Economic Calendar

Wednesday, July 4, 2012

Manchester United Files for U.S. Public Offering of Soccer Club

By Lee Spears - Jul 4, 2012 5:26 AM GMT+0700
Andrew Yates/AFP/Getty Images
Manchester United supporters before an English Premier League football match in England.

Manchester United Ltd., the English soccer team with a record 19 national championships, filed to raise $100 million in a U.S. initial public offering.

The club didn’t say how many shares it will offer or at what price in a filing yesterday with the U.S. Securities and Exchange Commission. The offering amount is a placeholder used to calculate registration fees and may change.

United announced its plans for the sale a week after the end of a monthlong drought in U.S. IPOs. The club, owned by the Glazer family, scrapped plans for a Singapore offering as volatile stock markets roiled equity sales, people familiar said at the time. Proceeds from the sale will be used to repay debt, the filing shows.

“The U.S. market has an ability to provide cash,” said Michael Cuggino, who manages about $17 billion at San Francisco- based Pacific Heights Asset Management. “They’re Premier League soccer, so there’s an enterprise value there.”

United, which previously planned to raise as much as $1 billion in Singapore, may hold the U.S. offering this summer, people with knowledge of the plans said last month. Singapore’s benchmark stock index, the Straits Times Index, has fallen about 8 percent since Aug. 1, when United was contemplating an IPO in the city state.

Jefferies Group Inc., Credit Suisse Group AG and JPMorgan Chase & Co. will lead the offering, United’s filing shows. Morgan Stanley, which had been hired to lead the sale in Singapore, isn’t listed as an underwriter in the filing for the U.S. offering.

U.S. Pitch

Banks pitched the idea of a U.S. sale to the Glazer family, the club’s U.S. owners, one person said, who bought United in 2005 for 790 million pounds ($1.24 billion) and also own the National Football League’s Tampa Bay Buccaneers.

United, whose players include England’s striker Wayne Rooney and Welshman Ryan Giggs, has 659 million followers, making it the world’s most popular club, United said in May, citing a study by market research company Kantar. Its supporters have doubled in five years, helped by 108 million fans in China, where the team plans to play two exhibition matches this summer.

The dry spell in U.S. IPOs ended last week with initial offerings by companies including ServiceNow Inc. (NOW) and EQT Midstream Partners LP, both of which have gained value in public trading.

Kayak Software Corp. and Palo Alto Networks Inc. plan to begin marketing IPOs to investors next week and complete the sales by the end of this month, people with knowledge of the companies’ plans said yesterday.

To contact the reporter on this story: Lee Spears in New York at

To contact the editor responsible for this story: Jeffrey McCracken at


Oil Rises on Stimulus Speculation, Iranian Supply

By Moming Zhou - Jul 4, 2012 3:45 AM GMT+0700

Oil surged to a one-month high on speculation that central banks from Europe to China will ease monetary policy to spur growth while sanctions against Iran may curb supply.

Prices gained 4.7 percent as the European Central Bank is forecast to cut interest rates this week. A state-owned newspaper in China said the time is right to increase liquidity in the banking sector. Iran fired several missiles during a three-day military exercise as the country threatened to block tanker traffic in the Strait of Hormuz.

“What you are seeing in the market right now is greater risk appetite as anticipations of further monetary easing grow,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “The market’s focus is returning back to Iran and the implications of the Iranian embargo in terms of the volume of oil that needs to be replaced.”

Oil for August delivery climbed $3.91 to settle at $87.66 a barrel on the New York Mercantile Exchange, the highest level since May 30. Futures have increased 13 percent since closing at an eight-month low of $77.69 a barrel on June 28. They are 11 percent lower this year.

Prices were little changed after the American Petroleum Institute reported oil inventories fell 3.03 million barrels last week to 382.6 million. The August contract gained 4.6 percent to $87.63 a barrel at 4:45 p.m. in electronic trading on the Nymex. Futures were at $87.57 before the report was released at 4:30 p.m. in Washington.

Closed Tomorrow

The Nymex trading floor will be closed tomorrow for the U.S. Independence Day holiday.

Brent for August settlement gained $3.34, or 3.4 percent, to $100.68 on the London-based ICE Futures Europe exchange, settling above $100 for the first time since June 6.

The European Central Bank and the Bank of England will announce interest-rate decisions on July 5. ECB officials will lower their benchmark rate by 25 basis points to a record low 0.75 percent, according economists surveyed by Bloomberg.

The People’s Bank of China may cut lenders’ reserve requirements to increase liquidity in the banking system, according to a commentary on the front page of today’s China Securities Journal, which is published by the official Xinhua News Agency. The central bank announced a cut to interest rates on June 7, a day after the newspaper published a commentary urging the move.

Chinese Stimulus

“There is a better chance that Europe and China are going to have some monetary stimulus plans and that’s helping oil,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “If Iran does cut tanker traffic, oil prices will have a big advance. You are seeing some risk-on sentiment.”

A European Union embargo on Iranian oil took full effect on July 1 after exemptions on some contracts and insurance ended. Iran’s crude exports may drop to about 1 million barrels a day, Goldman Sachs said in a report yesterday. The country pumped 3.16 million barrels a day in June, the second biggest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, according to Bloomberg estimates.

