Economic Calendar

Monday, May 21, 2012

Facebook Shares Drop Below IPO Price in German Trading

By Amy Thomson - May 21, 2012 4:34 PM GMT+0700

Facebook Inc. (FB2A) fell below its initial public offering price in German stock trading briefly before rebounding above the $38 level.

The shares fell to as low as 29.74 euros, and $37.97 based on spot exchange rates, in early trading in Frankfurt. The stock traded at the equivalent of $38.43 as of 11:30 a.m. local time. It closed 0.6 percent higher at $38.23 on its first day of trading in New York on May 18.

The company, based in Menlo Park, California, raised $16 billion in its IPO last week, valuing the social-networking site at $104 billion. The offer makes the 8-year-old company the seventh largest U.S. technology firm by market value, outstripping more established giants such as Cisco Systems Inc. (CSCO) and Qualcomm Inc. (QCOM) Still, the share performance has yet to match some of its peers that sold shares in the past year.

LinkedIn Corp. (LNKD), a social network for professionals, surged 109 percent last May after its IPO. Groupon Inc. (GRPN), the biggest daily-deal coupon site, began trading on Nov. 4 at $20 and rose 31 percent that day. Zynga Inc. (ZNGA), which makes games for Facebook including “FarmVille” and “CityVille” fell in its first day of trading, closing 5 percent below its IPO price on Dec. 16.

Morgan Stanley (MS), the bank that handled the IPO, stepped in to prop up the stock from dipping below the offer price on May 18, said people with knowledge of the matter, who asked not to be identified because the purchases were private.

Sales at Facebook came in at $3.71 billion last year. That puts it below the top 50 U.S. technology companies by revenue. Google Inc. (GOOG), valued at almost twice as much as Facebook, reported $37.9 billion in revenue last year. Google jumped 18 percent on its first day of trading in 2004.

Facebook was the 11th U.S. consumer Internet company to go public in the past year, a stretch that began with LinkedIn a year ago. With a valuation of $104.8 billion at May 18 close, Facebook is worth more than three times the other 10 combined. LinkedIn is second, valued at $10.3 billion.

To contact the reporter on this story: Amy Thomson in London at

To contact the editor responsible for this story: Kenneth Wong at


Alibaba Buys Back 20% Stake From Yahoo for $7 Billion

By Brian Womack and Mark Lee - May 21, 2012 11:31 AM GMT+0700

Alibaba Group Holding Ltd., China’s largest e-commerce provider, agreed to repurchase about a 20 percent stake in itself from U.S. Web portal Yahoo! Inc. (YHOO) for about $7.1 billion ahead of a potential initial public offering.

Yahoo will receive at least $6.3 billion in cash and as much as $800 million in newly issued Alibaba preferred stock, the companies said in a statement today. Alibaba also will be required to either buy back a quarter of Yahoo’s current stake at the price of a future IPO or let Yahoo sell the shares in the IPO. The deal values Alibaba at about $35 billion.

Employees work at Alibaba's headquarters in Hangzhou, Zhejiang Province, China. Photographer: Nelson Ching/Bloomberg

May 21 (Bloomberg) -- Justin Weiss, an analyst at JI Asia in Tokyo, talks about Alibaba Group Holding Ltd.'s agreement to repurchase about a 20 percent stake in itself from U.S. Web portal Yahoo! Inc.'s ahead of a potential initial public offering. Weiss, speaking with Rishaad Salamat on Bloomberg Television's "On the Move Asia," also discusses the deal's implications for Softbank Corp. (Source: Bloomberg)

Alibaba Group Holding Ltd. has been trying to buy back the stake in itself for more than a year. Photographer: Nelson Ching/Bloomberg

Alibaba Chief Executive Officer Jack Ma may be readying an IPO following the success of last week’s offering by Facebook Inc. (FB) and projected 42 percent growth this year in China’s online shopping industry. The former English teacher owns about 7.4 percent of Alibaba Group, according to a Hong Kong stock exchange filing last month, making his stake worth $2.6 billion, according to Bloomberg calculations.

“The transaction will establish a balanced ownership structure that enables Alibaba to take our business to the next level as a public company in the future,” Ma said in the statement.

Yahoo Decline

Yahoo acquired about a 40 percent stake in Hangzhou, China- based Alibaba in 2005 in exchange for $1 billion and ownership of Yahoo’s Chinese operations. At the time, Yahoo had a market capitalization of $49.2 billion, according to data compiled by Bloomberg. Its market value of $18.8 billion on May 18 is about half the value placed on Alibaba in the deal.

Alibaba’s revenue rose to $2.34 billion in the year ended Sept. 30 from $1.3 billion a year earlier, according to Yahoo’s annual report in February. The Chinese company posted a profit of $268 million, compared with a loss of $10.7 million a year earlier, according to the document.

“As e-commerce in China continues to grow, Alibaba is a very attractive asset,” said Duncan Clark, chairman at BDA China in Beijing, which advises technology companies. “Alibaba is in a better position now to do an IPO. The competitive pressures are increasing, and the need to reward staff and make acquisitions means it’s helpful for them to list.”

Share Buyback

Alibaba has been trying to buy back the stake in itself for more than a year and stepped up efforts in September as its prospects rise for growth and expansion beyond China. While the deal reduces Yahoo’s presence in China, the world’s largest Internet market, it may aid turnaround efforts as the Web portal competes with Google Inc. (GOOG) and Facebook for users and advertising dollars.

“The cash from a transaction will help Yahoo as it grapples with the challenges in its business,” Jim Tang, a technology analyst at Shenyin Wanguo Securities in Shanghai, said before the announcement. “While Alibaba is the clear leader in the Chinese e-commerce market, it’s been difficult for Yahoo to cash out of its investment, since Alibaba is not publicly traded.”

Yahoo intends to return “substantially all” of the cash proceeds, after taxes, to shareholders, the company said. While the form of the returned capital hasn’t been finalized, Yahoo has increased its share buyback authorization by $5 billion with the agreement, the company said.

Royalty Payment

In addition, Alibaba will make an upfront royalty payment of $550 million and continuing royalty payments for as many as four years. The companies also agreed to amend their technology and intellectual property licensing agreement, granting Alibaba a transitional license to operate Yahoo China under the Yahoo brand for as many as four years. Also, restrictions on Yahoo’s ability to make other investments in China will be terminated.

