College Football Gets Four-Team Playoff to Replace BCS System

By Erik Matuszewski - Jun 27, 2012 5:44 AM GMT+0700

College football’s top division finally has its playoff system.

A four-team, three-game playoff that incorporates the major bowls and may be worth $500 million annually in television revenue was approved today by the 12-member Bowl Championship Series president oversight committee. The proposal was put forward by the commissioners of the 11 conferences at the sport’s top level -- the Football Bowl Subdivision -- and University of Notre Dame Athletic Director Jack Swarbrick.

The playoff, which has been in demand for years by many fans, some lawmakers and even President Barack Obama, will be implemented for the 2014-15 season. College football’s national champion since 1998 has been crowned by the BCS, which uses a formula that incorporates rankings and computer polls to decide the two schools that play for the title.

“We can enhance the regular season and, at same time, provide fans with the kind of postseason that will contribute to the regular season and contribute to college football,” Southeastern Conference Commissioner Mike Slive said at a news conference after today’s meeting in Washington.

Under the playoff format, which was approved under a 12- year deal, the two national semifinal games would rotate among six major bowls, a group that probably includes the four current BCS games: the Fiesta, Orange, Rose and Sugar bowls.

The national championship game would be played approximately 10 days after the semifinals and the neutral site would be up for bid the same way the National Football League rotates its Super Bowl between bidding cities.

Selection Committee

A selection committee would be formed to determine the four participants in the playoff, with weight placed on conference championship winners and strength of schedule.

Atlantic Coast Conference Commissioner John Swofford called the new system a “milestone” for the sport.

“It gives four teams rather than two the opportunity to play for a national championship and I think it’s good for college football,” Swofford said at the news conference. “Where we arrived is a consensus built on compromise.”

The BCS system has been a source of controversy over the years, leading the format to be modified several times.

“The more we tweaked it, the less confidence we inspired,” Big Ten Conference Commissioner Jim Delaney told reporters after the four-team playoff was proposed.

Negotiations on the next BCS television contract are set to begin later this year. The current broadcast deal, under which Walt Disney Co.’s ESPN and ABC pay $155 annually for the title game and rights to the four BCS bowls, expires after the 2013-14 season.

TV Rights

The next contract may have a price tag that ranges from $400 million to $500 million annually, said Bob Boland of New York University’s Tisch School of Sports Management.

“Because we keep hearing that number repeatedly, that’s probably what’s being asked for,” Boland said in a telephone interview. “This could be exclusive television viewing.”

Last season’s BCS title game, a rematch between SEC rivals Louisiana State and the University of Alabama, drew the lowest television ratings of the BCS era. It marked the sixth straight year that a school from the SEC won the BCS championship.

Former CBS Sports President Neal Pilson said the networks have been asking for a playoff for “a long time” and expects there will be significant competition for the rights, though doubts the rights fee will reach a half-billion dollars a year.

“That seems high if it’s only three games,” said Pilson, who projects ratings for the title game may be about half that for the Super Bowl, which last year drew the biggest audience in U.S. television history. “What you have here is an important television property and sponsorships would probably drive the total values up rather than down, but if you’re talking about a rights fee of $500 million per year, I don’t think that’s the right number.”

Crowning a Champion

College football’s top level, formerly Division I-A, has been searching for a way to help crown its national champion for the past two decades. The Bowl Coalition was formed in 1992 as the SEC, Atlantic Coast Conference, Big East, Big 8, Southwest Conference and Notre Dame joined with six bowl games.

The system faced controversy as the Big Ten and Pacific 10 conferences weren’t included, both having contractual ties to the Rose Bowl. The Bowl Coalition was changed to the Bowl Alliance in 1995, when it was restructured to three games, yet the Big Ten and Pac-10 still weren’t a part of the system.

The BCS was formed in 1998 and incorporated the Rose Bowl into the rotation of games and as part of the system that matched the No. 1 and No. 2 teams in a bowl to determine the national champion. The BCS used a formula of rankings and polls for its standings to decide the two highest-ranked teams.

BCS Changes

While the Bowl Championship Series went through its own changes over the years, it still faced controversy. Voters in the Associated Press poll declined to be involved in the BCS formula in 2006, when the Harris Poll was included.

Utah Senator Orrin Hatch in 2009 asked Obama for a probe of the BCS, saying the postseason selections process violated antitrust law. Obama had said at the time he favored a playoff series, as undefeated teams such as the University of Utah, Boise State University and Texas Christian University recently weren’t able to qualify under the BCS system to play for the title.

Slive said the new system will enhance the regular season.

“It keeps the regular season as the focal point of college football whereas in basketball the focal point of the season is the postseason,” Slive said. “All we’ve done is enhance the regular season in a way that fans can enjoy and appreciate it.”

To contact the reporter on this story: Erik Matuszewski in New York at matuszewski@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net

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Murray Begins Annual Wimbledon Quest With Win Against Davydenko

By Danielle Rossingh - Jun 27, 2012 6:03 AM GMT+0700

Andy Murray headed to Wimbledon with question marks over his health and grass-court form.

Yesterday on Centre Court, the world’s fourth-ranked player from Britain allayed some of those concerns with a 6-1, 6-1, 6-4 win against Nikolay Davydenko.

“The last couple of weeks have been hard,” Murray said in a televised interview after the match, after he sliced and served his way past the Russian formerly ranked third in the world. “I was desperate to get going, because there was a lot of talk from a lot of people.”

British reporters have focused on Murray’s annual quest to end the nation’s 76-year men’s title drought in the four tennis Grand Slam events after England was knocked out of the quarterfinals of soccer’s European Championship on June 24.

Murray, who has lost in the semifinals of Wimbledon the past three years, entered the 2012 tournament as the bookmakers’ fourth favorite after he was knocked out at Queen’s as defending champion in his first match two weeks ago.

Last week, he lost twice on grass at an exhibition event, against the eighth-ranked Janko Tipsarevic and top-ranked Novak Djokovic, the 7-4 favorite to successfully defend his Wimbledon crown. That means a successful bet on the Serb would bring in $7 plus the original $4 wager.

Djokovic plays Ryan Harrison of the U.S. today in a second- round match, while six-time champion Roger Federer of Switzerland faces Italy’s Fabio Fognini. French Open women’s champion Maria Sharapova of Russia meets Tsvetana Pironkova, a former semifinalist from Bulgaria.

‘Drama Queen’

During the French Open, Murray was called a “drama queen” by Britain’s most recent Wimbledon singles champion, 1977 women’s winner Virginia Wade, after his second-round victory in Paris. He held his back and said later he’d been two points away from quitting against Finland’s Jarkko Nieminen after he had back spasms during the night.

The criticism continued after his quarterfinal defeat at Roland Garros to David Ferrer of Spain. Former world No. 2 Tommy Haas told German broadcaster Sport1 that Murray sometimes exaggerates injuries, and that “people talk about it in the locker room.”

When confronted with comments eight-time major singles champion John McEnroe made on a conference call last week that a back injury can at times be mental, Murray reacted angrily.

“I think eight pain-killing injections in your back before the French Open justifies a genuine injury,” the 25-year-old right-hander told newspapers including the Sunday Herald in Scotland three days ago. “A lot of people have suggested that it hasn’t been genuine. I’ve a genuine injury, a genuine back problem. It’s not a mental thing.”