“You’ve got saber-rattling by Iran that’s fueling the oil market,” said Rich Ilczyszyn, chief market strategist and founder of in Chicago. “Did we really think that Iran would go away quietly?”

Iran Sanctions

Iran’s parliament is working on a bill to close the Strait of Hormuz to oil tankers linked to countries applying new EU sanctions, a lawmaker from the national security committee told Jam-e-Jam newspaper yesterday. The waterway is a transit route for a fifth of the world’s crude.

Iran’s Revolutionary Guard Corps “successfully” fired several missiles, including long-range ones, in a military exercise that began yesterday, the official Islamic Republic News Agency said in a report published today.

Oil also increased on expectations that stockpiles decreased last week. Inventories probably dropped 2.3 million barrels last week, according to the median of nine analyst estimates in a Bloomberg survey before a July 5 Energy Department report.

Gasoline supplies increased 1 million barrels last week, according to the survey. Refineries traditionally step up operations with the start of the so-called summer driving season, which runs from Memorial Day at the end of May to Labor Day in early September.

Factory Orders

Prices followed gains in stocks after the Commerce Department reported orders placed with U.S. factories rose in May for the first time in three months, easing concern that manufacturing is faltering.

The 0.7 percent increase in bookings followed a revised 0.7 percent drop in the prior month. The median forecast of economists in a Bloomberg survey called for a rise of 0.1 percent.

Electronic trading volume on the Nymex was 602,651 contracts as of 4:45 p.m. in New York. Volume totaled 542,783 contracts yesterday, 3.9 percent below the three-month average. Open interest was 1.42 million.

To contact the reporter on this story: Moming Zhou in New York at

To contact the editor responsible for this story: Dan Stets at


Here Comes Nexus 7 Nightmare: The iPad mini

By Peter Burrows and Adam Satariano - Jul 4, 2012 4:46 AM GMT+0700

Apple Inc. (AAPL) plans to debut a smaller, cheaper iPad by year-end, two people with knowledge of the plans said, to help maintain dominance of the tablet market as Google Inc. (GOOG) and Microsoft Corp. (MSFT) prepare competing handheld devices.

The new model will have a screen that’s 7 inches to 8 inches diagonally, less than the current 9.7-inch version, said the people, who asked not to be identified because Apple hasn’t made its plans public. The product, which Apple may announce by October, won’t have the high-definition screen featured on the iPad that was released in March, one of the people said.

Google, along with other companies, are looking to compete with Apple's iPad for share of the tablet market. Photographer: Adrianna Williams/Corbis

A smaller, less expensive iPad could undercut the ambitions of Google, Microsoft and Inc. (AMZN) to gain traction in the advancing tablet market, said Shaw Wu, an analyst at Sterne Agee & Leach Inc. The new device will probably have a price closer to Google’s Nexus 7 tablet and Amazon’s Kindle Fire, both of which have 7-inch screens and cost $199.

“It would be the competitors’ worst nightmare,” Wu said in an interview. “The ball is in Apple’s court.”

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment.

Since the iPad went on sale in April 2010, Apple has dominated the tablet market, which is predicted by DisplaySearch to reach $66.4 billion this year. Apple has 61 percent of the market, according to Gartner Inc.

Apple’s rivals are eager to gain a toehold. Google said on June 27 that it will sell a tablet-style device called the Nexus 7. Earlier in the month, Microsoft announced a tablet called Surface that will have a similar screen size as the current iPad. Amazon’s Kindle Fire was released last year.

Google Strategy

The entrants’ best chance of success has been to focus on markets where Apple had no toehold, said Jan Dawson, an analyst at Ovum Ltd. The Surface comes in two models that are most likely to appeal to buyers who want to continue using Microsoft’s Windows software, Dawson said. While Microsoft has not disclosed pricing or timing for either, the higher-end version will probably be pricier than the iPad and targeted more at an emerging class of laptop PCs called Ultrabooks, he said. The latest iPad ranges in price from $499 to $829.

Google’s Nexus 7 could stack up well against Amazon’s Kindle Fire, which went on sale in November. The Nexus 7, manufactured by Asustek Computer Inc. (2357), has a faster processor and better battery life than the Kindle Fire, as well as a front-facing camera.

Still, competing with a lower-priced iPad will be more challenging, Wu said. Apple benefits from having more than 225,000 apps that have been tailored specifically for the current iPad.

Apple Retail

The company also boasts more than 360 retail stores where the device can be purchased and tested by consumers. Google said the Nexus will be available only from its online store, while Microsoft will sell its tablets online and at its smaller chain of 20 stores.

Apple has considered introducing a smaller tablet since the original iPad was released, one person said. That approach has worked for Apple’s iPod, which is the world’s top music player and comes in various sizes and colors.

Yet Apple co-founder Steve Jobs spoke skeptically of smaller tablets before his death in October. He said in 2010 that the iPad’s current size was the minimum required to ensure a good user-experience and enable attractive software applications.

