Economic Calendar

Tuesday, July 10, 2012

Dealers Declining Bernanke Twist Invitation

By Susanne Walker and Cordell Eddings - Jul 10, 2012 2:10 AM GMT+0700

Wall Street banks are increasingly choosing to hoard their U.S. bonds rather than sell them to the Federal Reserve as speculation grows that a slowing economy and global financial turmoil will only make them more dear.

The world’s biggest bond dealers offered an average of $7.2 billion in Treasuries a day to the central bank in June, down 40.5 percent from a high of $12.1 billion in October, data compiled by Bloomberg show. The amount tendered has fallen even as the dealers almost doubled their holdings of the securities.

Federal Reserve Chairman Ben Bernanke. Photographer: James Berglie/Zuma Press

Feb. 22 (Bloomberg) -- Leon Cooperman, chief executive officer of Omega Advisors Inc., talks about investment strategy and President Barack Obama's policies. Cooperman spoke with Bloomberg's Erik Schatzker yesterday. (Source: Bloomberg)

The Marriner S. Eccles Federal Reserve building in Washington. Photographer: Andrew Harrer/Bloomberg

Christine Lagarde, managing director of the International Monetary Fund, said “the global growth outlook will be somewhat less than we anticipated just three months ago.” Photographer: Tomohiro Ohsumi/Bloomberg

While the amount of marketable U.S. government debt outstanding has risen to more than $10.5 trillion, Treasuries are proving scarce in a world where five nations in Europe have sought bailouts, the U.S. economy is slowing again and China is weakening. That means interest rates on everything from mortgages to corporate bonds should remain at about record lows.

“People are not willing to sell Treasuries,” said Thanos Bardas, a managing director in Chicago at Neuberger Berman LLC, which oversees about $89 billion in fixed-income assets, in a June 28 telephone interview. “The data in the U.S. doesn’t look as good. The labor market has lost momentum. There will be more upside left in Treasuries despite the low levels of rates.”

Concern that the economy is losing momentum came July 6, when a Labor Department report showed American employers added fewer workers to payrolls in June than forecast and the jobless rate stayed at 8.2 percent.

IMF’s Warning

The International Monetary Fund will reduce its 3.5 percent estimate for global growth this year on weakness in investment, jobs and manufacturing in Europe, the U.S., Brazil, India and China, Managing Director Christine Lagarde said.

“The global growth outlook will be somewhat less than we anticipated just three months ago,” Lagarde said earlier in a July 6 speech in Tokyo. “And even that lower projection will depend on the right policy actions being taken.”

Treasuries rose last week, pushing 10-year yields down 10 basis points, or 0.1 percentage point, to 1.55 percent, according to Bloomberg Bond Trader prices. The benchmark 1.75 percent note rose 28/32, or $8.75 per $1,000 face value, to 101 26/32 in New York.

The 10-year note yield dropped four basis points today to 1.51 percent at 2:44 p.m. New York time, the lowest in more than a month.

The yield has fallen from this year’s high of 2.4 percent on March 20, and has averaged 3.8 percent the past decade. U.S. debt has returned 2.3 percent this year, including reinvested interest, led by a 6.3 percent gain in 30-year bonds.

‘Crowding Out’

Treasuries trail the Standard & Poor’s 500 index (CRY) of stocks, which has returned 9 percent with reinvested dividends, while beating the 6 percent loss posted by the Thomson Reuters/Jefferies CRB Index of raw materials.

“There is a reach for quality in the market,” said Larry Milstein, managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “The Fed and investors are elbowing each other out of the way, and that process is feeding on itself. We are seeing a crowding out effect as there remains a ton of demand for safe assets.”

The Fed under Chairman Ben S. Bernanke bought $2.3 trillion of Treasury and mortgage-related debt to stimulate the economy. It decided in June to extend a policy known as Operation Twist where it sells short-term securities and uses the proceeds to buy longer-term debt to $667 billion from $400 billion.

Primary dealers submitted offers equaling 2.32 times the $1.0804 billion of securities bought by the Fed today, down from an average ratio of 2.93 since the central bank began the program in October.

Bond Stockpiles

At the same time the Fed is trying to obtain Treasuries, the 21 primary dealers have boosted their holdings to $109.2 billion from a net short position as recently as September, according to the central bank. Stockpiles touched a record $136.4 billion on June 6.

As a result the central bank is paying more for less. Dealers pared their offers to sell in each month since March, when they submitted 3.16 times the securities bought by the Fed. The ratio fell to 2.92 in April, 2.82 in May and 2.48 in June.

At the end of May, the Fed was paying 31 cents per $1,000 face amount above intra-day market prices, compared with about 94 cents below in March, according to primary dealer Credit Suisse Group AG. That translates into an extra $312,500 on the purchase of $1 billion of eight to 10-year notes.

Most Expensive

By some measures Treasuries are about the most expensive levels ever. The term premium, a model created by economists at the Fed, touched negative 0.947 percent July 6, surpassing the most expensive level ever of negative 0.94 percent set on June 1. A negative reading indicates investors are willing to accept yields below what’s considered fair value.

“The Fed is taking a fair amount out of the market,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut, said in an interview July 3. “With the amount that they are holding, as it gets closer to the end of Twist, it will be difficult to argue that that won’t distort the overall ability for those securities to trade without seeing some type of impact.”

Top-rated securities are in short supply worldwide. The U.S., Germany, Switzerland, Sweden and the U.K. are the only Group-of-10 nations with credit-default swaps trading at less than 100 basis points, the cheapest to insure against default, according to Bloomberg data.

New debt for sale is being snapped up. Bidders offered a record $3.16 for each dollar of the $1.075 trillion of notes and bonds auctioned by the Treasury Department in the first half of the year, a record high, even as yields on 10-year notes fell to all-time lows of 1.4387 percent on June 1.

Falling Yields

Average yields on investment and speculative-grade corporate bonds declined to 4.04 percent last week from about 10.5 percent in early 2009, Bank of America Merrill Lynch indexes show. The average rate for a 30-year mortgage dropped to 3.62 percent on July 5 from more than 5.5 percent in 2009, according to Freddie Mac.

Investors don’t see yields moving higher anytime soon. A measure of market expectations of interest rate changes, the Merrill Option Volatility Estimate, or MOVE, index fell to 70.2 basis points on June 28 after peaking at 264.6 basis points in October 2008. It touched 56.7 on May 7, the lowest since 2007.

‘Most Dangerous’

Demand for bonds has surprised even the most successful investors. Warren Buffett the billionaire chairman of Berkshire Hathaway Inc., in February said in his annual shareholder letter that debt securities and other holdings tied to currencies “are among the most dangerous of assets.” Leon Cooperman, founder of equity hedge fund Omega Advisors Inc., also said in February in a Bloomberg Television interview that bonds will be the worst place for investors to put their money for the next three years.

Many investors failed to anticipate the sluggish recovery. President Barack Obama said the creation of 80,000 jobs in June was “a step in the right direction” though the economy has to grow “even faster.” Republican presidential candidate Mitt Romney called it “another kick in the gut.”

Amid fears of a global slowdown, policy makers at major central banks boosted stimulus measures on July 5 to strengthen their economies.