“Today’s agreement provides clarity for our shareholders on a substantial component of Yahoo’s value and reaffirms the significance of our relationship with Alibaba,” Yahoo interim CEO Ross Levinsohn said in the statement.

Alibaba plans to finance the transaction from its cash holdings, debt and equity-linked financing, and the deal is expected to close within six months, the companies said.

UBS AG, Goldman Sachs Group Inc. and Allen & Co. advised Yahoo on the transaction. Credit Suisse Group AG advised Alibaba.

Levinsohn, Thompson

Levinsohn became involved this month after his predecessor, Scott Thompson, resigned following an inquiry into his academic record. Thompson said in April that Yahoo was in active discussions with Alibaba about monetizing a portion of its stake.

“The sale of half of Yahoo’s Alibaba stake would represent the partial achievement of a goal that has eluded Yahoo for years,” Clayton Moran, an analyst at Benchmark Co., said in an e-mailed statement. “It appeases shareholders, may give employee morale a much-needed boost, and starts CEO Ross Levinsohn’s term with a win.”

Yahoo, based in Sunnyvale, California, rose 3.7 percent to $15.42 at the close in New York on May 18. The shares have fallen 4.4 percent this year.

The two companies struggled to make headway on negotiations under Thompson’s predecessor, Carol Bartz, who failed to reach an agreement to let Alibaba Group buy back shares in 2010.

‘Inappropriate’ Ownership

Fissures became public by January 2010 when Alibaba Group described as “reckless” Yahoo’s support for Google, which tangled with Chinese authorities over the nation’s Web- censorship rules.

The rift widened in May 2011 after the Web portal said the Chinese company spun off its Alipay online payment business without informing shareholders. Yahoo said it wasn’t consulted about the transfer of Alipay to a company mostly owned by Ma.

It’s “inappropriate” for Internet companies in China to have high foreign ownership given the increasing regulations on overseas investments in the industry, Alibaba Group Chief Financial Officer Joseph Tsai said in May 2011.

In September, DST Global and Temasek Holdings Pte were among investors that agreed to buy shares of Alibaba in a transaction valuing the Chinese company at $32 billion, people familiar with the deal said at the time.

Silver Lake and Ma’s Yunfeng Capital were also part of the group that bought as much as $1.6 billion in stock from Alibaba employees, said the people. IPO

Tokyo-based Softbank Corp. (9984) owns about 30 percent of Alibaba Group, operator of the Taobao online marketplace for consumers, and the Tmall Internet shopping site.

Taobao accounted for about 90 percent of China’s C2C, or consumer-to-consumer, e-commerce market in the third quarter of 2011, according to a Jan. 12 JPMorgan Chase & Co. report. China’s e-commerce market may expand 42 percent to 1.1 trillion yuan ($174 billion) this year, according to JPMorgan.

Yahoo considered a deal with Alibaba and Softbank that would cut its stake in Alibaba to about 15 percent from about 40 percent, a person familiar with the matter said in December.

In 2007, the company listed Ltd. (1688) in a $1.7 billion offering in Hong Kong, then the biggest IPO for an Internet company since Google Inc.’s in 2004.

The deal is based on a minimum valuation of $35 billion for Alibaba Group. This compares with the HK$398.5 billion ($51 billion) market capitalization of Tencent Holdings Ltd., China’s biggest Internet company, and $40.3 billion for Baidu Inc., the biggest Chinese search-engine company.

To contact the reporters on this story: Brian Womack in San Francisco at; Mark Lee in Hong Kong at

To contact the editor responsible for this story: Tom Giles at; Michael Tighe at


Hedge Funds Rebuild Euro Bear Bets on Greek Exit Banks Weigh

By Liz Capo McCormick and Lukanyo Mnyanda - May 21, 2012 4:19 PM GMT+0700

The euro has weathered the worst financial crisis since the Great Depression, bailouts of Greece, Ireland and Portugal, and falling interest rates. Now, investors are betting like never before that a Greek exit would be too much to keep the 17-nation currency above its long-term average.

Hedge funds and other large speculators, which pared trades that would profit from a drop in the euro to the lowest levels since November, rebuilt them to a record high last week, figures released May 18 by the Washington-based Commodity Futures Trading Commission showed. The premium for options that grant the right to sell the euro has more than doubled since March.

A one euro coin sits on top of a stack of mixed denomination euro coins in this arranged photograph in London, U.K. Photographer: Simon Dawson/Bloomberg

May 21 (Bloomberg) -- Tim Condon, chief Asia economist at ING Financial Markets in Singapore, talks about the political and economic situation in Europe and how Greece's potential exit from the euro zone would affect global markets. He speaks with Rishaad Salamat and Susan Li on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Through most of the financial and political turmoil in Europe, the euro held above the average since its January 1999 start as investors put their faith in German Chancellor Angela Merkel to keep the monetary union in place. While they currently forecast little change in the euro versus the dollar, a majority of the world’s biggest foreign-exchange trading firms surveyed by Bloomberg News say the loss of even a weak member such as Greece would risk more departures and send the currency lower.

“Financial markets’ great fear is that if one country left, it would not necessarily be the last,” Alan Ruskin, the head of Group of 10 foreign-exchange strategy in New York at Deutsche Bank AG, the largest currency dealer as ranked by Euromoney Institutional Investor Plc, said in a May 14 telephone interview. “Removing one country, however weak, would not be a route to a stronger common currency.”

Average Estimate

The average year-end estimate for the euro among the biggest trading firms is $1.28, ranging from as low as $1.15 at UBS AG to as high as $1.44 at HSBC Holdings Plc. Deutsche Bank forecasts a drop to $1.25 next month before rising to $1.30 by the end of December.

The euro is down from this year’s high of $1.3487 on Feb. 24, and has depreciated about 1 percent since March against a basket of nine developed-market peers. It slipped 0.1 percent to $1.2765 as of 10:10 a.m. London time after weakening 1.1 percent in the five days ended May 18 to $1.2780 as post-election attempts to form a ruling coalition in Greece broke down.

“Having the history of an exit would make the market think it can happen again,” Greg Anderson, the North American head of Group-of-10 currency strategy at New York-based Citigroup Inc., the second-largest dealer, said in a May 14 telephone interview. “That would lead to endemic weakness.”