Back Problems

Murray has refused to disclose the exact nature of his back problems, only that he’s been struggling since December.

Yesterday at Wimbledon, Murray’s spin, speed and court coverage overwhelmed Davydenko, who reached No. 3 in 2006.

Murray raced through the first two sets in 55 minutes against Davydenko as he dictated the points from the start against the 31-year-old Russian, winner of the 2009 season- ending ATP World Tour Finals.

“Once I got ahead of him, I wanted to make sure I didn’t let him back in,” Murray said in a news conference. “He’s very, very dangerous. He’s a very good returner as well. I needed to stay concentrated on my serve, and I did it well.”

Murray looked up to the sky and pointed his finger after Davydenko hit a return long on match point. He’ll play 6-foot-10 (2.08-meter) Ivo Karlovic of Croatia or 5-foot-9 Dudi Sela of Israel in the next round.

British Success

“I just wanted to go out there today, play well, keep my focus, and not worry about the other stuff that goes on off the court around this time of the year,” Murray said. “I did a good job of that. Time to let the tennis do the talking.”

Unlike last year, Murray isn’t the only man from the British Isles to make it out of the opening round -- 173rd- ranked James Ward beat Spain’s Pablo Andujar in five sets. Meanwhile, Elena Baltacha, Heather Watson and Anne Keothavong all advanced to the second round in the women’s draw.

“Any time the Brits do well in slams it’s good for British tennis,” Murray said. “It’s been a good tournament so far, and hopefully it continues.”

To contact the reporter on this story: Danielle Rossingh at Wimbledon through the London sports desk at drossingh@bloomberg.net

To contact the editor responsible for this story: Christopher Elser at celser@bloomberg.net

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Groupon China Venture to Merge With Tencent-Backed FTuan

By Mark Lee - Jun 27, 2012 12:20 AM GMT+0700

Groupon Inc. (GRPN), the biggest daily coupon website, is combining its Gaopeng online-commerce venture in China with FTuan, a company backed by local partner Tencent Holdings Ltd. (700)

Gaopeng, in which Chicago-based Groupon owns a minority stake, will continue to offer its own brand alongside FTuan after the merger, according to a statement from Groupon and Tencent yesterday. The transaction with FTuan, which provides consumers low-priced deals for dining and purchases, is part of Groupon’s strategy to “strengthen” its investment in China, Groupon said. Terms weren’t disclosed.

The deal comes more than 16 months after Groupon started Gaopeng with Tencent and Alibaba Group Holding Ltd. Chairman Jack Ma’s Yunfeng Capital, entering the world’s fastest-growing major economy to offer deals on apparel and travel packages. Tencent, China’s biggest Internet company, said last month it will invest $1 billion in its e-commerce unit.

Groupon faced setbacks in the country last year, when it fired workers for poor performance, a person with knowledge of the matter said at the time. Former and current employees of Gaopeng said the joint venture closed more than 10 offices in the country, and a lawyer representing former Gaopeng employees estimated that about 400 people were fired, according to the Wall Street Journal.

China’s online group-buying market generated estimated revenue of 4.3 billion yuan ($676 million) last year, more than doubling from 1.5 billion yuan in 2010, according to research company iResearch.

FTuan, based in Beijing, attracted about $30 million of investment from Tencent in March 2011, it said in April. A further $60 million was raised in September 2011 from several investors including Tencent, according to FTuan.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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Sony Revival Under Hirai Seen Trailing Tsuga’s Panasonic: Tech

By Mariko Yasu and Shunichi Ozasa - Jun 27, 2012 2:54 AM GMT+0700

Sony Corp. (6758)’s Chief Executive Officer Kazuo Hirai and Panasonic Corp.’s incoming President Kazuhiro Tsuga face the same challenge: reviving their companies after record losses.

The new leaders of Japan’s two largest electronics makers are both in their 50s, attended U.S. schools, and have been credited with reforming divisions of their companies. Both also face problems that won’t be easy to solve. Shares of Sony and Panasonic fell to their lowest in three decades May 12 after the companies forecast earnings that missed projections.

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Kazuo Hirai, president and chief executive officer of Sony Corp. Photographer: Tomohiro Ohsumi/Bloomberg

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Fumio Ohtsubo, incoming chairman of Panasonic Corp, left, shakes hands with Kazuhiro Tsuga, incoming president of Panasonic Corp., during a news conference in Osaka, Japan. Photographer: Tetsuya Yamada/Bloomberg

Investors and analysts rate Tsuga’s chance of success as better than Hirai’s. While Tsuga, 55, is expected to speed up a shift toward solar panels and energy-saving appliances, Hirai’s strategy is less clear, said Yuuki Sakurai, chief executive officer at Fukoku Capital Management Inc.

“I see a higher chance of revival for Panasonic (6752) than Sony,” said Sakurai, who oversees the Tokyo-based firm with $7.3 billion in assets under management. “Sony still hasn’t been able to show us the path for revival.”

By contrast, Osaka-based Panasonic, which is expanding in renewable-energy appliances after acquiring solar-panel maker Sanyo Electric Co., “may do something drastic under the new president to turn itself around,” Sakurai said.

‘Outstanding’ Reformer

As the two new leaders prepare to face shareholders at annual meetings today, Hirai, 51, has presided over a 35 percent plunge in Sony’s shares since becoming CEO on April 1. Panasonic declined 18 percent in the same period. Nine of 21 analysts surveyed by Bloomberg recommend buying Panasonic shares, while two of 20 rate Sony a buy. Nineteen analysts look at both electronics makers.

George Boyd, a spokesman for Sony, and Yuko Hosaka, a spokeswoman for Panasonic, declined to comment on analysts’ views on their stocks or their executives.

Sony predicts net income of 30 billion yen this fiscal year, compared with a record 457 billion-yen loss in the year ended March 31. Its main TV operation is projected to be unprofitable after losing about 700 billion yen over the past eight years amid falling prices, a stronger yen and competition from Samsung Electronics Co. and LG Electronics Inc. (066570)

Sony fell 2.9 percent to close at 1,102 yen in Tokyo trading yesterday, trimming its market capitalization to 1.1 trillion yen, less than a 10th of its March 2000 peak.

PlayStation Unit

Hirai, who made Sony’s PlayStation game business profitable as head of the unit, pledged in April to revive the main electronics operation by focusing on three areas: game players; digital imaging products such as Cyber-shot cameras and image sensors; and mobile devices, including tablet computers and smartphones.

Sony bought out partner Ericsson AB’s stake in their mobile-phone partnership last year.

“Now is the time for Sony to change,” Hirai said at an April 12 business policy briefing. “Everyone at Sony is coming together to make this happen, and as a result Sony will change.”

Hirai, a liberal arts major from Tokyo’s International Christian University who joined Sony’s music venture after graduating in 1984, promised to revive earnings by streamlining TV operations, selling a chemical unit and cutting 10,000 jobs.

Replacing Stringer

The executive, who spent part of his childhood in the U.S. and speaks fluent English, took over April 1 from Welsh-born Howard Stringer. Stringer is ending his operational role today and becoming chairman of Sony’s board after overseeing four straight years of losses, the company’s worst streak on record.

“I’m still skeptical,” Hideto Fujino, chief investment officer of Rheos Capital Works Inc., said of Hirai’s revival plan. “It sounds like mere slogans and lacks specifics. I need to see action.”