The European Central Bank lowered its refinancing benchmark to a record low 0.75 percent, while the People’s Bank of China reduced its one-year rate for lending by 0.31 percentage point. The Bank of England raised its asset purchase program by 50 billion pounds ($78 billion), to 375 billion pounds.

Biggest Owner

After cutting its target rate for overnight loans between banks in 2008 to a range of zero to 0.25 percent, the Fed has focused on buying bonds to inject cash into the economy. This has left the central bank as the biggest owner of Treasuries, with $1.67 trillion as of June 27, ahead of China’s $1.15 trillion at the end of the first quarter.

“If the Fed is going to keep this up they will be forced to buy more expensive issues,” said Michael Cloherty, head of U.S. interest rate strategy at RBC Capital Markets in New York, a primary dealer, in a telephone interview July 3. “If you think the Fed is going to have to buy some issues very aggressively it makes it difficult to be short, so you are very reluctant to sell a large block of that to anyone.”

To contact the reporters on this story: Susanne Walker in New York at; Cordell Eddings in New York at

To contact the editor responsible for this story: Dave Liedtka at


Patriot Coal Files for Bankruptcy Protection in New York

By Tiffany Kary and Dawn McCarty - Jul 10, 2012 5:03 AM GMT+0700

Patriot Coal Corp. (PCX) filed for bankruptcy after milder winters and a shift to natural gas sent coal demand to a 24-year low.

The company’s Chapter 11 petition listed $3.57 billion in assets and $3.07 billion in debts. The filing in U.S. Bankruptcy Court in Manhattan said dozens of the company’s units would join in the filing.

July 9 (Bloomberg) -- Carol Massar reports Patriot Coal Corp. has filed for bankruptcy after milder winters and a shift to natural gas has sent coal demand to a 24-year low. She speaks on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

U.S. coal use in the first quarter was the lowest for that period since 1988, according to the Energy Information Administration. Photographer: Gary Gardiner/Bloomberg

“The coal industry is undergoing a major transformation and Patriot’s existing capital structure prevents it from making the necessary adjustments to achieve long-term success,” Patriot Chief Executive Officer Irl F. Engelhardt said in a statement that cited lower thermal coal prices, canceled customer contracts and rising costs for environmental liabilities for increasing pressure on the company in recent months.

Patriot already has a loan to finance operations in bankruptcy and expects its mining operations and customer shipments to continue through the case, the company said in its statement. The $802 million loan, which still requires court approval, is through Citigroup Global Markets Inc., Barclays Bank Plc, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as joint lead arrangers.

Pay, Benefits

The company will also seek court approval to pay employees and continue health care and other benefits, according to the statement.

Patriot has 13 active mining complexes in Appalachia and the Illinois Basin and controls an estimated 1.9 billion tons of coal reserves, according to its website. It sells thermal coal to electricity generators and metallurgical coal to steel and coke producers.

Wilmington Trust Company, and U.S. Bank National Association were among Patriot’s largest unsecured creditors, according to court papers. The filing listed BlackRock Inc., State Street Corporation and The Vanguard Group Inc. as entities that control 5 percent or more of the voting stock in the company.

Shares closed at 61 cents after falling from an intraday high of $2.09 today in New York Stock Exchange composite trading. They tumbled 73 percent this year through July 5.

The company’s $250 million in 8.25 percent notes due 2018 traded at 34 cents on the dollar as of 5:17 EST today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its $200 million in 3.25 percent notes due 2013 last traded at 26 cents on the dollar at 5:20 EST today.

Coal Use

U.S. coal use in the first quarter was the lowest for that period since 1988, according to the Energy Information Administration. Utilities have switched some power plants to cheaper natural gas as regulations restricting emissions make coal costlier to burn. Gas fell to a decade low in April amid a surplus of the fuel.

This year, Patriot has reduced thermal coal production by more than 4 million tons, trimmed costs and laid off 1,000 employees or contractors, according to a May 9 filing with the U.S. Securities and Exchange Commission.

Patriot has worked to refinance debt since at least May, when it said it hired Blackstone Group LP while meeting with lenders to complete loan and credit facilities. Also that month, Engelhardt took over as Patriot’s chief executive officer after Richard M. Whiting resigned.

Forecast Cut

The company postponed closing a $625 million, 9.5 percent five-year loan after saying May 14 that a key customer might default on a contract for coal that had fallen as much as $30 a ton below the original contracted price. The same day, the company cut a 2012 forecast for sales of steelmaking coal.

On June 1, Patriot filed a complaint in federal court in Charleston, West Virginia, alleging that Fort Meyers, Florida- based Keystone Industries LLC breached a contract to buy “hundreds of thousands of tons” of coal. Later that month, Principal Accounting Officer Christopher Knibb resigned and was replaced by Chief Financial Officer Mark Schroeder, according to filings with the SEC.

Patriot got 87 percent of its 2011 revenue from coal mined in the Central Appalachian region of the U.S., which includes Kentucky and West Virginia. Its operating costs in Appalachia were $71.06 a ton last year while the average price of Central Appalachian coal futures was $75.86.

The bankruptcy case is In re Patriot Coal Corp.; 12-bk- 12900; U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Tiffany Kary in New York at; Dawn McCarty in Wilmington, Delaware at

To contact the editor responsible for this story: John Pickering at


Patriot Said to Get Funding Ahead of Possible Bankruptcy

By Beth Jinks, Krista Giovacco and Jeffrey McCracken - Jul 10, 2012 4:04 AM GMT+0700

Patriot Coal Corp. (PCX), the U.S. fuel producer that has lost more than $7 billion in value, has lined up financing ahead of a bankruptcy filing that may come as soon as today, said two people with knowledge of the matter.

The so-called debtor-in-possession financing is being provided by Citigroup Inc., Barclays Plc and Bank of America Corp., said the people, who asked not to be identified as the process is private.

Patriot mining operations. Photographer: Douglas Graham/Roll Call via Getty Images

U.S. coal use in the first quarter was the lowest for that period since 1988, according to the Energy Information Administration. Photographer: Gary Gardiner/Bloomberg

Patriot is the biggest casualty so far of the slump in the U.S. coal industry, which has seen tens of millions of tons of production cutbacks this year. Patriot, which owns mines in Kentucky and West Virginia, this year idled some of its mines, reduced a 2012 forecast for sales of steelmaking coal, and warned of a potential default by a key customer.

Coal miners are struggling because of a combination of a warm winter, utilities switching some generating capacity to cheaper natural gas and regulatory moves to curb emissions from coal-burning power plants. U.S. coal use in the first quarter was the lowest for that period since 1988, according to the Energy Information Administration.

The miner’s shares fell 72 percent to 61 cents by 4:15 p.m. New York time. Spun off five years ago by Peabody Energy Corp. (BTU), Patriot has tumbled 93 percent this year. The company’s market value peaked at $7.5 billion in 2008.

Patriot’s $250 million of 8.25 percent notes due in April 2018 dropped 7.9 cents to 34.1 cents on the dollar as of 4:57 p.m., according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The bonds are yielding 36 percent, Trace data show.

Working on Loans

Patriot, Citigroup, Barclays and Bank of America didn’t immediately return phone calls seeking comment.

The St. Louis-based company said in May it hired Blackstone Group LP as it worked with lenders to arrange $625 million of loans and credit facilities to refinance other debt. A commitment letter from Citigroup, Barclays and Natixis expired July 6.

