U.K. House Prices Jump, Confidence Rises to Highest in a Year

By Svenja O’Donnell and Brian Swint

Aug. 5 (Bloomberg) -- U.K. house prices jumped almost twice as much as economists forecast in July and consumer confidence rose to the highest in more than a year, adding to evidence that Britain is shrugging off the recession.

Home values climbed 1.1 percent to an average of 159,623 pounds ($269,850), Lloyds Banking Group Plc’s Halifax division said in an e-mailed statement today. The median forecast of 15 economists in a Bloomberg News survey was for a 0.6 percent increase. Nationwide Building Society’s index of consumer sentiment rose to 60, the highest since May 2008.

The housing market is “significantly more stable” and in a better condition than expected, Peter Redfern, chief executive officer of homebuilders Taylor Wimpey Plc, told Bloomberg Television today. The Bank of England will assess tomorrow if signs of an economic recovery are strong enough for it to stop buying assets with newly printed money.

“Over the last month or two we’ve had significantly stronger survey data,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “Maybe there is clearer evidence of stabilization and maybe the economy is gaining a bit of traction. My sense is the Bank of England would quite like to pause” its asset purchases.

House prices rebounded after a 0.4 percent drop in June, Halifax said. Compared with July of last year, home values fell 9.9 percent.

Homebuyer Demand

“Demand for homes has risen, albeit from a very low base, since the start of the year, driven by improvements in affordability and low interest rates,” Martin Ellis, an economist at Halifax, said in the statement. “Higher demand has combined with the low levels of property available for sale to boost sales activity from exceptionally low levels and support prices over the past few months.”

Homeowners expect the value of their properties to rise 0.5 percent in the next six months, the most since December 2007, Nationwide’s report showed. Its consumer confidence index climbed one point from the previous month. TNS surveyed 1,000 people for Britain’s biggest customer-owned lender between June 22 and July 19.

“Consumers might have been reassured by reports that the housing market may be starting to recover,” Martin Gahbauer, Nationwide’s chief economist, said in a statement.

Shop-price inflation is slowing, helping purchasing power, the British Retail Consortium signaled in a separate report today. The annual rate of price gains in stores was 0.5 percent in June, the lowest in seven months. Annual gains in food prices slowed to 3.8 percent, and prices for non-food items fell 1.3 percent on the year, the BRC said.

Factory Output

While surveys have shown improvement in the economy, official statistics have yet to indicate a recovery has become entrenched.

Factory output probably fell for a second month in June according to the median of 25 economists in a Bloomberg News survey. The Office for National Statistics will publish that data at 9:30 a.m. today in London.

The recession has kept pushing up unemployment, which reached the highest since 1995 in the quarter through May. The U.K. economy contracted 0.8 percent in the second quarter after shrinking 2.4 percent in the previous three months.

A measure of hiring for permanent jobs fell in July for the first time since February, KPMG and the Recruitment and Employment Federation said in a separate report today. The gauge of permanent staff appointments by job consultants slipped to 46.1 from 48.6.

Rising Unemployment

“We are cognizant of rising unemployment and constraints on consumer spending generally,” Ralph Topping, chief executive officer of William Hill Plc, told reporters yesterday. The U.K.’s second-biggest bookmaker forecast that full-year betting- shop profit would be lower than analysts predicted.

The Bank of England, whose benchmark interest rate is at a record low of 0.5 percent, will decide tomorrow whether to extend its 125 billion pound ($211 billion) asset-purchase program. Economists are split on the outcome, with 21 out of 44 in a Bloomberg News survey predicting no expansion of the plan and the remainder forecasting that the bank will seek to spend at least another 25 billion pounds.

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; Brian Swint in London at bswint@bloomberg.net.

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British Pound Trades Little Changed Against the Dollar and Euro

By Daniel Tilles

Aug. 5 (Bloomberg) -- The pound was little changed against the dollar and the euro.

The British currency traded at $1.6922 as of 6:13 a.m. in London, from $1.6939 yesterday. The pound was at 85.08 pence per euro, from 85.06 pence.

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net

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U.K. Consumer Confidence Rose to the Highest in a Year in July

By Brian Swint

Aug. 5 (Bloomberg) -- U.K. consumer confidence rose to the highest level in more than a year last month as house prices stopped falling, Nationwide Building Society said.

An index of sentiment climbed to 60 in July, the highest since May 2008 and up from 59 in June, Britain’s biggest customer-owned lender said in an e-mailed statement released today. TNS surveyed 1,000 people for Nationwide between June 22 and July 19.

The figures add to evidence that Britain has passed the worst of the recession. Bank of England policy makers tomorrow will decide whether the recovery is strong enough after five quarters of contraction for policy makers to ease off on their program of buying bonds with newly created money.

“Consumers might have been reassured by reports that the housing market may be starting to recover, and manufacturing output is no longer falling as rapidly as it was a few months ago,” Martin Gahbauer, Nationwide’s chief economist, said in the statement. “Consumers appear to be remaining cautious but not panicked by the economic climate.”

Shop-price inflation is slowing, helping purchasing power, the British Retail Consortium signaled in a separate report today. The annual rate of price gains in stores was 0.5 percent in June, the lowest in seven months. Annual gains in food prices slowed to 3.8 percent, and prices for non-food items fell 1.3 percent on the year, the BRC said.

Homeowner Optimism

About a fifth of Britons expect the economy to worsen in the next six months, compared with about half at the start of the year, Nationwide said. Homeowners expect the value of their properties to rise 0.5 percent in the next six months, the most since December 2007, the report showed.

Nationwide said last week that house prices rose in July for a third month. A manufacturing gauge based on a survey of factories climbed to 50.8, the highest since March 2008, from a revised 47.4 in June, the Chartered Institute of Purchasing and Supply and Markit said on Aug. 3.

Factory production probably fell for a second month in June, posting a 0.1 percent decline, according to the median of 25 economists in a Bloomberg News survey. The Office for National Statistics will publish that data at 9:30 a.m. today in London.

The U.K. economy contracted 0.8 percent in the second quarter after it shrank 2.4 percent in the previous three months. Consumers are less optimistic about making large purchases, Nationwide said.

Labor Market

A measure of hiring for permanent jobs fell in July for the first time since February, KPMG and the Recruitment and Employment Federation said in a separate report today. The gauge of permanent staff appointments by job consultants slipped to 46.1 from 48.6.

“We are cognizant of rising unemployment and constraints on consumer spending generally,” Ralph Topping, chief executive officer of William Hill Plc, told reporters yesterday. The U.K.’s second-biggest bookmaker forecast that full-year betting- shop profit would be lower than analysts predicted.