Merkel Resolve

Citigroup forecasts the euro will end the year at $1.25.

Over the past five years the euro has ranged from as high as $1.6038 in July 2008 to as low as $1.1877 in June 2010. Even with the recent declines, it’s above the average of about $1.21 since the start of 1999.

For much of the past five years, speculating on a weaker euro meant betting against the ability of Merkel and then-French President Nicolas Sarkozy to keep the currency union together. They said in a September statement that “it is more than ever indispensable” to “assure the stability of the euro zone.”

Sarkozy since became the first French president in 30 years to not win re-election. Merkel’s Christian Democratic Union had its worst-ever result in an election this month in Germany’s most populous state.

In Greece, post-election attempts to form a ruling coalition broke down last week, sending Greeks back to the polls next month with surveys giving the lead to an anti-bailout party that would tear up the conditions attached to 240 billion euros ($307 billion) of aid.

Referendum Request

A spokesman for Greece’s caretaker government, Dimitris Tsiodras, said Merkel suggested in a May 18 conversation with President Karolos Papoulias that the nation hold a referendum on whether it wants to remain in the euro. Merkel’s office later said reports she called for such a move were untrue.

“If Greece, and this is the will of the great majority, wants to stay in the euro, then they have to accept the conditions” of its bailout, German Finance Minister Wolfgang Schaeuble told reporters after a meeting of European Union finance ministers in Brussels May 15. “Otherwise it isn’t possible.”

A day later, the European Central Bank said it would temporarily stop lending to some Greek banks. ECB president Mario Draghi said while the bank’s “strong preference” is that Greece stays in the euro area, it wouldn’t support the nation at the expense of “the integrity of our balance sheet.”

Record Net Shorts

“It may be a bit of brinkmanship that we are seeing these kinds of comments” Ian Stannard, Morgan Stanley’s head of Europe currency strategy, said in a May 15 telephone interview. “We are still in a situation where things are going to struggle on and there’s going to be high levels of uncertainty, so that suggests the euro will remain under pressure.”

Stannard, who is based in London, sees the euro trading at $1.19 by year-end.

The difference in the number of wagers by hedge funds and other large speculators on a drop in the euro against the dollar versus those on an advance -- so-called net shorts -- rose to 173,869 contracts on May 15 from 79,480 in April and exceeding the previous high of 171,347 in January, CFTC figures show.

In addition, so-called leveraged funds have a dollar equivalent $19.5 billion net short, Citigroup’s Anderson wrote in a report after the figures were released. A leveraged fund may be a mutual fund that borrows money to increase the number of securities it can buy so it can increase its returns.

Export Boost

Premiums for three-month options granting the right to sell the euro against the dollar relative to those allowing for purchases was 3.34 percentage points at the end of last week, the most since December and up from a low this year of 1.41 percentage points on March 21.

The most probable outcome is that the euro will evolve into a smaller union centered on France, Germany, Italy and Spain, and underpinned by stronger coordination and financing, Pacific Investment Management Co. Chief Executive Officer Mohamed El- Erian wrote in a May 15 report outlining the Newport Beach, California-based company’s medium-term economic outlook.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.77 trillion as of March 31, including the $258.7 billion Total Return Fund, according to the company’s website.

‘Market has Changed’

A weaker euro could help nations in the bloc as exports would become more competitive. Spain succumbed to its second recession since 2009, first quarter data showed. Gross domestic product fell 0.3 percent from the previous quarter, when it declined by the same amount, the Madrid-based National Statistics Institute said on May 17. Exports of goods and services fell 0.9 percent in the period, the report showed.

“The market has changed its mind from the idea that if Greece leaves the euro is going to break apart, to if Greece leaves what’s left is still going to be a euro,” David Bloom, global head of currency strategy at HSBC in London, said in a May 17 interview. “You are not going to wake up the next morning and there is no euro. A lot of people were worrying about that a year ago and now they realize that’s not going to happen.”

HSBC forecasts that the euro will rise to $1.44 by year-end and $1.45 in the first quarter of 2013 as the Greek crisis moves toward a resolution and the U.S. holds presidential elections amid political disputes about its own fiscal position.

Most Bullish

The firm is the most bullish of the 10-largest currency dealing firms, and also in a survey by Bloomberg where the median of more than 50 estimates is for the euro to strengthen to $1.30 by year-end.

Greece’s central bank denied a newspaper report that the institution was planning to impose capital controls.

“The Bank of Greece categorically denies a report in a Sunday newspaper which relates to supposed plans to place a cap on withdrawals and to restrict the movement of capital abroad,” the Athens-based bank said in an e-mailed statement on May 19. It didn’t say where the report came from.

“It would be difficult for the Greeks to announce ahead of time that they are leaving on a specific date because that almost guarantees a bank run,” Shahab Jalinoos, a senior currency strategist in Stamford, Connecticut, at UBS, said in a May 15 telephone interview. “How do you know Spain or Italy or Portugal won’t panic when they see that happening?”

ECB officials decided earlier this year to deal with any Greek exit on an ad-hoc basis rather than devising a set of responses because the fallout would be unpredictable, said three euro-area central bank officials, who declined to be identified because the ECB’s deliberations on the matter are confidential.

G-8 Meeting

Merkel and new French President Francois Hollande said after their first official meeting on May 15 that they wanted Greece to stay part of the currency bloc. Leaders of the Group of Eight nations meeting at President Barack Obama’s retreat outside Washington pushed for Greece to remain and supported boosting growth.

“We agree on the importance of a strong and cohesive euro zone for global stability and recovery, and we affirm our interest in Greece remaining in the euro zone while respecting its commitments,” according to a G-8 statement on May 19.

Yields on Spain’s 10-year government bonds climbed to 6.51 percent on May 16, the highest level November, while Italy’s 10- year yields rose to a more than three-month high after Moody’s Investors Service cut the credit ratings on 26 of the nation’s banks on May 14.

“It may be that if you see Greece going out that the Germans and the ECB ring fence Spain and Italy and come up with an entire plan that brings market confidence back,” Jose Wynne, the head of North America foreign-exchange research at the investment banking unit of Barclays Plc in New York, said in a May 14 telephone interview. “But the market isn’t trading like they believe that will happen.”