Chairman Irl Engelhardt took over as Patriot’s chief executive officer on May 29 after Richard M. Whiting resigned.

Patriot last month sued Keystone Industries LLC over claims it broke a purchase contract for “hundreds of thousands of tons” of coal.

To contact the reporters on this story: Beth Jinks in New York at; Krista Giovacco in New York at; Jeffrey McCracken in New York at

To contact the editors responsible for this story: Simon Casey at; Jeffrey McCracken at; Faris Khan at


Boeing Said to Win $8.4 Billion United Order for 100 Jets

By Thomas Black, Mary Schlangenstein and Susanna Ray - Jul 10, 2012 4:15 AM GMT+0700

Boeing Co. is set to win an order this week from United Continental Holdings Inc. (UAL) for 100 of the planemaker’s 737 jets in a transaction that may be valued at about $8.4 billion, people familiar with the matter said.

The accord includes options for as many as 100 more jets and will be announced July 12 in Chicago, where both companies are based, said two of the people, who asked not to be identified because details aren’t public. The order will include the upgraded 737 Max model, the people said.

The Boeing Co. 737 MAX 9. Source: Boeing Co. via Bloomberg

The Boeing Co. 737 MAX 8. Source: Boeing Co. via Bloomberg

A deal later this week would be a boost for Boeing as it promotes the Max at the Farnborough International Air Show outside London. The company wasn’t offering the jet at the June 2011 expo in Paris, where Airbus SAS routed Boeing with sales and commitments for its revamped single-aisle A320neo.

“It’s one of many positives for Boeing,” said Ray Neidl, a Maxim Group LLC analyst who covers Boeing and United. “We all knew for a long time the airlines were starving for a more fuel- efficient narrowbody. Now that one’s available in the next few years, airlines are falling over themselves to get them.”

Boeing opened the air show today by announcing a $7.2 billion order for 75 single-aisle 737 Max aircraft from Air Lease Corp. (AL), the first such purchase by a lessor. General Electric Co. (GE)’s jet-leasing unit also is poised to purchase 100 737s, people familiar with that transaction said.

Exclusive Supplier

United’s mix of Max jets and current 737s will determine the list value of its order. The 737-8, the top-selling existing model, retails for $84.4 million, and the Max 8, the equivalent new plane, is $95.5 million, according to Boeing’s website.

The order is United’s first since the 2010 merger creating the carrier from former United parent UAL Corp. and Continental Airlines Inc. Boeing was Continental’s exclusive plane supplier for two decades, and the accord deepens ties between the world’s largest airline and the biggest aerospace company.

United declined to comment, said Christen David, a spokeswoman. A Boeing spokesman, Tim Bader, said the company had no comment.

Boeing rose 0.5 percent to $74.03 at the close in New York. United fell 1.4 percent to $23.90, declining along with most carriers in the Bloomberg U.S. Airlines Index. (BUSAIRL)

United held talks over about six months on a possible mixed order of current and new-model 737s and A320s before opting to stay with Boeing, people familiar with those discussions said in April.

Planemaker Competition

The U.S. planemaker is trying to reclaim the top spot in commercial production lost to Airbus in 2003. Toulouse, France- based Airbus had record orders of 1,419 aircraft in 2011, while Boeing’s tally was 805. Airbus won 95 percent of narrow-body sales at the Paris show, and has said 2012 orders may fall by half as an initial flurry of A320neo purchases wanes.

United’s order will make it the last of the four biggest U.S. carriers to announce single-aisle jet purchases in less than a year.

Delta Air Lines Inc. agreed in August to acquire 100 737s, a month after AMR Corp.’s American Airlines split a record order for 460 jets between Boeing and Airbus. Southwest Airlines Co. agreed in December to buy 208 737s in an order that was the first for the Max.

Boeings make up about 78 percent of United’s mainline jets, with the rest made by Airbus. The 555-plane regional fleet is split about evenly between Bombardier Inc. (BBD/B) and Embraer SA. (EMBR3)

United Fleet

Narrow-body jets made up 78 percent, or 545 planes, of United’s 701 mainline planes, according to its latest annual report. Boeing 757-200s are the oldest of United’s single-aisle jets, with an average age of 18.2 years, followed by 737-500s that average 16.6 years old. Both models are out of production.

Separately, United said today it plans a special livery for the Boeing 787 Dreamliners it will begin receiving in September, with a gold line running along the fuselage. United, the first North American carrier to receive the composite-plastic plane, expects to start flying five of the jets this year.

The airline has firm orders for 50 Dreamliners with deliveries through 2019.

To contact the reporters on this story: Thomas Black in London at; Mary Schlangenstein in Dallas at; Susanna Ray in Seattle at

To contact the editors responsible for this story: Ed Dufner at; Benedikt Kammel at


Alcoa Beats Estimates as Carmakers Buy More Aluminum

By Sonja Elmquist - Jul 10, 2012 4:10 AM GMT+0700

Alcoa Inc. (AA), the largest U.S. aluminum producer, reported second-quarter earnings and revenue that beat analysts’ estimates after an increase in orders from the auto and aerospace industries.

The company had a net loss of $2 million, or break even on a per share basis, compared with net income of $322 million, or 28 cents, a year earlier, New York-based Alcoa said today in a statement. Profit excluding a charge related a proposed settlement of Aluminium Bahrain BSC (ALBH)’s lawsuit and other items was 6 cents a share, compared with the 5-cent average of 19 estimates compiled by Bloomberg. Sales fell 9.4 percent to $5.96 billion from $6.59 billion, exceeding the $5.81 billion average of 11 estimates.

Alcoa, whose customers include Ford Motor Co. and Toyota Motor Corp., is benefiting as car and truck makers are being compelled by regulations to produce lighter vehicles. The U.S. aluminum industry will ship 16 percent more aluminum to automakers in 2012 as car output climbs 11 percent, according to Lloyd O’Carroll, an analyst at Davenport & Co. in Richmond, Virginia. Aircraft manufacturers also face record backlogs as airlines hurry to refurbish aging fleets.

“In their downstream business and midstream business, those two pieces we are seeing margin expansion,” Brian Yu, a San Francisco-based analyst at Citigroup Inc. who recommends holding Alcoa’s shares, said in a July 6 interview. “It’s a sign that, yes, the company is doing some things right.”

Forecast Reaffirmed

Alcoa rose 0.2 percent to $8.78 as of 5:03 p.m. in New York after the close of regular trading. The company, which is typically the first company in the Dow Jones Industrial Average to report quarterly results, has fallen 47 percent in the past year, the worst performance after Hewlett-Packard Co. (HPQ)

The aluminum producer also reaffirmed its forecast that demand for the metal will rise 7 percent this year, and that there will be a global supply deficit.

Global aluminum production rose 4.1 percent to 14.9 million tons in the first four months of 2012, beating usage by 623,703 tons, according to data compiled by Bloomberg. That surplus has weighed on prices. Aluminum for delivery in three months on the London Metal Exchange averaged $2,019 a metric ton in the quarter, 23 percent less than a year earlier.

“Although aluminum prices are down, the fundamentals of the aluminum market remain sound with strong demand and tight supply,” Alcoa Chief Executive Officer Klaus Kleinfeld said in the statement. “Alcoa is successfully capitalizing on accelerating demand in high-growth end markets such as aerospace and automotive.”