The screen of the small model will have the same number of pixels as those in the iPad before it was upgraded to the so- called Retina Display earlier this year, one person said.

Fatter Margins

Apple also may be at an advantage profit-wise. The gross margin on the latest iPad is about 37 percent, according to Wu. Apple could earn a similar profit on a smaller iPad because it will probably use the cheaper screen, Wu said. Apple can also charge more for the device without sacrificing sales, he said.

“This isn’t like the old days, when it cost thousands of dollars more to buy an Apple product,” Wu said. “Fifty or a hundred bucks wouldn’t be enough to make someone switch.”

Amazon, by contrast, loses money on every Kindle Fire it sells, with the aim of profiting from sales of books and other digital media. At the $199 price of the Nexus 7, Google’s plan should be to break even on the hardware, in exchange for the opportunity to win advertising and related revenue, said Michael Gartenberg, an analyst at Gartner Inc.

Apple’s plans to release a smaller sized iPad were reported previously in blogs, including DigiTimes.

Microsoft’s Stakes

The stakes are high for Microsoft and Google to succeed at hardware sales. Both companies have risked alienating long-time hardware partners, such as Samsung Electronics Co., by selling their own tablets, Gartenberg said.

“How does Samsung make money in tablets, when Google is partnering with Asus to make a product that makes no money?,” he said.

A failure to gain traction with the Nexus and Surface, respectively, might also undermine the credibility of Google’s Android strategy and of Microsoft’s introduction of the next version of the Windows operating system, Wu said. If Google and Microsoft can’t make a must-have product around their own software, consumers may be harder to convince that hardware manufacturers could do it, he said.

“They’re really sticking their necks out this time, putting their own brands on this front and center,” Wu said.

To contact the reporters on this story: Peter Burrows in San Francisco at; Adam Satariano in San Francisco at

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


S&P 500 Rallies to Two-Month High After Factory Orders

By Rita Nazareth and Julia Leite - Jul 4, 2012 12:34 AM GMT+0700

U.S. stocks advanced, sending the Standard & Poor’s 500 Index to a two-month high, after data showed factory orders topped estimates and as speculation grew that global central banks will act to spur economic growth.

July 3 (Bloomberg) -- Sam Stovall, chief equity strategist at Standard & Poor's, Ben Willis, a managing director at Albert Fried & Co., and Stephen Wood, chief market strategist at Russell Investments, talk about the outlook for U.S. stocks. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

July 3 (Bloomberg) -- James Paulsen, chief investment strategist at Wells Capital Management, talks about the resignation of Barclays Plc Chief Executive Officer Robert Diamond after the bank admitted to rigging global interest rates, and the outlook for markets and the economy. Paulsen speaks with Tom Keene on Bloomberg Television's "Surveillance." Ken Prewitt, Sara Eisen and Scarlet Fu also speak. (Source: Bloomberg)

July 3 (Bloomberg) -- David Joy, chief market strategist at Ameriprise Financial Inc., talks about investment strategy and outlook for U.S. stocks. Joy speaks with Betty Liu, Dominic Chu and Sheila Dharmarajan on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Commodity (S5MATR), industrial and technology shares had the biggest gains among 10 groups in the S&P 500. Alcoa (AA) Inc., Caterpillar Inc. (CAT) and Apple Inc. (AAPL) advanced at least 1.1 percent. Ford Motor Co. (F) rallied 2.2 percent as deliveries of cars and light trucks beat analysts’ estimates. Facebook Inc. (FB) climbed 1.4 percent as General Motors (GM) Co. is said to be talking with the largest social-networking company about resuming advertising.

The S&P 500 rose 0.6 percent to 1,374.02 at 1 p.m. New York time. The Dow Jones Industrial Average added 72.43 points, or 0.6 percent, to 12,943.82. The Russell 2000 Index rallied 1.3 percent to 818.48. The market closed at 1 p.m. today, and will be shut tomorrow for a holiday. Trading in S&P 500 companies was almost in line with the 30-day average at this time of day.

“The factory orders report was a good surprise,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “Investors are also finding comfort in central bank action. The Fed has anticipated that they will do whatever it takes to not let the economy slip, China is doing the same and that the Europeans seem to be doing that too.”

Equities climbed as factory orders rose in May for the first time in three months. Yet declining jobs data in the U.S. this week may prompt the Federal Reserve to initiate fresh stimulus, BNP Paribas SA said. The European Central Bank is forecast to cut interest rates this week to help curb the debt crisis, while a state-owned newspaper in China said the time is ripe for a reduction in banks’ reserve-requirement ratios.

‘Tepid’ Recovery

The U.S. economy will grow by 2 percent this year and about 2.25 percent in 2013 amid a “tepid” recovery and the European debt crisis, the International Monetary Fund said, lowering its previous projections. In an April report, the IMF forecast U.S. growth of 2.1 percent this year and 2.4 percent in 2013.

“Further easing” by the Federal Reserve might be needed “if the situation was to deteriorate,” IMF Managing Director Christine Lagarde said at a press conference in Washington today. She said she welcomed previous actions by the Fed to help the U.S. economy.