The Bank of England will decide tomorrow whether to extend its 125 billion pound ($211 billion) asset-purchase program. Economists are split on the outcome, with 21 out of 44 in a Bloomberg News survey predicting no expansion of the plan and the remainder forecasting that the bank will seek to spend at least another 25 billion pounds.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

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Ferrexpo Profit Falls 80%; Sees Second-Half Recovery

By Thomas Biesheuvel

Aug. 5 (Bloomberg) -- Ferrexpo Plc, the producer of iron ore in Ukraine, said first-half profit slumped 80 percent after demand for the steelmaking ingredient weakened.

Net income slipped to $28.5 million, or 4.87 cents a share, from $141.4 million, or 23.14 cents, a year earlier, Baar, Switzerland-based Ferrexpo said in a statement today. Sales declined 42 percent to $301.8 million. The declaration of its interim dividend will be deferred until October.

Trading reached a “low point” in the first half, Ferrexpo said in the statement. “We should be trading more profitably in the second half.”

There are signs of “normalization” in the iron-ore trade and strengthening regional consumption, while Chinese demand remains “robust,” the company said. Iron ore for immediate delivery to China, the biggest buyer, climbed to the highest in nine months last week, trading above the annual benchmark price agreed between Rio Tinto Group and mills in Japan, South Korea and Taiwan.

To contact the reporter on this story: Thomas Biesheuvel in London tbiesheuvel@bloomberg.net

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RBC Capital Lowers Dollar Forecasts on Greater Risk Appetite

By Garfield Reynolds

Aug. 5 (Bloomberg) -- Demand for the U.S. dollar is weakening as improved corporate earnings boosts appetite for riskier assets, RBC Capital Markets said.

“As risk sentiment improved, the U.S. dollar tumbled and it remains vulnerable to further declines in risk aversion,” David Watts, a senior currency strategist in Toronto at the unit of Canada’s biggest bank, wrote today in a note to clients.

RBC said the dollar’s rebound against the euro would peak at $1.38, from an earlier forecast for $1.33, and revised its year-end estimate for the Canadian dollar to C$1.09 from C$1.14.

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net

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Yen, Dollar Advance as Lloyds Says Bad-Debt Provisions Increase

By Ron Harui and Theresa Barraclough

Aug. 5 (Bloomberg) -- The yen and the dollar rose after Lloyds Banking Group Plc posted a first-half loss and increased the size of bad-debt provisions, boosting demand for the safety of the Japanese and U.S. currencies.

The pound fell for the first time in six days against the yen after London-based Lloyds said its total impairments in the first half were “significantly” higher at 13.4 billion pounds ($22.7 billion). The yen gained for a second day against the euro as Asian shares dropped and on speculation Japanese exporters took advantage of the yen’s 1.3 percent drop versus Europe’s currency this month to bring home funds.

“Banks in Britain and in the euro-zone probably still have a lot of bad loans, so this is a big risk to long positions in the pound and the euro,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “It’s a situation where the pound and the euro are easy to sell and the yen and the dollar to buy.” A long position is a bet an asset will rise.

Japan’s currency rose to 94.93 per dollar as of 7:38 a.m. in London from 95.23 yesterday in New York. It advanced to 136.51 per euro from 137.21. The dollar climbed to $1.4378 per euro from $1.4408. The pound dropped to $1.6912 from $1.6939, and fell to 160.84 yen from 161.31 yen.

Lloyds, RBS

The yen climbed against all of its 16 major counterparts. Lloyds reported a first-half proforma loss of 3.12 billion pounds. Royal Bank of Scotland Group Plc on Aug. 7 will report 6.4 billion pounds in provisions, up from 1.48 billion pounds a year earlier, according to analysts surveyed by Bloomberg.

RBS posted 31.9 billion pounds of writedowns and credit market losses from mid-2007 through March 31 and Lloyds reported 33 billion pounds, data compiled by Bloomberg show. Lloyds had 2.5 billion pounds of loan provisions in the first half of 2008.

The MSCI Asia Pacific Index of shares declined 0.8 percent in its second day of losses. Standard & Poor 500 Index futures dropped 0.4 percent.

“Players are looking at equity markets for direction so when stocks fall, the yen rises,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “There’s a strong inverse relationship between the two. Some of this yen buying could also be from exporters.”

The euro-yen had a correlation of 0.9 with the MSCI Asia- Pacific excluding Japan Index in the past year, according to data compiled by Bloomberg. A value of 1 would mean the two move in lockstep.

U.S. Jobs Report

The Dollar Index traded near a 10-month low before payroll data by ADP Employer Services, the first of several U.S. jobs reports scheduled for the next three days.

U.S. companies cut an estimated 350,000 workers from payrolls in July after a reduction of 473,000 in June, according to a Bloomberg survey before the ADP report today. Data on U.S. initial jobless claims for last week will be announced on Aug. 6, and the Labor Department’s July jobs report is due Aug. 7.

“If this week’s events don’t dent expectations for a global economic recovery and risk appetite is sustained then the U.S. dollar will likely remain under pressure,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a note today.

The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners, was at 77.711 from 77.765 yesterday. It reached 77.451 on Aug. 3, the least since Sept. 29.

Australian Dollar

The Australian dollar may fall against the yen this month, snapping its longest stretch of monthly gains since 2004, as Japanese trusts expect to raise less cash to buy foreign securities, RBC Capital Markets said.

Japanese mutual funds that aim to attract cash from investors to buy foreign securities, also known as Toshin, are likely to raise 50 billion yen ($525 million) in August, down from 200 billion yen on average between March and July, Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney, wrote in a note to clients today. Toshin issuance in February was 47 billion yen, she said.

“The rally in the Australian dollar versus the yen from its March lows coincided with a resurgence in Toshin issuance,” Trinh wrote. “Based on the pitiful issuance we expect for August, it suggests the Australian dollar could pull back sharply from current levels” toward 73 yen, she wrote.

Australia’s dollar weakened 0.5 percent to 79.98 yen. The so-called Aussie has strengthened 30 percent against the yen since March 1.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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Gold’s Advance to Two-Month High May Stall: Technical Analysis

By Kim Kyoungwha

Aug. 5 (Bloomberg) -- Gold’s advance to the highest level in two months may stall before it reaches so-called resistance at $972 an ounce, Commerzbank AG said, citing trading patterns.

The resistance level is the 78.6 percent retracement of the move down from a June peak of $990.75, Karen Jones, a technical analyst with Commerzbank, wrote in a note yesterday. Resistance levels are where sell orders tend to be clustered.

Gold for immediate delivery fell 0.1 percent to $965.69 an ounce at 10:54 a.m. Singapore time. The precious metal, up 9.5 percent this year, touched $970.47 yesterday, the highest price since June 5.

“Near-term strength is viewed as an elongated correction only,” Jones said. “Our long-term bias remains negative. We view the $1,000 region as a ceiling for the market.”