Price Decline

Alcoa’s earnings haven’t fully recovered since commodity prices tumbled after Lehman Brothers Holdings Inc. filed for bankruptcy at the height of the financial crisis in September 2008.

The company’s competitors have also suffered from the decline in aluminum prices. Russia’s United Co. Rusal, the largest producer, saw first-quarter profit slump to $74 million from a restated $451 million a year earlier. The company said in May it’s studying cutting as much as 600,000 tons of smelting output.

“The pilot light has kind of gone out on aluminum prices globally,” Jorge Beristain, a Greenwich, Connecticut-based analyst with Deutsche Bank AG, said by telephone today. “said. ‘‘Not a quarter to write home about. It’s not a turnaround-type quarter.’’

Norway’s Norsk Hydro ASA (NHY), the fifth-biggest producer, also posted a 90 percent decline in first-quarter earnings and said last month it would shut 120,000 tons of capacity in Australia because of weaker demand and oversupply.

Aluminum prices will average $2,188 a ton in the third quarter, according to the average of 21 analysts’ estimates compiled by Bloomberg. The fourth-quarter price will be $2,275, the data show.

To contact the reporter on this story: Sonja Elmquist in New York at

To contact the editor responsible for this story: Simon Casey at


Goldman’s Hawker Beechcraft Accepts $1.79 Billion Offer

By Susanna Ray and Thomas Black - Jul 10, 2012 4:36 AM GMT+0700

Hawker Beechcraft Inc., the business- jet maker owned by Goldman Sachs Group Inc. (GS) and Onex Corp. (OCX), may draw more bids in an auction after agreeing to sell itself to Superior Aviation Beijing Co. for $1.79 billion.

Superior will make payments over the next six weeks to help keep bankrupt Hawker in business until the deal closes, according to a statement today from the companies. The sale, which doesn’t include the planemaker’s defense business, remains subject to U.S. Bankruptcy Court approval and the auction process.

Hawker traces its history partly to Walter and Olive Beech, who started Beech Aircraft Corp. during the Great Depression in 1932, according to the company’s website. Photographer: Larry W. Smith/Bloomberg

Hawker Beechcraft sought bankruptcy protection in May after the company and other private-jet manufacturers struggled with lower demand following the recession. The planemaker’s debt included a term loan and notes used for the portion of its 2007 takeover price of $3.3 billion that wasn’t covered by $1 billion cash from buyers Goldman Sachs and Onex.

“Superior has had a long-standing interest in the commercial aircraft business of Hawker Beechcraft, having first approached the company several years ago” about a strategic partnership, said Chief Executive Officer Steve Miller. The merger would provide more “access to the Chinese business and general aviation marketplace, which is forecast to grow more than 10 percent a year for the next 10 to 15 years.”

Perella Weinberg

Hawker retained Perella Weinberg Partners LP as a financial adviser in December and hired Miller, a turnaround specialist, in February. Before its May 3 bankruptcy filing, the company and Perella Weinberg identified 35 potential buyers from strategic purchasers to private-equity firms, according to a court filing.

Net losses totaling more than $900 million in two years due to shrinking plane sales and declining U.S. military contracts prompted Hawker’s bankruptcy. The company received eight bids from mid-May through mid-June, according to the filing.

Hawker’s aircraft include the Hawker 4000 business jet and the Beechcraft King Air propjet. The company competes with planemakers including Textron Inc. (TXT)’s Cessna Aircraft Co., Embraer SA (EMBR3), Gulfstream Aerospace Corp. and Bombardier Inc. (BBD/B)

Textron is interested in buying Hawker for its propeller- driven business planes and military training aircraft, Chief Executive Scott Donnelly said in an interview today at the Farnborough air show near London before Superior’s announcement.

Textron Interest

Donnelly said Textron sees the most value in the Beechcraft King Air planes and the T-6, known as the trainer because the military uses the planes as a training aircraft. The Hawker 4000 and 900, which are jet planes that carry about 10 passengers, are struggling against the competition, he said.

“There are problematic parts and there are good parts. For the right number, you could manage that and we could make it a win for our shareholders,” Donnelly said. “But there’s no reason for a company like ours to overpay for that asset.”

Mahindra & Mahindra Ltd. (MM), India’s biggest maker of utility vehicles, also was considering bidding for the planemaker, a person with knowledge of the matter said July 5. Mahindra also builds turboprop aircraft, as does Hawker.

The Indian company has majority stakes in component maker Aerostaff Australia and Gippsland Aeronautics, and has been in talks with India’s National Aerospace Laboratories on possibly partnering for a regional jet.

Attractive Bid

Bill Boisture, chairman of Hawker Beechcraft, said the decision to move forward with the Chinese bidder was “based on two key factors: the bid for the company was the most attractive we received during the strategic review process and the going- forward plan offered the most continuity for our business.”

Superior is committed to maintaining Hawker Beechcraft’s strong presence in the United States as well as its employee base and management team, Boisture said.

Hawker traces its history partly to Walter and Olive Beech, who started Beech Aircraft Corp. during the Great Depression in 1932, according to the company’s website. With designer Ted Wells, they built the Beech Model 17, a biplane for business executives that sold for about $15,000, according to the U.S. Centennial of Flight Commission.

A reorganization plan that Hawker filed June 30 would give control of the company to secured creditors holding debt valued at $921.6 million, canceling other interests in the company. New York-based Goldman Sachs and Toronto-based Onex each owned 49 percent of Hawker Beechcraft stock, while former managers and directors held the remainder.

The company said it would borrow an unspecified amount to exit court protection and repay a $400 million loan that financed operations while in bankruptcy.

To contact the reporter on this story: Susanna Ray in Seattle at

To contact the editor responsible for this story: Ed Dufner at


Euro Rises From Two-Year Low as Finance Ministers Meet

By Joseph Ciolli - Jul 10, 2012 4:22 AM GMT+0700

The euro advanced from a two-year low versus the dollar as finance ministers from the 17-nation currency bloc met to discuss measures to ease its debt crisis.

The euro earlier slid to as low as $1.2251, the weakest since July 2010. Photographer: Chris Ratcliffe/Bloomberg

July 9 (Bloomberg) -- Adrian Schmidt, a foreign-exchange strategist at Lloyds Bank Wholesale Banking and Markets, talks about Federal Reserve monetary policy and the outlook for the euro and pound. He speaks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

July 8 (Bloomberg) -- Italian Prime Minister Mario Monti discusses the current level of yield spreads on European sovereign debt. He talks with Bloomberg Television's Caroline Connan in Aix-en-Provence, France. (Source: Bloomberg)

July 8 (Bloomberg) -- French Finance Minister Pierre Moscovici talks with reporters in Aix-en-Provence, France, about the need to implement debt-crisis measures agreed by heads of government on June 29. (Source: Bloomberg)

July 9 (Bloomberg) -- Paul de Grauwe, a professor at the London School of Economics, talks about the European Stability Mechanism, European Central Bank policy and the region’s debt crisis. He speaks with Tom Keene and Sara Eisen on Bloomberg Television’s “Surveillance.” (Source: Bloomberg)

July 6 (Bloomberg) -- Robert Parker, senior adviser at Credit Suisse Asset Management, talks about European Central Bank longer-term refinancing operations and Barclays Plc's libor-fixing scandal. Speaking with Linzie Janis on Bloomberg Television's "On the Move," he also discusses investment strategy and the outlook for the U.S. and German economies. (Source: Bloomberg)

July 7 (Bloomberg) -- New York University Professor Nouriel Roubini discusses "greedy" bankers, the euro-zone crisis and risks facing the global economy in 2013. He speaks in Aix-en-Provence, France, with Bloomberg Television's Caroline Connan. (Source: Bloomberg)

The shared currency rose from the weakest in more than a month against the yen as European Central Bank President Mario Draghi signaled policy makers may be open to another interest- rate cut if the economic outlook warrants it. The dollar and yen gained earlier as machinery orders in Japan plunged and inflation in China declined, adding to concern economic growth is faltering and fueling demand for refuge.

