U.S. Stocks Gain as ECB Offers Loans to Banks in Effort to Tame Crisis

By Rita Nazareth - Sep 16, 2011 3:51 AM GMT+0700

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Sept. 15 (Bloomberg) -- Laszlo Birinyi, president and founder of research and money management firm Birinyi Associates Inc., talks about the European debt crisis, the current equity market cycle and his investment strategy including his stock picks of BP Prudhoe Bay Royalty Trust, Cummins Inc., Hermes International, Priceline.com Inc. and Ralph Lauren Corp. Birinyi also discusses the outlook for the U.S. economy and corporate profits. He speaks with Mark Crumpton from the Bloomberg Markets 50 Summit in New York on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

U.S. stocks rose for a fourth day as the European Central Bank and international policy makers coordinated to lend dollars to banks to tame the credit crisis, offsetting concern spurred by signs unemployment is worsening.

Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) added more than 3 percent as the ECB coordinated with the Federal Reserve and other central banks to provide liquidity to European lenders. General Electric Co. (GE) and Chevron Corp. (CVX) advanced at least 2 percent, pacing gains in companies most-tied to the economy. Netflix Inc. (NFLX) tumbled 19 percent as the online film- rental service cut its forecast for U.S. subscribers.

The Standard & Poor’s 500 Index advanced 1.7 percent to 1,209.11 at 4 p.m. New York time. The benchmark gauge has rallied 4.8 percent in four days. The Dow Jones Industrial Average added 186.45 points, or 1.7 percent, to 11,433.18.

“The central bank coordinated action is rather significant,” Brian Jacobsen, chief portfolio strategist at San Francisco-based Wells Fargo Funds Management, which oversees more than $400 billion, said in a telephone interview. “Given their willingness to provide liquidity to European banks, it probably signals that the Fed is going to provide additional liquidity” for the U.S. economy.

Stocks rallied as the ECB said it coordinated with the Fed, the Bank of England, the Bank of Japan and the Swiss National Bank to extend three-month loans to euro-area banks in an effort to ensure they have enough cash for the rest of the year. The announcement added to optimism after French and German leaders yesterday confirmed they will support Greece’s continued participation in the shared euro currency.

Operation Twist

The Fed may take measures at its meeting next week to bolster economic growth. Economists including Stephen Stanley at Pierpont Securities LLC and Michael Feroli at JPMorgan say the Fed will probably decide to lengthen the maturity of its $2.65 trillion securities portfolio at the Sept. 20-21 meeting. This tactic, dubbed “Operation Twist” because it bends long-term yields lower, won’t cut borrowing costs enough to have a big impact on economic growth, they said.

Concern the global economy was slipping back into a recession amid a worsening European-debt crisis triggered an 18 percent plunge in the S&P 500 between the end of April and Aug. 8. Since then, it has rebounded 8 percent.

“It’s nice to see that the risk factors coming out of Europe are abating,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “The U.S. doesn’t have a liquidity problem, it has a demand problem. While Europe has a demand problem too, it has a pressing liquidity problem. That addresses the liquidity issue that would be threatening the European banking system.”

Industrial Production

In the U.S., a report showed industrial production unexpectedly rose in August. That helped temper concerns about other data pointing to a weakening recovery. Stock futures trimmed gains earlier as applications for U.S. unemployment benefits rose last week to the highest level since the end of June. Separate reports showed that manufacturing in the New York region contracted at a faster pace, while manufacturing in the Philadelphia region shrank for a second straight month.

All 10 groups in the S&P 500 rose as gains were led by financial, energy and industrial shares. The Morgan Stanley Cyclical Index added 2.2 percent. The Dow Jones Transportation Average, a proxy for the economy, advanced 1.4 percent. The KBW Bank Index rose 2.3 percent.

Whitney Tilson, co-founder of hedge fund T2 Partners LLC, said Citigroup Inc. (C) is cheap and that he’s adding high-quality U.S. financial stocks to his portfolio.

‘Good Bank, Bad Bank’

“It’s a good bank, bad bank,” Tilson said of Citigroup at today’s Bloomberg Markets 50 Summit in New York. “The good bank is a pretty good global franchise. If they don’t need another bailout that kills the equity, which we don’t think is likely, it’s really cheap.”

Tilson’s New York-based hedge fund added shares of Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. (GS) last month, he said. He also owns and still likes Berkshire Hathaway Inc. (BRK/A), his largest position, and JPMorgan, he said.

Tilson’s bullishness on U.S. banks doesn’t extend to Europe. “There isn’t a unified government,” he said. “As dysfunctional as our government is, at least it’s one Treasury, one government, one Fed that can deal with this and that makes us very wary of Europe.”

Citigroup gained 4.4 percent to $28.59. Bank of America rallied 4 percent, the most in the Dow, to $7.33. JPMorgan advanced 3.1 percent to $33.81.

Unauthorized Trading

U.S. shares of UBS AG (UBSN) plunged 10 percent to $11.41. Switzerland’s biggest bank said it may be unprofitable in the third quarter after a $2 billion loss from unauthorized trading at its investment bank. London police arrested Kweku Adoboli, a UBS employee, in connection with the loss, according to a person with knowledge of the matter who declined to be identified. City of London police and UBS declined to identify the man.

All 30 stocks in the Dow gained. GE, the world’s largest maker of jet engines, jumped 2.8 percent to $16.08. Chevron advanced 2 percent to $99.26.

Supervalu Inc. (SVU) climbed 5.7 percent to $7.92. The supermarket chain was rated “buy” in new coverage by Deutsche Bank AG, which said “credit fears are overblown” and “sentiment was just too negative relative to ongoing underlying changes” at the company.

Netflix tumbled 19 percent, the most since April 2008, to $169.25. The company, which unveiled new prices in July, will have 2.2 million domestic DVD-only subscribers at the end of this quarter, compared with its previous projection of 3 million. The company also said it will have 9.8 million streaming-only users after previously predicting 10 million.

Lower Forecast

Goldman Sachs’s David Kostin slashed his year-end forecast for the S&P 500 by 11 percent to 1,250, citing continued uncertainty in the global markets due to Europe’s debt crisis.

Kostin, the New York-based equity strategist at the firm, had previously predicted the benchmark equity index would climb to 1,400. This is the second time Kostin has lowered his S&P 500 forecast within a two-month period. He reduced his forecast from 1,450 on Aug. 5.

“Investors believe a nontrivial probability exists that the crisis will trigger a global financial dislocation similar to 2008,” Kostin wrote in a note dated yesterday.

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

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

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Bank of America, JPMorgan Fail to Make Fannie Mae Grade for Loan Servicing

By John Gittelsohn - Sep 16, 2011 1:05 AM GMT+0700

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Loan servicers interact with borrowers, collect mortgage payments and oversee foreclosures. More than 228,000 U.S. Photographer: Mario Tama/Getty Images

Bank of America Corp. (BAC), the largest U.S. mortgage servicer, failed to make a list of companies doing a satisfactory job of assisting homeowners struggling to pay their mortgage, according to Fannie Mae.

Of the 11 biggest servicers of Fannie Mae mortgages, Wells Fargo & Co. (WFC), Citigroup Inc. (C), Ally Financial Inc. and EverBank Financial Corp. are on track to receive satisfactory or better grades under a newly created customer service and foreclosure- prevention ratings system, the mortgage-finance company said in a statement. JPMorgan Chase & Co. (JPM), SunTrust Banks Inc. (STI), PHH Corp. (PHH), PNC Financial Services Group Inc. (PNC), OneWest Bank FSB and MetLife Inc. (MET) were the other companies that didn’t make the list.

“Servicers who achieve the highest ratings are leading the way in providing assistance to homeowners who are having difficulty making their mortgage payments,” Leslie Peeler, vice president of servicer portfolio management for Washington-based Fannie Mae, said in the statement yesterday.

Loan servicers interact with borrowers, collect mortgage payments and oversee foreclosures. More than 228,000 U.S. homeowners received foreclosure filings in August, the highest total since March, RealtyTrac Inc. reported today. Default notices rose 33 percent from July as lenders began to speed up processing of paperwork delayed by probes into documentation practices, the Irvine, California-based data service said.