A slide to less than $943.90, where there is 55-day moving average and Fibonacci support, “should be enough to alleviate upside pressure and cast attention back to $925, then the $904.80 support,” the report said.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

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Japan Rice Output May Decline 6.9% This Year on Cool Weather

By Aya Takada

Aug. 5 (Bloomberg) -- Japanese rice production may drop 6.9 percent this year to 8.21 million metric tons, as cool summer weather curbs yield, a research institute said.

The average yield for paddy rice will probably decline to 509 kilograms for every 10 ares (0.2471 acres), down 6.3 percent from last year, Tokyo-based Rice Databank Co. said today in a statement. Rice-planted area is expected to fall 0.8 percent to 1.61 million hectares, said the institute, which correctly predicted the nation’s rice crop last year.

Japan, the world’s largest grain importer, is self- sufficient in rice as the government protects growers from foreign competition with a 778 percent tariff on imports. The nation imported 1.1 million tons of rice in the year ended March 31, 1994 and an additional 1.5 million tons in the following year after a cool, rainy summer damaged crops in 1993.

Japan agreed to give minimum market access to rice- exporting countries at the Uruguay Round of world trade talks, and is obliged to buy 770,000 tons this fiscal year. The government imported a total of 9.38 million tons of rice from April 1995 to March 2009 in line with the agreement.

Inventories of private and government domestic food rice will fall to 2.92 million tons on June 30, 2010, from 2.98 million tons a year earlier, the agriculture ministry said in a report on July 31. The total includes 860,000 tons held by the government, unchanged from a year earlier, it said.

Japan’s stockpiles of foreign rice stood at 1.11 million tons as of March 31, up from 970,000 tons at the end of last October, according to the report.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net

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China Sells 4% of Soybeans on Offer in Inner Mongolian Auction

By Bloomberg News

Aug. 5 (Bloomberg) -- China sold 4,300 metric tons of soybeans from state stockpiles in Inner Mongolia, only 4 percent of the oilseed on offer in an auction today, the National Grain & Oil Trade Center said. The auction was the first phase of a government plan to sell as much as 500,000 tons of soybeans via auctions today.

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Asian Stocks Fall on Isuzu, Elpida Losses; New World Declines

By Shani Raja and Jonathan Burgos

Aug. 5 (Bloomberg) -- Asian stocks fell, sending the MSCI Asia Pacific Index to its first back-to-back drop in a month, after Isuzu Motors Ltd. and Elpida Memory Inc. reported losses.

Isuzu, Japan’s largest maker of light-duty trucks, sank 4.7 percent and Elpida, the country’s biggest computer-memory chipmaker, slumped 5.1 percent. Industrial Bank Co. slid 3.8 percent in Shanghai, contributing to the first decline in Chinese stocks in five days amid valuation concerns. New World Development Co. declined 4.5 percent in Hong Kong as the city’s home sales fell last month.

The MSCI Asia Pacific Index fell 1.1 percent to 111.84 as of 4:14 p.m. in Tokyo, having swung between gains and losses at least seven times. Before today, the gauge had risen on all but two days since July 14 amid earnings reports that beat analyst estimates. The measure’s relative strength index rose to 75 yesterday, above the 70 level some traders use as a sell signal.

“Equities are pricing in a very strong recovery,” said Pearlyn Wong, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion. “Valuations are stretched. It’s hard to support a case for a continued rally.”

Japan’s Nikkei 225 Stock Average, which has gained 29 percent in the past six months, lost 1.2 percent. China’s Shanghai Composite Index fell 1.2 percent, while Hong Kong’s Hang Seng Index declined 1.3 percent.

David Jones Ltd., the country’s No. 2 department-store chain, dropped 8.4 percent after reporting a decline in same- store sales. Limiting declines in Australia, Axa Asia Pacific Holdings Ltd., a unit of France’s biggest insurer, climbed 2.3 percent as it returned to profitability. Westfield Group, the world’s biggest shopping center owner by value, rose 0.8 percent after UBS AG upgraded the stock.

U.S. Housing

Futures on the Standard & Poor’s 500 Index lost 0.4 percent. The gauge added 0.3 percent yesterday after the National Association of Realtors said the number of contracts to purchase previously owned homes rose 3.6 percent last month from June. Economists had estimated a 0.7 percent advance.

MSCI’s Asian gauge has rallied 58 percent from a more than five-year low on March 9 amid growing speculation the global economy is recovering. Reports this week from China, Europe and the U.S. pointed to improving manufacturing industries in the three regions, while U.K. consumer confidence rose to the highest level in more than a year last month as house prices stopped falling, Nationwide Building Society said.

Companies from Nissan Motor Co. to Samsung Electronics Co. have reported earnings in the past two weeks that exceeded analyst estimates, lifting the average valuation of companies in the MSCI Asia Pacific Index to 25 times estimated profit, the highest level since March 30.

Good Data

“There’s so much good data around that I’m losing track,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $95 billion. “Given the extent of the rally so far, I wouldn’t be surprised to see quite a significant pullback.”

Isuzu sank 4.7 percent to 163 yen as the company turned to a net loss of 16.6 billion yen in the quarter ended June 30, from a 17.7 billion yen profit a year earlier. Elpida slumped 5.1 percent to 1,115 yen after its first-quarter net loss widened on lower semiconductor prices.

Hallenstein Glasson Holdings Ltd., a New Zealand clothing retailer, dropped 1.1 percent in Wellington to NZ$2.82. Full- year profit fell 23 percent as the company cut prices to boost sales amid a recession.

Expensive Shares

Industrial Bank slid 3.8 percent to 39.91 yuan, as the Shanghai Composite Index snapped a four-day, 6.3 percent advance. Companies in the index trade at an average 37.2 times reported earnings, near an 18-month high and almost twice the level of the MSCI Emerging Market Index.

Jiangxi Copper Co., China’s largest producer of the metal, dropped 2.2 percent to 46.60 yuan. The company, whose shares have more than quadrupled this year, last week said first-half profit may decline by more than half.

“With shares so expensive, I doubt there will be much room for upside,” said Yan Ji, who helps oversee about $850 million at HSBC Jintrust Fund Management Co. in Shanghai.

In Hong Kong, New World, controlled by billionaire Cheng Yu-tung, lost 4.5 percent to HK$17.38. Sun Hung Kai Properties Ltd., the world’s biggest developer by value, dropped 4.7 percent to HK$113.80. Henderson Land Development Co. sank 3.4 percent to HK$51.35.

Hong Kong Aircraft Engineering Co., Swire Pacific Ltd.’s maintenance unit, tumbled 9.3 percent to HK$100.70 after reporting lower profit and predicting a “substantially weaker” second half.

Government Response

In Sydney, David Jones sank 8.4 percent to A$4.81 after same-store sales fell 1.2 percent, even as government stimulus payments spurred demand for clothing and fashion accessories.

Axa Asia climbed 2.3 percent to A$4.42 as it returned to profitability in the six months through June after asset writedowns abated. The company lost money in the six months ended Dec. 31 as the value of its investments slumped amid the global credit crisis.

