the plan would impose higher taxes for 217,000 households, according to the Tax Policy Center, a nonpartisan research group in Washington.

According to administration data, the median effective tax rate for the middle 20 percent of U.S. taxpayers is 13.3 percent, including income, payroll and corporate taxes. For the top 1 percent of taxpayers, the rate is 29.6 percent, according to the 2012 Economic Report of the President. Still, 10 percent of high-income households have tax rates of 8.7 percent or less.

Equal Outcomes

Democrats are seeking equality of outcomes instead of equality of opportunity, said Senator John Barrasso, a Wyoming Republican.

“Tax increases won’t help our fragile economy, and they won’t put the brakes on Washington’s out-of-control spending,” he said.

The Republican-controlled House of Representatives is also using today’s tax-filing deadline to highlight tax policy. The House is set to vote April 19 on a $46 billion, one-year tax cut for businesses with fewer than 500 employees.

Under the bill sponsored by Majority Leader Eric Cantor, a Virginia Republican, companies would be able to deduct as much as 20 percent of their profits.

“If we can afford small businesses just a little easier time in terms of managing their affairs, they’ll hire more people, they’ll invest in capital equipment -- which then sends more money and opportunity and demand into the economy -- they’ll create jobs in another location,” he said today.

The Buffett rule bill is S. 2230. The House tax bill is H.R. 9.

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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Romney Talks Tax Law Change, Begins Running Mate Search

By John McCormick - Apr 17, 2012 9:50 PM GMT+0700

Presumptive Republican presidential nominee Mitt Romney said he isn’t too rich to relate to average Americans and President Barack Obama should “start packing” for a White House departure in 2013.

Romney made the remarks in an ABC News interview aired yesterday as Democrats accused him of running a secretive campaign and called on him to release more tax records.

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Mitt Romney, accompanied by his wife Ann, at the National Rifle Association convention in St. Louis on April 13, 2012. Photographer: Michael Conroy/AP Photo

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Beth Myers, campaign manager for Mitt Romney's 2008 bid for the presidency, jokes with Carl Forti, political director in Boston in this April 27, 2007 file photo. Photographer: Elise Amendola/AP Photo

Asked by ABC’s Diane Sawyer whether his wealth -- including a planned car elevator that is part of a $12 million renovation at his beach home in La Jolla, California -- prevents him from relating to most people, Romney said it shouldn’t.

“We don’t divide America based upon success and wealth and other dimensions of that nature,” he said. “We’re one nation under God. This is a time when people of different backgrounds and different experiences need to come together.”

Romney, who helped form the private-equity firm Bain Capital LLC in Boston, has estimated his wealth to be as much as $250 million on financial disclosure statements. He earned $21.6 million in 2010, mostly from investments, according to tax returns he released in late January.

The former Massachusetts governor today picked up the backing of House Speaker John Boehner of Ohio, who told reporters in Washington that “it’s clear now” that Romney “is going to be our nominee.” Boehner said he waited to make an endorsement to make sure “all candidates had a fair process and a fair opportunity.”

Seeking Scapegoats

Speaking in Philadelphia last night, Romney accused Obama of seeking “scapegoats” to distract from the struggling economy. “I will not do as this president is doing, dividing us on every occasion, attacking one American after another,” he said to cheers from an audience of anti-tax Tea Party supporters. “Trying to find someone who can by virtue of attacking them divert from his failures economically.”

Periodically while campaigning this year Romney has made comments drawing attention to his wealth -- and earning scorn from opponents -- including saying he has friends who are NASCAR owners and that his wife, Ann, owns a “couple” of Cadillacs.

She joined her husband in the Sawyer interview, saying her message to Obama is that it’s “Mitt’s time” because he can turn the economy around.

Asked about Obama’s suggestion that he release 12 years of his tax returns, Romney said he has no plans to do so.

Diverting Attention

“The president is going to try and do everything possible to divert from the attention being focused upon his record as president and the failure of his economic policies,” he said. “So he’s going to try to make this campaign about the fact that I’ve been successful, that I’ve made a lot of money.”