Panasonic’s Tsuga, who is likely to become president after winning approval at the general annual meeting in Osaka today, has an “outstanding” reputation for making reforms while running the audiovisual unit, said Masahiro Ono, a Tokyo-based analyst at Morgan Stanley MUFG Securities Co.

The company also conceded making mistakes by investing too heavily in TV panels, unlike Hirai, who hasn’t criticized Sony’s past errors.

“Hirai’s never come out and said what’s wrong at Sony,” Ono said.

Panasonic Loss

Panasonic reported a 772 billion-yen loss last fiscal year as global TV shipments fell in 2011 for the first time in six years and the yen surged to a post-World War II high against the dollar, eroding overseas earnings. The company in May forecast net income of 50 billion yen for this fiscal year.

“To turn around a super-large corporation like Panasonic, the leader must be brave enough to contradict what was done in the past,” said Yoshiharu Izumi, an analyst at JPMorgan Chase & Co. in Tokyo who rates the stock overweight, the equivalent of buy. “I think Tsuga is capable of doing that.”

Panasonic declined 1 percent to close at 626 yen yesterday and is worth 1.5 trillion yen, compared with 7 trillion yen in April 2006.

The manufacturer, the biggest employer among publicly traded companies in Japan with 330,767 employees as of March 31, eliminated 36,000 jobs last fiscal year and may further streamline operations, it said May 29.

TV Reforms

Tsuga was promoted to the top job at Panasonic after taking steps to stem losses from TVs. The executive, who spent most of his career at Panasonic’s research operations, suspended three of five TV-panel factories within a year after taking charge of the unit in April 2011.

The TV unit probably will turn profitable in the fourth quarter this fiscal year after four consecutive years of losses, the company said in May.

Tsuga, who holds a master’s degree in computer science from the University of California and a bachelor’s degree in biological engineering from Osaka University, previously worked in research for DVD products and headed the automotive systems unit, said Hosaka, the company’s spokeswoman.

He formed a task force to draw up a revival plan in April, Hosaka said.

Tsuga probably will carry out “creative destruction,” Morgan Stanley’s Ono said in a June 7 report. “We are positive on the new era” because Tsuga “has a strong executive track record, having written down facilities and cut fixed costs quickly” in his former role, Ono wrote.

Ono expects the new president to continue reforms. “He’s a man of action,” he said.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Shunichi Ozasa in Tokyo at sozasa@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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Consumer Confidence in U.S. Declines to a Five-Month Low

By Michelle Jamrisko - Jun 27, 2012 3:49 AM GMT+0700

Confidence among U.S. consumers dropped in June for a fourth consecutive month as mounting concern over jobs and incomes dimmed the outlook for spending.

The Conference Board’s sentiment index fell to 62, a five- month low, from a revised 64.4 in May, figures from the New York-based private research group showed today. Another report showed home prices were stabilizing.

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Pedestrians pass in front of a C & J Clark America Inc. store at the Third Street Promenade in Santa Monica, California. Photographer: Patrick Fallon/Bloomberg

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June 26 (Bloomberg) -- Robert Shiller, an economics professor at Yale University and co-creator of the S&P/Case-Shiller index of property values in 20 cities, talks about the U.S. housing market. The S&P/Case-Shiller index dropped 1.9 percent in April from the same month in 2011, the smallest decline since November 2010. Shiller speaks with Tom Keene and Ken Prewitt on Bloomberg Radio's "Surveillance." (Source: Bloomberg)

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June 26 (Bloomberg) -- Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, talks about U.S. consumer confidence for June and outlook for the economy. The Conference Board’s consumer confidence index dropped for a fourth straight month to 62 from a revised 64.4 in the prior month. (Source: Bloomberg)

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June 26 (Bloomberg) -- Sarah Quinlan, founder of QAM and co-chair of Trader/Portfolio Management Peer Advisory Group for 100 Women Hedge Funds, talks about the potential impact of the European debt crisis on U.S. consumers. Quinlan, speaking with Stephanie Ruhle and Erik Schatzker on Bloomberg Television's "Market Movers," also discusses oil prices and the U.S. economic outlook. (Source: Bloomberg)

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The slide in confidence raises the risk that the slowdown in hiring revealed by last month’s jobs report will cause households to retrench, restraining the spending that accounts for about 70 percent of the economy. The weak labor market is overshadowing the benefit of the lowest gasoline prices in five months, one reason why companies like Ford Motor Co. (F) are keeping an eye on attitudes.

“The employment situation continues to weigh on consumer minds,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly forecast the confidence index. “Usually consumers react to falling gasoline prices by increasing their spending, but this time around it looks like they’re a little bit cautious.”

Stocks climbed as optimism about the housing data helped overcome concern over the drop in confidence and the European debt crisis. The Standard & Poor’s 500 Index rose 0.5 percent to 1,319.99 at the 4 p.m. close in New York.

Elsewhere, Britain had a larger budget shortfall than economists forecast in May as the recession hit taxes and pushed up welfare spending.

Survey Results

The median forecast of 69 economists surveyed by Bloomberg News projected the U.S. confidence index would fall to 63. Estimates ranged from 58 to 66.8. The measure averaged 53.7 during the 18-month recession that ended in June 2009.

An improvement in residential real estate may help limit the decline in sentiment. Home prices in 20 cities fell at a slower pace in the 12 months ended in April, showing the industry that precipitated the last recession is stabilizing, other data showed. The S&P/Case-Shiller index of property values dropped 1.9 percent from a year earlier, the smallest decrease since November 2010, the group reported in New York.

Home prices adjusted for seasonal variations climbed 0.7 percent in April, matching the prior month’s gain, which was revised up from a previously reported 0.1 percent increase. It was the best back-to-back performance since mid-2009.

“Housing has picked up,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York, who correctly forecast the monthly jump in prices. “Sales have improved and the inventory of homes for sale has been falling, which has brought a bit more balance into the market and fed into a bit of stabilization.”

Expectations Dim

The Conference Board’s confidence gauge reflected growing concern about the short-term outlook. The gauge of expectations for the next six months fell to 72.3, the lowest level since November, from 77.3 a month earlier. The measure of present conditions climbed to 46.6 from 44.9 in May.

That mimics the results of the latest Bloomberg Consumer Comfort Index issued last week, which showed the fewest Americans in five months said the economy was improving in June. The Thomson Reuters/University of Michigan’s preliminary sentiment measure fell this month to the lowest level this year.

“We’ve seen consumer confidence come off its highs,” Mark Fields, president of the Americas for Ford, told reporters today in Dearborn, Michigan. “We’ll continue to monitor the marketplace and take decisive action no matter where the economy goes.” Fields said Ford is having “solid” June sales even as the economy shows mixed signals.

Falling Sales

Darden Restaurants Inc. (DRI), owner of the Red Lobster, Olive Garden and LongHorn Steakhouse restaurant chains, last week reported fourth-quarter revenue that trailed analysts’ estimates because of an unexpected drop in sales at its older establishments. The company said things took a turn for the worse last month.

“We saw the consumer get a lot more cautious in May,” Clarence Otis, chairman and chief executive officer at Darden, said on a June 22 conference call with analysts. “And that was not just at Red Lobster, but across the restaurant industry and really, as we look out at the data that we get, generally across the overall consumer environment beyond restaurants.”