Below is a list of year-end forecasts for the euro versus the U.S. dollar by the top 10 currency trading firms, according to an annual survey by Euromoney. The rankings, published on May 9, are by market share.

Deutsche Bank AG $1.30
Citigroup Inc. $1.25
Barclays Plc $1.20
UBS AG $1.15
HSBC Holdings Plc $1.44
JPMorgan Chase & Co. $1.36
Royal Bank of Scotland Group Plc $1.33
Credit Suisse Group AG $1.27
Morgan Stanley $1.19
Goldman Sachs Group Inc. $1.33

To contact the reporters on this story: Liz Capo McCormick in New York at; Lukanyo Mnyanda in Edinburgh News at

To contact the editors responsible for this story: Daniel Tilles at; Dave Liedtka at


Asia Currencies to Extend Slide on Growth, Citigroup Says

By Kyoungwha Kim and David Yong - May 21, 2012 3:09 PM GMT+0700

Asian currencies are poised to keep falling after the biggest decline in eight months as the region’s economy slumps more than investors expect, spurring more interest-rate cuts, according to Citigroup Inc.

Volatility will increase as Europe’s debt crisis hurts demand for Asian exports and prompts global money managers to favor the dollar’s safety over riskier assets, said Nadir Mahmud, the head of Asia-Pacific markets at Citigroup in Singapore, which ranked second in worldwide currency trading volume after Deutsche Bank AG in a Euromoney Institutional Investor Plc (ERM) survey. He has spent 26 years in the industry and oversees a team of more than 1,500 staff in 17 countries.

India’s rupee , the region’s worst-performing currency this month with a 3.8 percent decline, touched a record low of 54.91 per dollar on May 18. Photographer: Prashanth Vishwanathan/Bloomberg

May 21 (Bloomberg) -- Christopher Gothard, head of foreign exchange at Brown Brothers Harriman (Hong Kong) Ltd., talks about Europe's debt crisis, China's economic growth and the outlook for the global currency market. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

“The slowdown in Asia which we’ll see in the very near term will catch the markets off guard,” Mahmud said in a May 16 interview. “What you will see is an up move in the dollar and a down move in interest rates which most people are not expecting.”

The Bloomberg-JPMorgan Asia Dollar Index lost 1.8 percent so far in May and is headed for the steepest monthly drop since September. The MSCI Asia-Pacific Index of shares tumbled 10 percent, set for the worst drop since October 2008. The Dollar Index (DXY), which measures the U.S. currency against those of six major trader partners, advanced 3 percent.

India’s rupee, the region’s worst-performing currency this month with a 3.5 percent decline, touched a record low of 54.91 per dollar on May 18. South Korea’s won slid 3.3 percent. The rupee’s one-month implied volatility, a measure of exchange-rate swings used to price options, jumped 350 basis points, or 3.5 percentage points, this month to 13 percent. International investors pulled $6.2 billion from the stock markets of India, Indonesia, South Korea, Taiwan and Thailand this month, according to exchange data.

‘Some Turbulence’

“You might see some turbulence in local foreign-exchange markets, bond markets and equity markets,” Mahmud said. “In the short term, in a risk-averse environment, the dollar still looks like the king.”

Mahmud said increased volatility will help the bank achieve “double-digit” growth in Asian trading this year. Asian foreign-exchange trading at the New York-based lender, including trades on its electronic Citi FXVelocity system, grew in the past year to $4.3 trillion from $2.5 trillion, boosting its market share to 17 percent, the Euromoney survey showed. The actual volume was “significantly higher,” Mahmud said.

Citigroup’s securities and banking operations, which includes Mahmud’s division, reported a 17 percent increase in first-quarter revenue to $1.2 billion from a year earlier, boosting net income by 46 percent to $307 million.

Economic Slowdown

China’s exports, factory output and inflows of foreign direct investment fell short of economists’ estimates in April, according to government data released this month. Overseas shipments from South Korea, Malaysia and the Philippines shrank, separate reports showed. Central banks of Korea and Indonesia left interest rates unchanged in May.

Policy makers in Asia will probably shift focus to reviving growth from containing inflation, injecting funds into the region’s economies, said Mahmud.

“The policy reaction in the U.S. has been very aggressive,” he said. In Asia, “there are certain central banks that are behind the curve, but slowing economic growth may force them to react,” he said.

‘Fundamentals Positive’

Asian currencies will rebound in the longer term as current-account balances and government finances improve, Mahmud said. China had a current-account surplus of $24.7 billion in the first quarter and a similar measure in Korea climbed to a four-month high of $3 billion in March.

“The fundamentals of Asia are positive,” Mahmud said. “Most countries run current-account surpluses and they don’t have huge public debt issues like in Europe. Asia may possibly have some hiccups near term but in the long run, the outlook continues to be very positive.”

Barclays Capital also predicts Asian emerging currencies will weaken over the next month, strategists Olivier DesBarres and Nick Verdi wrote in May 17 research note. The bank cut its forecast on the rupee to 56 from 52 for one month.

“Asian currencies will be forced to weaken against a broadly stronger dollar,” said Sacha Tihanyi, a senior strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. “When Europe goes through financial strain, it bleeds into the real economy and eventually hits Asian economic growth.”

An economic recovery in China may be delayed without strong policy support, according to Mahmud. The world’s second-largest economy is forecast to expand 8.3 percent this year, the slowest pace since 2001, according to the median forecast of analysts in a Bloomberg survey.

“We haven’t seen a bottom yet” in China’s growth rate, Mahmud said. “You might see a quarter or two of even slower growth than you’ve got now.”

To contact Bloomberg News staff for this story: Kyoungwha Kim in Singapore at; David Yong in Singapore at

To contact the editor responsible for this story: Sandy Hendry at


JPMorgan Risk Overseer Said to Have Trading Losses Record

By Lisa Abramowicz - May 21, 2012 5:50 AM GMT+0700

Irvin Goldman, who oversaw risks in the JPMorgan Chase & Co. (JPM) unit that suffered more than $2 billion in trading losses, was fired by another Wall Street firm in 2007 for money-losing bets that prompted a regulatory probe, three people with direct knowledge of the matter said.