Concern about a global economic slowdown put the S&P 500 last month on the brink of a so-called correction, or a 10 percent decline from a recent peak. The index slumped 3.3 percent in the second-quarter, the biggest retreat since the period ending in September.

Alcoa, Apple

The Morgan Stanley Cyclical Index of companies most-tied to the economy rose 1.3 percent. Alcoa, the largest U.S. aluminum producer, added 3.2 percent to $8.90. Caterpillar, the biggest maker of construction equipment, advanced 3.3 percent to $86.46. Apple, the biggest company by market value, gained 1.2 percent to $599.41.

Car companies in the S&P 500 (SPX) added 2.1 percent for the second-biggest gain among 24 groups. General Motors, Ford and Chrysler Group LLC said U.S. auto sales exceeded estimates in June. Ford rallied 2.2 percent to $9.60. GM added 5.6 percent to $20.67.

Facebook climbed 1.4 percent to $31.20. The talks were reported by two people familiar with the matter. GM said it would stop advertising on Facebook on the eve of the company’s initial public offering in May.

MModal Inc. (MODL) surged 8.4 percent to $14.02. The largest provider of medical transcription services said it agreed to be bought by a JPMorgan Chase & Co. unit for about $1.1 billion.

Navistar International Corp. (NAV) rose 7.2 percent to $29.04 after the truckmaker scheduled an operations update for investors this week that may include plans to drop one type of pollution-control technology.

‘Softer’ Sales

The nation’s largest home-improvement retailers declined after Cleveland Research cited “softer” second-quarter sales. Lowe’s Cos. (LOW) retreated 3.5 percent to $27.62. Home Depot Inc. (HD) dropped 2.6 percent to $51.65.

Duke Energy Corp. (DUK) lost 1.7 percent to $68.69 after unexpectedly announcing the resignation of Bill Johnson, previously named to be the chief executive officer after its takeover of Progress Energy Inc. (PGN) James Rogers, the head of Duke, is CEO of the merged companies effective immediately.

Johnson, 58, is resigning “by mutual agreement,” the company said. The takeover, announced in January 2011, received its final regulatory approval yesterday. Tom Williams, a spokesman for Duke, declined to comment on the reason for the change. Johnson has been the chairman and CEO of Raleigh, North Carolina-based Progress since 2007.

Bearish Sentiment

Bearish sentiment in an individual investors’ survey has surpassed the historical average for the longest stretch since October, when stocks began a rally that lifted the S&P 500 24 percent.

A poll by the American Association of Individual Investors showed 44.4 percent of respondents say U.S. stocks will fall over the next six months. That’s the eighth week that pessimism stayed above the 25-year average of 30 percent.

Concern Europe’s debt crisis will deepen and the recovery weaken have erased as much as $1.8 trillion from U.S. equities since March. The last time the proportion of bears topped the average for this long was in the 14 weeks through Oct. 20, 2011, just after the S&P 500 bottomed at 1,099.23. The benchmark measure for U.S. stocks went on to surge as much as 29 percent, reaching a four-year high of 1,419.04 on April 2.

“Individual investors tend to get in when the markets are red hot and they tend to get out when the markets are at the bottom,” said Robert Carey, who helps oversee $53 billion as chief investment officer of Wheaton, Illinois-based First Trust Portfolios.

Enough Speed

Gains that drove the S&P 500 to its biggest June advance since 1999 may falter because too few stocks are rising with enough speed, Inc. said.

The gauge surged 2.5 percent on June 29, finishing the month up 4 percent, amid optimism that Europe will prevent bank losses from multiplying. While the rally drove 64 percent of shares above their average price during the past 50 days, that’s short of the 85 percent threshold that usually accompany longer rallies, said Arthur Hill, a technical analyst at the firm.

While 85 percent is where momentum becomes self-sustaining, equity declines are likely to speed up when the number of stocks above the 50-day mean slips below 15 percent, Hill said.

“A surge above 85 percent shows strong-enough buying pressure to suggest that an uptrend is emerging,” Hill wrote in a note yesterday. “It is like a rocket lifting off the launch pad. A strong up-thrust is needed to insure a sustainable advance.”

To contact the reporters on this story: Rita Nazareth in New York at; Julia Leite in New York at

To contact the editor responsible for this story: Lynn Thomasson at


Diamond’s Exit Shows Libor Only What Each Bank Says It Is

By Paul Armstrong - Jul 4, 2012 6:00 AM GMT+0700

The resignation of Barclays Plc (BARC) Chief Executive Officer Robert Diamond for the firm’s role in rigging the London interbank offered rate underscores the disconnect between the market’s perception of bank borrowing costs and the benchmark for $360 trillion of global securities.

Barclays' chief executive Robert Diamond. Photograph: eyevine/Zuma Press

Barclays has gone from saying in January it can borrow for three months at interest rates that were on average above other banks to saying it can borrow more cheaply than its peers even though the cost of insuring the London-based firm’s debt using credit-default swaps rose 33 percent, according to data compiled by Bloomberg.

The contrast between banks’ daily submissions for Libor and other measures of their creditworthiness shows why regulators from Europe to the U.S. are beginning to fine them for manipulating the market for short-term rates. While the British Bankers’ Association reveals Libor submissions from each bank, the process that the firms use to come up with their individual rates is opaque and not based on actual transactions.