The share of respondents in the Conference Board’s survey that expected more jobs to become available in the next six months declined to 14.1, the lowest this year, from 15.4 the previous month. The proportion projecting an increase in incomes dropped to 14.8 percent from 15.7 percent.

Spending Restraint

“If this trend continues, spending may be restrained in the short term,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement.

Buying plans were mixed in June, with the share of households planning to buy autos unchanged from a month earlier, while fewer Americans said they intended to purchase major appliances. More consumers indicated they planned to buy a house in the next six months as lower mortgage rates make properties more affordable.

Employment growth and wage gains have been cooling. Payrolls climbed by 69,000 in May, the smallest increase in a year, Labor Department figures showed June 1. Average hourly earnings increased 1.7 percent in the 12 months ended in May, the smallest increase since December 2010.

The jobless rate last month rose to 8.2 percent from April’s 8.1 percent. It has held above 8 percent for 40 consecutive months, the longest stretch of such elevated levels in the post-World War II era.

To help combat weaker economic growth, Federal Reserve officials last week said they’ll expand Operation Twist, a program to replace short-term bonds with longer-term debt, by $267 billion through the end of 2012.

Fed’s Outlook

Policy makers also cut their expectations for growth in 2012 to a range of 1.9 percent to 2.4 percent, down from an April prediction of 2.4 percent to 2.9 percent. The forecasts have been lowered in five of the six economic projections since January 2011, when most central bankers predicted the economy would grow 3.5 percent to 4.4 percent in 2012.

One of the bright spots for the consumer has been falling gasoline prices. The price of a gallon of gas has declined 54 cents since reaching a high of $3.94 in April, according to AAA, the nation’s biggest auto group.

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

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

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Two Dozen Arrested in Global Online Credit Card Fraud Sting

By Bob Van Voris and Patricia Hurtado - Jun 27, 2012 6:31 AM GMT+0700

Two dozen people in 13 countries, including the U.S., Bosnia and Japan, were arrested in a global undercover sting operation targeting credit-card hackers said to have affected hundreds of thousands of customers.

The investigation involved computer breaches at dozens of companies and educational institutions, U.S. Attorney Preet Bharara said in a statement. Two New York suspects caught through an undercover website set up by the Federal Bureau of Investigation were charged in Manhattan federal court today.

“The allegations unsealed today chronicle a breathtaking spectrum of cyber schemes and scams,” Bharara said. “Individuals sold credit cards by the thousands and took the private information of untold numbers of people.”

Bharara’s office said the arrests were part of the largest- ever international enforcement action targeting online trafficking in stolen cards and financial information. They are the result of a two-year undercover operation led by the FBI.

The two New York men, Joshua Hicks and Mir Islam, were presented in federal court today. Hicks, 19, who is charged with access-device fraud, was released on a $20,000 bond. Islam, 18, who is charged with access-device fraud and attempted access- device fraud, was released on a $50,000 bond.

Their lawyers declined to comment on the charges after the hearing.

‘Carder Profit’

The FBI established the website, called “Carder Profit,” in June 2010 “as an online meeting place where the FBI could locate cybercriminals, investigate and identify them and disrupt their activities,” prosecutors said in a criminal complaint unsealed today.

The undercover operation prevented potential losses of more than $205 million, according to the statement from Bharara’s office. The FBI notified credit card companies of more than 411,000 compromised credit and debit cards. The agency informed 47 businesses, government entities and schools that their computer networks had been breached, according to the statement.

Hicks, who used the online name OxideDox, passed 15 stolen credit card numbers to an undercover agent in exchange for a camera and $250, according to the complaint. Assistant U.S. Attorney Thomas Brown said in the hearing that Hicks admitted to additional computer crimes, including so-called SQL injection attacks, a technique to access customers’ financial data through a firm’s website, and infecting computers with malicious software.

Card Data

The government claims Islam, who used names including “JoshTheGod” and “Ijew,” trafficked in stolen credit card data and possessed information for more than 50,000 cards. He claimed to be a member of the hacking group UGNazi and a founder of Carders.Org, a forum for people who deal in stolen credit cards, according to the government.

In addition to Hicks and Islam, U.S. authorities arrested nine people, in California, Georgia, New Mexico, Florida, Arizona, Massachusetts and Wisconsin, Bharara’s office said in the statement. Six people were arrested in the U.K., two in Bosnia and one each in Bulgaria, Norway, Germany, Italy and Japan. Four defendants remain at large, according to prosecutors.

Authorities in the U.S. and other countries today executed more than 30 search warrants and interviewed more than 30 subjects, according to the statement.

Undercover Website

The website set up by the FBI allowed users to discuss topics relating to “carding,” or stealing credit and debit card data and other financial information to get money, services and merchandise, according to the complaint against Hicks.

The FBI monitored discussions and recorded the Internet addresses of the users’ computers, according to the complaint. The site was taken offline in May, prosecutors said in the statement.

According to the complaint, Hicks on Feb. 22 agreed to trade stolen data from the credit cards for a digital single- lens reflex camera. A FBI agent sent the money electronically to a website user who acted as an escrow agent, according to the complaint.

The FBI agent then agreed to meet OxideDox in lower Manhattan on Feb. 28 and provide the camera, according to the complaint.

Later, the agent chatted online with OxideDox, asking him if he liked the camera, according to the complaint.

“Hey, a free camera is a free camera,” OxideDox replied, according to the complaint.

The case is U.S. v. Hicks, 12-mg-1639, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net; Bob Van Voris in New York at pathurtado@bloomberg.net

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

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Bacon Self-Portrait Sells for $7 Million at Sotheby’s

By Scott Reyburn - Jun 27, 2012 6:00 AM GMT+0700

Collectors at a $108.4 million sale last night pushed a Glenn Brown painting to three times the artist’s record, while remaining choosy about secondary works by auction stars such as Gerhard Richter and Francis Bacon.

The battle for the less-well-known Brown’s picture of the end of the world came as fears about the euro and fragile economies reduced demand at Sotheby’s in London. The event started a week of auctions that test contemporary-art sales.

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"The Tragic Conversion of Salvador Dali (After John Martin)," a 1998 canvas by Glenn Brown. The painting sold in Sotheby's evening auction of contemporary artworks in London on June 26. Source: Sotheby's via Bloomberg

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"Warrior," a 1982 acrylic and oilstick-on-wood panel painting by Jean-Michel Basquiat. Sotheby's sold the piece in its June 26 auction of contemporary artworks in London. Source: Sotheby's via Bloomberg

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"Study for Self-Portrait," a 1980 painting by Francis Bacon. The work sold in a 79-lot auction of contemporary artworks at Sotheby's in London on June 26. Source: Sotheby's via Bloomberg.

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A work by Damien Hirst. The early medicine cabinet "My Way," dating from 1990-1991, failed against a low estimate of 1.2 million pounds at a sale in Sotheby's London. Source: Sotheby's via Bloomberg.

“There is fatigue, and look at the financial situation,” the Spanish-based dealer Fernando Mignoni said in an interview. “The results were OK for what they had. Tonight will be more of an indication,” Mignoni said, referring to Christie’s International’s evening sale, estimated to raise more than 100 million pounds ($156 million).

The auctions of more than 1,000 works by established and emerging artists, which also include two sales at Phillips de Pury & Co., are estimated to raise as much as 290 million pounds. They follow the Art Basel fair in Switzerland this month and Sotheby’s 41.4 million-pound auction of the Gunter Sachs collection in London on May 22-23.