Loan Modifications

The Obama administration has sought to prevent foreclosures through its Home Affordable Modification Program, which pays banks and servicers to modify monthly payments for delinquent borrowers. About 675,000 homeowners have had permanent loan modifications under the plan through July, compared with the initial goal of as many as 4 million by 2012, according to the Treasury Department. Another 2.42 million homeowners were offered modification plans through proprietary programs from servicers.

Under Fannie Mae’s Servicer Total Achievement and Rewards, or STAR, program, mortgage companies were scored based on the number of distressed homeowners who receive help and the customer’s experience, such as the response time for complaints, in the second quarter. Satisfactory scores range from three stars for “at least median performance” to five stars for “superior performance.”

This is Fannie Mae’s first report on the STAR program, announced in February. Servicers below the median or with unsatisfactory results don’t receive a rating.

Andrew Wilson, a spokesman for Fannie Mae, said the company wouldn’t discuss the servicers who failed to make the list of those on pace for at least three-star ratings. Fannie Mae, which has been in U.S. conservatorship since 2008, is the country’s largest mortgage financier.

Working Toward Improvement

Bank of America, which has given modifications to more than 910,000 borrowers since 2009, has “previously acknowledged that there is room for improvement in key areas, particularly those affecting the customer experience, and we are continually improving our processes to assist distressed homeowners,” Rick Simon, a spokesman for the Charlotte, North-Carolina-based lender, wrote in an e-mail.

“Our team will continue working to prevent foreclosure for our customers who are experiencing hardships as a result of unemployment, underemployment and other continued economic conditions in our country,” said Simon, whose company announced plans on Sept. 12 to slash 30,000 jobs.

Simon declined to comment specifically on the Fannie Mae report. Thomas Kelly, a spokesman for JPMorgan in New York, also declined to comment, as did David Isaacs, a spokesman for Pasadena, California-based OneWest Bank.

Talks Over Status

PHH declined to comment because it is in talks with Fannie Mae about its status on the list, Jonathan McGrain, a spokesman for the Mount Laurel, New Jersey-based company, wrote in an e- mail.

MetLife is “committed to the highest level of customer service,” David Hammarstrom, a spokesman for the New York-based insurer, said in an e-mail. “In the past 12 months the company has completed over 8,000 workouts, including modifications, repayment plans and forbearance plans.”

MetLife Home Loans received the second-highest ranking for customer satisfaction among mortgage originators from J.D. Power & Associates, a marketing-services company, Hammarstrom said. Moody’s Investors Service this month downgraded its servicer- quality rating of MetLife, citing deterioration in call center customer services, which had “performance levels that are significantly worse than its peers,” according to a Sept. 9 statement.

Fred Solomon, a spokesman for Pittsburgh-based PNC, didn’t immediately return an e-mail seeking comment. Mike McCoy, a spokesman for SunTrust in Atlanta, said the company wasn’t immediately able to comment.

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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Thousands Come Clean as IRS Gets $2.7 Billion

By Richard Rubin - Sep 16, 2011 2:29 AM GMT+0700

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The voluntary program allowed U.S. taxpayers with offshore accounts to come forward and pay back taxes and penalties to likely avoid prosecution. Photographer: Ariel Jerozolimski/Bloomberg

The Internal Revenue Service announced that 12,000 taxpayers declared offshore bank accounts in the second round of a voluntary disclosure program that the agency says has yielded $2.7 billion overall.

IRS Commissioner Douglas Shulman said today that the agency’s emphasis on international tax enforcement prompted more people than anticipated to accept penalties and reveal their accounts.

“The results we’re seeing today were unthinkable just a few short years ago,” he said on a conference call with reporters. “The world has clearly changed.”

The results mark the continuation of the IRS’s beefed-up enforcement efforts, which include the voluntary programs as well as prosecutions with the Department of Justice.

“You’d have to be living in a hole not to know that the U.S. government is really focused on offshore tax evasion, getting better at it,” Shulman said.

He declined to comment about U.S. efforts to obtain account information from Swiss banks, other than to confirm that the U.S. and Swiss governments are discussing the issue.

‘Never About Switzerland’

“This effort was never about Switzerland,” Shulman said. “I think a lot of Swiss banks aren’t taking these kinds of accounts anymore and they’re really trying hard to move forward.”

In 2009, the U.S. and UBS AG (UBSN) reached a deferred-prosecution agreement under which the bank paid $780 million. Since then, the U.S. has been prosecuting clients of UBS, HSBC Holdings Plc and other banks around the world.

The voluntary program allowed U.S. taxpayers with offshore accounts to come forward and pay back taxes and penalties to likely avoid prosecution.

The program’s initial round in 2009 yielded $2.2 billion in taxes, interest and penalties from 15,000 taxpayers, Shulman announced today.

An additional 3,000 taxpayers came forward after that program ended, and 12,000 more declared accounts this year under the 2011 program, which had a deadline of Sept. 9 and less generous terms for taxpayers than the previous version. Shulman said the 2011 program has yielded $500 million so far, and he expects that to increase because the total so far doesn’t include many penalties.

“That’s more than I expected in the second round,” said Mark Matthews, a Washington-based tax attorney at Morgan Lewis & Bockius LLP. Overall, “a lot of practitioners think this was one of the most successful tax compliance actions in history,” said Matthews, a former IRS deputy commissioner.

What Now?

Matthews said he’d like the IRS to issue guidance now that the disclosure initiative has ended.

“What do we do now?” Matthews asked. Those who have come forward, he said, are “still only a fraction of the people who have these accounts.”

Some people didn’t come forward because they were comparing the risk of getting caught with the penalties they would owe under the program.

Richard Sapinski, a lawyer at Sills, Cummis & Gross P.C. in Newark, New Jersey, said he doubts the IRS will offer another partial amnesty because that would undermine tax compliance.

“I think they probably would be very hesitant to have a third program,” Sapinski said. “It would be like catching a bus. You miss one and you wait for the next one.”

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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UBS Trader Gets No Miracle as Loss Leads to Arrest

By Liam Vaughan, Elena Logutenkova and Gavin Finch - Sep 16, 2011 7:21 AM GMT+0700
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Pedestrians are seen outside UBS AG's Paradeplatz offices in Zurich, Switzerland, on Thursday, Sept. 15, 2011. Photographer: Peter Frommenwiler/Bloomberg

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Sept. 15 (Bloomberg) -- John Gutfreund, president of New York-based Gutfreund & Co. and former chief executive officer of Salomon Brothers Inc., Thomas Ajamie, an attorney at Ajamie LLP, and Louise Cooper, an analyst at BGC Partners, offer their views on UBS AG's $2 billion loss from unauthorized trading at its investment bank. This report also contains comments from Francesco Garzarelli, chief interest-rate strategist at Goldman Sachs Group Inc., Simon Maughan, head of sales and distribution at MF Global Ltd., and City of London Police Commander Ian Dyson. (Source: Bloomberg)

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A pedestrian enters the UBS headquarters on Bahnhofstrasse in Zurich. Photographer: Reto Andreoli/Bloomberg

As Switzerland’s central bank imposed a limit on the franc’s appreciation against the euro on Sept. 6, UBS AG (UBSN) trader Kweku Adoboli’s Facebook profile had a plea for his friends: “Need a miracle.”

Just over a week later, at 3:30 a.m. yesterday, police in London arrested the 31-year-old Adoboli on suspicion of fraud by abuse of position. UBS told investors less than five hours later that “unauthorized trading by a trader” it didn’t identify caused a $2 billion loss.

Adoboli worked on the bank’s Delta One desk, a unit that handles trades for clients, typically helping them to speculate on or hedge the performance of a basket of securities. It also takes risks with the bank’s own money in arranging trades. It was the same kind of desk as the one worked by Jerome Kerviel, who triggered a 4.9 billion-euro loss ($6.8 billion) for France’s Societe Generale SA in January 2008.

