Greece Under Scrutiny for Next Aid Payment

By Maria Petrakis and Natalie Weeks - Sep 19, 2011 6:25 PM GMT+0700
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Taxi drivers opposed to new licensing rules burn a poster of George Papandreou, Greece's prime minister, during a protest outside the parliament building in central Athens, Greece. Photographer: Angelos Tzortzinis/Bloomberg

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Sept. 16 (Bloomberg) -- Thanos Papasavvas, head of currency management at Investec Asset Management Ltd., talks about the likelihood of default by Greece on its sovereign debt and preparations by the euro area for such an event. He speaks with Scarlet Fu on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)

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Sept. 19 (Bloomberg) -- Gary Jenkins, head of fixed-income credit research at Evolution Securities, discusses the likelihood of the European Central Bank buying more Italian and Spanish bonds. He talks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

Greece’s ability to avoid default hangs in the balance as international monitors prepare to assess whether Prime Minister George Papandreou can meet the conditions of rescue loans.

European Union and International Monetary Fund inspectors hold a teleconference today at 7 p.m. Athens time with Finance Minister Evangelos Venizelos, to judge whether the government is eligible for an aid payment due next month and on track for a second rescue package approved by EU leaders July 21.

“We can’t move along without real implementation of fiscal reforms and we are late,” Venizelos said at a conference in Athens today. “We must reach the end of December with a cash balance result that’s within fiscal targets.”

Greece is struggling to prove to its partners it is doing enough to receive a sixth tranche of loans to prevent default. As Papandreou fights investor doubts and domestic protests, European leaders are squabbling over the terms of the July agreement and the prospect that they will be forced to channel more money to keep Greece in the currency union. IMF and EU monitors suspended their review earlier this month after discovering an unexpected hole in the budget.

Venizelos said yesterday some measures in the five-year 78 billion-euro ($107 billion) medium-term budget plan adopted in June may need to be brought forward to meet targets, a week after announcing a property levy to help raise 2 billion euros.

‘Smaller, Smarter State’

The European Commission isn’t demanding more of Greece than was agreed to the international aid program for the country, economics spokesman Amadeu Altafaj told reporters in Brussels. “The only thing that is on the table is full compliance with the agreed targets. No more, no less,” he said, adding that only after today’s conference call will the commission “be in a position to communicate further on the next steps.”

Venizelos said state has to become “smaller and smarter” and the focus on the 2012 budget will be on spending cuts. New taxes can’t be “incessantly” imposed because of the inefficiency of the tax collection system, he said.

Yesterday, German Chancellor Angela Merkel’s party lost a regional election in Berlin, the last of seven state ballots this year that have seen the coalition parties punished amid voter anger over her handling of the debt crisis.

Yields Rise

Greece’s 10-year yield rose 163 basis points to 22.82 percent while two-year notes added 513 basis points to 60.0 percent. The notes rose for the first week in two months last week as traders trimmed bets for a pending default after the leaders of Germany and France signaled a commitment to keeping Greece in the euro area. They had climbed above 80 percent for the first time on Sept. 14 amid speculation the country wouldn’t be able to meet its obligations to investors.

Stocks and U.S. futures fell, sending the MSCI All-Country World Index lower for the first time in five days, as the euro weakened amid concern about Greece’s debt. The MSCI All-Country World Index declined 1 percent at 12:11 p.m. in London. The Stoxx Europe 600 Index dropped 1.8 percent and futures on the Standard & Poor’s 500 Index sank 1.5 percent. The euro fell 0.9 percent and the Dollar Index rose for a second day.

Papandreou will convene his Cabinet again after Venizelos’s call today with the EU and IMF monitors. The finance minister will set out plans announced Sept. 6 to accelerate state asset sales and cut spending by placing civil servants in a “reserve” system and shutting down dozens of government agencies.

Main Goals

Greece’s three main aims are to meet targets for 2011 and 2012, create a primary surplus as soon as possible and pursue structural reforms with vigor to shield the country, he said yesterday. The economy will shrink 5.5 percent this year and also contract next year, he said today. The goal is still to achieve a primary surplus of 3 billion euros next year, he said.

Venizelos is blaming a third year of a deepening recession for failing to meet budget targets. The announcements this month including the property levy are a bid to show Greece is serious about addressing its benefactors’ concerns, key to getting the 159 billion-euro package agreed to in July. That would supplement last year’s 110 billion-euro package.

Impressive Consolidation

Additional measures are needed to reduce the budget deficit to a sustainable level, Bob Traa, the IMF’s resident representative in Greece, said today. He added that it was “appropriate and important” to underline that the IMF disagreed with the view that the program carried out by the government has been unsuccessful to date. “Impressive fiscal consolidation has happened,” he said.

Greece won’t return to growth until 2013, with economic output declining 2.5 percent next year, Traa said.

Venizelos on Sept. 17 dismissed talk of the country declaring bankruptcy and said Papandreou canceled his planned week-long U.S. visit to be prepared to take quick decisions this week, when Parliament votes on the July 21 package, which also gave Europe’s rescue-fund expanded authority.

Papandreou had planned to meet officials including IMF Managing Director Christine Lagarde and U.S. Treasury Secretary Timothy F. Geithner on his trip to New York and Washington. His first meeting was scheduled for New York yesterday. A separate meeting this month between Lagarde and Venizelos is still planned, a Finance Ministry official said.

‘Can’t Pay’

Papandreou last week promised a “decisive battle” for budget cuts to persuade European governments and the IMF to release the 8 billion-euro loan installment.