Romney said he would like to see the U.S. Supreme Court overturn the 1973 decision in Roe v. Wade that legalized abortion nationwide.

“I would love the Supreme Court to say, ‘Let’s send this back to the states,’” he said. “Rather than having a federal mandate through Roe v. Wade, let the states again consider this issue state by state.”

Romney also said he has picked a longtime adviser to oversee the vetting of his running mate. Beth Myers, the adviser, was a chief of staff for Romney when he was Massachusetts governor, served as his presidential campaign manager four years ago and is a senior adviser to his current bid.

Running Mate Search

Romney, 65, who at a weekend fundraiser in Florida talked about the importance of appealing to Hispanic voters, called Republican Senator Marco Rubio of Florida “one of the terrific leaders” of the party, while declining to say if he is on the list of prospective running mates.

“I think it’s way too early to begin narrowing down who the potential vice presidential nominees might be,” Romney said. “But we’re beginning that process.”

At that same fundraiser in Palm Beach, Florida, NBC News and the Wall Street Journal reported that Romney said he is considering the elimination of mortgage deductions on second homes as part of the tax exemptions he would propose ending.

“I’m going to probably eliminate for high-income people the second home mortgage deduction,” he said, adding that he would also likely eliminate state income and property tax deductions.

The remarks, made from the backyard of a private home last night, were overheard by reporters on a sidewalk below, NBC reported.

At the gathering, Romney also floated the idea of eliminating the Department of Housing and Urban Development, the Cabinet-level agency once headed by his father, George.

Combining Departments

“I’m going to take a lot of departments in Washington, and agencies, and combine them,” he said, according to NBC News. “Things like Housing and Urban Development, which my dad was head of, that might not be around later. But I’m not going to actually go through these one by one. What I can tell you is, we’ve got far too many bureaucrats. I will send a lot of what happens in Washington back to the states.”

Asked about the Department of Education, Romney said it, too, would face restructuring.

“The Department of Education I will either consolidate with another agency, or perhaps make it a heck of a lot smaller,” he said. “I’m not going to get rid of it entirely.”

The reports from the fundraiser brought a response yesterday from President Barack Obama’s re-election campaign.

Specific Cuts

“Governor Romney previously said he wasn’t going to outline specific cuts during this campaign because they could harm his electoral prospects,” Obama spokesman Ben LaBolt said in a statement. “Last night’s comments make clear he does in fact have very specific cuts in mind: In order to fund his $5 trillion tax cuts for the wealthiest Americans, he would make deep cuts in programs essential to the middle class like education and housing.”

LaBolt again called on Romney to release 23 years of tax returns that he said the former private equity executive shared for a background check when he was considered for the Republican vice presidential nomination in 2008.

On a conference call yesterday organized by the Democratic National Committee, Senator Chuck Schumer of New York accused Romney of hiding many pieces of information from the voters.

‘Hiding Basic Information’

“From his records as governor of Massachusetts to the details of his overseas investments, Mitt Romney has made a disturbing habit of hiding basic information from the voters,” he said.

Schumer called the overheard fundraiser remarks “a raw moment of candor where he gave his unvarnished views.”

In a statement released before Schumer’s remarks, Romney spokeswoman Andrea Saul said it was “ironic the Obama campaign would accuse anyone of not being forthcoming” on the same day a top official with the U.S. General Services Administration declined to answer questions on the advice of counsel at a congressional hearing about a taxpayer-funded training conference at a Las Vegas-area resort that has been criticized for being excessively lavish.

“President Obama cannot bear to face his own record of high unemployment, tax increases and massive debt,” Saul said. “No matter how hard President Obama tries to run from his record, Governor Romney is going to continue talking about his plans to get the country back on the right track.”

At the fundraiser, Ann Romney sought to capitalize on the political furor that erupted last week when a Democratic strategist scorned her, a mother of five, for never having “worked a day in her life.”