“It couldn’t come at a worse time for UBS,” said Fred Ponzo, a former trader at Societe Generale and capital markets adviser at Greyspark Partners in London. “The thing is, it’s very hard to go through the fail-safes by error. The only way to dig a hole this big is by design. You have to ask the question that if this is a $2 billion hole, is this is a failure of technology and risk management?”

The arrest as global regulators are pressing banks to curb their proprietary trading is likely to revive calls for financial institutions to increase controls on risk and separate their investment banking from their retail businesses. It may also force Chief Executive Officer Oswald Gruebel, 67, to abandon further expansion of UBS’s investment bank.

‘Final Straw’

The loss is “the final straw in UBS’s ambitious build-out to a tier-one investment bank,” wrote JPMorgan Chase & Co. analysts led by Kian Abouhossein in a note to clients yesterday. “First, we think we’ll likely see management changes within UBS’s investment bank. Second, we expect UBS will come under material pressure from shareholders” and regulators to review its investment banking division.

The bank, Switzerland’s largest, fell the most since March 2009 in Swiss trading following the announcement. UBS tumbled 11 percent to 9.75 francs, bringing its drop this year to 36 percent, compared with a 33 percent decline in the 46-company Bloomberg European Banks and Financial Services Index.

Moody’s Review

Moody’s Investors Service put credit ratings for UBS under review for possible downgrade. The examination will focus on “weaknesses in the group’s risk management and controls that have become evident again,” Moody’s said in a statement. The loss itself “would be manageable for the group given its sound liquidity and capital position.”

UBS asked British police at 1 a.m. yesterday to arrest Adoboli, before alerting the U.K. financial regulator or prosecutors, according to two people familiar with the matter. The Financial Services Authority was notified shortly after the police, and prosecutors at the Serious Fraud Office weren’t contacted at all, according to the two people, who asked not to be identified because the investigations are private.

UBS declined yesterday to say how the trading allegedly lost the bank $2 billion. Gruebel called the loss “unauthorized” and “distressing” in an e-mail to employees, without giving details. No client positions were affected, the Zurich-based company said in the statement, issued on the third anniversary of Lehman Brothers Holdings Inc. (LEHMQ)’s collapse.

Industry Speculation

Traders at other firms speculate that UBS may have failed to adequately hedge the currency risk related to an exchange traded fund, known as ETF, or mistakenly placed a currency swap the wrong way, according to executives at other firms who declined to be identified. When the Swiss National Bank, Switzerland’s central bank, announced its limit on the currency Sept. 6, the franc fell more than 8 percent against the euro.

“It’s most likely to be a currency trade gone wrong,” said Manoj Ladwa, a senior trader at ETX Capital, a London-based broker that trades stocks, bonds, currencies, swaps and exchange-traded funds. “I would be shocked if it happened over a period of days, because you would expect back-office systems to pick it up. It’s only the Swiss franc that’s moved so sharply over such a short space of time last week.”

UBS has been stung by trading losses before. In 1998, Chairman Mathis Cabiallavetta and three top executives resigned, taking the blame for a charge of 950 million Swiss francs stemming from exposure to Long-Term Capital Management LP, the failed U.S. hedge fund. An internal audit found “shortcomings in risk-management processes” before and after the merger between Union Bank of Switzerland and Swiss Bank Corp. that formed UBS, the bank said at the time.

Earlier Trading Losses

This century, UBS was among the first stung by the subprime mortgage contagion when its Dillon Read Capital Management LP hedge fund, run by former investment banking chief John Costas, lost 150 million francs in the first quarter of 2007. As subprime losses spread to UBS’s investment bank, they led to departures by CEO Peter Wuffli, finance chief Clive Standish, Huw Jenkins, the head of the investment bank, and Chairman Marcel Ospel.

The investment bank piled up 57.1 billion francs in cumulative pretax losses in the three years through 2009, and UBS had to be rescued by the Swiss government. The bank brought Gruebel, who previously ran rival Credit Suisse Group AG (CSGN), out of retirement in February 2009 after the company posted the biggest annual loss in Swiss corporate history.

Since joining UBS, Gruebel has sought to install tighter controls at the investment bank. He started weekly calls with top officers and was personally monitoring traders’ positions, together with Carsten Kengeter, who runs the investment bank.

Quaker Doctrines

Adoboli was a director of ETF and Delta One Trading in London, meaning he was a member of the trading desk. Before that, he worked as a trade support analyst at UBS, according to a profile posted on LinkedIn. Photography, cycling and wine are listed as interests on his Bloomberg biography page.

He graduated from the University of Nottingham in July 2003, earning his degree with honors in e-commerce and digital business, the school said in a statement. He also attended the Ackworth School in West Yorkshire as an overseas boarder until 1998, Kathryn Bell, the head of the school, said in an e-mail.

“He was an able student who made a very positive contribution to the school community,” Bell said.

Ackworth was founded in 1779 by John Fothergill, an English physician and Quaker preacher. The school, about 180 miles north of London, still adheres to Quaker doctrines, with students required to attend Sunday worship and engage in “periods of reflective silence” before meals, according to its website.

Frozen on Facebook

Adoboli’s Facebook account has been frozen, according to a friend who had access to his profile. Calls to Adoboli’s office number were answered by a man identifying himself as Owen, who said he wasn’t at work today and wasn’t able to say when he would return.

Until a few months ago, Adoboli lived in an apartment in the Shoreditch district, said two neighbors, who declined to give their names because the matter is too sensitive. One of the neighbors, interviewed on his doorstep, remembered Adoboli as a friendly person with a taste for loud parties, who once brought him a bottle of champagne to apologize for the disturbance.

The building, whose carvings proclaim it was built as a “Soup Kitchen for the Jewish Poor” in 1902, was converted into luxury apartments after the kitchen closed in the 1990s. The district faces the Carter House council estate, or housing project, with its open-air balconies full of trash bags, bikes, and colorful towels hung out to dry. The area, its maze of lanes lined with pubs and restaurants, is where Jack the Ripper struck. On the fringes of the financial district, it is a five- minute walk to the UBS office in Broadgate.

Delta One Desk

There, Adoboli’s desk handled proprietary dealing and trades for clients. Such desks would trade in a variety of securities to enable clients to speculate and hedge baskets of securities. For example, if a client wanted to short Swiss equities expecting the franc to rise, the desk would design a trade and use a combination of equity swaps, futures and ETFs to accomplish it. As the derivatives should mirror the securities they track, they would be insurance against market moves and shouldn’t carry extra risk for the bank.

“Delta One desks are not necessarily known as risky areas,” said Terry Smith, CEO of the interdealer broker Tullett Prebon Plc and of the asset management firm Fundsmith LLP. “But they are known as complex areas.”

Delta One traders profit on cost and margin differences between derivatives and their underlying securities, and by timing the purchase and sale of each element.

The derivatives they use include exchange-traded funds, swaps and futures. As a member of the trading desk, Adoboli helped structure ETFs for clients and then hedge the bank’s positions to safeguard against potential losses.

How Deals Work

ETFs give buyers exposure to illiquid or complex baskets of assets. For example, an investor looking to bet on the movement of the FTSE 100 Index (UKX) can buy a single ETF rather than individual shares in all 100 companies in the index. Investment banks such as UBS structure such ETFs by buying the underlying assets.

The desks take the Delta One name because price movements in the derivatives they create move almost in lockstep with the underlying securities. This relationship is defined as having a delta of one or close to one.

At Societe Generale, Kerviel used futures to bet the market would go up, just as it collapsed. Futures, unlike ETFs, are leveraged products, causing the buyer to lose more than the initial investment.

The European exchange-traded fund market had $324.4 billion of assets at the end of July 2011, 37 percent more than a year earlier, according to data compiled by BlackRock Inc., the biggest provider of ETFs globally.

Probe of ETFs

That growth has attracted the attention of U.K. authorities. In its June 2010 Financial Stability Report, the Bank of England said there was a danger that “the benefits of ETFs become outweighed by complexity, opacity and contingent risks.” In February, the Financial Services Authority said it had “heightened our supervisory vigilance in this area.” In July, the Serious Fraud Office announced a probe into the funds.