“The last 18 months has seen the most remarkable and unprecedented combination of falls in investment markets, extreme volatility and impacts on the broader economy leading to extensive responses from governments, policy makers and industry,” Andrew Penn, chief executive officer of Melbourne- based Axa Asia, said in a statement today.

Thirty-five percent of the 342 companies in the MSCI Asia Pacific Index that have reported quarterly results so far have beaten analysts’ profit estimates, while 18 percent have missed, according to data compiled by Bloomberg.

Westfield rose 0.8 percent to A$12.05 after UBS AG upgraded its stock rating to “neutral” from “sell.” China Railway Group Ltd., the nation’s largest construction company by assets, climbed 7.5 percent to HK$7.59 after Goldman Sachs Group Inc. recommended investors buy the stock, citing an earnings recovery in the second half of the year.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

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Japan’s Topix Drops for First Time in Two Weeks, Led by Autos

By Masaki Kondo and Toshiro Hasegawa

Aug. 5 (Bloomberg) -- Japanese stocks fell as carmakers slid after having led gains during the Topix index’s 13-day advance.

Nissan Motor Co. dropped 1.9 percent. Isuzu Motors Ltd. decreased 4.7 percent after revenue fell by more than half. Yamaha Motor Co. extended its decline after an analyst said yesterday’s forecast cut was “beyond anything imaginable.” Fast Retailing Co. lost 3.5 percent after sales of its clothes stores fell for the first time in nine months.

“Investors are selling to take profit after the rapid gains,” said Yoshihiro Okumura, who helps oversee the equivalent of $365 million at Tokyo-based Chiba-gin Asset Management Co. “This is a normal, healthy correction. Whether sales will recover in the second half remains to be seen, although companies are doing well in their efforts to cut costs.”

The Nikkei 225 Stock Average lost 122.48, or 1.2 percent, to close at 10,252.53 in Tokyo. The broader Topix index declined 9.44, or 1 percent, to 949.58, with twice as many stocks retreating as advancing. Shares extended their drop in the afternoon as the yen strengthened against the dollar.

The Topix climbed for 13 consecutive sessions through yesterday, its longest winning streak since 1988, as earnings at companies including Honda Motor Co. and Sony Corp. beat analysts’ estimates because of cost reductions. The 14-day relative-strength index for the gauge exceeded 70 this week, the level that some traders see as a sign to sell.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

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Deutsche Boerse Cites ‘Reluctance to Trade’ as Profit Falls 34%

By Nandini Sukumar

Aug. 5 (Bloomberg) -- Deutsche Boerse AG said investors were reluctant to trade as Europe’s largest exchange by market value reported a 34 percent drop in profit and said it’s unsure share buybacks will resume.

Net income fell to 164.9 million euros ($237.6 million) as revenue from stock and derivatives trading decreased, the Frankfurt-based company said in a statement after markets closed late yesterday. It missed the 178 million euro median profit estimate of seven analysts surveyed by Bloomberg News.

Exchanges including NYSE Euronext, Nasdaq OMX Group Inc., London Stock Exchange Group Plc and Deutsche Boerse are contending with fewer transactions following the worst financial crisis since the Great Depression. At the same time, they face competition from so-called multilateral trading facilities, such as Chi-X Europe Ltd., Turquoise and Bats Europe, whose combined market share exceeds 25 percent.

“For Deutsche Boerse, the trading side of the business has suffered tremendously,” said Mamoun Tazi, exchange analyst at MF Global Ltd. “Typically the second half is worse than the first half. Can they turn it round? The external environment will drive that.”

Revenue fell 12 percent to 515.6 million euros for the second quarter. Costs rose 9 percent to 322.5 million euros.

“Reluctance to trade resulted in decreased sales,” Chief Executive Officer Reto Francioni said in the statement. “No decision has been made on resuming share buybacks in 2009.”

Cost Projection

Francioni reiterated his forecast that costs won’t exceed 1.28 billion euros in 2009.

LSE, Europe’s largest exchange by value of listed companies, said on July 15 that sales for the three months ended June 30 fell 8 percent to 161.9 million pounds ($274.2 million). NYSE Euronext, the world’s largest owner of stock exchanges, on July 30 reported a second-quarter loss after severance payments and a charge to end a clearing contract eroded earnings.

“We expect a decline in trading activity for the second half of the year,” Dirk Hoffmann-Becking and Richard Perrot, analysts at Sanford C. Bernstein & Co., wrote in a July 28 report. “As trading volumes are one of the strongest drivers of share price momentum, this could put pressure on exchange valuations again.”

The research firm rates Deutsche Boerse “market-perform” with a share-price estimate of 65 euros. The shares fell 2.4 percent to 56.68 euros yesterday, trimming their 2009 advance to 12 percent.

Deutsche Boerse is part-owner of Eurex, Europe’s largest futures market. It bought New York-based International Securities Exchange Holdings Inc. in 2007, and also owns Clearstream, the region’s No. 2 securities-settlement company.

Sales from the company’s Xetra stock trading unit dropped 31 percent to 63.1 million euros. Revenue from Eurex slid 14 percent to 201 million euros. Sales at Clearstream declined 5 percent to 181.1 million euros. Revenue from Market Data & Analytics rose 2 percent to 46.6 million euros.

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

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American Shipping, Artimplant, Carlsberg: Nordic Equity Preview

By Adam Ewing

Aug. 5 (Bloomberg) -- The following companies may have unusual price changes in Nordic trading. Stock symbols are in parentheses and share prices are from the previous close.

The Dow Jones Nordic 30 Index, a measure for the region, fell 78.53, or 1.4 percent, to 5,431.83 in Stockholm, the first drop in four days.

The OMX Stockholm 30 Index lost 1.8 percent, while Finland’s Helsinki 25 Index fell 1.1 percent. Norway’s OBX Index decreased 1.1 percent. The OMX Copenhagen 20 gained 0.1 percent.

American Shipping Company ASA (AMSC NO): The owner of shipyards in the U.S. and vessel builder is scheduled to report second-quarter earnings. Its shares rose 1.03 kroner, or 15 percent, to 7.77 kroner.

Artimplant AB (ARTIB SS): The maker of biodegradable implants used in orthopedic and oral surgery, is expected to release second-quarter earnings. The shares gained 0.02 krona, or 0.9 percent, to 2.37 kronor.

Carlsberg A/S (CARLB DC): The world’s fourth-largest beer maker may report second-quarter net income of 1.58 billion kroner, based on the average of 12 analyst estimates compiled by Bloomberg. Its shares fell 8.5 kroner, or 2.3 percent, to 369 kroner.

Stockmann Oyj (STCBV FH): The Finnish department-store owner may report second-quarter net income of 15.6 million euros ($22.5 million), the average of analyst estimates compiled by Bloomberg. Its shares fell 2 cents, or 0.1 percent, to 15.27 euros.