JPMorgan appointed Goldman in February this year as the top risk official in its chief investment office while the unit was managing trades that later spiraled into what Chief Executive Officer Jamie Dimon called “egregious,” self-inflicted mistakes. The bank knew when it picked Goldman that his earlier work at Cantor Fitzgerald LP led to regulatory sanctions against Cantor, according to a person briefed on the situation.

JPMorgan’s oversight of risk in its chief investment office has become a key issue as U.S. authorities examine the incident. Photographer: Peter Foley/Bloomberg

Audio Download: Richard Torrenzano Sees Fallout From JPMorgan Chase May 18

JPMorgan’s oversight of risk in its chief investment office has become a key issue as U.S. authorities examine the incident and lawmakers debate how to prevent banks from making wagers that might endanger depositors. Goldman was given the risk- oversight job after his brother-in-law, Barry Zubrow, 59, stepped down in January as JPMorgan’s top risk official, according to a person briefed on the matter. Less than a week after the loss became public, the bank stripped Goldman of those duties, appointing Chetan Bhargiri to succeed him.

The Cantor case culminated in 2010 when the enforcement arm of NYSE Arca Inc. fined Cantor $250,000 after finding it failed to supervise Goldman, 51, who was buying and selling the same stocks in personal accounts that he traded in a proprietary account at the New York-based brokerage. His stock investments, one of which plunged in December of 2006, presented a conflict of interest that could have affected his investment decisions, NYSE Arca found, according to a settlement document on its website.

No Admission

Cantor settled the case without admitting or denying wrongdoing. The NYSE document identified Goldman only by his former title as CEO of debt capital markets, and Goldman wasn’t directly accused by the watchdog of misconduct. People with knowledge of his dismissal spoke on condition of anonymity because the reasons for his departure were private.

Kristin Lemkau, a spokeswoman for JPMorgan, declined to comment on Goldman’s actions at Cantor. He didn’t immediately respond to messages seeking comment.

To contact the reporter on this story: Lisa Abramowicz in New York at

To contact the editors responsible for this story: David Scheer at; Alan Goldstein at


Schaeuble Seeks Crisis Resolution With France’s Moscovici

By Patrick Donahue - May 21, 2012 4:13 PM GMT+0700

German and French leaders meet this week to map out a revised plan for the euro as the Group of Eight exposed disagreement on a rescue strategy, Greece lurched toward a possible exit and Spain’s budget deficit widened.

German Finance Minister Wolfgang Schaeuble will for the first time discuss the 17-nation currency with his newly installed French counterpart, Pierre Moscovici, in Berlin today as European Union leaders prepare for a summit meeting in Brussels on May 23. After three shorter meetings in the last week, Chancellor Angela Merkel and French President Francois Hollande will seek to balance France’s desire to jump-start growth with Germany’s preference for spending cuts.

Wolfgang Schaeuble, Germany's finance minister, said today that the downgrade warning should spur European leaders to ratchet up efforts to resolve the region's debt crisis. Photographer: Michele Tantussi/Bloomberg

Chancellor Angela Merkel told reporters she was “very glad” that President Francois Hollande came to Berlin the day of his inauguration. Photographer: Michele Tantussi/Bloomberg

German Chancellor Angela Merkel and French President Francois Hollande. Photographer: Michele Tantussi/Bloomberg

German Finance Minister Wolfgang Schaeuble. Photographer: Jock Fistick/Bloomberg

“We’re all very pleased that France wants to offer new initiatives with its newly elected president,” Schaeuble told the Bild am Sonntag newspaper in an interview yesterday. “The German government is ready to talk about anything,” Schaeuble said, though he ruled out measures that would raise debt.

G-8 leaders on May 19 urged Greece to stay within the euro area as polls in the country showed a close race between parties supporting and opposing the EU’s bailout deal. The country is preparing for June 17 elections, following an inconclusive May 6 ballot. Spain revised its 2011 deficit upward -- even as its borrowing costs approached levels that prompted bailouts in Greece, Ireland and Portugal.

Two More Years

The euro has lost 3.5 percent against the U.S. dollar this month and almost $4 trillion has been wiped from equity markets amid concerns over Greece. Schaeuble said May 18 the turmoil could last another two years. Yields on Spanish 10-year bonds climbed to close at 6.27 percent last week. That figure slid to 6.26 percent at 10:56 a.m. Madrid time, while the euro traded down 0.01 percent to $1.2769 in Frankfurt.

President Barack Obama joined G-8 leaders including Hollande and Britain’s Prime Minister David Cameron in embracing a renewed focus on growth, underlining the isolation of Merkel, who maintained resistance to new spending. At the president’s Camp David retreat in Maryland, G-8 leaders said in their final statement that “the right measures are not the same for each of us.”

As EU leaders prepare for their informal dinner, French Prime Minister Jean-Marc Ayrault told Liberation that no potential solutions involving Greece should be rejected. Leaders shouldn’t rule out measures such as state borrowing from the European Central Bank, he said.

Greek Polls

Two weeks after elections in Greece yielded political deadlock and forced the once-taboo notion of leaving the monetary union into political discussion, euro leaders grappled with the possible fallout of such a scenario. Caretaker Prime Minister Panagiotis Pikrammenos will oversee a government that will prepare for a new election.

Opinion polls over the weekend gave a split message on the outcome, with two pointing to victory for New Democracy, which backs the international bailout program, and two favoring Syriza, which opposes it.

Syriza party leader Alexis Tsipras said yesterday in a speech in Athens that his faction’s opposition to the terms of Greece’s financial-aid program doesn’t mean the country would have to abandon the euro if the party forms a government.

Luxembourg Prime Minister Jean-Claude Juncker, who heads a group of European finance ministers, said a majority of his peers have doubts about Greece’s membership of the euro, Der Spiegel reported, without saying where it got the information.

Tsipras, who travels to Paris and Berlin beginning today, denounced such talk, saying it would involve “huge costs.”

‘Clear Message’

“We now have to send a very clear message to people in Greece,” Cameron said yesterday as he attended a NATO summit in Chicago. “You can either vote to stay in the euro, with all the commitments you’ve made, or, if you vote another way, you’re effectively voting to leave.”

European Central Bank Executive Board member Joerg Asmussen, speaking in Berlin today, said that policy makers should stick to “plan A,” keeping Greece in the euro. He said he didn’t want to speculate on a “plan B.”