“Billionaires want fabulous works by acknowledged masters,” the New York-based art adviser David Nisinson said in an interview. “Not every work is going to sell. There’s a lot on the market. People know it isn’t the last work by this artist they’re going to see.”

Basquiat’s Warrior

The top price was 5.6 million pounds for Jean-Michel Basquiat’s 1982 painting “Warrior,” showing a lone black figure brandishing a sword. One of six lots in the auction guaranteed to sell, thanks to a third-party “irrevocable bid,” the work had been acquired by its seller at Sotheby’s (BID), London, in 2007, for 2.8 million pounds.

Five years on, it was revalued at 5 million pounds to 7 million pounds. Competition was muted, the winning telephone bid, taken by Cheyenne Westphal, Sotheby’s European head of contemporary art, adding just 50,000 pounds to the pre-agreed hammer price.

Glenn Brown’s giant landscape “The Tragic Conversion of Salvador Dali (After John Martin)” fetched a record 5.2 million pounds to a telephone bid taken by Oliver Barker, Sotheby’s senior international specialist. He beat five other telephone bidders represented by Sotheby’s staff, at least two of whom regularly bid for Russian clients, dealers said.

Also guaranteed for sale, this 1998 work by the keenly- collected U.K. artist, combining science fiction elements with apocalyptic Victorian landscape, had been estimated at 2.2 million pounds to 2.8 million pounds.

Braka’s Smile

It had been included in the recent exhibition of works by the 19th-century painter John Martin at Tate Britain, which identified the owner as Ivor Braka, a London-based private dealer. Braka, who was in the room, smiled at the result.

The previous highest price for Brown was the $2.5 million paid for the 2004 panel painting “Filth” at Phillips in New York in May 2011.

Bacon’s 1980 canvas “Study for Self-Portrait” was also guaranteed and made 4.5 million pounds ($7 million) with fees, attracting just one irrevocable bid from Westphal. It had been estimated at 5 million pounds to 7 million pounds at hammer price.

The Bacon had been purchased by its seller for $1.8 million at Sotheby’s sale of the collection of Stanley J. Seeger in New York in May 2001. An earlier single-panel portrait, dating from 1969, sold for $33.1 million at Sotheby’s, New York, at the height of the last art-market boom in November 2007.

Bacon’s Head

This June sale also included a ghostly “Head” by Bacon, dating from about 1949, which sold to a single telephone bid of 993,250 pounds. The painting had been offered on consignment by the London-based dealer Dickinson for $4 million at the Pavilion of Art and Design London fair in 2010.

The recent bull run of exceptional auction prices for Richter came to an end at the sale. The 1967 photo-inspired painting “Philodendron” failed against a low estimate of 800,000 pounds; the 1995 landscape “Jerusalem,” and an untitled 1989 predominantly black-and-white abstract both sold within estimate for 4.2 million pounds and 2.8 million pounds respectively.

The current Damien Hirst retrospective at Tate Modern tempted collectors to test the market with rare early works by the artist. The medicine cabinet “My Way,” dating from 1990- 1991, failed against a low estimate of 1.2 million pounds, while the brightly colored 1992-1995 canvas “Jolly” from the “Visual Candy” series -- precursors of the ubiquitous spot paintings -- sold to an unidentified buyer in the room for 601,250 pounds, more than double the upper estimate.

The sale raised 69.3 million pounds with fees, almost 40 million pounds lower than Sotheby’s equivalent mixed-owner contemporary-art auction last year, with 13 percent of the 79 lots unsuccessful. The presale estimate was 57.5 million pounds to 82.5 million pounds based on hammer prices.

(Scott Reyburn writes about the art market for Muse, the arts and culture section of Bloomberg News. Opinions expressed are his own.)

Muse highlights include Warwick Thompson on London theater.

To contact the writer on the story: Scott Reyburn in London at sreyburn@hotmail.com.

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

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Congress Said to Consider Delaying Automatic Budget Cuts

By Roxana Tiron - Jun 27, 2012 4:47 AM GMT+0700

Adek Berry/AFP/Getty Images

U.S. Marines from 1st Battalion 7th Marines Regiment after holding a shura meeting with local residents and police at PB Fulod in Sangin on June 12, 2012.

Republican and Democratic congressional leaders are weighing whether to delay automatic federal spending cuts until March 2013, according to a House aide and industry officials who were briefed on the discussions.

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The $1.2 trillion in automatic spending cuts over a decade, half of which would affect the Defense Department, are scheduled to begin in January 2013. At the same time, lawmakers must decide what to do about income tax cuts and other tax breaks scheduled to expire at the end of the year.

Leaders in both chambers are discussing whether to propose a catch-all bill that would delay the automatic cuts, fund the government through March or later and temporarily extend the George W. Bush-era tax cuts and other tax laws, said the House aide and industry officials, who asked to speak on condition of anonymity.

“It is being seriously considered as one of the options and there is no doubt about that,” Steve Bell, the senior director of the Economic Policy Project at the Bipartisan Policy Center, said in an interview.

The measure would follow a short-term stopgap spending bill to keep the government operating after the start of the new fiscal year on Oct. 1, the people said.

Automatic Cuts

The automatic spending cuts are required by the 2011 agreement to raise the U.S. debt limit. The cuts were designed to require Congress to find other deficit-reduction proposals to replace them. Lawmakers so far haven’t agreed on such a plan.

The second measure funding the government until March or later would include the delay of the automatic spending cuts, according to the congressional aide and industry officials, who said they weren’t authorized to describe the option publicly.

Senator John Cornyn, the Texas Republican who leads the National Republican Senatorial Committee, said today he’s aware of discussions to put off so-called fiscal-cliff issues until March.

“It’s a matter of triage right now, trying to keep the patient alive,” Cornyn said when asked whether he sees Congress passing stopgap measures. He said while he favors extending tax cuts until March, he would prefer addressing the automatic spending cuts this year.

“Sometimes Congress acts when there are no alternatives,” Cornyn said of the automatic cuts. “I would be reluctant to leave aside all the incentives to reach decisions sooner rather than later.”

The Republican-led House passed a bill in May to avert defense spending cuts and plans to vote in July on a measure to extend the expiring tax cuts. Neither measure will advance in the Democratic-controlled Senate. President Barack Obama opposes both proposals.

‘Fiscal Cliff’

“The House has acted to replace the defense sequester, which President Obama’s own administration says would be a disaster for our national security, with sensible spending cuts,” Michael Steel, a spokesman for House Speaker John Boehner, said in an e-mailed statement. “Next month, we will vote to stop the largest tax hike in history. The bottom line: We’re leading on the big issues that make up the fiscal cliff -- and the Democrats who run Washington are hiding.”

A short-term extension of expiring tax rates would add complications for an already strained Internal Revenue Service, said Mary Burke Baker, a government affairs adviser at K&L Gates LLP in Washington.

“It complicates the programming IRS has to do,” said Baker, a former IRS employee and congressional aide. “It’s increased cost, both for the IRS and for taxpayers.”

Short-term Action

Any short-term action would be more of a problem if it also occurs late in the year. In 2010, when Congress didn’t enact tax-cut extensions until mid-December, the IRS delayed for several weeks the start of the filing season for taxpayers claiming itemized deductions.