“After the Barclays admission, we have proof that Libor is not a reliable benchmark,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam.

Libor is hardwired into the world’s financial system, meaning credible alternatives have been slow to develop. ICAP Plc, which started the New York Funding Rate in 2008 amid concern about the veracity of Libor, cut the minimum number of participants in April required in its daily survey of unsecured loans because of a decline in interbank lending.

‘Archaic Process’

Libor is determined by banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies.

Princeton University economist and former Federal Reserve Vice Chairman Alan Blinder said in an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Scarlet Fu yesterday that a “real market” may come from the Libor investigations and that the current system is an “archaic” way to set rates. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate.

Barclays employees overseeing Libor and Euribor submissions routinely accommodated requests that benefited traders at their own and other banks, according to the U.S. Commodity Futures Trading Commission. The BBA, which has overseen Libor for 26 years, created a steering group of bankers and regulators in March to consider reforms in light of the probes.


The BBA was aware that banks including Barclays were low- balling their Libor submissions during the financial crisis to avoid the perception they were struggling to borrow cash, according to CFTC documents.

“During periods of financial stress it’s not clear if Libor really represents an interbank offered rate,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

Diamond, 60, quit today after the U.K.’s second-biggest lender was fined a record $451 million when investigators found traders and senior managers “systematically” tried to rig Libor and Euribor, its euro equivalent. Chief Operating Officer Jerry Del Missier also stepped down, while Marcus Agius, who said yesterday he planned to resign, will become full-time chairman and lead the search for a new CEO.

Process ‘Dead’

Diamond came under increasing pressure from politicians including British Prime Minister David Cameron before his position at the head of Barclays became untenable. Cameron’s deputy, Nick Clegg, openly called for the CEO to go this week.

“The idea that one can base the future calculation of Libor on the idea that ‘my word is my Libor’ is now dead,” Bank of England Governor Mervyn King said at a press conference to present the central bank’s Financial Stability Report in London on June 29. “It will have to be based in the future, in my judgment, on actual transactions in order to bring back credibility to the system.”

John McGuinness, a spokesman for Barclays in London, declined to comment. Brian Mairs, a spokesman for the BBA, didn’t return a phone call seeking comment.

The rate Barclays says it pays for three-month dollar loans diverged from the Libor composite on Feb. 27, after largely tracking it since 1994, BBA data show. The U.K. lender’s rate is now 12.1 basis points, or 0.121 percentage point, below the benchmark, compared with a 16.8 basis-point gap June 1, the widest since at least 2000.

Spotlight Intensifies

As the spotlight on Libor intensifies, the rates different banks give to the BBA are diverging, after being virtually identical at the start of 2007 before the worst financial crisis since the Great Depression.

The gap between the highest submission, currently from French lender Societe Generale SA (GLE), and the lowest, from HSBC Holdings Plc, has increased to 33.8 basis points. On Jan. 3, 2007, when Libor was at 5.36 percent, the gap between the highest and lowest submissions was just 1 basis point.

Barclays now puts in the second-lowest rate after HSBC, which says it can borrow at 0.26 percent. Credit-default swaps insuring HSBC’s bonds rose about 1 percent since Jan. 27 to 119 basis points, according to Bloomberg data. Contracts on Barclays jumped to 204 from 153 during the same period.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

The CFTC ordered Barclays on June 27 to keep thorough records on how it sets its Libor submissions and to erect Chinese walls between traders and rate-setters. It also said lenders should expect random checks on whether their rates reflect actual borrowing costs.

CFTC’s Recommendations

As part of its settlement, the CFTC ordered Barclays to amend how it sets Libor. Submissions should be based on actual trades if possible. Where no trades have taken place, the rate- setter can consider factors including how much competitors paid to borrow and market conditions, the CFTC said.

Rate-setters should be prohibited from “improper communications” and not work within earshot of derivatives traders, according to the commission. Barclays must keep extensive records on all its Libor submissions, including details on who the rate-setter was and how the figure was derived. The bank must also undergo annual audits and be willing to provide data to regulators on demand.

On Sept. 13, 2006, a senior Barclays trader in New York e- mailed the person who submitted the rate, “Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the lib or fixing at 5.39 for the next few days. It would really help,” according to a CFTC document.

‘Big Boy’

In an exchange on April 7, 2006, a submitter responded to a request for low U.S. dollar Libor submissions from a swaps trader with: “Done ... for you big boy,” the CFTC said.

“It’s the damage to confidence that corporates are concerned about,” said John Grout, the policy and technical director of the Association of Corporate Treasurers in London. The group represents borrowers in the loan market, where interest rates tend to be based on Libor or other interbank rates. “If people don’t trust these things, you can get liquidity reducing, you can get investors starting to add spreads onto corporate borrowing costs, which is not helpful.”

Three members of the new Libor steering committee interviewed by Bloomberg News last month said changes would be incremental because structural modifications in how the rate is calculated could invalidate trillions of dollars of contracts and result in litigation. They ruled out stripping the BBA’s oversight and scrapping the survey system in favor of a rate based entirely on actual trades.