“This comes at a critical time in the debate about how to structure the banking system,” said Richard Reid, head of research at the London-based research firm the International Centre for Financial Regulation. “It makes it much tougher for banks to resist efforts to tighten up regulation just as macro- economic conditions deteriorate.”

To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net; Elena Logutenkova in Zurich at elogutenkova@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net.

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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Silver Futures May Drop to $38 by End of September: Technical Analysis

By Debarati Roy - Sep 16, 2011 6:00 AM GMT+0700

Silver futures may extend this month’s decline, the first since June, according to technical analysis by Steel Vine Investments LLC.

The precious metal probably will slide to $38 an ounce by the end of September, down 3.8 percent from yesterday’s closing price on the Comex in New York, after the commodity dropped below the support level on a trendline connecting the lows of July 1 through Sept. 7, according to Spencer Patton, the Chicago-based chief investment officer for Steel Vine.

Yesterday, silver futures for December delivery fell $1.032, or 2.5 percent, to settle at $39.501. Prices rallied in July and August and have more than tripled since 2008. On April 25, the metal reached $49.845, the highest since January 1980.

“Silver, which was showing signs to trend higher, broke below the medium-term uptrend line” on Sept. 12, Patton said in a telephone interview yesterday. “Silver looks vulnerable.”

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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Crude Heads for Fourth Weekly Gain on Europe Plan Amid Shrinking Supplies

By Ben Sharples and Yee Kai Pin - Sep 16, 2011 10:17 AM GMT+0700

Oil headed for a fourth weekly gain in New York, the longest winning streak since July, as investors speculated that a plan to contain Europe’s debt crisis will boost fuel demand amid falling supplies.

Futures were little changed as the European Central Bank said it worked with the U.S., U.K., Japan and Switzerland to extend three-month loans to euro-area banks. The 17 euro nations accounted for about 12 percent of global oil demand in 2010, according to Bloomberg calculations based on BP Plc’s Statistical Review of World Energy. U.S. crude stockpiles dropped last week, an Energy Department report showed Sept. 14.

“Crude inventories in the U.S. have been declining and output from the North Sea is still not normal, so that’s going to be a support factor,” said Ken Hasegawa, a commodity- derivatives sales manager at broker Newedge Group in Tokyo, who expects oil to trade around $85 to $90.50 a barrel in coming days. “It’s possible for prices to go down again but West Texas Intermediate will be very steady.”

Crude for October delivery was at $89.64 a barrel, up 24 cents, in electronic trading on the New York Mercantile Exchange at 1:11 p.m. Sydney time. The contract yesterday rose 49 cents to $89.40. Prices are up 2.8 percent this week and 20 percent higher the past year.

Stockpiles Drop

Brent oil for November settlement gained 43 cents, or 0.4 percent, to $112.73 on the London-based ICE Futures Europe Exchange. The October contract, which expired, gained $2.94, or 2.6 percent, to $115.34 yesterday. Prices are up 44 percent the past year. The European benchmark contract was at a premium of $22.95 to West Texas Intermediate November futures, compared with a record $26.87 on Sept. 6 based on front-month settlement prices.

Oil stockpiles in developed nations fell to less than their five-year average in July, the first time since the 2008 recession, and were expected to have fallen further in August, the International Energy Agency said on Sept. 13.

The lack of supply from Libya and production outages in areas such as the North Sea caused inventories to fall in Europe and North America, while Asian companies held less crude than normal, the IEA said in its monthly report.

Libya will resume partial crude exports within three or four days, an official from the nation said in Doha yesterday. The country, holder of Africa’s largest oil reserves, will produce about 700,000 barrels a day by the end of this year and an estimated 1.6 million barrels a day by the end of 2012, Abdulla Saudi told reporters yesterday in the Qatari capital.

“Supply Premium”

“Reports of Libya resuming partial crude exports next week could weigh on Brent, with some of the tight supply premium removed from prices,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today.

Fighting in the African nation since February has reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day last month, according to Bloomberg estimates, compared with the 1.6 million barrels a day the nation pumped in January.

U.S. crude inventories slid 6.7 million barrels to 346.4 million last week as Tropical Storm Lee closed platforms in the Gulf of Mexico, which accounts for 27 percent of U.S. supply, according to the Energy Department report. As much as 61 percent of production was shut, the Bureau of Ocean Energy Management, Regulation and Enforcement said on its website.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Yee Kai Pin in Singapore at kyee13@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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Rice Imports by Bangladesh May Be Less Than Forecast on Output

By Luzi Ann Javier - Sep 16, 2011 9:23 AM GMT+0700

Rice imports by Bangladesh, South Asia’s biggest buyer, may be half the amount forecast earlier by the government as local production increases and domestic prices decline, according an executive at the state food buyer.

Shipments may total 400,000 metric tons in the year that began July 1 compared with 800,000 tons estimated two months ago, Badrul Hasan, director for procurement at the Bangladesh Directorate General of Food, said in a phone interview. Imports were 1.26 million tons in the year ended June 30, he said.

Lower imports by Bangladesh may help end a 50 percent jump in prices in Chicago in the past year that allowed rice to beat rallies in corn and soybeans and a drop in wheat. Global food costs were near a record in August, supported by higher rice and corn prices, according to the Food & Agriculture Organization.

“With stocks much higher this year, we’ll have less import needs,” Hasan said from Dhaka yesterday. Lower local prices will also help the government to cut purchases of the grain used in a food-distribution program for the poor, he said.

Rough rice for November delivery traded at $17.86 per 100 pounds on the Chicago Board of Trade at 10:09 a.m. in Singapore. The most-active contract touched $18.54 on Sept. 12, the highest level since 2008, when surging food costs stoked riots worldwide.

The global rice trade may total 33.2 million tons in the year from Jan. 1 from 31.6 million tons in 2010, according to the U.S. Department of Agriculture. Thailand and Vietnam are the two largest exporters, while India, which ended an export ban, is forecast to overtake the U.S. and Pakistan to become the third-largest shipper, according to USDA data on Sept. 12.

Bigger Harvest

Bangladeshi production of milled grain, excluding waste, may rise to 30 million tons in the year from July 1, from 28.5 million tons last year, Hasan said. Hasan’s latest rice-import estimate compares with the 600,000 ton forecast by the USDA’s Foreign Agricultural Service on Aug. 5.

Local stockpiles were at 1.1 million tons, almost double the 600,000 tons a year ago, after the government boosted overseas purchases last year to secure supplies as so-called panic-buying sent domestic prices higher, he said.

The end of the export ban on non-basmati rice shipments from India, the world’s second-largest grower, may push Bangladesh’s domestic prices down further as it helps buyers to be able to secure supply in the event of crop losses, Hasan said.

After the government ended the ban on Sept. 8, exports by India may reach 2 million tons by March 31, according to an estimate from Shri Lal Mahal, a New Delhi-based trader.

Domestic wholesale prices of rough rice in Dhaka have fallen 6.9 percent to 3,082 taka ($41) per 100 kilograms in August, from 3,311 taka in December, the highest price since April 2008, according to FAO data.

The UN agency’s Rice Price Index, which tracks 16 varieties from exporters, advanced 20 percent to 261 in August from a year earlier. The World Food Price Index was at 231.1 last month, near the all-time high of 237.7 in February, the FAO said.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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Treasury Department’s Watchdog Probes Federal Bank Role in Solyndra’s Loan

By Alison Vekshin - Sep 15, 2011 1:32 AM GMT+0700

The U.S. Treasury Department’s inspector general is investigating the Federal Financing Bank’s role in providing $527 million of federal financing to Solyndra LLC, a solar-panel manufacturer that filed for bankruptcy protection this month.

The watchdog is examining the circumstances of the loan, part of a process that occurs “whenever there are questions raised as to the efficiency or integrity of a Treasury program or operation,” Rich Delmar, counsel to the Treasury’s inspector general, said today in an e-mailed statement.