The outcome of the November election will help determine what action Congress may take to avert the automatic budget and tax changes. The stack of tax-and-spending issues creates the potential for a deal on fiscal policy, a partisan standoff or a congressional deal that staves off an immediate crisis by setting up another one in the future.

To contact the reporter on this story: Roxana Tiron in Washington at rtiron@bloomberg.net

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

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Asia Stocks Fluctuate as Europe Concern Offsets U.S. Data

By Adam Haigh - Jun 27, 2012 8:35 AM GMT+0700

Asian stocks swung between gains and losses after falling for four days ahead of the 19th summit on Europe’s debt crisis in three years. Declines were tempered by speculation the U.S. housing market is bottoming and that China may step up efforts to support its economy.

Boral Ltd. (BLD), the Australian seller of building materials, slumped 4.2 percent after cutting its profit forecast. Japan Tobacco Inc. (2914), Asia’s largest cigarette maker by market value, climbed 3 percent as investors sought shares of companies with earnings less tied to economic growth. Oracle Corp. Japan advanced 2.1 percent, a 14th day of advance in 15 days, as its profit forecast topped estimates.

The MSCI Asia Pacific Index (MXAP) was little changed at 113.3 at 10:32 a.m. in Tokyo, before markets in China and Hong Kong opened. The gauge fell 0.5 percent this year through yesterday amid concern that growth in the U.S. and China is slowing as Europe’s debt crisis spreads from the periphery to core countries like Spain and Italy.

“Markets have already priced in a lot of the bad news,” said Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages almost $100 billion. “All you need for a rally in equities is for the backdrop to become less bad. When the housing sector improves it has a strong trickle-down effect to the wider U.S. economy. But there’s still a struggle with what’s going on in Europe.”

The fall in the Asian benchmark this year compares with a gain of 5 percent by the Standard & Poor’s 500 Index and the Stoxx Europe 600 Index’s drop of 0.8 percent. Shares in the MSCI Asia Pacific trade at 11.5 times estimated earnings versus 12.7 times for the S&P 500 and 10.2 times projected net income for companies in the Stoxx 600.

Regional Indexes

Futures on the Standard & Poor’s 500 Index slid 0.2 percent today. Homebuilder shares helped lead the gauge 0.5 percent higher yesterday after a report showed house prices decreased at the slowest pace since 2010, tempering concern about a drop in the Conference Board’s consumer confidence index to a five-month low.

Hong Kong’s Hang Seng Index (HSI) swung between gains and losses. Japan’s Nikkei 225 declined 0.1 percent and South Korea’s Kospi Index slid 1.1 percent. Australia’s S&P/ASX 200 Index gained 0.3 percent.

The MSCI Asia Pacific has retreated 12 percent from this year’s highest level in February and has fallen 11 percent this quarter, heading for its first quarterly drop since September.

Spanish and Italian bond yields jumped yesterday as German Chancellor Angela Merkel repeated her opposition to a shared debt burden in Europe before a summit of the region’s leaders starting tomorrow.

China may introduce “more proactive” policies to ensure stable growth, according to a commentary in the China Securities Journal by reporter Zhang Zhaohui. Policies to expand infrastructure investment, fine-tune monetary policies and structurally reduce taxes may be introduced, according to the commentary, which was published on the front page of the newspaper.

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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SEC Said to Authorize Lawsuit Against Philip Falcone

By Joshua Gallu and Katherine Burton - Jun 27, 2012 7:25 AM GMT+0700

Philip Falcone, the billionaire founder of Harbinger Capital Partners LLC, faces a lawsuit from U.S. regulators as soon as this week over claims he improperly borrowed client money from his hedge fund to pay his taxes, according to two people familiar with the matter.

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Philip Falcone, chairman and chief executive officer of Harbinger Group Inc. in Las Vegas. Photographer: Jacob Kepler/Bloomberg

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Philip Falcone, chairman and chief executive officer of Harbinger Group Inc. Photographer: Jacob Kepler/Bloomberg

Falcone, 49, may also face claims that he gave preferential treatment to Goldman Sachs Group Inc. (GS), an investor in his fund, and manipulated markets when trading bonds of MAAX Holdings Inc., said the people, who asked not to be identified because the matter isn’t public. The Securities and Exchange Commission voted to authorize enforcement staff to file the case, the people said. Florence Harmon, a spokeswoman for the SEC, declined to comment.

“Any allegations by the SEC of improprieties by Mr. Falcone or Harbinger are neither supported by the facts or the law,” said Matthew Dontzin, an attorney for Falcone. “Should a lawsuit be brought, it will be contested vigorously.”

The SEC action is the second blow in less than two months for Falcone, a former Harvard hockey center who built a $26 billion hedge fund by 2008 with a successful bet against subprime mortgages. Having suffered $23 billion in losses and withdrawals from the peak, Falcone is now fighting to keep control of his empire. LightSquared Inc., Harbinger Capital’s biggest investment, filed for bankruptcy in May.

Goldman Treatment

The SEC is set to sue after Falcone in 2009 took out a $113 million loan from his Special Situations fund to pay personal taxes. The loan was disclosed in the fund’s annual financial statement the following March. At the time he borrowed the money, clients were barred from pulling money from the fund. Falcone subsequently repaid the loan with interest.

That same year, with client capital locked up, Harbinger allowed Goldman Sachs, which at the end of 2008 had $1 billion invested in two Harbinger funds, to redeem some money from the firm, said one of the people with knowledge of the SEC’s plan.

In April 2011, Harbinger told clients that the government was looking into whether it had engaged in market manipulation in its trading of the debt securities of an undisclosed company from 2006 to 2008. The company whose debt Harbinger traded was MAAX Holdings, a Canadian maker of bathroom fixtures, said the person.

Tough Spot

“He’s in a very tough spot,” said Ronen Schwartzman, founder of Ten Capital Advisors LLC, a New York-based firm that advises clients on investing in hedge funds. “Its going to be difficult for him to raise money from investors ever again.”

Falcone grew up in Chisholm, Minnesota, the youngest of nine children. His mother worked in a shirt factory, and his father never made more than $14,000 a year as a superintendent at a local utility. He headed east to Harvard University in 1980, and after graduation joined a professional hockey team in Malmo, Sweden, where he played until he was sidelined by a leg injury. He ended up on Wall Street in the mid 1980s, trading high-yield debt at Kidder, Peabody & Co. in New York.

In 2001, Harbert Management Corp., a Birmingham, Alabama- based money management company, was looking for someone to start a fund to trade distressed debt and came across a PowerPoint presentation from Falcone. Harbert hired him to start what became Harbinger, giving him $25 million to get the fund going.

27-Room Mansion

In 2006, he put on the trade that would make his name. Falcone bought credit-default swaps, contracts that rose in value as the price of interest-paying securities constructed from individual home mortgages lost value. When the housing market collapsed in 2007 and defaults soared, Falcone got rich.

With the proceeds of that wager he spent $49 million on a 27-room mansion near Central Park once owned by Penthouse publisher Bob Guccione. He and his wife Lisa became benefactors of New York’s High Line elevated park and the New York City Ballet. Lisa, who was raised in Spanish Harlem by a single mother on welfare, became a film producer and was often photographed in society pages in designer outfits.