“What’s the alternative? My preference is that Greece stay in the euro,” Asmussen said today.

The sensitivities surrounding an exit were illustrated May 19, when Merkel’s office dismissed a claim by the Greek government that the chancellor had called for a referendum to decide on the country’s membership in the monetary union.

Greek party leaders united in condemning any interference by the German chancellor on such an issue, with New Democracy leader Antonis Samaras, who heads the largest party, calling her reported comments “unfortunate.”

In Spain, the growth-versus-austerity debate took on a new dimension with the country’s revision of its 2011 deficit, undermining Prime Minister Mariano Rajoy’s battle to stave off a bailout and maintain access to capital markets.

‘Serious Risk’

Rajoy, who on May 16 asked for EU help to access capital markets even as he said the country faced a “serious risk” of being shut out, is struggling to convince investors he can cut the deficit during a recession while shielding public finances from banks’ real-estate losses.

The deficit amounted to 8.9 percent last year, 0.4 percentage point more than previously estimated, Spain’s Budget Ministry announced at 10 p.m. local time Friday. That’s down from 9.3 percent in 2010, following government austerity measures including cuts to public workers’ wages, a freeze on pensions and a tax increase.

Spanish Economy Minister Luis de Guindos rejected EU pressure this week to take an International Monetary Fund credit line to help shore up the nation’s lenders, the Madrid-based ABC newspaper reported. A ministry spokesman in Madrid declined to comment on the report in ABC, which cited people present at a meeting of EU finance ministers.

To contact the reporter on this story: Patrick Donahue in Berlin at

To contact the editor responsible for this story: James Hertling at


Asia Stocks Rise After China Premier Says Growth Is Focus

Asian stocks rose, with the regional index rebounding from its biggest drop in six months, after Premier Wen Jiabao said China will focus more on bolstering economic growth.

China Overseas Land & Investment Ltd., a developer controlled by the nation’s construction ministry, rose 1.8 percent in Hong Kong. BHP Billiton Ltd. (BHP) climbed 2 percent in Sydney after RBC Capital Markets said the world’s largest mining company may start a new share buyback. Nintendo Co., a manufacturer of game consoles that gets a third of its sales in Europe, fell 1.4 percent in Tokyo. OCI Co., a chemicals maker, slumped 4.4 percent in Seoul after delaying expansion plans because of Europe’s debt crisis.

May 21 (Bloomberg) -- Savanth Sebastian, an equities economist at Commonwealth Securities Ltd. in Sydney, talks about the implications of the European sovereign debt crisis for global financial markets, the U.S. economic outlook and investment strategy. Sebastian speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

May 21 (Bloomberg) -- Charles Kim, a New York-based director at Mirae Asset Securities Co., talks about the outlook for South Korean stocks, Samsung Electronics Co.'s financial performance and his investment strategy. Kim speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The MSCI Asia Pacific Index (MXAP) rose 0.2 percent to 112.81 as of 5:30 p.m. in Tokyo, with about five stocks rising for every four that declined. The gauge fell 2.5 percent on May 18, the most since Nov. 10, wiping out this year’s gains as Europe’s crisis worsened and U.S. economic data missed estimates.

Wen’s pledge on Chinese growth “will be a support for the market when we see clear signs of it,” said Shintaro Takeuchi, portfolio investment group manager at Tokio Marine & Nichido Fire Insurance Co. that manages $109 billion in assets. “Stocks are becoming cheaper and fewer people are selling them, but they’re not cheap enough to buy either.”

Gains were limited before German and French leaders meet today to discuss the euro after the Group of Eight nations exposed disagreement on a rescue strategy.

Yearly Drop

The Asian gauge dropped 1.1 percent this year through last week compared with a 3 percent gain by the Standard & Poor’s 500 Index (SPXL1) and a 2.3 percent loss by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 11.5 times estimated earnings on average, compared with 12.3 times for the S&P 500 and 10 times for the Stoxx 600.

Japan’s Nikkei 225 Stock Average climbed 0.3 percent today before the Bank of Japan begins a two-day meeting tomorrow. The broader Topix Index slid 0.1 percent after a drop last week that capped the longest streak of weekly losses since the Sept. 11 terrorist attacks in 2001.

Australia’s S&P/ASX 200 Index increased 0.7 percent, its first increase in five days, while South Korea’s Kospi Index rose 0.9 percent.

Hong Kong’s Hang Seng Index (HSI) declined 0.2 percent. The Hang Seng China Enterprises Index (HSCEI) of Hong Kong-listed Chinese companies advanced 0.1 percent, after last week falling as much as 21 percent from its high for the year on Feb. 29. China’s Shanghai Composite Index gained 0.1 percent.

Wen said China will focus more on bolstering economic growth, indicating policies may be loosened further as inflation moderates.

China Investment

“We should continue to implement a proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth,” Wen said during a tour of Wuhan, the capital of China’s Hubei province, from Friday to Sunday.

China’s foreign-exchange regulator has approved $26 billion in quotas for 138 qualified investors looking to buy into its domestic securities as of May 16, according to a statement posted on the State Administration of Foreign Exchange yesterday.

China Overseas Land rose 1.8 percent to HK$15.06 in Hong Kong. CSR Corp. (1766), a Chinese train maker, jumped 6.8 percent to HK$5.79, leading its peers higher after the 21st Century Business Herald reported the railway ministry has gotten a credit line of more than 2 trillion yuan ($316 billion), signaling transport projects may resume.

U.S. Futures Rise

Fanuc Corp. (6954), a maker of industrial robots that gets almost half its revenue from Asia outside Japan, rose 1.5 percent to 13,050 yen in Tokyo. The company will expand its production capacity for equipment to control machine tools by 30 percent, the Nikkei newspaper reported, without saying where it got the information.

Futures on the Standard & Poor’s 500 Index gained 0.9 percent today after the index slid 0.7 percent in New York on May 18.

Leaders of G-8 nations who met at Camp David over the weekend pushed for Greece to stay in the euro area and supported boosting growth, even as Germany said Europe can’t spend its way out of the debt crisis. They concurred at U.S. President Barack Obama’s retreat outside Washington “that the right measures are not the same for each of us.”

German Finance Minister Wolfgang Schaeuble will for the first time discuss the 17-nation currency at a meeting with his newly installed French counterpart, Pierre Moscovici, in Berlin today as European Union leaders prepare for a summit meeting in Brussels on May 23.