“It was my early birthday present for someone to be critical of me as a mother, and that was really a defining moment, and I loved it,” she said.

Ann Romney turned 63 yesterday. She said in the ABC interview that she said the dust-up was a gift because “I love the fact that we’re talking about this.”

To contact the reporter on this story: John McCormick in Chicago at jmccormick16@bloomberg.net

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

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Argentina Seizes Oil Producer YPF, as Repsol Gets Ousted

By Rodrigo Orihuela - Apr 17, 2012 5:40 AM GMT+0700

Argentine President Cristina Fernandez de Kirchner seized control of YPF (YPF) SA, the nation’s largest crude producer, ousting Spanish owner Repsol YPF SA (YPFD) after a dispute over slumping oil output and investments.

Argentina took over management of YPF with immediate effect, replacing Chief Executive Officer Sebastian Eskenazi with Planning Minister Julio De Vido, Fernandez said yesterday in a speech in Buenos Aires. The government will also send a bill to Congress to take a 51 percent stake in YPF, she said.

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A poster calling the government to nationalize YPF SA, Argentina's biggest energy company, is seen in Buenos Aires on March 21, 2012. Photographer: Bill Faries/Bloomberg

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Argentine President Cristina Fernandez de Kirchner during the Summit of the Americas family photo session, in Cartagena, Colombia, on April 15, 2012. Photographer:Eitan Abromovich AFP/Getty Images

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Argentine Planning Minister Julio De Vido, seen here, in Buenos Aires, will run YPF, Presdient Cristina Fernandez de Kirchner said April 16, 2012. Photographer: Diego Giudice/Bloomberg News

The takeover follows more than two months of increasing government pressure on YPF after fuel imports doubled to $9.4 billion last year. The country sought to block YPF dividends and backed provincial governments when they revoked 15 oil field licenses. Fernandez also seized a $24 billion pension fund and airline Aerolineas Argentinas SA since taking office in 2007.

“They are going to be closing the country as an investment destination,” Anish Kapadia, an analyst at Tudor Pickering Holt & Co. in London, said yesterday in a telephone interview from the city. “What’s surprising is that they are expropriating assets rather than going through a fair market means to get hold of a stake in the company. That sets a terrible precedent.”

Argentina, which defaulted on a record $95 billion of debt in 2001, needs to regain control of Buenos Aires-based YPF to avoid becoming “an unviable country,” after oil production slumped, Fernandez said to the accompaniment of cheers from supporters at the presidential palace. Compensation for the seizure will be determined by the National Appraisal Tribunal, Fernandez said, without giving more details.

Shale-Oil Reserves

Argentina will manage YPF “professionally,” Fernandez said, adding that the country is one of the few that doesn’t control its own oil. Deputy Economy Minister Axel Kicillof will help De Vido to run the company, according to Fernandez.

The stake in YPF gives the government control of Argentina’s shale oil reserves. YPF said in February that an independent survey showed the Vaca Muerta formation in southern Argentina holds at least 23 billion barrels of oil, of which at least 13 billion barrels belong to YPF.

Argentina is expropriating YPF for the “public good,” a government official said in yesterday’s speech.

‘Hostile Decision’

YPF American depositary receipts tumbled 11 percent to $19.50 before being halted yesterday in New York. Earlier, they plunged as much as 21 percent to $17.41.

Yields on YPF’s dollar bonds due in 2028 fell 16 basis points to 9.94 percent. The bond’s prospectus says that a nationalization of the company is considered a default event in which bondholders may request expedited repayment.

The takeover was announced after Spain’s markets closed yesterday. Repsol gained 0.06 percent to 17.48 euros in Madrid.

The decision is “a hostile decision against Repsol and therefore against Spain and the Spanish government and the government will act in consequence,” Spanish Industry Minister Jose Manuel Soria told reporters yesterday in Madrid.

“The Spanish government is working on measures that will be announced in the coming days,” he said. “They will be clear and decisive measures.”