“What we’ve seen today is a bit of short covering,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, said in a telephone interview. “Euro-dollar is going to continue to slip lower with monetary policy in the euro zone so loose.” Short covering is when investors end bets an asset will decline.

The euro rose for the first time in four days, gaining 0.2 percent to $1.2313 at 5 p.m. New York time, after falling earlier to $1.2251, the weakest level since July 2010. The 17- nation currency advanced 0.1 percent to 97.95 yen after earlier touching 97.43 yen, the lowest since June 5. Japan’s currency strengthened 0.1 percent to 79.56 per dollar.

Brazil’s real was the worst performer against the greenback after South Korea’s won. The real slid 0.2 percent to 2.0324 per dollar. Norway’s krone rose versus the euro and dollar, appreciating 0.4 percent to 7.4866 to the shared currency and gaining 0.6 percent to 6.0804 per dollar.

Aussie Weakens

Australia’s dollar fell after the official Xinhua News Agency reported yesterday Chinese Premier Wen said the government will intensify fine-tuning of policies in response to downside risks to economic growth. The comments came after the South Pacific nation’s biggest trading partner announced the second interest-rate cut in a month.

The Aussie slid as much as 0.6 percent to $1.0155 before trading at $1.0208, down less than 0.1 percent. It lost 0.2 percent to 81.21 yen and fell 0.3 percent to A$1.2062 per euro.

Consumer prices in China rose 2.2 percent in June from a year earlier, according to a report released today. It was the slowest pace in 29 months and compared with the median forecast in a Bloomberg poll for a 2.3 percent inflation rate.

Machinery orders in Japan, an indicator of capital spending, slumped 14.8 percent in May from April, the nation’s Cabinet Office said in a report.

Three Months

Stocks fell, with the Standard & Poor’s 500 Index (SPX) declining 0.2 percent and the MSCI World Index (MXWO) dropping 0.4 percent.

The 17-nation currency erased losses as the European Commission said future recapitalizations of banks by the European Stability Mechanism will have “no need for a sovereign guarantee.” Details of how the system will work remain to be negotiated, commission spokesman Simon O’Connor told reporters in Brussels today.

European finance ministers met to discuss crisis measures adopted by heads of government at a summit last month.

European Union leaders pledged June 29 to enable the region’s permanent bailout fund to make capital injections directly to distressed lenders rather than funneling aid through governments, once a single bank-supervision system is created.

“In the near-term, we think the euro could come back a little bit as we get some certainty about this bank program in Europe, and also increasing prospects of QE3 here in the U.S.,” said Robert Sinche, global head of currency strategy at Royal Bank of Scotland Group Plc’s RBS Securities. He was referring to speculation the Federal Reserve may begin a third round of large-scale debt purchases.

Weaker Euro

The shared currency will probably weaken to about $1.15 by the middle of next year, Sinche, who’s based in Stamford, Connecticut, said today in an interview on Bloomberg Television.

Draghi said the ECB is “searching for actions that could attenuate the current crisis,” as long as they don’t breach the central bank’s inflation-fighting mandate. The bank cut its main refinancing rate to a record low 0.75 percent last week.

While the ECB never pre-commits, it will “do everything to maintain price stability -- from both sides -- in the euro area,” Draghi told lawmakers in Brussels today when asked if the central bank could cut rates again.

The shared currency has fallen 3.6 percent in the past three months, the worst performance among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the biggest winner, rising 4.7 percent, followed by a 3.1 percent increase in the dollar.

Japan Surplus

The yen tends to appreciate in periods of financial and economic turmoil because Japan’s current-account surplus makes it less reliant on foreign capital. Government data showed the surplus was 215.1 billion yen ($2.7 billion) in May, compared with the median estimate for an excess of 493.1 billion yen in a Bloomberg News survey of economists.

Bank of Japan (8301) policy makers are set to meet on July 11-12. Governor Masaaki Shirakawa has said it is fully committed to pursuing “powerful monetary easing” until a 1 percent inflation target set in February is in sight. The central bank has expanded its asset-purchase fund, its main policy tool, by 20 trillion yen this year in a bid to stimulate growth.

To contact the reporter on this story: Joseph Ciolli in New York at

To contact the editor responsible for this story: Dave Liedtka at


U.S. Corn Growers Farming in Hell as Midwest Heat Spreads

By Jeff Wilson - Jul 10, 2012 3:19 AM GMT+0700

The worst U.S. drought since Ronald Reagan was president is withering the world’s largest corn crop, and the speed of the damage may spur the government to make a record cut in its July estimate for domestic inventories.

Corn in Belleville, Illinois. Photographer: Erik M. Lunsford/St. Louis Post-Dispatch/MCT/Zuma Press

Dried corn plants in Idaville, Indiana. Photographer: Daniel Acker/Bloomberg

Farmer Andy Stoll looks over drought damaged field corn near his home in Idaville, Indiana, on July 6, 2012. Photographer: Daniel Acker/Bloomberg

Crops on July 1 were in the worst condition since 1988, and a Midwest heat wave last week set or tied 1,067 temperature records, government data show. Rabobank International said June 28 that corn may rise 15 percent more by December to near a record $8 a bushel. Photographer: Daniel Acker/Bloomberg

July 9 (Bloomberg) -- Jane King summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

July 9 (Bloomberg) -- Richard Clarida, global strategic adviser at Pacific Investment Management Co., talks about investment strategy and the European sovereign-debt crisis. Clarida speaks with Adam Johnson and Alix Steele on Bloomberg Television’s “Lunch Money.” (Source: Bloomberg)

Tumbling yields will combine with the greatest-ever global demand to leave U.S. stockpiles on Sept. 1, 2013, at 1.216 billion bushels (30.89 million metric tons), according to the average of 31 analyst estimates compiled by Bloomberg. That’s 35 percent below the U.S. Department of Agriculture’s June 12 forecast, implying the biggest reduction since at least 1973. The USDA updates its harvest and inventory estimates July 11.

Crops on July 1 were in the worst condition since 1988, and a Midwest heat wave last week set or tied 1,067 temperature records, government data show. Prices surged 37 percent in three weeks, and Rabobank International said June 28 that corn may rise 9.9 percent more by December to near a record $8 a bushel. The gain is threatening to boost food costs the United Nations says fell 15 percent from a record in February 2011 and feed prices for meat producers including Smithfield Foods Inc. (SFD)

“The drought is much worse than last year and approaching the 1988 disaster,” said John Cory, the chief executive officer of Rochester, Indiana-based grain processor Prairie Mills Products LLC. “There are crops that won’t make it. The dairy and livestock industries are going to get hit very hard. People are just beginning to realize the depth of the problem.”