Wallenstam Byggnads AB (WALLB SS): The Swedish real estate company may report second-quarter net income of 65 million kronor, the average of three estimates in a Bloomberg survey of analysts. The shares increased 0.75 krona, or 0.9 percent, to 88.75 kronor.

To contact the reporter on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net

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Arques, Deutsche Bank, Deutsche Boerse: German Equity Preview

By Christian Vits and Julie Cruz

Aug. 5 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses and share prices are from the previous close.

DAX Index futures expiring in September fell 0.1 percent to 5,411.50 as of 8:27 a.m. in Frankfurt. The DAX dropped 0.2 percent to 5,417.02 yesterday.

Adidas AG (ADS GY): The world’s second-largest sporting- goods maker reported second-quarter net income of 9 million euros ($13 million), compared with the 7 million-euro average estimate of eight analysts. The shares added less than 0.1 percent to 30.43 euros.

Arques Industries AG (AQU GY): The investment company appointed Gisbert Ulmke as chief executive officer. Ulmke will take office on Aug. 5, the company said. The shares fell 3.1 percent to 2.17 euros.

Boewe Systec AG (BSY GY): The company, whose machines insert mass mailings into envelopes, posted a second-quarter loss of 2.2 million euros. The shares declined 2.8 percent to 5.20 euros.

Deutsche Bank AG (DBK GY): Germany’s largest bank is in advanced talks to take a stake in Sal. Oppenheim Jr. & Cie KGaA and a deal may be imminent, Boersen-Zeitung reported, citing unidentified bankers and Luxembourg politicians. The shares dropped 0.6 percent to 46.36 euros.

Deutsche Boerse AG (DB1 GY): Europe’s largest exchange by market value said second-quarter profit fell 34 percent to 164.9 million euros as revenue from stock and derivative trading dropped. The shares declined 2.4 percent to 56.68 euros.

Henkel AG (HEN3 GY): The German maker of Loctite glues and Persil detergent said second-quarter profit more than tripled to 143 million euros and forecast its adhesive business will be stable or improve. The shares rose 0.8 percent to 25.51 euros.

Loewe AG (LOE GY): The German maker of televisions partly owned by Sharp Corp. said second-quarter sales fell 21 percent to 71 million euros. The shares added 2.3 percent to 9.09 euros.

Rhoen-Klinikum AG (RHK GY): Germany’s biggest publicly traded hospital operator said Supervisory Board Chairman Eugen Muench sold 9.5 million shares and Ingeborg Muench sold 5.5 million shares at 0.22 euros each. The stock declined 0.4 percent to 16.01 euros.

Stratec Biomedical Systems AG (SBS GY): The maker of laboratory equipment for diagnostics companies affirmed its 2009 goals after first-half sales and earnings rose. The shares climbed 1.8 percent to 18.77 euros.

To contact the reporters on this story: Christian Vits in Frankfurt at cvits@bloomberg.net; Julie Cruz in Frankfurt at jcruz6@bloomberg.net.

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Lloyds, Old Mutual, Standard Life: U.K., Irish Equity Preview

By Tommy Stubbington and Sarah Jones

Aug. 5 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses and prices are from the last market close.

The benchmark FTSE 100 Index fell 11.09, or 0.2 percent, to 4,671.37. The FTSE All-Share Index dropped less than 0.1 percent and Ireland’s ISEQ Index rose 0.5 percent.

Allied Irish Banks Plc (ALBK ID): Ireland’s second- biggest lender by market value reported a half-year loss of 829 million euros ($1.19 billion) compared with a year- earlier profit after a surge in bad debt provisions. The stock declined 6.6 cents, or 3.7 percent, to 1.716 euros.

British Airways Plc (BAY LN): Europe’s third-largest airline releases monthly traffic statistics. The shares climbed 4.7 pence, or 3.2 percent, to 150.2.

F&C Asset Management Plc (FCAM LN): The company which oversees the oldest U.K. investment fund said it posted a first-half loss of 9.8 million pounds ($17 million). The shares fell 1.5 pence, or 2 percent, to 72.5.

Ferrexpo Plc (FXPO LN): The producer of iron ore in Ukraine said first-half net income dropped to $28.5 million from $141.4 million a year earlier. The shares declined 1.5 pence, or 0.9 percent, to 158.5.

Lloyds Banking Group Plc (LLOY LN): Britain’s biggest mortgage lender posted a first-half loss of 3.1 billion pounds because of writedowns on corporate and real-estate loans.

Separately, Bank of New York Mellon Corp. is in advanced talks to buy most of Lloyds’s Insight Investment Management unit, in a deal that could be valued at as much as 250 million pounds ($423 million), the Financial Times reported, citing people familiar with the situation. The shares fell 0.98 pence, or 1.2 percent, to 84.27.

Old Mutual Plc (OML LN): The U.K.’s third largest insurance company by market value posted a net loss of 70 million pounds in the first half after consumers bought fewer insurance policies. The compares to a profit of 549 million pounds in the same period a year earlier. The shares fell 2.2 pence, or 2.3 percent, to 95.

Premier Foods Plc (PFD LN): The U.K. maker of Hovis bread said first-half operating profit dropped to 26.8 million pounds from 46.2 million pounds a year earlier. The shares gained 0.25 pence, or 0.6 percent, to 40 pence.

Shire Plc (SHP LN): The U.K.’s third-largest drugmaker is scheduled to report earnings. The stock fell 0.5 pence, or 0.1 percent, to 882.

Standard Life Plc (SL/ LN): The U.K.’s third-biggest insurer swung to a net loss in the first half of 20 million pounds from a profit of 161 million pounds a year earlier, on declining returns from investments. The shares dropped 3.9 pence, or 2 percent, to 195.8.

Taylor Wimpey Plc (TW/ LN): The U.K.’s largest homebuilder, which today reported its first-half net loss narrowed to 681.9 million pounds, said it wrote down the value of its land and work-in-progress by 604 million pounds as house prices fell in Britain and the U.S. The shares gained 0.5 pence, or 1.3 percent, to 40.01.

To contact the reporter on this story: Tommy Stubbington in London tstubbington@bloomberg.net; Sarah Jones in London at sjones35@bloomberg.net.

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Lloyds, Old Mutual, Standard Life: U.K., Irish Equity Preview

By Tommy Stubbington and Sarah Jones

Aug. 5 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses and prices are from the last market close.

The benchmark FTSE 100 Index fell 11.09, or 0.2 percent, to 4,671.37. The FTSE All-Share Index dropped less than 0.1 percent and Ireland’s ISEQ Index rose 0.5 percent.

Allied Irish Banks Plc (ALBK ID): Ireland’s second- biggest lender by market value reported a half-year loss of 829 million euros ($1.19 billion) compared with a year- earlier profit after a surge in bad debt provisions. The stock declined 6.6 cents, or 3.7 percent, to 1.716 euros.