Retaliation by the European Union would risk Argentina exports to its single-biggest trading partner outside of Latin America. Argentina sold about $14.3 billion in goods to the EU last year, up 28 percent from 2010, the national statistics agency said. Spain was the biggest destination in the EU, accounting for 3 percent of Argentina’s sales abroad.

Argentina’s action “could prove harmful for long-term private investment,” Fitch Ratings said in a statement.

Paris Club Debt

Fernandez has also said she wants to resolve about $9 billion in defaulted debt with the Paris Club group of creditor nations. Negotiations with the group will be more complicated after the YPF decision, Claudio Loser, a former head of Western Hemisphere Affairs at the International Monetary Fund, said yesterday in a telephone interview from Miami.

Calls to YPF were referred to De Vido’s spokesman.

YPF’s output accounted for about 34 percent of the nation’s production in 2011, according to energy secretariat data. The company is also the country’s largest fuel retailer and refiner, with about 50 percent of refining capacity.

Energy demand grew over the past decade as Argentina recovered from a financial crisis. South America’s second- largest economy expanded an average 7.8 percent since 2003, including 8.9 percent growth last year.

As economic growth spurred demand for fuel, oil output declined. Since 1999, the year Repsol acquired its controlling interest in YPF, production dropped 32 percent to 33.2 million cubic meters last year, according to data compiled by the Buenos Aires-based Argentine Oil and Gas Institute.

‘International Isolation’

“This expropriation is madness and its only result will be international isolation,” opposition lawmaker Julian Obliglio said in an e-mailed statement. “The President has broken a history of tradition, respect and solidarity that link us to Spain.”

Argentina sold most of YPF, which had been owned by the state, to private investors in the early 1990s. The government retained a 0.2 percent stake and a so-called golden-share that entitles it to make certain decisions, including the veto of takeovers.

After acquiring control of YPF, Repsol sold a 15 percent to Argentina’s Eskenazi family in 2008 and a further 10 percent last year. Until today’s announcement, Repsol owned 57.4 percent of YPF.

Eskenazi Stake

The Eskenazis received two bank loans and two loans from Repsol to finance the acquisitions. The last installment of the first bank loan is due in May. They must start repaying the first Repsol loan next year.

Under the terms of the Eskenazi acquisitions, YPF paid dividends of 90 percent of net income in two semi-annual payments. The government representative on the board voted against the dividends twice in 2011 and again this year.

The government requested at a March 8 board meeting that, instead of paying dividends, the money should be invested in production and exploration.

As governor of the southern oil-producing province of Santa Cruz, Fernandez’s late husband and predecessor Nestor Kirchner sought to acquire 5 percent of YPF’s shares on the New York Stock Exchange in the 1990s in an attempt to gain a seat for the province on the board, Fernandez said in a March 1 speech to Congress.

Kirchner had to stop buying the shares once Repsol took over YPF, she said.

To contact the reporter on this story: Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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Romney Talks Tax Law Change, Begins Running Mate Search

By John McCormick - Apr 17, 2012 3:52 AM GMT+0700

Presumptive Republican presidential nominee Mitt Romney said President Barack Obama should “start packing,” as he used a broadcast television interview to defend his ability to connect with average Americans.

In an ABC News interview to be broadcast tonight, Romney also said he has picked a longtime adviser to oversee the vetting of his running mate. Beth Myers, the adviser, was a chief of staff for Romney when he was Massachusetts governor, served as his presidential campaign manager four years ago and is a senior adviser to his current bid.

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Mitt Romney, accompanied by his wife Ann, at the National Rifle Association convention in St. Louis on April 13, 2012. Photographer: Michael Conroy/AP Photo

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Beth Myers, campaign manager for Mitt Romney's 2008 bid for the presidency, jokes with Carl Forti, political director in Boston in this April 27, 2007 file photo. Photographer: Elise Amendola/AP Photo

Excerpts of the interview were released as Democrats accused Romney of running a secretive campaign and called on him to release more tax records.