Top Commodities

Corn rallied 18 percent in the month through July 6 on the Chicago Board of Trade to $6.93, trailing only wheat among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which rose 2 percent. The MSCI All-Country World Index of equities advanced 4 percent, and the dollar gained 1.3 percent against a basket of six currencies in the period. Treasuries returned 0.5 percent, a Bank of America Corp. index shows. Corn for December delivery in Chicago extended the rally today, jumping 5.3 percent to settle at $7.30.

About 53 percent of the Midwest, where farmers harvested 60 percent of last year’s U.S. crop, had moderate to extreme drought conditions as of July 3, the highest since the government-funded U.S. Drought Monitor in Lincoln, Nebraska, began tracking the data in 2000. In the seven days ended July 6, temperatures in the region averaged as much as 15 degrees Fahrenheit above normal. Soil moisture in Illinois, Indiana, Ohio, Missouri and Kentucky is so low that it ranks in the 10th percentile among all other years since 1895.

Fields are parched just as corn plants began to pollinate, a critical period for determining kernel development and final yields. About 48 percent of the crop in the U.S., the world’s largest grower and exporter, was in good or excellent condition as of July 1, the lowest for that date since 1988 and down from 77 percent on May 18, government data show.

Yield Losses

The USDA may cut its production forecast by 8.5 percent, the biggest July reduction since a drought in 1988 led the government to cut its estimate by 29 percent, a separate Bloomberg survey of 14 analysts showed. Farmers probably will collect 13.534 billion bushels, compared with the USDA’s June forecast for a record 14.79 billion, based on the average of estimates in the survey.

Goldman Sachs Group Inc. said July 2 that yields will reach 153.5 bushels an acre, below the USDA estimate for an all-time high of 166.

“Corn yields were falling five bushels a day during the past week” in the driest parts of the Midwest, said Fred Below, a plant biologist at the University of Illinois in Urbana. “You couldn’t choreograph worse weather conditions for pollination. It’s like farming in hell.”

Record Crop

Even with the drought, U.S. production in 2012 is expected to rise 9.5 percent from last year to a record after farmers sowed the most acres since 1937, the survey showed. Higher output would help boost inventories before next year’s harvest, up from what analysts said will be a 16-year low on Sept. 1 of 837 million bushels.

Futures fell 2.2 percent on July 6, the most in two weeks, after the USDA reported a 90 percent drop in export sales in the week ended June 28. U.S. refiners curbed output of corn-based ethanol last week to the lowest since September as gasoline demand weakened, government data show.

Corn’s rally also may stall if Europe’s widening debt crisis and a faltering global economy erode record demand for the grain. The International Monetary Fund will reduce its estimate for growth this year because of weakness in investment, employment and manufacturing in Europe, the U.S., Brazil, India and China, Managing Director Christine Lagarde said July 6.

“The shrinking global economy is the elephant in the room that no one wants to discuss as long as U.S. crops are under siege,” said Dale Durcholz, the senior market analyst for Bloomington, Illinois-based AgriVisor LLC. “Corn demand at $5 is much more robust than when it costs $7.”

Changing Expectations

Corn tumbled into a bear market in September and kept dropping as farmers planted more crops. Robert Manly, the chief financial officer at Smithfield Foods, the largest U.S. pork producer, told analysts on a June 14 conference call that hog- raising costs would “begin to decline starting in the fall.” Corn has surged 41 percent since then, reaching a nine-month high today.

U.S. corn production may drop to 11 billion bushels, the smallest crop in seven years, because the hot, dry weather killed the pollen and rains now may be too late to reverse the damage, according to Cory, the Indiana mill owner and a former investment banker. Prices may reach $9 before demand slows, he said.

World corn use rose to a record every year since 1997 as the expanding economy boosted incomes and the consumption of meat and dairy products from animals raised on the grain. The USDA projected last month a 6.4 percent increase in global demand to 923.39 million tons in the year that starts Sept. 1, the biggest gain in six years. More U.S. output went to ethanol production than livestock feed in 2011 for the first time ever.

Vulnerable Period

While the U.S. harvest is about two months away, the drought reached plants at the most vulnerable period in their growing cycle, said Nick Higgins, a London-based analyst at Rabobank, predicting a 13.488 billion-bushel harvest.

Based on current soil moisture and June temperatures, the drought is probably the worst since 1988, said Joel Widenor, a vice president at the Commodity Weather Group in Bethesda, Maryland. The private forecaster said July 5 that corn output this year will be 13.52 billion bushels, and that hot, dry weather in the next two weeks may reduce yields further.

The drought may spark a rebound in global food prices this month through October, halting a slide that sent costs in June to the lowest level in 21 months, Abdolreza Abbassian, an economist in Rome at the United Nations’ Food & Agriculture Organization, said July 5.

Base Ingredient

“Corn is key because of its widespread use as a base ingredient in so many foods and for its use in feed for livestock,” said Stanley Crouch, who helps oversee $2 billion of assets as chief investment officer at New York-based Aegis Capital Corp. “We are at the tipping point.”

In May, retail prices of boneless hams, ground beef and cheese in the U.S. were close to all-time highs set earlier this year, while chicken breast jumped more than 12 percent during the first five months of the year, government data show.

“When people look at rising prices for hamburger, butter, eggs and other protein sources from higher corn costs, that’s when more money ends up in the food basket,” said Minneapolis- based Michael Swanson, a senior agricultural economist at Wells Fargo & Co., the biggest U.S. farm lender. “We were hoping for a break, and we aren’t going to get it.”

To contact the reporter on this story: Jeff Wilson in Chicago at

To contact the editor responsible for this story: Steve Stroth at


RIM Customers Working on Contingency Plans

By Scott Moritz and Olga Kharif - Jul 10, 2012 3:21 AM GMT+0700

Research In Motion Ltd. (RIM) customers from GoDaddy Group Inc. to asset manager Thames River Capital UK Ltd. are preparing for the worst: the loss of the BlackBerry service their employees depend on to communicate.

RIM’s stock has slumped more than 70 percent in the past year, and tumbled 19 percent on June 29 after the company posted a quarterly loss and delayed the BlackBerry 10 operating system, increasing the pressure on RIM to find a buyer or sell assets. While RIM has built infrastructure to ensure continued service, some customers are devising backup plans as RIM prepares to face shareholders at its annual meeting tomorrow.

Corporate customers, the backbone of RIM’s business, are fortifying contingency plans so they won’t be affected by a possible breakup of BlackBerry-maker Research In Motion Ltd., or other setbacks. Photographer: Simon Dawson/Bloomberg

“In the past three months there’s been a lot of concern that the BlackBerry platform won’t be around in the future,” said Maribel Lopez, founder of Lopez Research, a wireless- industry consultant based in San Francisco. “It’s not unheard of for a large phone manufacturer to go out of business.”

Corporate customers, the backbone of RIM’s business, are fortifying contingency plans so they won’t be affected by a possible breakup of the BlackBerry-maker or other setbacks. With millions of employees connecting to the office through mobile e- mail, companies have been eager to establish a fallback or replacement plan, said Avi Greengart, a technology research director at Current Analysis.