British Airways Plc (BAY LN): Europe’s third-largest airline releases monthly traffic statistics. The shares climbed 4.7 pence, or 3.2 percent, to 150.2.

F&C Asset Management Plc (FCAM LN): The company which oversees the oldest U.K. investment fund said it posted a first-half loss of 9.8 million pounds ($17 million). The shares fell 1.5 pence, or 2 percent, to 72.5.

Ferrexpo Plc (FXPO LN): The producer of iron ore in Ukraine said first-half net income dropped to $28.5 million from $141.4 million a year earlier. The shares declined 1.5 pence, or 0.9 percent, to 158.5.

Lloyds Banking Group Plc (LLOY LN): Britain’s biggest mortgage lender posted a first-half loss of 3.1 billion pounds because of writedowns on corporate and real-estate loans.

Separately, Bank of New York Mellon Corp. is in advanced talks to buy most of Lloyds’s Insight Investment Management unit, in a deal that could be valued at as much as 250 million pounds ($423 million), the Financial Times reported, citing people familiar with the situation. The shares fell 0.98 pence, or 1.2 percent, to 84.27.

Old Mutual Plc (OML LN): The U.K.’s third largest insurance company by market value posted a net loss of 70 million pounds in the first half after consumers bought fewer insurance policies. The compares to a profit of 549 million pounds in the same period a year earlier. The shares fell 2.2 pence, or 2.3 percent, to 95.

Premier Foods Plc (PFD LN): The U.K. maker of Hovis bread said first-half operating profit dropped to 26.8 million pounds from 46.2 million pounds a year earlier. The shares gained 0.25 pence, or 0.6 percent, to 40 pence.

Shire Plc (SHP LN): The U.K.’s third-largest drugmaker is scheduled to report earnings. The stock fell 0.5 pence, or 0.1 percent, to 882.

Standard Life Plc (SL/ LN): The U.K.’s third-biggest insurer swung to a net loss in the first half of 20 million pounds from a profit of 161 million pounds a year earlier, on declining returns from investments. The shares dropped 3.9 pence, or 2 percent, to 195.8.

Taylor Wimpey Plc (TW/ LN): The U.K.’s largest homebuilder, which today reported its first-half net loss narrowed to 681.9 million pounds, said it wrote down the value of its land and work-in-progress by 604 million pounds as house prices fell in Britain and the U.S. The shares gained 0.5 pence, or 1.3 percent, to 40.01.

To contact the reporter on this story: Tommy Stubbington in London tstubbington@bloomberg.net; Sarah Jones in London at sjones35@bloomberg.net.

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Flash Trading Reversal by SEC May Hit Direct Edge, Boost NYSE

By Edgar Ortega, Jesse Westbrook and Eric Martin

Aug. 5 (Bloomberg) -- The U.S. Securities and Exchange Commission’s move to ban so-called flash orders would help NYSE Euronext take back market share of U.S. stock trading at the expense of three-year-old rival Direct Edge Holdings LLC.

Senator Charles Schumer said yesterday the SEC will seek to stop the practice in which some brokers get a split-second advantage in viewing requests to buy and sell stock, after discussing the issue with Chairman Mary Schapiro. NYSE Euronext, the only one of the top four U.S. exchanges that doesn’t use flash orders, has seen its portion of the nation’s share trading slip to 30.3 percent in the second quarter from 35.5 percent a year earlier, while Direct Edge’s doubled since November.

“The big existing exchanges are going to be benefiting because the pendulum is swinging back in that direction in the area of transparency,” said Thomas Caldwell, who manages about $1 billion, including NYSE shares, as chairman of Caldwell Financial Ltd. and president of Urbana Corp. in Toronto.

Flash orders grew to 2.4 percent of the shares traded in the U.S. in June, three years after the practice began as a way of increasing the odds an order would be filled, according to data compiled by New York brokerage Rosenblatt Securities Inc. Schumer and other critics said the delay in routing transactions to other exchanges makes it easier for brokerages with the fastest computers to get an edge calculating demand for a stock.

Boston Exchange

The SEC under Chairman William Donaldson first approved a flash-trading system in 2004 for the Boston Options Exchange. Since then, Nasdaq OMX Group Inc., Bats Global Markets and the CBOE Stock Exchange have introduced programs that hold orders before publishing them on rival platforms.

Direct Edge, based in Jersey City, New Jersey, used its early lead in flash trading to take business from rivals. The company is the fastest-growing equity market in the U.S., helped by its three-year-old Enhanced Liquidity Provider program, which handles the most flash trades.

Even excluding flash orders, Direct Edge matched 11.2 percent of U.S. stock trades in July, making it the third- largest U.S. equity market by volume, according to data compiled by Bloomberg. That may help fuel growth if regulators start a broader review of off-exchange trading, Chief Executive Officer William O’Brien said in an interview yesterday.

“It’s almost impossible to assess the impact on any of us of reforms that don’t exist yet,” O’Brien said. “We feel quite optimistic that regardless of how this debate goes forward, we are in a good position to continue the market share growth that we have experienced in the last couple of years.”

Bad Policy

NYSE Spokesman Ray Pellecchia said in an interview yesterday that flash trading “is not a good policy for investors.” NYSE Euronext, operator of the biggest stock market, added 2.4 percent to $27.40 in New York yesterday. Nasdaq shares declined 0.3 percent to $21.39.

“In the short-term, most of the negative impact will fall on a player like Direct Edge,” said Sang Lee, managing partner at financial-services consultant Aite Group LLC in Boston. “If they decide to ban this altogether, there would be an impact.”

The benefit from a ban to any other exchange may be limited because the orders don’t represent a big enough slice of industry revenue, said Ed Ditmire, an analyst at Fox-Pitt Kelton Cochran Caronia Waller in New York.

“Anecdotally, the NYSE would have the most to gain if there were some market share shift due to flash orders being banned,” Ditmire said. “Keep in mind that Nasdaq and NYSE get about 10 percent of their revenue from U.S. equity trading, so even something that led to noticeable market-share shifts might not move the dial on the overall company very much.”

Trading Inequity

Schapiro said yesterday she asked her staff to draft rules that can “eliminate the inequity” that flash orders cause as part of a broader review of trading in dark pools, which are broker-owned markets that don’t display quotes to the public. Any proposal would require approval from SEC commissioners and public comment. Schumer, a New York Democrat, urged the SEC in a July 24 letter to halt flash orders, saying he would propose legislation barring them if the agency didn’t act.

The plan may be a sign regulators are moving to stricter oversight of so-called high-frequency trading, in which brokerages using advanced computers execute thousands of transactions in a second. Those strategies may account for 70 percent of share volume in the U.S., according to Patrick O’Shaughnessy, an analyst for Raymond James & Associates Inc.