Asked by Diane Sawyer whether his wealth -- including a planned elevator for his cars that’s part of a $12 million renovation at his beach home in La Jolla, California -- prevents him from relating to most people, Romney said it shouldn’t.

“We don’t divide America based upon success and wealth and other dimensions of that nature. We’re one nation under God,” he said. “This is a time when people of different backgrounds and different experiences need to come together.”

The full interview is to be broadcast tonight on “ABC World News” and “Nightline.”

‘Mitt’s Time’

Romney was joined by his wife, Ann, who said her message to Obama was that it’s “Mitt’s time” and “it’s our turn now.”

Asked about Obama’s suggestion that he release 12 years of his tax returns, Romney said he had no plans to do so.

“The president is going to try and do everything possible to divert from the attention being focused upon his record as president and the failure of his economic policies,” he said. “So he’s going to try to make this campaign about the fact that I’ve been successful, that I’ve made a lot of money.”

Romney also said he would like to see the nation’s highest court overturn the 1973 decision in Roe v. Wade that legalized abortion nationwide.

“I would love the Supreme Court to say, ‘Let’s send this back to the states,’” he said. “Rather than having a federal mandate through Roe v. Wade, let the states again consider this issue state by state.”

Timing of Pick

Asked about a deadline for his running mate selection, Romney said he does have one in mind and that it would be before the Republican Party’s national convention Aug. 27-30 in Tampa, Florida, where the ticket will be officially nominated.

“It would certainly be by the time of the convention,” he said in the interview at Boston’s Fenway Park. “I don’t think we’ve chosen the time we’d actually make an announcement.”

Romney, 65, who at a weekend fundraiser in Florida talked about the importance of appealing to Hispanic voters, called Republican Senator Marco Rubio of Florida “one of the terrific leaders” of the party, while declining to say if he is on the list of prospective running mates.

“I think it’s way too early to begin narrowing down who the potential vice presidential nominees might be,” Romney said. “But we’re beginning that process.”

At that same fundraiser in Palm Beach, Florida, NBC News and the Wall Street Journal reported that Romney said he is considering the elimination of mortgage deductions on second homes as part of the tax exemptions he would propose ending.

“I’m going to probably eliminate for high-income people the second home mortgage deduction,” he said, adding that he would also likely eliminate state income and property tax deductions.

The remarks, made from the backyard of a private home last night, were overheard by reporters on a sidewalk below, NBC reported.

HUD May Go

At the gathering, Romney also floated the idea of eliminating the Department of Housing and Urban Development, the Cabinet-level agency once headed by his father, George.

“I’m going to take a lot of departments in Washington, and agencies, and combine them,” he said, according to NBC News. “Things like Housing and Urban Development, which my dad was head of, that might not be around later. But I’m not going to actually go through these one by one. What I can tell you is, we’ve got far too many bureaucrats. I will send a lot of what happens in Washington back to the states.”

Asked about the Department of Education (AAEXEDUC), Romney said it, too, would also face restructuring.

“The Department of Education I will either consolidate with another agency, or perhaps make it a heck of a lot smaller,” he said. “I’m not going to get rid of it entirely.”

Obama Campaign Responds

The reports from the fundraiser brought a response today from President Barack Obama’s re-election campaign.

“Governor Romney previously said he wasn’t going to outline specific cuts during this campaign because they could harm his electoral prospects,” Obama spokesman Ben LaBolt said in a statement. “Last night’s comments make clear he does in fact have very specific cuts in mind: In order to fund his $5 trillion tax cuts for the wealthiest Americans, he would make deep cuts in programs essential to the middle class like education and housing.”

LaBolt again called on Romney to release 23 years of tax returns that he said the former private equity executive shared for a background check when he was considered for the Republican vice presidential nomination in 2008.

On a conference call today organized by the Democratic National Committee, Senator Chuck Schumer of New York accused Romney of hiding many pieces of information from the voters.