Thames River Capital supplies about 140 of its 170 employees with smartphones, most of them BlackBerrys, said Robert Cockerill, head of infrastructure at the London-based money manager. With the delay of BlackBerry 10 and a service contract with RIM expiring this year, Cockerill said he expects much of his staff to switch to Apple Inc.’s (AAPL) iPhone or devices based on Google Inc.’s Android platform.

Service Disruption

Cockerill has brought in MobileIron Inc., a Mountain View, California-based developer of software that helps companies manage and protect data on mobile devices and tablets. MobileIron provides security for Thames River Capital including encryption and password protection for non-BlackBerry devices such as iPads, he said.

Thames River Capital is preparing for scenarios where BlackBerry service may be shut down, disrupted, or if a competitor such as Microsoft Corp. (MSFT) acquires RIM and converts the operating system to its Exchange e-mail service, he said.

“There is a risk of RIM getting bought,” Cockerill said in an interview. “But if you have the right support you can be agnostic and it won’t really matter.”

MobileIron Chief Executive Officer Bob Tinker said his customer list includes 100 Fortune 500 companies, and about a quarter of those customers are financial services firms.

Embrace Innovation

“Large enterprises don’t want to be locked in with a single vendor anymore,” Tinker said in an interview. Customers want to embrace all the innovation in mobile and RIM’s delay of BlackBerry 10 doesn’t help that, he said.

“CIO’s are now asking us: ‘What do we do if RIM gets acquired or if they restructure,’” said Tinker.

Norton Rose LLP, a law firm with 6,000 BlackBerry-equipped employees, is using MobileIron’s software to support iPhones and iPads, which were given to some staff members as secondary devices, said Vlad Botic, group enterprise architect at the London-based firm.

Botic, who said Norton Rose would like to continue using BlackBerrys, began exploring alternatives last year after the three-day BlackBerry outage that caused users around the world to lose data services amid a network failure.

“RIM isn’t in a good position right now,” Botic said in an interview. “The problem with BlackBerry, which was highlighted when the service went down, was that the only way to solve it is with an entirely new device.”

‘Significant Outage’

While the chance of BlackBerry service getting shut down is slim, Botic said he has scheduled a meeting with RIM this week to seek assurances that there won’t be a disruption in the event of a takeover.

GoDaddy, an Internet domain-name and hosting company, could switch users to iPhone or Android devices “within hours,” said Auguste Goldman, chief infrastructure officer at the Scottsdale, Arizona-based company.

In the event of a “significant outage” for BlackBerry devices, GoDaddy has a plan to migrate users to other platforms, Goldman said in an interview.

“The BlackBerry infrastructure and services are among our most valuable assets,” said Nick Manning, a spokesman for Waterloo, Ontario-based RIM. “BlackBerry customers depend on our robust network and they can continue to depend on it going forward.”

RIM shares fell 5.3 percent to $7.67 at the close in New York.

iPhone, Android

Six staffers at Nationwide Mutual Insurance Co. first began planning for the possibility of a disruption in BlackBerry service last year. To prepare, Nationwide retained Good Technology Inc., whose software for servers and phones can provide secure corporate e-mail and calendar services to iPhones and Android devices.

“You could see that RIM started to decline,” Robert Burkhart, director of new technology innovation at Nationwide, said in an interview.

Today, the number of BlackBerrys Nationwide associates use is down to 7,000 from about 8,500 a year ago, while the number of non-BlackBerry devices used has risen from zero to 4,450, Burkhart said.

“We are well on our way to having a dual environment, so if RIM did go out, we’d be okay,” Burkhart said. “If people are starting contingency plans now, they are behind the eight ball. They should have been looking at this all along.”

Good Technology, which works with 4,000 corporate customers worldwide, including eight of the top 10 financial services companies, has seen an inflow of customers concerned about RIM’s prospects and making contingency plans.

Contingency Plans

“We’ve had two meetings this month with large financial services firms on this topic,” Brian Carr, senior vice president of worldwide sales at Sunnyvale, California-based Good Technology, said in an interview. “In the last year, I talked with half of Fortune 100 companies, and it’s a concern for all of them. Every single one of them is looking at contingency plans.”

The concerns are prompting many companies to speed up their transition from BlackBerries to other types of mobile devices, Carr said.

RIM has struggled to keep up with Apple’s iPhone and devices based on Google’s (GOOG) Android platform. Last month, RIM said it would cut 5,000 jobs and posted a quarterly loss that was five times bigger than projected. Sales last quarter plunged 43 percent as RIM’s share of the global smartphone industry fell by more than half to 6.4 percent in the first three months of the year, according to research firm IDC.

BlackBerry Migration

“RIM’s situation is dire, but even in a worst-case scenario, RIM’s servers aren’t likely to get turned off anytime soon,” said Current Analysis’s Greengart. “Still, IT managers are looking more seriously at alternatives to BlackBerry. There’s a whole industry ready to provide security and management around Apple and Android,” he said.

The migration from BlackBerrys started two years ago for Ken Lawonn, senior vice president of strategy and technology at Alegent Health, an Omaha, Nebraska-based health-care provider.

The shift was prompted by user preferences, rather than concerns about the future of RIM, said Lawonn who uses Good Technology’s software. The number of Alegent’s 300 smartphone users with BlackBerrys has shrunk to 10 percent from about 50 percent two years ago, he said.

“Should something occur, we believe that’s going to be a fairly easy transition,” Lawonn said. “If my BlackBerry broke down, I’d look at the options, and if a BlackBerry wasn’t available, I’d pick up an iPhone and be on my way.”

To contact the reporters on this story: Scott Moritz in New York at; Olga Kharif in Portland at

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


U.S. Stocks Post Longest Slump in 1 Month on Europe Woes

By Rita Nazareth and Julia Leite - Jul 10, 2012 4:52 AM GMT+0700

U.S. stocks fell, giving benchmark indexes the longest slump in more than a month, after a jump in Spanish bond yields above 7 percent intensified concern about Europe’s crisis and as investors awaited Alcoa Inc.’s results.

Alcoa advanced 0.2 percent at 5:46 p.m. New York time after earnings and revenue analysts’ beat estimates. Exxon Mobil Corp. (XOM) and DuPont Co. dropped more than 1.3 percent to pace losses among the biggest companies. The largest payment networks Visa Inc. (V) and MasterCard (MA) Inc. slumped at least 1.3 percent after being downgraded at UBS AG. Patriot Coal (PCX) Corp. plunged 72 percent before it filed for bankruptcy protection.

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

July 9 (Bloomberg) -- Bloomberg’s Adam Johnson, Trish Regan and Matt Miller report on today’s ten most important stocks including Boeing, Visa and Alcoa. (Source: Bloomberg)

July 9 (Bloomberg) -- Dave Lutz, head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co., and Dan Stecich, a senior vice president at TJM Institutional Services, talk about the outlook for U.S. corporate earnings and the stock market. They speak with Stephanie Ruhle and Adam Johnson on Bloomberg Television's "Lunch Money." (Source: Bloomberg)

July 9 (Bloomberg) -- Michael Holland, chairman of Holland & Co., talks about the outlook for quarterly corporate earnings, investment strategy for stocks and JPMorgan Chase & Co.'s trading loss. Holland speaks with Betty Liu, Dominic Chu, Sheila Dharmarajan, Josh Lipton and Alix Steel on Bloomberg Television's "In the Loop." (Source: Bloomberg)

The Standard & Poor’s 500 Index slid 0.2 percent to 1,352.46 at 4 p.m. New York time. The measure dropped 1.6 percent in three days for the longest slump since June 1. The Dow Jones Industrial Average lost 36.18 points, or 0.3 percent, to 12,736.29. Volume for exchange-listed stocks in the U.S. was 5.1 billion shares, 24 percent below the three-month average.