While flash orders make up a small fraction of high-speed trading, they have drawn the most criticism from investors and traders. Goldman Sachs Group Inc. released a statement yesterday in light of the “complex landscape” surrounding high-frequency trading, saying the strategy accounted for less than 1 percent of its revenue and that it doesn’t use flash programs in executing client agency orders.

Other Platforms

The Nasdaq and Bats gained approval this year for flash orders after the SEC said they complied with federal rules and should be filed as so-called non-controversial proposals. The agency had until June 29 to reverse its decision for Bats as part of its normal review of the flash-order plan, regulatory filings show. The deadline for Bats passed July 28.

“When practices and rules have been legally approved for one market participant and another competitor comes in wanting to do a similar activity, we think it’s important to have a level playing field and not play favorites,” James Brigagliano, acting co-head of the SEC division responsible for oversight of exchanges, said in an interview. “That said, market developments may cause us to seek changes in the rules across all markets.”

Industrywide Ban

Bats and Nasdaq said last week they support an industrywide ban on flash orders. Bats Chief Executive Officer Joe Ratterman urged the SEC last month to review 2006 rules that require exchange to publish their best bids and offers, while Nasdaq’s Robert Greifeld called for an examination of 1998 rules governing alternative trading systems such as Direct Edge.

SEC rulemaking is usually a two-step process. The agency’s staff proposes a regulation, and commissioners vote to solicit public feedback for up to 90 days. Once the comment period ends, commissioners vote on whether to make the rule binding. The SEC can speed up the process by issuing temporary rules.

That may result in less than an outright ban of flash orders, said Jack Sylvia, the Boston-based co-chair of the Securities Litigation Practice at law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC.

Plusses, Minuses

“Schapiro said she’s looking to obviate any inequities from flash trading, and I’m not sure that’s the same as saying we need to ban flash trading altogether,” Sylvia said in an interview yesterday. “If the case is made that there is nothing beneficial to market stability and efficiency from flash orders, I could see the case being made for the practice to be banned. But I suspect that there are plusses and minuses here.”

Flash systems trace their roots as far back as 1978 to efforts by exchanges to electronically replicate how a trader might yell an order to floor brokers before entering it into the system that displays all bids and offers. Markets have evolved since the days of floor brokers’ dominance, with computer algorithms now buying and selling shares 1,000 times faster than the blink of an eye.

“This is a relatively old concept. However, the electronification of it makes it more dangerous than it used to be,” said Sean O’Malley, a former lawyer at the SEC’s division of trading and markets who is now a partner at Goodwin Procter LLP in New York. “Computer-based trading is going to be able to do things in a split second that no human could have done. That’s something that the SEC probably hadn’t thought about as much until this year.”

To contact the reporters on this story: Edgar Ortega in New York at ebarrales@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.

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European Stock Futures Are Little Changed; U.S. Futures Drop

By Daniela Silberstein

Aug. 5 (Bloomberg) -- European stock futures were little changed after Societe Generale SA posted earnings that beat estimates, while Swiss Reinsurance Co. reported an unexpected loss. U.S. index futures and Asian shares declined.

Societe Generale, France’s second-largest bank by market value, and Axa SA may move after posting smaller-than-estimated declines in profit. Swiss Re, the world’s second-biggest reinsurer, may be active after reporting a loss of 381 million Swiss francs ($359 billion).

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, added less than 0.1 percent to 2,670 at 7:21 a.m. in London.

Standard & Poor’s 500 Index futures slipped 0.4 percent before reports on employment, service industries and factory orders. The benchmark gauge for U.S. equities yesterday rose for a fourth day as a bigger-than-estimated increase in pending sales of existing homes overshadowed speculation that the market’s five-month rally has made stocks too expensive.

The MSCI Asia Pacific Index fell 0.7 percent today as losses from Isuzu Motors Ltd. and Elpida Memory Inc. dragged auto and technology companies lower.

“A positive end to the session in the U.S. failed to give Asian markets a lift and may not be too much of a help for European markets,” Jimmy Yates, head of equities at CMC Markets in London, wrote. “There is a lot of data due for release today that has the potential to cause a degree of volatility. The headline numbers will come from the corporate calendar where the financial stocks yet again take centre stage.”

Five-Month Rally

Europe’s Stoxx 600 has climbed 44 percent since March 9 as companies from Goldman Sachs Group Inc. to Roche Holding AG reported better-than-estimated earnings. The gauge is now valued at 37.5 times the profits of its companies, the highest level since September 2003, weekly data compiled by Bloomberg show.

Societe Generale may be active after the bank reported second-quarter profit of 309 million euros ($445 million), exceeding the 68 million-euro median estimate of 16 analysts surveyed by Bloomberg.

Axa, Europe’s second-biggest insurer, said first-half profit dropped 39 percent, less than analysts estimated, on lower fees from asset management and as the financial crisis curbed demand for life-insurance policies.

Swiss Re said it had a net loss in the second quarter on impairments on securitized products and the cost of hedging corporate bonds.

Lloyds Banking Group Plc, the British lender that acquired HBOS Plc in January, posted a first-half loss of 3.1 billion pounds ($5.2 billion) because of writedowns on corporate and real estate loans.

Adidas, Deutsche Boerse

Adidas AG may be active after the second-largest sporting- goods maker said second-quarter profit slumped as demand fell. The company also said it is reorganizing its management board duties and Chief Executive Officer Herbert Hainer will assume direct responsibility for global sales.

Deutsche Boerse AG may decline. Europe’s largest exchange by market value said second-quarter profit fell 34 percent as revenue from stock and derivative trading dropped.

Isuzu sank 4.7 percent to 163 yen as Japan’s largest maker of light-duty trucks reported a net loss of 16.6 billion yen ($170 million) in the quarter ended June 30. Elpida slumped 3.2 percent to 1,138 yen after Japan’s biggest computer-memory chipmaker reported a 44.5 billion yen loss.

Economic Reports

Service industries in the U.S. probably shrank at a slower pace in July, bringing the economy closer to emerging from the worst recession in eight decades, economists said before a report today.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 48, the highest level in 10 months, from 47 in June, according to the median forecast of 77 economists surveyed by Bloomberg News. Readings less than 50 signal contraction.

A separate U.S. report from ADP Employer Services may show companies cut 350,000 workers from payrolls in July, the smallest reduction since September, according to economists surveyed, while data from the Commerce Department may show factory orders dropped 0.8 percent in June.

U.K. consumer confidence rose to the highest level in more than a year last month as house prices stopped falling, Nationwide Building Society said today.

To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.

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Buffett Has Sokol Run NetJets, Fueling Succession Speculation

By Andrew Frye and Erik Holm

Aug. 5 (Bloomberg) -- Berkshire Hathaway Inc. named David Sokol to run its money-losing NetJets Inc. airplane-sharing unit, adding to speculation he may one day lead the investment and holding company built by billionaire Warren Buffett.