Solyndra, promoted by the Obama administration as a successful example of stimulus money spurring development of a clean-energy industry, filed for bankruptcy on Sept. 6. The Federal Bureau of Investigation raided the company’s Fremont, California, headquarters two days later joined by the Energy Department’s office of inspector general, which has questioned the Obama administration’s documentation of loan guarantees.

The financing bank, part of the Treasury, loaned money to Solyndra under the administration’s guarantees. David Miller, a Solyndra spokesman, didn’t have an immediate response to the investigation.

An inspector general’s routine audit of the Federal Financing Bank for fiscal 2010, using an independent public accountant, reviewed whether some disbursements for the Solyndra loan were properly authorized and recorded, and “found that they were,” Delmar said.

Republicans on the U.S. House Energy and Commerce Committee today released findings from a seven-month investigation into U.S. support for the company before a hearing where lawmakers questioned two administration officials about White House support for the company and its goals for clean energy.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net

To contact the editors responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net; Larry Liebert at lliebert@bloomberg.net

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Greece Is to Remain in Euro: Sarkozy, Merkel

By Helene Fouquet and Eleni Chrepa - Sep 15, 2011 1:53 PM GMT+0700

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Sept. 15 (Bloomberg) -- Richard Sulik, chairman of the Freedom and Solidarity party, a member of Slovakia’s coalition government, talks about the European sovereign-debt crisis and the possiblity of a default by Greece. Sulik said his party will vote in parliament against the European bailout system. He spoke with Bloomberg's Radoslav Tomek in Bratislava, Slovakia, on Sept. 13. (Source: Bloomberg)

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German Chancellor Angela Merkel and French President Nicolas Sarkozy. Photographer: Steffen Kugler/Bundesregierung-Pool via Getty Images

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are “convinced” Greece will stay in the euro area as they faced international calls to step up efforts in fighting the region’s debt crisis.

The euro rose after the leaders of Europe’s two biggest economies issued a statement yesterday following a telephone conversation with Greek Prime Minister George Papandreou. It erased most of those gains today. Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements from governments in Berlin, Athens and Paris.

European governments are aiming to ratify a July 21 agreement to bolster the euro region’s bailout fund and extend a second rescue to Greece. Investor skittishness over the spread of the debt crisis has raised banks’ funding costs and roiled markets worldwide.

“I am skeptical that this will help to reassure markets,” Tullia Bucco, an economist at UniCredit Global Research in Milan, said of the leaders’ statement. “The road to the implementation of the second aid package is still quite long and may prove bumpy.”

The euro was up 0.1 percent to $1.3731 at 8:43 a.m. in Berlin, as futures on the Euro Stoxx 50 Index added 1.2 percent.

Geithner’s Travels

Treasury Secretary Timothy F. Geithner will travel to Wroclaw, Poland, to attend a session for the first time of the European Union’s Economic and Financial Affairs Council that begins tomorrow. Chinese Premier Wen Jiabao yesterday called on other countries to “put their houses in order.”

Underscoring divisions in Europe, European Commission President Jose Barroso said he was close to proposing options on joint euro-area bond sales, putting officials in Brussels on a collision course with Germany over steps to contain the sovereign debt crisis.

“The commission will soon present options for the introduction of euro bonds,” Barroso told the European Parliament yesterday in Strasbourg, France, prompting applause from lawmakers who have backed the idea and a swift rejection from officials in Berlin. “Some of these options could be implemented within the terms of the current treaty; others would require treaty change.”

In the three-way telephone call, Papandreou committed to enacting policies demanded by the EU and International Monetary fund to keep the bailout funds flowing. Sarkozy and Merkel “are convinced that the future of Greece is in the euro zone,” the French statement said.

Greek Steps

The Greek Cabinet this month endorsed measures to help meet deficit targets of 17.1 billion euros ($23.6 billion) in 2011 and 14.9 billion euros in 2012, covering a 2 billion-euro shortfall for this year that has been exacerbated by a deepening recession.

The fulfillment of Greece’s adjustment program is “more than ever” essential and is a condition for the payment of further aid tranches, Merkel said in the call, according to an e-mailed statement from her chief spokesman, Steffen Seibert.

Papandreou said Sept. 10 that the government’s top priority is “to save the country from bankruptcy” and said he would do whatever is necessary to meet targets.

Putting austerity programs into place “is indispensable to establish sustainable and balanced growth in Greece,” according to the statement issued in Paris. “The success of the Greek plan will provide stability to the euro zone.”

To contact the reporters on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net; Eleni Chrepa in Athens at echrepa@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Euro Falls Against Dollar On Greece Concern

By Kristine Aquino and Mariko Ishikawa - Sep 15, 2011 1:02 PM GMT+0700

The euro declined against the dollar on concern that the risk of a Greek default is increasing borrowing costs for other European countries.

The single currency weakened against the yen before Spain and France offer government securities today. The New Zealand dollar fell against its U.S. and Japanese counterparts after the central bank left interest rates unchanged and said that the global economy may slow “sharply.” The U.S. and Japanese currencies rose versus most of their major peers as Asian stocks pared earlier gains.

“It’s difficult to build a fundamental positive outlook for the European currency,” said Jonathan Cavenagh, a Singapore-based strategist at Westpac Banking Corp. “The market is inevitably telling the European authorities that they need to be doing more and we’re just not seeing that action yet.”

The euro fell to $1.3720 as of 6:31 a.m. in London from $1.3755 yesterday in New York. The shared currency weakened to 105.22 yen from 105.39. The dollar was at 76.69 yen from 76.62.

The MSCI Asia Pacific Index of shares advanced 0.8 percent after earlier rallying as much as 1.6 percent.

Spain will today sell as much as 4 billion euros ($5.5 billion) of bonds maturing in 2019 and 2020. France will offer securities maturing in 2013, 2014 and 2016 and is preparing to auction inflation-linked bonds due in 2019 and 2022.

China Bond Purchases

China is willing to buy euro bonds from countries involved in the sovereign debt crisis “within its capacity,” Zhang Xiaoqiang, vice chairman of the country’s National Development and Reform Commission, said today at the World Economic Forum in Dalian. Zhang reiterated comments made yesterday at the event by Premier Wen Jiabao, who said developed nations must first “put their own houses in order,” cut deficits and open markets rather than rely on China to bail out the world economy.

Italy sold 3.9 billion euros of five-year notes on Sept. 13 at an average yield of 5.6 percent, up from 4.93 percent at the auction on July 14. Demand dropped to 1.28 times the amount on offer, from 1.93 times.

Fitch Ratings downgraded five of Spain’s regions including Andalusia and Catalonia yesterday, saying debt levels are surging and the weak economic recovery will undermine revenue. The country’s regional governments are behind schedule to meet deficit targets, according to data released last week that Moody’s Investors Service said was “credit negative.”

‘Risk-Averse Mode’

“Markets seem to still be in quite a risk-averse mode,” Westpac’s Cavenagh said. “The dollar is benefiting from that, so is the yen.”

The yen has appreciated 3.3 percent in the past week, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar, the second best, gained 2 percent.

The yen tends to appreciate during economic and financial turmoil because Japan’s current account surplus makes it less reliant on foreign capital. The dollar benefits as the world’s reserve currency.

Declines in the euro were limited after French President Nicolas Sarkozy and German Chancellor Angela Merkel said in a statement that they are “convinced that the future of Greece is in the euro zone.” The statement from the leaders of Europe’s two biggest economies followed a telephone discussion yesterday with Greek Prime Minister George Papandreou.

Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements distributed by the governments in Athens, Berlin and Paris.

‘Looking Quite Oversold’

The euro’s 14-day relative strength index versus the yen was at 25.5, below the 30-level that some traders see as a sign an asset’s price may reverse direction after falling too rapidly.

“In the short term, the euro may get a little bit of a bounce,” said Derek Mumford, a Sydney-based director at Rochford Capital, a foreign-exchange and interest-rate risk- management firm. “It’s looking quite oversold.”