The British government will emphasize to the BBA at the steering group’s next meeting that only drastic changes will suffice, according to a person with knowledge of the matter, who asked not to be identified because the talks are private. Chancellor of the Exchequer George Osborne, speaking to lawmakers in London yesterday, said the FSA is “committing significant resources” to investigate “systemic failures” over the manipulation of Libor.

To contact the reporter on this story: Paul Armstrong in London at

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


Big Banks’ ‘Living Wills’ Aiming for Bankruptcy Not Bailouts

By Jesse Hamilton - Jul 4, 2012 4:38 AM GMT+0700

U.S. regulators, seeking to prevent a repeat of taxpayer-funded bailouts of the financial system, released summaries of plans for breaking up nine of the world’s largest banks in the event of an emergency.

The Federal Deposit Insurance Corp. and Federal Reserve posted the public portions of so-called living wills on websites today as required by the 2010 Dodd-Frank Act. The documents outline more detailed proposals submitted privately describing how regulators could dismantle the companies if they fail.

Employees of Christie's auction house with the Lehman Brothers corporate logo in London. Photographer: Oli Scarff/Getty Images

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The banks required to file were JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), Morgan Stanley, Barclays PLC (BCS), Deutsche Bank AG (DB), Credit Suisse Group AG (CS) and UBS AG. (UBSN)

The aim of the living wills is to give regulators a plan for shutting down complex financial firms without taxpayer bailouts or the turmoil that followed the 2008 collapse of Lehman Brothers Holdings Inc.

Banks with more than $250 billion in nonbank assets were the first of an eventual 125 firms required to produce liquidation plans, which are expected to run into thousands of pages. Nonbank companies declared by U.S. regulators to be systemically important will also have to submit living wills.

Few Details

The public summaries of the wind-down plans reveal few details. For instance, Bank of America’s summary says that assets sold off during a resolution could go to a “range of buyers including, but not limited to, national, international and regional financial institutions; private equity and hedge funds; and other financial asset buyers such as insurance companies.”

Some banks said it would be possible to save their main businesses and avoid full liquidations. As regulators instructed, the proposals presumed markets would be functioning normally with buyers ready to make large acquisitions without government backing. That wasn’t the case when firms including Bear Stearns Cos. collapsed during 2008’s credit crisis, and the law allows the regulators to require more complicated stress scenarios in future rounds.

Morgan Stanley (MS), owner of the world’s largest brokerage, and Goldman Sachs were among firms that said it may make the most sense to sell assets or stand-alone businesses in the event of a failure. Goldman Sachs predicted that such deals could help it avoid a company-wide liquidation. Sales, which would need to be conducted “quickly,” would likely be to other financial firms, private-equity investors, insurance companies or sovereign wealth funds, it said.

‘Substantial Majority’

“If it proves impossible to sell GS Group businesses and assets then it would be possible to liquidate a substantial majority of GS Group’s assets,” the New York-based company said. Such a strategy would “likely take more time,” it said.

“We believe the plan we sent to the Federal Reserve and FDIC provides a process to enable an orderly resolution of Goldman Sachs Group,” the company said in a statement today. Its plan works in conjunction with “the firm’s well-established risk management practices, conservative liquidity management practices and rigorous approach to regularly marking assets to market values,” it said.

JPMorgan, Bank of America, Citigroup and Zurich-based Credit Suisse (CSGN) said that one option was to shunt FDIC-insured entities into a so-called bridge bank that could be preserved.

Non-bank Units

Non-banking entities, such as Bank of America’s Merrill Lynch unit, could be put through bankruptcy proceedings, the Charlotte, North Carolina-based company said. Broker-dealer units would be liquidated according to the Securities Investor Protection Act, it said.

Donald Lamson, who represents financial institutions at Shearman & Sterling LLP in Washington, said the lone failure assumption could limit the plans’ usefulness in the event of a broad financial crisis.

“The same stresses that would prompt me to put a subsidiary up for sale would make it just as difficult for another entity to make a purchase,” Lamson said.

Citigroup, the third-biggest U.S. bank with operations in more than 100 countries, said it could separate its deposit- taking banking unit, Citibank NA, from broker-dealer units that trade stocks and bonds. The New York-based parent would then go bankrupt and sell off the broker-dealers, according to the plan. Citibank would continue as a “smaller but recapitalized and viable banking institution,” it said.

‘Orderly Fashion’

Regulators could also wind down Citigroup by selling the lender’s operations “in an orderly fashion,” the firm said. Employees would be “well equipped” to help after already reducing the size of the Citi Holdings division, according to the plan. Chief Executive Officer Vikram Pandit created the unit in 2009 to hold about $600 billion of unwanted investments. Assets fell to $209 billion at the end of March.

“Our first blush review suggests few shocks,” according to a note today by Jaret Seiberg, a senior policy analyst with Guggenheim Securities LLC in Washington. “Banks basically suggest either turning themselves over to creditors or liquidating the institutions. This should hardly shock investors.”