After the successful housing wager, Falcone tied his fortune as hedge fund manager, and about $3 billion of investor assets, to LightSquared, which accounted for about 40 percent of the firm’s main fund as of April. Most hedge fund managers have shunned illiquid holdings since the 2008 financial crisis, when they were forced to block client redemptions to avoid a fire sale, and investors have complained about the level of concentration in Falcone’s funds.

Buffett’s Example

LightSquared filed for bankruptcy after the Federal Communications Commission said it would withdraw preliminary approval to build out a nationwide high-speed wireless network because it interfered with GPS devices. Last week, an affiliate of the company filed court papers seeking to borrow as much as $30 million to keep operating while under court protection from bankruptcy.

In an interview in April, Falcone made it clear he wasn’t giving up. He said he was considering a legal fight against the government, which had previously granted him permission to start building out the network.

He also said he was seeking to move away from hedge funds and building a public holding company, much like Warren Buffett’s Berkshire Hathaway, that would be better suited for long-term investments.

To help secure more permanent capital for investments, Falcone’s funds in 2009 bought Zapata Corp., a onetime oil driller, and turned it into Harbinger Group, a holding company that can raise capital for long-term investments. Falcone plans to use Harbinger Group to finance investments in six industries, including consumer products, financial products and natural resources, according to a 2010 regulatory filing.

‘Highly Uncommon’

Harbinger Group last year agreed to buy Old Mutual U.S. Life Holdings Inc., a provider of fixed-annuity and life insurance, for $350 million. Harbinger Group also owns a majority stake in Spectrum Brands Holdings Inc. (SPB), a Madison, Wisconsin-based maker of pet food and batteries.

The company said in May 2011 that it was raising $280 million from a group led by Fortress Investment Group LLC. (FIG) Harbinger Group has a market capitalization of $971 million.

Falcone stopped investor withdrawals from his hedge fund for a second time in December, after the fund told investors it had received a Wells Notice from the SEC, an indication that the regulator was contemplating a lawsuit.

Falcone previously said he received an opinion letter from outside counsel over the $113 million loan.

“It’s highly uncommon for a manager or sponsor of the fund to borrow money from the fund,” said Ron Geffner, a partner at Sadis & Goldberg LLP in New York that represents hedge funds. It “is wrought with conflicts of interest.”

Falcone has said in the past that allegations of preferential treatment of some clients were “completely and utterly untrue.” Harbinger’s offering documents allow it to give certain investors different terms than other clients, according to a person who has seen the documents.

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; Joshua Gallu in Washington at jgallu@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net; Maura Reynolds at mreynolds34@bloomberg.net

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Google Said to Unveil Tablet at I/O, Taking Aim at IPad

By Brian Womack, Tim Culpan and Ian King - Jun 27, 2012 7:33 AM GMT+0700

Adrianna Williams/Corbis

Google, along with other companies, are looking to compete with Apple's iPad for share of the tablet market.

Google Inc. (GOOG) plans to unveil a $199 tablet co-branded with Taiwan’s Asustek Computer Inc. at its developers conference this week, taking direct aim at Apple Inc. (AAPL)’s iPad, according to two people familiar with the matter.

The 7-inch tablet running Android mobile software will be shown at the Google I/O conference, starting today in San Francisco, said the people, who asked not to be identified because the plans are private. The device will also showcase new features of Android, according to one person, who said the latest version of the software is named Jellybean.

Google is scouting out new ways to fuel sales of tablets, a market that may almost double this year to 118.9 million units, according to Gartner Inc. Though Android has grabbed more than half of the smartphone market, tablets with the software have won less than half the iPad’s share, and will face new pressure from Microsoft Corp. (MSFT), which unveiled its own tablet last week.

“The tablet market is a major challenge for Google at this point,” said Clayton Moran, a Delray Beach, Florida-based analyst at Benchmark Co. “They need to have a competitive product with the iPad.”

David Chang, chief financial officer of Taipei-based Asustek, declined to comment, as did Shari Yoder Doherty, a spokeswoman for Google.

Google shares gained less than 1 percent to $564.68 at yesterday’s close in New York. The stock has fallen 13 percent this year.

Google Brand

Android tablets are already available from companies such as Samsung Electronics Co., HTC Corp. and Motorola Mobility Holdings Inc., which Google acquired last month for $12.5 billion. Still, Google is aiming to capitalize on its own brand name. It also seeks to woo consumers with a slimmer device that features the latest software yet carries a lower price than the larger iPad. The newest versions of Apple’s tablet start at $499.

“When you look at the tablet market, you have iPad -- and others,” said Rhoda Alexander, an analyst at industry researcher IHS iSuppli. “Everybody is trying to figure out how to compete against the iPad. And I just see it as just one more experiment going down that road.”

This would also be the first tablet to get Google’s Nexus designation. Google has worked with manufacturers such as Samsung in the past for Nexus smartphones to highlight the best features of Android software. The processor in the new tablet will be provided by Nvidia Corp. (NVDA), one of the people familiar with the matter said.

Gartner expects the iPad to remain the global tablet leader through at least 2016, even as it loses some market share. The iPad will account for an estimated 46 percent of shipments in 2016, down from a projected 61 percent this year. Android may have 37 percent by 2016, a gain from 32 percent.

Microsoft’s Surface

Microsoft, which had zero percent of the tablet market last year, is expected to nab 12 percent by 2016. That number may increase, because the Gartner report was issued before Microsoft unveiled its Windows-based Surface tablet, which is likely to be released by the end of the year.

Sales of Android-based tablets have been held back by a lack of developers for the platform. Apple’s App Store has more than 650,000 downloadable applications that include games, news and travel tools for the iPhone and iPad. Though Google Play has more than 500,000 for Android devices, Apple’s success with the iPad has given it a greater lead in apps designed specifically for tablets, said Carolina Milanesi, an analyst at Gartner.

“At the moment, we don’t see the ecosystem being strong enough to compete,” Milanesi said. “There’s just not enough apps that give you a rich experience on the tablet as you have at the moment with Apple.”

‘Development Priorities’

HootSuite Media Inc., whose programs help users manage activity on Facebook Inc. and Twitter Inc. social networks, has had an application on the iPad since 2010, the year it debuted, said Chief Executive Officer Ryan Holmes. HootSuite plans to release an application for Android tablets, he said.

“We haven’t had strong enough demand yet to prioritize on development of that,” he said. “For our development priorities, it’s all demand-based.”

Creating applications for Android can take more time because the software runs on many different devices, unlike Apple’s platform, which works only on its own phones and tablets, Holmes said.

Indeed, just three of the 20 most popular Android devices held individual market share of greater than 6 percent last month, according to research from Flurry, a provider of app- analytics software that tracks use of more than 100 million devices globally. Only one phone, the Samsung Galaxy S II, commands a double-digit market share among Android products.

Motorola Questions

While the co-branded Asus (2357) tablet could help Google with developers, there’s still the question of what the company will do with Motorola Mobility. Though Google has insisted that it will continue to treat all partners fairly, the company can now use the device maker to experiment and test what a tablet could do with Android, Benchmark’s Moran said.

“The stock market investors have realized that Motorola is a key part of their mobile strategy,” he said.

Google’s collaboration with Asus on the tablet was reported earlier by DigiTimes and by the Android and Me blog.