BHP Buyback

Nintendo slid 1.4 percent to 9,230 yen in Osaka, while HSBC Holdings Plc (5), Europe’s largest bank by market value, declined 1 percent to HK$63.10 in Hong Kong.

BHP rose 2 percent to A$32.10 in Sydney, the second-biggest contributor to the MSCI Asia Pacific Index’s advance. The company may start a new share buyback after last week trimming an $80 billion spending plan over five years, RBC Capital Markets said in a report dated May 18.

Regional lender Hokuhoku Financial Group Inc. (8377) jumped 6.1 percent to 122 yen in Tokyo after saying it will buy back as much as 2.15 percent of its outstanding stock.

Renesas Electronics Corp. (6723), a maker of microcontrollers used in cars, slumped 10 percent to 269 yen, its lowest close on record, after Goldman Sachs Group Inc. lowered its rating on the stock, citing a slow earnings recovery.

OCI slumped 4.4 percent to 194,000 won after the Seoul- based solar-cell company announced it is scrapping plans to build two polysilicon factories at home because Europe’s worsening fiscal crisis is affecting the volatility of the solar-power industry.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at

To contact the editor responsible for this story: Nick Gentle at


Nasdaq CEO Blames Software Design for Delayed Facebook Trading

By Nina Mehta - May 21, 2012 7:14 AM GMT+0700

Nasdaq OMX Group Inc. (NDAQ), under scrutiny after shares of Facebook Inc. were plagued by delays and mishandled orders on its first day of trading, blamed “poor design” in the software it uses for driving auctions in initial public offerings.

Computer systems used to establish the opening price were overwhelmed by order cancellations and updates during the “biggest IPO cross in the history of mankind," Nasdaq Chief Executive Officer Robert Greifeld said yesterday in a conference call with reporters. Nasdaq’s systems fell into a “loop” that prevented the second-largest U.S. stock venue operator from opening the shares on schedule following the $16 billion deal, he said.

The Facebook Inc. logo is displayed with price valuations on monitors during trading at the Nasdaq MarketSite in New York, U.S. Photographer: Scott Eells/Bloomberg

May 21 (Bloomberg) -- Jonathan Slone, chief executive officer of CLSA Asia-Pacific Markets, talks about the outlook for financial markets and the sovereign debt crisis in Greece. Slone also discusses Facebook Inc.'s initial public offering and JPMorgan Chase & Co.'s trading loss with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

May 18 (Bloomberg) -- Lise Buyer, principal at Class V Group LLC, talks about Facebook Inc.'s first day of trading and the outlook for the social-networking company. Buyer speaks with Cory Johnson on Bloomberg Television's "Facebook the Public Network." (Source: Bloomberg)

May 18 (Bloomberg) -- Mark Zuckerberg, co-founder and chief executive officer of Facebook Inc., David Kirkpatrick, author of "The Facebook Effect," and Brian Wieser, an analyst at Pivotal Research Group LLC, offer their views on Facebook's trading debut and the outlook for the social-networking site. This report also contains comments from Robert McCooey, senior vice president of new listings and capital markets at Nasdaq OMX Group Inc.; Scott Rostan, chief executive officer of Training the Street; John Chachas, managing partner at Methuselah Capital Advisors LP, and Nick Thompson, a senior editor at New Yorker magazine and a Bloomberg contributing editor. (Source: Bloomberg)

Nasdaq OMX Group Inc. Chief Executive Officer Robert Greifeld. Photographer: Scott Eells/Bloomberg

While the errors were resolved and Facebook completed its offering, the day was another setback for equity exchanges trying to erase the memory of the botched IPO in March by Bats Global Markets Inc., another bourse owner. Nasdaq’s issues contributed to disappointment among investors as Facebook (FB)’s stock closed up 0.6 percent after rising 18 percent earlier.

“It’s amazing that both Bats and Nasdaq unfortunately failed in an inglorious way,” William Karsh, the former chief operating officer at Direct Edge Holdings LLC, an exchange operator that competes with Nasdaq, said in a telephone interview yesterday. “It proves that technology isn’t infallible. There are so many moving parts that things can go wrong. That’s the lesson we learn.”

The U.S. Securities and Exchange Commission said it will review the trading. Jonathan Thaw, a spokesman for Menlo Park, California-based Facebook, declined to comment.

‘Not Our Finest’

“This was not our finest hour,” Greifeld said, one day after Nasdaq’s board convened to discuss the offering. Asked if his job is secure, he said, “I certainly hope so.”

Nasdaq will use an “accommodation pool” to pay back investors that should have received executions in the opening auction, based on the decisions of a third-party reviewer, Greifeld said. It may total $13 million, he said.

Problems surfaced on May 18 at 11:11 a.m. New York time after Morgan Stanley (MS), one of the underwriters that sold 421 million shares the night before, completed its role setting the price for the trade in Nasdaq’s opening auction, Greifeld said. Nasdaq’s software for IPOs allows investors to cancel or update details of orders until the auction runs. Trade requests received during the 5 milliseconds it took to operate the auction disturbed the process, leading to an imbalance of buys and sells and sending the program into a loop.

Manual Intervention

Nasdaq officials manually intervened to allow the auction to occur at 11:30 a.m. The IPO software “didn’t work” even after thousands of hours of testing for “a hundred scenarios” aimed at anticipating problems, Greifeld said. “We’re not happy with our performance,” he said on the call yesterday.

Volume during the auction amounted to 75.7 million shares, or almost 1 percent of trading during the entire day on all U.S. exchanges, according to data compiled by Bloomberg.

“We saw on a real-time basis, obviously with the pressure of the world upon us, that this was happening,” Greifeld said. “We then manually intercepted this cross,” he said. “That manual intervention said we had to ignore the cancels that came in between the raindrops as we were processing the trade.”

Nasdaq wound up with 5,000 shares of Facebook because of its intervention, Greifeld said. A broker was used to sell the stock that had been placed in the exchange’s so-called error account for $10 million. Greifeld said he would ask the SEC for permission to add the money to the $3 million available from the exchange, according to its rules, to repay investors that should have received trades.