New Zealand’s dollar fell against all of its major counterparts after the Reserve Bank held its official cash rate at 2.5 percent and signaled no urgency to raise borrowing costs until the global recovery strengthens.

“The kiwi has moved down as a knee-jerk response to the statement which was a little more dovish than expected,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “The RBNZ has dropped its rates track and is now closer to what swaps markets were pricing. Swaps had already priced in a rather dire global situation.”

The so-called kiwi dollar dropped 1.2 percent to 81.30 U.S. cents. It slid 1.1 percent to 62.35 yen.

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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European Stocks Extend Gains as ECB Coordinates With Fed to Lend Dollars

By Sarah Jones - Sep 15, 2011 8:05 PM GMT+0700

European stocks extended their advance as the European Central Bank said it will lend the region’s banks dollars to ensure they have enough of the currency through the end of the year.

The benchmark Stoxx Europe 600 Index advanced 2 percent to 228.62 at 2:04 p.m. in London, extending its three-day increase to 4.4 percent. The gauge has still fallen 21 percent from this year’s peak on Feb. 17 as the region’s growing debt crisis and worse-than-forecast U.S. economic reports added to concern that the global recovery is at risk.

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

To contact the editor responsible for this story: Andrew Rummer in London at arummer@bloomberg.net

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U.S. Stocks Gain as ECB Offers Loans to Banks in Effort to Tame Crisis

By Rita Nazareth - Sep 15, 2011 8:31 PM GMT+0700

U.S. stocks rose, signaling the Standard & Poor’s 500 Index may gain for a fourth straight day, as a package of dollar loans for European banks assuaged concern spurred by signs unemployment is worsening.

The S&P 500 rose 0.9 percent to 1,199.25 at 9:31 a.m. in New York. The benchmark gauge has gained 3 percent over the last three days.

Stock futures rallied after the ECB said it will lend euro- area banks dollars in three separate three-month loans to ensure they have enough of the U.S. currency through the end of the year. The S&P 500 climbed 1.4 percent yesterday as French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are “convinced” Greece will remain in the euro area.

Equities extended gains today after a report showed industrial production in the U.S. unexpectedly rose in August.

Stock futures trimmed gains earlier as data showed jobless claims climbed by 11,000 to 428,000 in the week ended Sept. 10 that included the Labor Day holiday. Economists surveyed by Bloomberg News projected a drop in claims to 411,000, according to the median forecast.

The Federal Reserve Bank of New York’s general economic index dropped to minus 8.8, the weakest reading since November, from minus 7.7 in August. Economists projected an increase to minus 4, based on the median of 54 forecasts in a Bloomberg News survey. Readings less than zero signal companies in the so- called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are cutting back.

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

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

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IPhone 5 Rush Orders Seen to Benefit Broadcom

By Adam Satariano - Sep 15, 2011 11:01 AM GMT+0700
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As overall electronics demand slows, Broadcom and other suppliers for Apple’s iPhone, iPad and iPod Touch may fare better than makers of personal-computer parts.Photographer: Chris Goodney/Bloomberg

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Taiwan Semiconductor Manufacturing Co. silicon wafers are arranged for a photograph at the company's headquarters in Hsinchu, Taiwan. The positive reports from Taiwan Semiconductor and Broadcom diverge from others in the chip business. Photographer: Maurice Tsai/Bloomberg

Broadcom Corp. (BRCM) stands out as one of the biggest beneficiaries from orders from Apple Inc. (AAPL), whose need for parts that go into iPhones and iPads represents a bright spot for a semiconductor industry plagued by weak demand.

Taiwan Semiconductor Manufacturing Co., Broadcom’s biggest supplier, last week said third-quarter sales would exceed earlier forecasts because of rush orders from an unnamed customer. Other large Taiwan Semiconductor clients have disclosed disappointing results, suggesting that the customer was probably Broadcom, rushing to meet demand from Apple, according to a supply-chain analysis by Bloomberg.

“Broadcom is the largest link between Apple and Taiwan Semiconductor,” said Richard Davenport, a Bloomberg supply chain analyst, in a report. “Broadcom appears to be a likely candidate for Taiwan Semiconductor’s rush orders.”

As overall electronics demand slows, Broadcom and other suppliers for Apple’s iPhone, iPad and iPod Touch may fare better than makers of personal-computer parts. Broadcom reaffirmed its third-quarter forecast this week, while Texas Instruments Inc. (TXN) and Altera Corp. were among chipmakers that have reduced estimates, citing sluggish economic growth. The contrasting reports highlight how surging sales of Apple gadgets can sweep through the company’s chain of hundreds of suppliers.

“The suppliers of Apple are doing well,” said Michael Burton, an analyst at Kaufman Bros. in New York. “The mobile space is in a very good place.”

IPhone, IPad Sales

Karen Kahn, a spokeswoman for Broadcom, declined to comment, as did Steve Dowling, a spokesman for Cupertino, California-based Apple. Elizabeth Sun, a spokeswoman for Taiwan Semiconductor, also declined to comment, citing the Hsinchu, Taiwan-based company’s policy not to discuss customers and their orders.

Apple may sell 19.5 million phones and 12.5 million iPads in the quarter ending this month, according to Mike Abramsky, an analyst at RBC Capital Markets. That’s up from 14.1 million iPhones and 4.19 million iPads sold in the same period last year.

PC makers and their suppliers are suffering by contrast. Researcher Gartner Inc. last week cut its projection for 2011 PC sales, saying shipments will rise 3.8 percent instead of the 9.3 percent growth it had forecast.

Rush Orders

Rush orders are last-minute purchases intended to make up for dwindling inventory somewhere in the supply chain. Amid the current semiconductor slump, such orders can only be coming from a customer that is big enough to require a manufacturer as large as Taiwan Semiconductor to adjust its resources, Davenport wrote in the report.

“‘Rush orders’ are likely not from a new or unknown product, but rather imply more needed capacity with a mature product offering,” he said.

Anil Doradla, a chip analyst at William Blair & Co., said Taiwan Semiconductor’s order also could also have been made by Qualcomm Inc. (QCOM), which may have a new deal with Apple for iPhone chips.

Kaufman Bros.’ Burton also said Taiwan Semiconductor’s positive news might be related to orders from MediaTek Inc. and Nvidia Corp., which are also customers of Taiwan Semiconductor. Broadcom is less likely because it would have anticipated heavier demand from Apple ahead of the new model of the iPhone or higher sales in China, he said. Davenport also said MediaTek or Qualcomm were possible sources for the rush orders.

Broadcom’s Forecast

Still, Broadcom reiterated its revenue forecast yesterday, encouraging investors who had said that target might be overly optimistic after other chipmakers had warned of disappointing results, Burton said.

Broadcom, based in Irvine, California, made the comments in its announcement of its purchase of NetLogic Microsystems Inc. (NETL), a maker of processors used in data networks, for about $3.7 billion in cash.

The positive reports from Taiwan Semiconductor and Broadcom diverge from others in the chip business. In addition to Altera and Texas Instruments, Fairchild Semiconductor International Inc. told investors its results would be less than earlier forecast.

“Taiwan Semiconductor’s data sticks out like a sore thumb,” Davenport said in an interview. “We are seeing cuts on almost a daily basis.”

Apple, whose sales jumped 52 percent last year, is Broadcom’s largest customer, accounting for about 11 percent of sales, according to data compiled by Bloomberg. Apple’s biggest suppliers include Hon Hai Precision Industry Co., Samsung Electronics Co. and Quanta Computer Inc., according to Bloomberg data.

Expanding in China

Apple is expected to announce a new iPhone by the end of October and will expand its availability in the U.S. to include Sprint Nextel Corp., people familiar with the matter said last week. The company also is expanding in China, where sales grew sixfold last quarter and new retail stores are planned.

Demand from Sprint or carriers in China could result in “an upward revision” to Broadcom’s recently reiterated forecast, Davenport said.