‘Took Some Eavesdropping’

“From his records as governor of Massachusetts to the details of his overseas investments, Mitt Romney has made a disturbing habit of hiding basic information from the voters,” he said. “It took some eavesdropping by reporters outside a fundraiser last night in Florida for us to learn for the first time some details about how Mitt Romney would seek to pay for huge tax cuts he wants to give millionaires and billionaires.”

Schumer called the overheard fundraiser remarks “a raw moment of candor where he gave his unvarnished views.”

In a statement released before Schumer’s remarks, Romney spokeswoman Andrea Saul said it was “ironic the Obama campaign would accuse anyone of not being forthcoming” on the same day a top official with the U.S. General Services Administration declined to answer questions on the advice of counsel at a congressional hearing about a taxpayer-funded training conference at a Las Vegas-area resort that has been criticized for being excessively lavish.

Running From Record

“President Obama cannot bear to face his own record of high unemployment, tax increases and massive debt,” Saul said. “No matter how hard President Obama tries to run from his record, Governor Romney is going to continue talking about his plans to get the country back on the right track.”

At the fundraiser, Ann Romney sought to capitalize on the political furor that erupted last week when a Democratic strategist scorned her, a mother of five, for never having “worked a day in her life.”

“It was my early birthday present for someone to be critical of me as a mother, and that was really a defining moment, and I loved it,” she said.

Ann Romney turned 63 today. She said in the ABC interview that she said the dust-up was a gift because “I love the fact that we’re talking about this.”

To contact the reporter on this story: John McCormick in Chicago at jmccormick16@bloomberg.net

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

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Banks Seen Dangerous Defying Obama’s Too-Big-to-Fail Move

By David J. Lynch - Apr 17, 2012 1:02 AM GMT+0700

Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the nation’s credit markets seized up and required unprecedented bailouts by the government.

Five banks -- JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc., Wells Fargo & Co. (WFC), and Goldman Sachs Group Inc. -- held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve.

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CitiBank in New York. Photographer: Robert Caplin/Bloomberg

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April 16 (Bloomberg) -- Jane King summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

Chart: Top Bank Holding Companies' Assets Loom Large

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A man enters the JPMorgan Chase & Co. headquarters in New York. Photographer: Jin Lee/Bloomberg

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Customers use ATMs at the Citigroup Inc. headquarters in New York. Photographer: Andrew Harrer/Bloomberg News

Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did in 2008 with the Fed-assisted rescue of Bear Stearns Cos. by JPMorgan and with Citigroup and Bank of America after the Lehman Brothers bankruptcy, the largest in U.S. history.

“Market participants believe that nothing has changed, that too-big-to-fail is fully intact,” said Gary Stern, former president of the Federal Reserve Bank of Minneapolis.

Eroding Faith

That specter is eroding faith in Obama’s pledge that taxpayer-funded bailouts are a thing of the past. It is also exposing him to criticism from Federal Reserve officials, Republicans and Occupy Wall Street supporters, who see the concentration of bank power as a threat to economic stability.

As weaker firms collapsed or were acquired, a handful of financial giants emerged from the crisis. Since then, JPMorgan, Goldman Sachs and Wells Fargo have continued to grow internally and through acquisitions from European banks, reeling from government austerity measures related to the rising cost of public debt in Greece, Spain, Portugal, Ireland and Italy.

The industry’s evolution defies the president’s January 2010 call to “prevent the further consolidation of our financial system.” Embracing new limits on banks’ trading operations, Obama said then that taxpayers wouldn’t be well “served by a financial system that comprises just a few massive firms.”

Simon Johnson, a former chief economist of the International Monetary Fund, blames a “lack of leadership at Treasury and the White House” for the failure to fulfill that promise. “It’d be safer to break them up,” he said.

New Safeguards

The Obama administration rejects the criticism, citing new safeguards to head off further turmoil in the banking system. Treasury Secretary Timothy Geithner said in remarks on Feb. 2 the U.S. financial system is “significantly stronger than it was before the crisis.” He credits new regulations, including tougher capital and liquidity requirements that limit risk- taking by the biggest banks, authority to take over failing big institutions and prohibitions on the largest banks acquiring competitors.