Sokol was tapped by Buffett to replace Richard Santulli on an interim basis as chief executive officer of the Woodbridge, New Jersey-based airplane-rental unit, according to a statement yesterday. Sokol, 52, is chairman of Berkshire’s energy business.

Buffett, Berkshire’s leader since the 1960s, is monitoring candidates to succeed him in overseeing a cadre of businesses ranging from candy and furniture to energy and insurance. The potential successors all work for Berkshire, and picking one is the board’s most important job, Buffett, 78, has said.

“He must think a lot of Sokol’s abilities to throw him into this,” said Andrew Kilpatrick, who wrote the two-volume “Of Permanent Value: The Story of Warren Buffett.” “I don’t know it means he’s an heir apparent, but it does mean he’s in there.”

Berkshire stockholders and Buffett-watchers have long speculated about who will fill the CEO position. Barron’s has reported that Sokol, chairman of MidAmerican Energy Holdings Co., was the most likely successor.

Tony Nicely, the head of Berkshire’s Geico Corp. car insurance business, and Ajit Jain, who runs a unit that sells reinsurance, are also on media lists of potential successors.

NetJets has suffered as the U.S. recession deepened in the last year. The company posted a $96 million pretax loss in the first quarter, compared with profit of $45 million a year earlier, on writedowns.

Santulli’s Exit

Santulli exits after about 25 years with the firm. In 1986, the executive invented the notion of “fractional” jet ownership, in which individuals and companies buy shares of a private plane’s flying time in lieu of buying the jet. Buffett was a NetJets customer before buying the company from Santulli in 1998 for $725 million in cash and stock.

Under Buffett, Berkshire bankrolled NetJets’ fleet of Boeings, Citations and Gulfstreams. It also underwrote the company’s expansion to Europe.

“If you were to pick someone to join you in a foxhole, you couldn’t do better than Rich,” Buffett said of Santulli in his 2007 letter to Berkshire shareholders. “No matter what the obstacles, he just doesn’t stop.”

Santulli said in the statement that he informed Buffett of his decision to leave NetJets yesterday morning, hours before the afternoon announcement. Buffett accepted the resignation with “reluctance,” according to the statement.

NetJets “has got to be the worst business in the Berkshire portfolio right now, or close to it,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP. “It’s not necessarily Santulli’s fault. NetJets must be sucking wind right now.”

Maryann Aarseth, a spokeswoman for NetJets, didn’t return a call seeking comment. Buffett didn’t respond to a request for comment left with assistant Carrie Kizer.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Erik Holm in New York at eholm2@bloomberg.net.



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Buffett Has Sokol Run NetJets, Fueling Succession Speculation

By Andrew Frye and Erik Holm

Aug. 5 (Bloomberg) -- Berkshire Hathaway Inc. named David Sokol to run its money-losing NetJets Inc. airplane-sharing unit, adding to speculation he may one day lead the investment and holding company built by billionaire Warren Buffett.

Sokol was tapped by Buffett to replace Richard Santulli on an interim basis as chief executive officer of the Woodbridge, New Jersey-based airplane-rental unit, according to a statement yesterday. Sokol, 52, is chairman of Berkshire’s energy business.

Buffett, Berkshire’s leader since the 1960s, is monitoring candidates to succeed him in overseeing a cadre of businesses ranging from candy and furniture to energy and insurance. The potential successors all work for Berkshire, and picking one is the board’s most important job, Buffett, 78, has said.

“He must think a lot of Sokol’s abilities to throw him into this,” said Andrew Kilpatrick, who wrote the two-volume “Of Permanent Value: The Story of Warren Buffett.” “I don’t know it means he’s an heir apparent, but it does mean he’s in there.”

Berkshire stockholders and Buffett-watchers have long speculated about who will fill the CEO position. Barron’s has reported that Sokol, chairman of MidAmerican Energy Holdings Co., was the most likely successor.

Tony Nicely, the head of Berkshire’s Geico Corp. car insurance business, and Ajit Jain, who runs a unit that sells reinsurance, are also on media lists of potential successors.

NetJets has suffered as the U.S. recession deepened in the last year. The company posted a $96 million pretax loss in the first quarter, compared with profit of $45 million a year earlier, on writedowns.

Santulli’s Exit

Santulli exits after about 25 years with the firm. In 1986, the executive invented the notion of “fractional” jet ownership, in which individuals and companies buy shares of a private plane’s flying time in lieu of buying the jet. Buffett was a NetJets customer before buying the company from Santulli in 1998 for $725 million in cash and stock.

Under Buffett, Berkshire bankrolled NetJets’ fleet of Boeings, Citations and Gulfstreams. It also underwrote the company’s expansion to Europe.

“If you were to pick someone to join you in a foxhole, you couldn’t do better than Rich,” Buffett said of Santulli in his 2007 letter to Berkshire shareholders. “No matter what the obstacles, he just doesn’t stop.”

Santulli said in the statement that he informed Buffett of his decision to leave NetJets yesterday morning, hours before the afternoon announcement. Buffett accepted the resignation with “reluctance,” according to the statement.

NetJets “has got to be the worst business in the Berkshire portfolio right now, or close to it,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP. “It’s not necessarily Santulli’s fault. NetJets must be sucking wind right now.”

Maryann Aarseth, a spokeswoman for NetJets, didn’t return a call seeking comment. Buffett didn’t respond to a request for comment left with assistant Carrie Kizer.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Erik Holm in New York at eholm2@bloomberg.net.



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BigBand, Dynavax, Molina, TNS, Whole Foods: U.S. Equity Preview

By Lu Wang

Aug. 5 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

BigBand Networks Inc. (BBND US): The maker of digital-video equipment said that, excluding some items, it expects a loss of at least 13 cents a share in the third quarter. Analysts, on average, estimated the company would earn 6 cents, according to a Bloomberg survey.

Dynavax Technologies Corp. (DVAX US): The biotechnology company developing products for infectious disease said it expects to resume trials on a hepatitis B vaccine as early as next month.

Kraft Foods Inc. (KFT US): The world’s second-largest foodmaker reported second-quarter sales of $10.2 billion, compared with the average analyst estimate of $10.36 billion.

Molina Healthcare Inc. (MOH US): The Long Beach, California-based provider of managed health care to poor families reduced its 2009 earnings forecast to $2.15 a share. That missed the average analyst estimate by 6.1 percent.

TNS Inc. (TNS US): The provider of data communications to credit-card-payment processors boosted its 2009 earnings forecast, saying it expects at least $2.05 a share. The company had previously projected $1.84 at most.

Whole Foods Market Inc. (WFMI US): The largest natural-food grocer reported third-quarter earnings excluding some items of 25 cents a share, exceeding the average analyst estimate by 25 percent.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net



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