Broadcom rose 55 cents to $34.77 in Nasdaq Stock Market trading yesterday. The company, whose stock has dropped 20 percent this year, may be spared from the struggles of other chipmakers because of Apple.

“Apple could save the quarter for Broadcom,” said William Blair’s Doradla.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Record Texas Drought Burning Cotton Farmers as Their ‘White Gold’ Withers

By Elizabeth Campbell - Sep 15, 2011 11:00 AM GMT+0700
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A plant missed during last year's harvest grows on the edge of a barren cotton field near Hermleigh, Texas. Cotton farmers should see an average of around 90 cents a pound -- if there’s anything to sell. Photo: Scott Olson/Getty Images

The month before cotton reached its highest price ever in March, Brad Heffington bought a 7760 John Deere picker for $500,000 to help get as much “white gold” as he could out of his 6,000 acres in West Texas. Seven months later, the harvester is for sale. The 43-year-old farmer’s crop is wilting; the few plants left are too short for the massive piece of equipment to handle, he says.

At least 65 percent of his crop is gone as drought crushes growers’ chances of benefiting from record prices, Bloomberg Businessweek reports in its Sept. 19 issue.

“It’s going to be the year of wisha, shoulda, coulda,” says Heffington, who has farmed in the biggest cotton patch of the top-exporting country on the planet for 23 seasons. “It’s terrible not to be able to take advantage of these prices.”

Farmers in West Texas are still likely to get the highest spot prices since record-keeping began, according to the Texas AgriLife Extension Service in Lubbock, the unofficial capital of the U.S. cotton industry. They should see an average of around 90 cents a pound -- if there’s anything to sell.

The stretch from October 2010 to August 2011 was the driest 11-month period in Texas since 1895, when the National Weather Service started tracking such things. Governor Rick Perry, a Republican Presidential candidate and son of a cotton farmer, recently asked supporters to pray for rain. The government estimates 33 percent of the U.S. cotton crop will be lost, topping the record of 27 percent in 1933.

‘Unmitigated Disaster’

“It’s an unmitigated disaster,” says Darren Hudson, director of the Cotton Economics Research Institute at Texas Tech University in Lubbock. He says production in West Texas could fall from the 10-year average of about 4.5 million bales to 1.5 million.

The industry, which employs an estimated 38,000 in the state, generates about $6 billion of economic activity in West Texas. This year may slice that amount by 75 percent, Hudson says.

“The people who are really going to be hurt bad are all the service industries,” says Jay Yates, a risk specialist with Texas AgriLife. “Our warehouses are going to be empty. All those forklifts that load cotton won’t be rented.”

Though the disaster could force weaker farms out of business, crop insurance will help growers avoid the devastation wrought by the Dust Bowl, and the exceptionally good year they had in 2010 provides a buffer. The U.S.’s status as the No. 1 exporter of cotton is safe.

“Even at half our crop, we’re still going to export more than Brazil and Australia,” says Hudson. The drought, however, shows no sign of letting up, and people may have to plant less acreage next year. “Two years like this back-to-back would significantly change things,” Yates says.

‘Suicide’ Contracts

Growers now worry about committing to a bale contract, which obligates them to deliver a fixed amount no matter what Mother Nature hands them. Signing a bale contract is “suicide” this year, says Wesley Butchee, who farms 2,400 parched acres south-west of Lubbock. Merchants who buy the cotton are scared of the opposite -- an acre contract, in which farmers promise bales based on how much they produce. That can leave merchants without enough cotton, says Alan Underwood, president of Underwood Cotton Co., a merchant in Lubbock.

Businessmen such as Underwood don’t want to be the next Paul Reinhart Inc. Once one of the biggest U.S. cotton merchants, it filed for bankruptcy in October 2008 after volatility in the futures market triggered margin calls that caused significant losses. These days the furthest out Underwood will contract to sell cotton is 60 days.

Back on Heffington’s farm, he’s left to gather what’s left of his crop. He says a lot of the cotton that survives has smaller bolls, which means the fibers will be shorter, and his production will drop further -- another reason he needs a buyer for his Deere & Co. (DE) picker. He says Australians want such equipment to harvest a record crop of their own.

“I don’t need that machine,” Heffington says. “It’s an investment that’s not going to pay me anything this year.”

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Flynn McRoberts in Chicago at fmcroberts1@bloomberg.net.

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HSBC Is Dropped From Lawsuit Alleging Silver Futures, Options Manipulation

By Bob Van Voris - Sep 15, 2011 11:01 AM GMT+0700

HSBC Holdings PLC (HSBA) is no longer a defendant in a lawsuit by investors who claimed the bank and JPMorgan Chase & Co. (JPM) manipulated silver futures and options prices in violation of U.S. antitrust law.

The investors said in consolidated class action complaint filed yesterday that they had signed a tolling agreement with HSBC and weren’t naming the bank as a defendant. Tolling agreements are often used to stop statutes of limitation from running while the parties discuss settlement or dismissal of a claim.

The investors claim that, starting in March 2008, the banks colluded to suppress silver futures so that call options, or the right to buy, would decline, and put options for the right to sell would increase, according to the complaint filed in federal court in Manhattan.

The Commodity Futures Trading Commission began probing allegations of price manipulation in the silver futures market in September 2008.

Investors seek to represent a class of thousands of people and companies that held or traded silver futures and options on June 26, 2007, or from March 17, 2008, to Oct. 27, 2010.

A call to London-based HSBC seeking comment on the matter after regular business hours yesterday wasn’t immediately returned. Joseph Evangelisti, a spokesman for New York-based JPMorgan Chase, declined to comment.

The case is31 In re Commodity Exchange Inc. Silver Futures and Options Trading Litigation, 11-cv-2213, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net.

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

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UBS Had $2B Loss From Unauthorized Trading; One Arrest

By Elena Logutenkova - Sep 15, 2011 7:06 PM GMT+0700

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Pedestrians walk past the London offices of UBS AG at Broadgate, in London on Sept. 15, 2011. Photographer: Simon Dawson/Bloomberg

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Sept. 15 (Bloomberg) -- Simon Maughan, head of sales and distribution at MF Global Ltd., discusses UBS AG's $2 billion loss from unauthorized trading at its investment bank. Maughan speaks with Erik Schatzker and Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Sept. 15 (Bloomberg) -- Simon Maughan, head of sales and distribution at MF Global Ltd., discusses UBS AG's $2 billion loss from unauthorized trading at its investment bank. He speaks with Owen Thomas and Maryam Nemazee on Bloomberg Television. (Source: Bloomberg)

UBS AG (UBSN), Switzerland’s biggest bank, said it may be unprofitable in the third quarter after a $2 billion loss from unauthorized trading at its investment bank.

London police arrested Kweku Adoboli, a UBS employee, in connection with the loss, according to a person with knowledge of the matter who declined to be identified. City of London police and UBS declined to identify the man.

UBS management aims to “get to the bottom of the matter as quickly as possible, and will spare no effort to establish exactly what has happened,” the bank’s group executive board, led by Chief Executive Officer Oswald Gruebel, said in a memo to employees today. “While the news is distressing, it will not change the fundamental strength of our firm.”

The bank tumbled as much as 9.6 percent in Swiss trading following the announcement, which deals a blow to Gruebel’s attempts to rebuild the investment bank after the division recorded 57.1 billion Swiss francs ($65 billion) in cumulative pretax losses in three years through 2009. The trading loss may revive calls for Gruebel to shrink or shut the unit.

“How many times do we have to see huge UBS losses?” said Simon Maughan, head of sales and distribution at MF Global Ltd. in London. “It looks unreformed, unwieldy and ultimately unsustainable. This could be a critical tipping point for UBS’s strategy.”

‘Suspicion of Fraud’

UBS fell 94 centimes, or 8.6 percent, to 9.99 francs by 1:56 p.m. in Zurich, bringing the drop this year to 35 percent. That compares with a 34 percent decline in the 46-company Bloomberg Europe Banks and Financial Services Index.

A man was arrested in central London at 3:30 a.m. on “suspicion of fraud by abuse of position,” the London police said in a statement today. The man remains in custody and an investigation has begun, the police said.