The government’s financial system rescue, beginning with the 2008 Troubled Asset Relief Program, angered millions of taxpayers and helped give rise to the Tea Party movement. Banks and bailouts remain unpopular: By a margin of 52 percent to 39 percent, respondents in a February Pew Research Center poll called the bailouts “wrong” and 68 percent said banks have a mostly negative impact on the country.

Riding Out Turbulence

The banks say they have increased their capital backstops in response to regulators’ demands, making them better able to ride out unexpected turbulence. JPMorgan, whose chief executive officer, Jamie Dimon, acknowledged public “hostility” toward bankers in a March 30 letter to shareholders, boasted April 13 of a “fortress balance sheet.” Bank of America, which was about 50 percent larger at the end of 2011 than five years earlier, says it has boosted capital and liquidity while increasing to 29 months the amount of time the bank could operate without external funding.

“We’re a much stronger company than we were heading into the crisis,” said Jerry Dubrowski, a Bank of America spokesman. The bank says it plans to shrink by year-end to $1.75 trillion in risk-weighted assets, a measure regulators use to calculate how much capital individual banks must hold.

Still, the banking industry has become increasingly concentrated since the 1980s. Today’s 6,291 commercial banks are less than half the number that existed in 1984, according to the Federal Deposit Insurance Corp. The trend intensified during the crisis as JPMorgan acquired Bear Stearns and Washington Mutual, Bank of America bought Merrill Lynch and Wells Fargo took over Wachovia in deals encouraged by the government.

More Concentrated

“One of the bad outcomes, the adverse outcomes of the crisis, was the mergers that were of necessity undertaken when large banks were at risk,” said Donald Kohn, vice chairman of the Federal Reserve from 2006-2010. “Some of the biggest banks got a lot bigger and the market got more concentrated.”

In recent weeks, at least four current Fed presidents -- Esther George of Kansas City, Charles Plosser of Philadelphia, Jeffrey Lacker of Richmond and Richard Fisher of Dallas -- have voiced similar worries about the risk of a renewed crisis.

The annual report of the Federal Reserve Bank of Dallas was devoted to an essay by Harvey Rosenblum, head of the bank’s research department, “Why We Must End Too Big to Fail -- Now”

A 40-year Fed veteran, Rosenblum wrote in the report released last month: “TBTF institutions were at the center of the financial crisis and the sluggish recovery that followed. If allowed to remain unchecked, these entities will continue posing a clear and present danger to the U.S. economy.”

No Change

Robert Wilmers, chairman and CEO of M&T Bank Corp. of Buffalo, New York, said in his 2011 annual message to shareholders that no one can say “with any confidence that we have seen a fundamental change in the big bank business approach, which helped lead us into crisis and scandal.”

The alarms come almost two years after Obama signed into law the Dodd-Frank financial-regulation act. The law required the largest banks to draft contingency plans or “living wills” detailing how they would be unwound in a crisis. It also created a financial-stability council headed by the Treasury secretary, charged with monitoring the system for excessive risk-taking.

The new protections represent an effort to avoid a repeat of the crisis and subsequent recession in which almost 9 million workers lost their jobs and the U.S. government committed $245 billion to save the financial system from collapse.

Banks that received TARP money have repaid the government $264 billion to date.

Taxpayers Off Hook

The goal of policy makers is to ensure that if one of the largest financial institutions fails in the next crisis, shareholders and creditors will pay the tab, not taxpayers.

“Two or three years from now, Goldman Sachs should be like MF Global,” said Dennis Kelleher, president of the nonprofit group Better Markets, who doubts the government would allow a company such as Goldman to repeat MF Global Holdings Ltd. (MFGLQ)’s Oct. 31 collapse.