The information in this first round of “very high-level” summaries is not much deeper than what can be found in existing securities filings, Lamson said.

‘We Hope’

“I think that in a lot of these statements, there’s the parenthetical: ‘We hope,’” Lamson said in an interview. “These are all forward-looking assessments, and it’s very hard to see the future.”

In coming months, regulators will assess whether each living will represents a “credible” path to a rapid and orderly bankruptcy. The agencies have 60 days from submission of the plans to request more information from the companies.

“These banks owe American taxpayers more information than these excerpts from their shareholder reports and the saccharine reassurance that they’re safe,” Bartlett Naylor, who works on financial policy at the Washington-based advocacy group Public Citizen, said in an interview.

To contact the reporter on this story: Jesse Hamilton in Washington at

To contact the editor responsible for this story: Maura Reynolds at


Mammoth Lakes, California, Files for Bankruptcy

By Steven Church and James Nash - Jul 4, 2012 3:38 AM GMT+0700
Eddy Joaquim/Getty Images
The biggest creditor listed in the Mammoth Lakes case is Mammoth Lakes Land Acquisition, which won a $30 million judgment against the town that has since grown to $43 million with interest and legal fees.

Mammoth Lakes, the High Sierra mountain resort, filed for bankruptcy to shelter itself from a $43 million legal judgment, becoming the second California municipality in a week to seek court protection from creditors.

Mammoth Lakes listed assets of more than $100 million and debt of more than $50 million in papers filed today in Sacramento, California, under Chapter 9 of the U.S. Bankruptcy Code, which is reserved for public entities such as cities, counties and special taxing districts.

The town council voted to seek bankruptcy protection after its largest creditor, Mammoth Lakes Land Acquisition, won a court order requiring the town to pay the judgment by June 30, according to a statement on the town’s website. Under Chapter 9, a municipality can halt court actions against it while seeking to reorganize its finances. The tactic is common among corporations that file so-called Chapter 11 bankruptcies.

“Bankruptcy, unfortunately, is the only option that the town is left with,” town officials said in the statement.

The filing comes six days after the northern California city of Stockton filed for bankruptcy with plans to try to impose cuts on bondholders and employees. Vallejo, California, filed for bankruptcy in 2008 and used court protection to cut retiree benefits, renegotiate labor contracts and reduce the interest paid to lenders. The city exited bankruptcy last year.

Biggest Creditor

The biggest creditor listed in the Mammoth Lakes case is Mammoth Lakes Land Acquisition, which won a $30 million judgment against the town that has since grown to $43 million with interest and legal fees. The California Public Employees’ Retirement System, or Calpers, the largest U.S. pension fund, is the second-largest unsecured creditor, owed $4.2 million.

Mammoth Lakes, a ski resort community of 8,200 near Yosemite National Park, has an annual budget of $19 million.

Mammoth Lakes Land Acquisition refused to participate in mediation between Mammoth Lakes and its creditors, according to a statement on the town’s website. That mediation, required under California law, is designed to help cities and counties avoid bankruptcy.

The company sued the town in 2006 and accused it of breaching a development agreement allowing the company to build homes, retail space, hangars and other structural improvements near the Mammoth Yosemite Airport.

In 2008, a state court awarded the company $30 million, which the town appealed. An appeals court sided with the developer, and the California Supreme Court refused to hear the case last year.

Compromise Sought

The company has tried to reach a compromise with the town, said Daniel L. Brockett, a partner at Quinn Emanuel Urquhart & Sullivan LLP in New York, which represented the developer.

The town rebuffed the developer’s offer for $2.7 million annual payments over 30 years, Brockett said in a telephone interview.

“There was no point in us participating in the mediation,” he said. “The mediation was simply so they could check off a box before going to bankruptcy court.

‘‘They just keep putting their heads in the sand and hoping that some guy in a black robe will bail them out.’’

The case is In re Town of Mammoth Lakes, 12-32463, U.S. Bankruptcy Court for the Eastern District of California (Sacramento).

To contact the reporters on this story: Steven Church in Wilmington, Delaware at; James Nash in Los Angeles at

To contact the editor responsible for this story: Michael Hytha at


Asian New Money Fights Russia, Constable Tops $133 Million Sale

By Scott Reyburn - Jul 4, 2012 6:00 AM GMT+0700

Paintings by Constable and Rembrandt starred at a $133 million auction in London last night that set a record total for any sale of Old Masters.

Constable’s 1824 landscape “The Lock” sold for a top price of 22.4 million pounds ($35 million), a record for the artist at auction, as Christie’s International found buyers for 84 percent of 64 lots.

"The Lock" by John Constable. The 1824 landscape was sold by Christie's International in its auction of Old Master and British paintings in London on July 3. Source: Christie's Images Ltd. 2012 via Bloomberg.

"A Bust of a Man in a Gorget and Cap" by Rembrandt Harmensz van Rijn. The 1626-27 panel painting was one of 15 Dutch Old Masters from the collection of Pieter and Olga Dreesmann being sold by Christie's International in London on July 3. Source: Christie’s Images Ltd. 2012 via Bloomberg.