“It’s very concerning,” said Jeff Savage, regional chief investment officer for Wells Fargo Private Bank in Portland, Oregon. His firm manages $169 billion. “Seven percent is not a sustainable level of interest rates for Spain. That’s scary stuff. We can’t have one of our best trading partners going through terrible economic times and not having an effect on U.S. corporate earnings,” he said, referring to Europe.

Stocks joined a global slump as the yield on Spain’s 10- year bond rose above the threshold that prompted bailouts in Greece, Ireland and Portugal. German Finance Minister Wolfgang Schaeuble dismissed a rapid move toward direct bank recapitalization by the European rescue fund, limiting the tools for shoring up Spanish banks as the euro-area crisis simmers.

Earnings Season

Investors also awaited the start of the earnings season as analysts’ estimates signal the first year-over-year profit decline for S&P 500 companies since 2009. Forecasts compiled by Bloomberg show a 1.8 percent drop in profits in the second quarter. Revenue is projected to increase by 2.5 percent.

“People are too pessimistic about earnings,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management. His firm oversees $160 billion. “We may get some better price action in the U.S. as results come in.”

Alcoa (AA), the first company in the Dow to report second- quarter results, added 0.2 percent to $8.78 after the market close. Profit excluding a restructuring charge and other items was 6 cents a share, compared with the 5-cent profit that was the average of 19 estimates compiled by Bloomberg. Sales fell to $5.96 billion from $6.59 billion, exceeding the $5.81 billion average of 11 estimates.

AMD Slumps

Advanced Micro Devices Inc. slumped 9.4 percent to $5.09 after the close of regular trading. It said second-quarter sales fell 11 percent from the previous period, reducing an earlier forecast, citing weaker-than-expected sales in China (AMD) and Europe as well as tepid consumer demand.

Today’s decline trimmed this year’s gain in the S&P 500 to 7.5 percent. Stocks fell last week as jobs data heightened concern about a slowing economy and Europe’s efforts to tame its debt crisis disappointed investors.

Eight out of 10 groups in the S&P 500 retreated as commodity and consumer discretionary shares had the biggest losses. DuPont, a U.S. chemicals producer, slumped 2.9 percent to $47.47. Exxon Mobil fell 1.4 percent to $83.65.

Visa retreated 1.3 percent to $123.65, while MasterCard declined 2.4 percent to $431.27. UBS analyst John Williams changed his rating on the firms’ shares today to sell from neutral, citing weaker U.S. economic data and a global slowdown in growth. Williams said this could harm Visa and MasterCard, which are among the top three performing shares in the S&P’s Information Technology Index (S5INFT) since 2011.

Record Highs

The companies’ shares “sit near all-time highs despite exposure to a weakening global consumer spending backdrop, which makes a slowdown in key metrics inevitable over the next 3 to 6 months,” Williams wrote. “Multiple data points indicate global growth is slowing -- clear negatives for the shares.”

Patriot Coal tumbled 72 percent to 61 cents as two people with knowledge of the matter said the U.S. fuel producer could seek bankruptcy protection as early as today. Patriot filed for bankruptcy after the market closed, as milder winters and a shift to natural gas sent coal demand to a 24-year low.

Navistar International Corp. (NAV) sank 3.1 percent to $23.67. The maker of International brand trucks dropped after Bloomberg Industries said truckmakers will need to reduce production in the second half of the year.

The Bloomberg U.S. For-Profit Education Index (USEDU) of 13 stocks tumbled 4.7 percent. Bridgepoint Education Inc. (BPI) plunged 34 percent to $14.25. The for-profit college company that owns Ashford University tumbled after Ashford’s accreditation application was denied by a regional accreditor.

Declining Prospects

TD Ameritrade Holding Corp. (AMTD) slumped 2.4 percent to $16.40 as declining growth prospects prompted Goldman Sachs Group Inc. to downgrade the online brokerage to sell from neutral.

A measure of health-care stocks had the biggest gain among 10 S&P 500 groups, rising 0.6 percent, amid takeover optimism.

Amerigroup Corp. (AGP) surged 38 percent to $88.79. WellPoint (WLP) Inc., the second-biggest U.S. health insurer, agreed to buy the company for $4.9 billion in cash to expand the number of Medicaid patients it serves as the U.S. health plan for the poor undergoes broad changes in how it is managed.

WellPoint added 3.4 percent to $61.95. The deal also boosted the value of other insurers focusing on Medicaid. WellCare Health Plans Inc. (WCG) soared 18 percent to $62.56. Molina Healthcare Inc. (MOH) rallied 18 percent to $27.12.

Apple Gains

Apple Inc. (AAPL) rose 1.3 percent to $613.89. The world’s most valuable company may sell 4 million to 6 million still-to-be- released smaller iPad tablets in this year’s fourth-quarter holiday season, according to Piper Jaffray Cos. The firm rates Apple overweight, the equivalent of a buy recommendation.

“We believe the smaller iPad, while potentially cannibalizing 10 percent of full size iPad sales, could take 30 percent of total Android tablet sales in the December quarter,” Gene Munster, an analyst for Piper Jaffray, said in a note.

Boeing Co. (BA) added 0.5 percent to $74.03. It is set to win an order this week from United Continental Holdings Inc. for 100 of the planemaker’s 737 jets in a transaction that may be valued at about $8.4 billion, people familiar with the matter said.

The same securities analysts warning of the first decline in quarterly earnings since 2009 are also more bullish than ever on U.S. stocks.

A total of 247 companies in the S&P 500 have more buy ratings than sells and holds, a record in Bloomberg data starting in 2000. Bullish recommendations have been expanding even as Wall Street firms cut their forecast for second-quarter net income in the U.S. to a decrease of 1.8 percent from a gain of 2 percent in April, estimates compiled by Bloomberg show.

Bulls vs Bears

Bears say rising equity volatility, declining profits and the approaching U.S. presidential election mean the 4.5 percent drop in the S&P 500 since April will continue. Bulls say analysts are advising clients to buy because earnings are still on track to reach a record this year and the index is trading 16 percent below its average valuation since the 1950s.

“My picks aren’t based on one quarter,” Howard Rubel, a New York-based equity analyst at Jefferies & Co., said in a July 5 phone interview. “It’s not always captured in a headline how many pieces of judgment one needs to incorporate into a stock recommendation, and a quarterly earnings report is only one item. You have to look at things over a period of time.”

The last time earnings and share ratings diverged was the third quarter of 2009, when the S&P 500 was six months into a rally that lifted it more than 100 percent through April 2012. Analysts predicted a 23 percent drop in S&P 500 annual profit, while 205 companies in the index had more buy ratings than sells and holds. The June-to-August period that year was the index’s last quarter of negative earnings growth.

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