In addition to touting Android at the I/O event this week, Google will use the conference to show off other products and services. They include its social network, Google+, which was rolled out last year, along with the Chrome Web browser. The event, running at Moscone Center through June 29, is expected to draw thousands of developers.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net

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

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U.S. Stocks Advance as Home Data Tempers Economic Concern

By Rita Nazareth - Jun 27, 2012 3:54 AM GMT+0700

U.S. stocks advanced, rebounding from yesterday’s selloff, as optimism about the housing market tempered concern about a worsening of Europe’s debt crisis.

News Corp. rose 8.3 percent as Rupert Murdoch’s company said it’s considering splitting into two publicly held corporations. Apollo Group Inc. (APOL), the largest U.S. for-profit college chain, surged 10 percent after beating earnings and revenue estimates and raising its forecast. A measure of homebuilders in Standard & Poor’s indexes jumped 3.8 percent as housing prices dropped at the slowest pace in more than a year.

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Traders work on the floor of the New York Stock Exchange in New York. Photographer: Scott Eells/Bloomberg

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June 26 (Bloomberg) -- Geoffrey Johnson, executive vice president and global equity portfolio manager at Pacific Investment Management Co., talks about investing in Spirit Airlines Inc. and Apple Inc., and the outlook for the U.S. economy. He speaks from Newport Beach, California, with Manus Cranny on Bloomberg Television's "Last Word." (Source: Bloomberg)

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June 26 (Bloomberg) -- Eric Thorne of Bryn Mawr Trust Co., talks about the outlook for markets and investment strategy. Thorne speaks with Deirdre Bolton, Dominic Chu and Josh Lipton on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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June 26 (Bloomberg) -- Barry Ritholtz, chief executive officer of FusionIQ, and David Rosenberg, chief economist and and strategist at Gluskin Sheff & Associates Inc., talk about the outlook for markets, investment strategy and the European debt crisis. They speak with Tom Keene, Ken Prewitt and Sara Eisen on Bloomberg Television's "Surveillance." (Source: Bloomberg)

The S&P 500 (SPX) rose 0.5 percent to 1,319.99 at 4 p.m. New York time. It tumbled 1.6 percent yesterday. The Dow Jones Industrial Average increased 32.01 points, or 0.3 percent, to 12,534.67. Volume for exchange-listed stocks in the U.S. was about 6 billion shares, or 12 percent below the three-month average.

“There are lots of variables at play,” said Keith Wirtz, who oversees $15 billion as chief investment officer for Fifth Third Asset Management in Cincinnati. He spoke in a phone interview. “People are looking at signs of stabilization in the housing market, there’s the European summit this week, it’s almost quarter end. It’s going to be a volatile week.”

Today’s rally trimmed this quarter’s decline in the S&P 500 to 6.3 percent. The benchmark measure is on pace for the first quarterly slump since September amid concern about a global economic slowdown. Energy, financial and technology shares have had the biggest losses so far in the second quarter, tumbling at least 9.5 percent.

Yields Surge

Equities rose today as the S&P/Case-Shiller index of property values in 20 cities dropped 1.9 percent in April from the same month in 2011, the smallest decline since November 2010, after decreasing 2.6 percent in the year ended March. The data overshadowed a surge in yields at auctions in Italy and Spain ahead of a European Union summit on June 28.

“We’re caught in this limbo,” said Brian Jacobsen, who helps oversee $204 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. “People are waiting to see what comes out of the European Union summit this week.”

Consumer discretionary, energy and financial shares had the biggest gains among the 10 main S&P 500 industries. Homebuilders in S&P indexes advanced with PulteGroup Inc. (PHM) and Lennar Corp. (LEN) adding more than 3 percent.

News Corp. (NWSA) rallied 8.3 percent to $21.76, the highest level since 2007. Murdoch, the chairman and CEO, is overseeing internal discussions on whether to separate the company’s publishing business from its entertainment holdings, said two people with knowledge of the matter. In a statement today, News Corp. didn’t say how the company would be divided.

Apollo Gains

Apollo advanced 10 percent to $35.81 for the largest gain in the Bloomberg U.S. For-Profit Education Index. The company, confronting student reluctance to take on debt amid high unemployment and government investigations of for-profit colleges’ marketing practices, reined in costs during the quarter, said Peter Appert, an analyst at Piper Jaffray & Co.

JPMorgan Chase & Co. (JPM) had its recommendation raised and Morgan Stanley (MS) was lowered by analysts at Goldman Sachs Group Inc., who said they have a better view of the near-term earnings outlook for JPMorgan. Shares of JPMorgan increased 1.1 percent to $35.71, while Morgan Stanley added 0.2 percent to $13.51.

Goldman Sachs upgraded JPMorgan to a buy on its “Americas conviction list” of highly recommended stocks, while Morgan Stanley was removed from that list and lowered to neutral, the analysts wrote in a research note today.

Return Visibility

“Both JPM and MS shares have underperformed the broader banking group this year, driven by real but different idiosyncratic concerns,” Goldman Sachs analysts led by Richard Ramsden wrote, referring to the two company’s stock symbols. The balance of risk and potential return is better for JPMorgan shareholders, according to the note, because of “more near-term earnings and return visibility for JPM.”

Facebook Inc. (FB), facing criticism for a lack of diversity on its board, appointed Chief Operating Officer Sheryl Sandberg as its first female director. The world’s largest social-networking service, a majority of whose users are women, will benefit from the addition of a female voice to its board, said Laura Martin, an analyst at Needham & Co.

“This is a great move,” said Martin, who doesn’t own shares and rates the stock a buy. “Academic research shows that the greater the diversity on a board, the higher the returns to shareholders are.”

The shares rose 3.2 percent to $33.10.

Dow Chemical

Dow Chemical Co. (DOW) slid 2.9 percent to $31.32. The largest U.S. chemical company by revenue was downgraded to neutral from overweight at JPMorgan by equity analyst Jeffrey Zekauskas. The 18-month share-price estimate is $36.

The S&P 500, down 7.4 percent through yesterday since reaching a four-year high in April on weakening economic data, is about to lose another pillar of support: the election year calendar.

The gauge has climbed an average of 0.1 percent in third quarters before a presidential vote in election cycles since 1945, the worst return of the year and down from an average increase of 2.2 percent between April and June, according to S&P. U.S. shares have returned 5.7 percent in election years since World War II, the second-worst performance during four- year executive branch terms.

Stocks have retreated following a rally in the first quarter, dragged down after reports on U.S. manufacturing and employment trailed economist forecasts and concern grew that Europe’s debt crisis will spur a global recession.

Financial Crisis

The S&P 500 dropped 8.9 percent in the July-September quarter of 2008 as the financial crisis intensified. It has rebounded 1.9 percent on average in quarters after elections, S&P’s data show.

“This lack of direction is understandable, in our opinion, as investors are bombarded by the hype from the conventions, speeches and political advertisements, as they await the outcome of the upcoming election,” Sam Stovall, S&P’s chief equity strategist, wrote in a note yesterday.

While the index posts an average gain during the third quarter of election years, it’s just as likely to rise as fall, according to S&P. Its lowest point during years of presidential votes have come in the first half 71 percent of the time, the data shows. The most consistent gains come in the final quarter, when the gauge has climbed 81 percent of the time.

Only twice out of the 17 election years since 1944 did the index bottom in the fourth quarter, in 2000 and 2008, when the market suffered the bursting of Internet and housing bubbles, respectively. President Barack Obama, a Democrat, is seeking a second term against Republican candidate Mitt Romney on Nov. 6.

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

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

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