Some Dispute

Orders totaling 30 million shares were submitted into the opening auction between 11:11 a.m. and 11:30 a.m., Greifeld said. About half of them may involve “some level of dispute,” he said. Greifeld said he didn’t think the delay in starting trading affected the price of Facebook shares.

Adding to the day’s confusion, Nasdaq reported an issue after trading began with confirming transactions from the opening auction with the brokerages that placed them. The exchange said in a statement posted to its website at 11:59 a.m. New York time that it was having a problem delivering the messages. An update at about 1:57 p.m. said they had been sent.

“When you have a complex market system that gets overwhelmed, it fails in bizarre ways,” James Angel, a finance professor at Georgetown University in Washington, said in a phone interview on May 18. “If you don’t know whether you got filled, you don’t know your position. If you’re buying you might buy more shares and then suddenly you’ve got twice as many shares as you wanted. It makes it hard to do your risk management and hard for brokers to know how much credit to extend to customers.”

$42 at Auction

Facebook advanced 23 cents to $38.23 after surging as high as $45. It fell as low as the IPO price of $38, which valued the company at $104.2 billion. More than 43 million shares were executed at that level, the second-most changing hands at any price except for $42, the opening auction price, data compiled by Bloomberg show.

Underwriters purchased shares to keep them from falling below $38, people with knowledge of the matter said. The bankers supported the stock amid Nasdaq’s difficulties delivering trade execution messages, said one of the people, who asked not to be identified because the transactions are private.

Facebook was originally scheduled to open at 11 a.m. At about 11:07 a.m., a Nasdaq official told market participants on a conference call that the exchange was delaying the opening. Aside from assurances that an update was coming, the phone line went silent until just before the first trade at about 11:30 a.m., according to two people who were on the call and asked not to be identified because the discussions were private.

Ignoring Requests

Buy and sell requests that should have been filled in the opening auction, based on the exchange’s rules, weren’t, while cancellations for other trade requests were ignored, they said. Their employers plan to appeal some of the results they received for orders sent to Nasdaq.

Nasdaq began experiencing problems with its bid and offer quotes after the opening auction trade. By 11:31 a.m., the exchange’s highest bid, or price at which market participants were willing to purchase shares, was $42.99, and its lowest offer to sell was $42.50, according to data compiled by Bloomberg. The quotes produced a so-called crossed market, where sellers appear to be asking less than buyers are willing to pay.

Other markets continued trading, usually with a difference of a few cents between their best bid and lowest offer. Nasdaq’s quotes were marked as manual and not electronically accessible, which allowed brokers and other exchanges to ignore the venue’s prices. Its offer price later dropped to $38.01 and remained at that level, almost $4 below the highest bid, until 1:49 p.m., according to data compiled by Bloomberg.

‘Don’t Like’

“Clearly investors would hit the ‘don’t like’ button,” Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati, said in a telephone interview.

The IPO price valued the company at 107 times trailing 12- month earnings, more than all Standard & Poor’s 500 Index stocks except Inc. and Equity Residential. The valuation also made Facebook, co-founded in 2004 by a then-teenage Mark Zuckerberg, the largest company to go public in the U.S.

Customers of London-based Fidessa Group Plc, which helps asset managers track transactions, weren’t receiving confirmation of Facebook trades, according to an e-mailed statement. Michael Cianfrocca, a spokesman for Charles Schwab Corp. in San Francisco, wrote in an e-mail: “There are currently industrywide delays in reporting trade executions. These issues do not appear to be unique to Schwab.”

TD Ameritrade

Uncertainty about whether orders received executions in the opening auction affected some clients of online broker TD Ameritrade Holding Corp., according to Steve Quirk, senior vice president of the trader group at the Omaha, Nebraska-based company. Facebook accounted for 22 percent of equities volume at the firm, he said by e-mail.

Clearing broker Pershing LLC told clients yesterday it worked through the weekend to address processing delays for purchases and sales of Facebook shares. The unit of Bank of New York Mellon Corp. expects to deliver trade information to customers’ account by around 7 a.m. on May 21, the broker said in the message.

Nasdaq shares fell 4.4 percent, the most since October, to $21.99 on May 18 following the problems with the IPO. NYSE Euronext (NYX), its larger rival, rose 0.3 percent to $24.61.

Facebook shares traded 582.5 million times on May 18, or about 6.6 percent of total volume on U.S. exchanges, according to data compiled by Bloomberg.

“I don’t think you’ll see a long-term downturn of volume on Nasdaq,” Karsh said. “Nasdaq will pick up a couple percentage points because it’s the primary listing venue for Facebook.”

To contact the reporter on this story: Nina Mehta in New York at

To contact the editor responsible for this story: Nick Baker at


Facebook’s Zuckerberg Announces Marriage, Updates Status on Page

By Andy Sharp - May 20, 2012 11:40 AM GMT+0700

Facebook Inc. (FB) Chief Executive Officer Mark Zuckerberg announced his marriage to Priscilla Chan on his Facebook page yesterday. The couple wed in a ceremony in the backyard of his home in Palo Alto, California, the Associated Press reported.

Zuckerberg, 28, wed his long-standing girlfriend Chan, 27, before fewer than 100 guests, who had arrived expecting only to celebrate Chan’s graduation from medical school, AP said.

The two updated their Facebook pages with a wedding photo, and changed their relationship statuses to “married.” The ceremony came after Facebook raised $16 billion in the largest initial public offering on record for a technology company.

Facebook shares rose 0.6 percent to $38.23 as of 4 p.m. in New York on May 18 after earlier trading at the IPO price of $38, which valued the company at $104.2 billion. Zuckerberg’s net worth rose $100 million to $19.4 billion, ranking him 26th on the Bloomberg Billionaires Index, ahead of Google Inc. (GOOG)’s Sergey Brin and Larry Page.

The Facebook photograph shows Zuckerberg in a suit rather than his trademark hoodie, and Chan in a white wedding dress. The pair met at Harvard University, where Zuckerberg founded the social-networking site in 2004, and have been together for nine years, AP reported, citing a guest authorized by the couple to speak.

Zuckerberg, who was named Time magazine’s Person of the Year in 2010, designed the ring featuring “a very simple ruby,” AP said, citing the same source.

To contact the reporter on this story: Andy Sharp in Tokyo at

To contact the editor responsible for this story: Paul Tighe at