"Mars and Venus Surprised by Vulcan," a 1610 oil-on-copper painting by Dutch Mannerist artist Joachim Anthonisz Wtewael. It was bought by a telephone bidder for 4.6 million pounds with fees in an auction of Old Master paintings at Christie's International in London on July 3 2012. Source: Christie's Images Ltd. 2012 via Bloomberg

"The Kiss" by Rodin. This bronze version of the marble group, cast during the artist's lifetime, was sold by the Sladmore Gallery for $2 million at the Masterpiece fair in London, running through July 4, 2012. Source: Sladmore Gallery via Bloomberg

The pair of JAR earrings was sold for $500,000 by the dealers Symbolic & Chase at the Masterpiece fair in London. The event, now in its third year, runs through July 4, 2012. Source: Symbolic & Chase via Bloomberg

A painting of a man with horse in a landscape by George Stubbs. The 1768 work is being offered by the Bond Street dealers Colnaghi, priced at about 1 million euros, in the Master Paintings promotion in London, running through July 6, 2012. Source: Colnaghi via Bloomberg

An pencil study of the U.S. writer James Lord by Alberto Giacometti. This 1954 work is being exhibited by the St. James's-based dealer Stephen Ongpin in the Master Drawings promotion in London, running through July 5, 2012. Source: Stephen Ongpin Fine Art via Bloomberg

In recent years, totals at auctions of historic European paintings -- traditionally the most expensive of artworks -- have lagged behind those at sales of Impressionist and contemporary pieces. Demand last night was bolstered by new bidders from emerging economies, said Christie’s, which had showed some of the pictures in Doha, Moscow, New York, Hong Kong and Amsterdam.

“We’re seeing the internationalization of the Old-Master market,” Jussi Pylkkanen, president of Christie’s Europe, said after the sale. “Asian and Russian clients are now buying.”

Christie’s confirmed that an Asian client was the lone telephone bidder for the 1626-27 Rembrandt painting “A Man in a Gorget and Cap,” at 8.4 million pounds. The work was one of 11 paintings being sold by Pieter Dreesmann, the son of the late Dutch department-store heir Anton Dreesmann.

All the Dreesmann lots sold, raising 25.3 million pounds. Most had been acquired within the last 15 years from the Maastricht-based dealer, the late Robert Noortman.

Taste Tribute

“It was a tribute to Noortman’s taste,” the Paris-based dealer Robert Haboldt said. “The market is good for quality pictures in fine condition that haven’t been overestimated.”

The Constable was the most highly valued lot, at 20 million pounds to 25 million pounds, and was consigned by Baroness Carmen ‘Tita’ Thyssen-Bornemisza, a former Miss Spain, who became Baron Hans Thyssen-Bornemisza’s fifth wife in 1985. It had been acquired by him at Sotheby’s (BID) in 1990 for 10.8 million pounds, then a record for any British painting sold at auction.

The work was guaranteed to sell courtesy of a third party “irrevocable bidder” that dealers identified as one of the auction house’s Russian clients. There were no other bidders and the unidentified guarantor was the buyer, Christie’s said.

“There just aren’t any private collectors for this kind of picture at the moment,” the New York-based dealer Richard L. Feigen said. “The Constable sold for the price of a second-tier Warhol. It’s ridiculous.”

The event raised 85.1 million pounds with fees against an estimate of 61.8 million pounds to 88.3 million pounds, based on hammer prices. It surpassed the 68.4 million-pound previous high for an Old Master auction at Christie’s in December 2009.

Masterpiece Sale

Elsewhere, a Rodin bronze of “The Kiss” was snapped up at the Masterpiece London fair.

Now in its third year, Masterpiece is billed as the U.K. capital’s equivalent of the European Fine Art Fair in Maastricht, with the addition of luxury brands such as Rolls- Royce cars, Ruinart champagne and Vacheron Constantin watches.

More than 160 dealers are exhibiting in a temporary structure on the Chelsea Embankment. Sheikh Saud al Thani of Qatar and Charles Saatchi were among 5,175 VIPs at the preview.

Sladmore Gallery sold a bronze of “The Kiss,” cast during Rodin’s lifetime, to a Swiss collector for $2 million. A Middle East client bought a pair of earrings by the Parisian jeweler JAR from Symbolic & Chase for $500,000.

A hand-signed 1895 lithograph of Edvard Munch’s “The Scream” -- one of just 26 made -- is being offered by the Oslo- based dealer Kaare Berntsen, priced at 1.7 million pounds. The fair runs through tomorrow.

Pace Space

Pace Gallery is the latest New York contemporary-art dealership to announce that it’s opening a London space to coincide with the Frieze Art Fair in October.

It has commissioned the U.K. architect David Chipperfield to renovate a gallery in 6 Burlington Gardens, part of the Royal Academy of Arts. The space was previously occupied by Christie’s dealership, Haunch of Venison.

Pace joins fellow New York dealers Per Skarstedt, Michael Werner and David Zwirner scheduling to open spaces for Frieze.

(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 James Russell on architecture and Hephzibah Anderson on books.

To contact the writer on the story: Scott Reyburn in London at

To contact the editor responsible for this story: Manuela Hoelterhoff at