The matter is still under investigation and the “current estimate of the loss on the trades is in the range of $2 billion,” UBS said in a statement today, the third anniversary of the collapse of Lehman Brothers Holdings Inc. No client positions were affected, the company said, declining further comment.

UBS had to raise more than $46 billion in capital from investors, including the Swiss state, to make up for the record losses during the credit crisis. The investment-banking unit had pretax earnings of 1.21 billion francs in the first half of 2011, while UBS as a whole had net income of 2.82 billion francs in the period.

Risk Management

The bank’s tier 1 capital at the end of the second quarter was 37.39 billion francs, giving it a tier 1 capital ratio of 18.1 percent, compared with 14 percent at Deutsche Bank AG, Germany’s biggest bank.

While the loss is “manageable” for UBS, it’s “obviously not helpful for sentiment and confidence in the bank’s risk management following the near-death experience of 2008-2009,” said Andrew Lim, a London-based analyst at Espirito Santo Investment Bank, in a note. Lim had estimated third-quarter net income of 1.1 billion francs for UBS.

UBS last month said it will eliminate about 3,500 jobs, with about 45 percent of the reductions coming from the investment bank, as stricter capital requirements and market turmoil hurt the earnings outlook. The bank in July scrapped the target of doubling pretax profit from last year’s level to 15 billion francs by 2014.

Gruebel, Kengeter

Gruebel, 67, and Carsten Kengeter, 44, who runs the investment bank, have been trying to revive earnings at the division for two years. They hired more than 1,700 people across the investment bank and brought in new business heads to replace those that left or were fired. They’ve also increased risk- taking to improve earnings opportunities.

The investment bank last had a pretax loss in the third quarter of 2010 when what Gruebel called “very low levels of client activity” and a charge related to the bank’s own debt hurt revenue at the division.

Gruebel, who formerly ran Credit Suisse Group AG, was brought out of retirement by UBS in February 2009 to take over from Marcel Rohner after the company posted the biggest annual loss in Swiss corporate history. A former bond trader, Gruebel doubled profit at Credit Suisse between 2004 and 2006.

UBS isn’t alone in suffering from trading losses. Societe Generale (GLE) SA of Paris said in January 2008 that the bank lost 4.9 billion euros ($6.7 billion) after trader Jerome Kerviel took unauthorized positions on European stock index futures.

Credit Suisse, Switzerland’s second-biggest bank, had a loss in the first quarter of 2008 in part because of writedowns on debt securities that were intentionally mispriced by a group of traders. Nick Leeson piled up $1.4 billion of losses that brought down Barings Plc in 1995.

To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net;

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Oil Trades Near 2-Day Low on Rising Fuel Stockpiles, European Debt Outlook

By Ben Sharples - Sep 15, 2011 7:25 AM GMT+0700

Oil traded near a two-day low in New York as signals that U.S. fuel demand is weakening countered optimism that European leaders will step up efforts to resolve the region’s sovereign debt crisis.

Futures were little changed after slipping as much as 0.4 percent. Gasoline stockpiles rose 1.94 million barrels last week, the biggest gain since June, according to the Energy Department. Supplies of distillate fuel, a category that includes heating oil and diesel, increased to the highest level since February. Equities and the euro climbed after German and French leaders said they are “convinced” Greece will remain in the single currency.

Crude for October delivery was at $88.80 a barrel, down 11 cents, in electronic trading on the New York Mercantile Exchange at 10:23 a.m. Sydney time. The contract yesterday slid $1.30, or 1.4 percent, to $88.91. Prices are up 17 percent the past year.

Brent oil for October rose 1 cent to $112.41 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark contract was at a premium of $23.49 to U.S. futures, compared with a record $26.87 on Sept. 6.

U.S. gasoline stockpiles were forecast to fall, according to a Bloomberg News survey of analysts. Consumption of the motor fuel dropped 1.2 percent to 8.85 million barrels a day in the week ended Sept. 9, the lowest since May, the Energy Department report shows.

Angela Merkel and Nicolas Sarkozy, the leaders of Europe’s two biggest economies, issued a statement yesterday following a telephone conversation with Greek Prime Minister George Papandreou. Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements from governments in Athens, Berlin and Paris.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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Corn Retreats as Demand For Ethanol Declines, Feedmakers Switch to Wheat

By Luzi Ann Javier - Sep 15, 2011 9:04 AM GMT+0700

Corn retreated on signs that demand from producers of ethanol is declining and on concern makers of livestock feeds may seek cheaper substitutes. Wheat fell.

December-delivery corn lost 0.8 percent to $7.1875 a bushel on the Chicago Board of Trade at 9:48 a.m. Singapore time. The grain climbed 45 percent in the past year, beating a 3.5 percent decline in wheat.

Output of ethanol in the U.S. fell 1.9 percent to 879,000 barrels a day last week, the lowest level since the week ended July 29, according to a Department of Energy report. Feed millers will probably use less corn and more wheat in rations for livestock and poultry feeds, the Department of Agriculture said Sept. 12.

“The market has become increasingly focused on demand destruction in recent weeks,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, said in a report today. “Wheat feeding is expected to displace an increasing proportion of corn use.”

Global corn use in animal feeds will drop to 505.1 million metric tons this season from 510 million tons estimated a month earlier, the USDA said Sept. 12.

Wheat for December delivery slipped 0.4 percent to $7.0150 a bushel in Chicago. The grain is trading at a discount to corn for a fifth straight day. Soybeans for November delivery were little changed at $13.83 a bushel.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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Copper Gains From One-Month Low as Leaders’ Vow Eases Europe Debt Concerns

By Jae Hur - Sep 15, 2011 9:10 AM GMT+0700

Copper rebounded after German and French leaders expressed support for Greece remaining in the euro area, easing concern that Europe’s sovereign-debt crisis may crimp commodity demand. Zinc, tin and lead also gained.

Three-month copper on the London Metal Exchange climbed as much as 0.8 percent to $8,698.50 per metric ton and traded at $8,685 at 11:04 a.m. in Tokyo. The metal touched $8,590 yesterday, the lowest price since Aug. 11.

Angela Merkel and Nicolas Sarkozy, the leaders of Europe’s two biggest economies, issued a statement yesterday after they spoke with Greek Prime Minister George Papandreou by phone. Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, it said.

“All markets were under the influence of Europe’s sovereign-debt crisis, and today we saw some optimism from the overnight news,” said Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul. Labor disputes at copper mines in Indonesia and Peru also supported the market, he said.

China is willing to buy the bonds of nations hit by the debt crisis, Caijing reported on its website yesterday, citing Zhang Xiaoqiang, a vice chairman of the National Development and Reform Commission.

Asian stocks advanced today, lifting the region’s benchmark index from a one-year low. The Standard & Poor’s 500 Index rose 1.4 percent yesterday, rounding off a three-day, 3 percent rally. Still, U.S. data today may show industrial production stalled in August, according to a survey of economists by Bloomberg News.

Mine Strikes

Workers at Freeport-McMoRan Copper & Gold Inc. (FCX)’s Peruvian unit failed to reach a wage agreement and will continue a strike that began yesterday, a union official said. Workers and officials at Freeport’s Sociedad Minera Cerro Verde SAA (CVERDEC1) unit, Peru’s third-largest producer, are scheduled to resume talks today, Mining Federation General Secretary Luis Castillo said.

In Indonesia, about 8,000 non-staff workers at Freeport’s Grasberg mine started a one-month strike, Virgo Solossa, head of organizational affairs at a labor union, said yesterday.

Copper for November delivery on the Shanghai Futures Exchange climbed 0.2 percent to 65,150 yuan ($10,199) per ton at 9:29 a.m. local time.

Zinc rose 0.9 percent to $2,180.75 per ton in London, while tin climbed 0.8 percent to $23,580 per ton and lead rose 0.3 percent to $2,350 per ton. Aluminum gained 0.3 percent to $2,365 per ton, and while nickel fell 0.3 percent to $21,303 a ton.

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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