Dodd-Frank, the most comprehensive rewriting of financial regulation since the 1930s, subjected the largest banks to higher capital requirements and closer scrutiny. The law also barred federal officials from providing specific types of assistance that were used to prevent such firms from failing in 2008. Instead, the Fed will work with the FDIC to put major banks and other large institutions through the equivalent of bankruptcy.

Protecting the Economy

“If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy,” Obama said before signing the act on July 21, 2010. “And there will be new rules to make clear that no firm is somehow protected because it is too big to fail.”

Officials at the Treasury Department, the Fed and other agencies have spent the past two years drafting detailed regulations to make that vision a reality.

Yet the big banks stayed big or, in some cases, grew larger. JPMorgan, which held $2 trillion in total assets when Dodd-Frank was signed, reached $2.3 trillion by the end of 2011, according to Federal Reserve data.

For Lacker, the banks’ living wills are the key to placing the financial system on sounder footing. Done right, they may require institutions to restructure to make their orderly resolution during a crisis easier to accomplish, he said.

Neil Barofsky, Treasury’s former special inspector general for the Troubled Asset Relief Program, calls the idea of winding down institutions with more than $2 trillion in assets “completely unrealistic.”

Banks Need Heft

It’s likely that more than one bank would face potential failure during any crisis, he said, which would further complicate efforts to gracefully collapse a giant bank. “We’ve made almost no progress on ending too big to fail,” he said.

Dimon dismisses such concerns as “chatter” and says U.S. banks need heft to meet the needs of their globally active clients. Since 2007, the bank has added more than 80,000 workers, equal to the current combined payrolls of Nike Inc. (NKE) and Colgate Palmolive Co. (CL)

In his annual letter to shareholders, Dimon said JPMorgan will spend almost $3 billion “over the next few years” and devote 3,000 full-time employees to complying with regulations that arose from the crisis.

That regulatory burden could promote further industry consolidation, according to Wilbur Ross, chairman of WL Ross & Co., a private-equity firm.

“We think the little tiny banks, the 90-odd percent of banks that are under $1.5 billion in deposits, are pretty much an obsolete phenomenon,” he told Bloomberg Television on March 14. “We think they’ll all have to merge with each other, be acquired by bigger banks or something.”

Implicit Guarantee

Jake Siewert, a spokesman for Goldman Sachs, and Mary Eshet, a spokeswoman for Wells Fargo, declined to comment. Spokesmen for JPMorgan and Citigroup didn’t respond to e-mailed requests for comment.

Even with policy makers’ claims that the next crisis will be handled differently, investors still regard the largest banks as protected by an implicit government guarantee. One sign of that attitude is that investors continue to demand from the biggest banks lower interest payments in return for deposits.

That gives larger banks a funding advantage over their smaller rivals. In 2011, funding costs for banks with more than $10 billion in assets were about one-third less than for the smallest banks, according to the FDIC. That gap was only slightly narrower than the 37 percent advantage the largest banks enjoyed when Dodd-Frank was signed.

$250 Billion Benefit

For 28 global banks in 2009, that benefit translated into a cumulative $250 billion, according to Andrew Haldane, the Bank of England’s executive director for financial stability.

“Markets have come to believe that what the government did in 2008 and 2009 isn’t a one-time deal, that the government will somehow come to the rescue of these big financial firms,” Kevin Warsh, a former member of the Fed’s Board of Governors, said on the March 28 “Charlie Rose” TV show.

Credit-rating companies Standard & Poor’s and Moody’s Investors Service say they anticipate the U.S. government would rescue large banks in a future crisis. Both cut the major banks’ debt ratings by one level late last year, while retaining them as investment grade credits.

Last month, 15 of the 19 largest U.S. financial institutions passed a Fed “stress test” designed to measure their ability to withstand a deep recession.

Richard Spillenkothen, the Fed’s director of banking supervision and regulation from 1991 to 2006, said regulators are moving in the right direction.

“We’ve made progress. I don’t think we’ve totally resolved it,” said Spillenkothen. “The proof will be in the next crisis.”

To contact the reporter on this story: David J. Lynch in Washington at dlynch27@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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