Greece is now looking to the next meeting of euro-area finance ministers, on Oct. 3, for a decision on the release of the installment. The loan would be disbursed by mid-October, enabling the government to pay its bills through the end of the year.

Former IMF head Dominique Strauss-Kahn said that forcing Greece to pay back its debts would unacceptably impoverish the country, and that everyone must be willing to accept losses on Greek debt.

“They can’t pay,” Strauss-Kahn said in interview yesterday with France’s TF1 television. “The efforts of European leaders have been too little, or too late, or often both too little and too late.”

Greece has the cash reserves to cover its needs for October, Deputy Finance Minister Filippos Sachinidis said on Sept. 12.

Cuts in Wages

Higher taxes and cuts in wages and pensions in return for a 110 billion-euro package of loans from the EU and IMF in May 2010 have weighed on Papandreou’s standing with Greeks, with his Pasok party now trailing the opposition in polls.

People with disabilities gathered outside the Finance Ministry in central Athens today to protest plans for the special property tax and government plans to include them in the reserve plan for civil servants. “The measures announced don’t protect the weaker groups in society,” Yiannis Limdaios, a protester, told state-run NET TV.

Nine in 10 Greeks are dissatisfied with the government and opposition’s handling of the crisis, according to a poll of 1,216 Greeks by Public Issue for Kathimerini newspaper on Sept 11.

Opposition Leads

Opposition New Democracy’s lead over Pasok is now four percentage points, with the poll showing neither party would win an outright majority in parliament. The poll was conducted Sept. 2 to Sept. 7 and the margin of error is 2.9 percentage points.

New Democracy leader Antonis Samaras yesterday repeated a call for elections, promising Greeks he would renegotiate the terms of the financing package if his party wins a majority in parliament.

“The biggest weapon the country has right now is elections and clear solutions,” he said. New Democracy needs “the clear mandate of the people to renegotiate” the agreements.

To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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Obama Deficit Plan to Call for $1.5 Trillion in Taxes

By Mike Dorning - Sep 19, 2011 11:01 AM GMT+0700
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U.S. President Barack Obama. Photographer: Kevin Lamarque/Pool via Bloomberg

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Sept. 19 (Bloomberg) -- David Walker, chief executive officer of Comeback America Initiative and a former U.S. comptroller general, talks about President Barack Obama's plan to call for $1.5 trillion in tax increases mostly targeting the wealthy over the next decade as part of a proposal to cut the U.S. federal deficit by $3 trillion. Walker speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." Lakshman Achuthan, chief operations officer at the Economic Cycle Research Institute, also speaks. (Source: Bloomberg)

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Sept. 19 (Bloomberg) -- Martin Feldstein, a professor of economics at Harvard University, talks about President Barack Obama's plan to call for $1.5 trillion in tax increases mostly targeting the wealthy over the next decade as part of a proposal to cut the U.S. federal deficit by $3 trillion. Feldstein speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (This is an excerpt of the full interview. Source: Bloomberg)

President Barack Obama will call for $1.5 trillion in tax increases mostly targeting the wealthy over the next decade as part of a plan to cut the U.S federal deficit by $3 trillion, administration officials said.

Obama’s plan, which he is scheduled to unveil at 10:30 a.m. Washington time today at the White House, will form his recommendations to the 12-member congressional committee charged with finding ways to trim at least $1.5 trillion from the deficit. The panel has a Nov. 23 deadline to reach a deal.

The proposal puts Obama in direct conflict with Republican congressional leaders such as House Speaker John Boehner, who last week said his party wouldn’t accept tax increases and urged the bipartisan supercommittee to focus on scaling back entitlement programs such as the Medicare health-insurance plan for the elderly.

Obama will threaten to veto any deficit plan that reduces Medicare benefits unless wealthy Americans also are asked to pay more in taxes, according to the officials, who briefed reporters on condition of anonymity. While Obama will include Medicare-benefit cuts in his proposal, the administration will insist on tax increases as a condition, they said.

The administration and congressional Republicans are at odds over how to re-ignite the economy, drive down unemployment and grapple with the nation’s long-term deficit. Administration forecasters project the U.S. economy will grow at a sluggish 1.7 percent rate this year and the jobless rate will average 9.1 percent in 2011 and show little change in 2012, when the presidential election takes place.

Medicare Eligibility

To deal with the deficit, Obama won’t support any increase in the eligibility age for Medicare, as he did while trying to negotiate a broad deficit-reduction package with Boehner in July, said one of the administration officials. The officials said Obama only accepted the measure as a concession to Republicans to assure speedy passage of an increase in federal borrowing authority to avert a U.S. debt default.

The administration officials declined to specify what Medicare-benefit cuts Obama will propose, though one said the administration has previously supported a sliding scale of premiums based on income level.

Obama will seek $248 billion in Medicare cuts, including reductions in payments to health-care providers and $72 billion in savings from the Medicaid state-federal health program for the poor, the officials said.

Social Security Untouched

The president won’t propose changes to Social Security, White House officials said. Before negotiations with Boehner fell apart during the summer, Obama accepted altering Social Security’s cost-of-living adjustment formula, which would have lowered annual benefit increases.

Obama also plans to adopt billionaire investor Warren Buffett’s suggestion that the nation’s “mega-wealthy” pay more taxes, prompting one leading Republican to accuse the president of engaging in “class warfare.”

The provision, which the White House is calling the Buffett rule after the 81-year-old chairman and chief executive officer of Berkshire Hathaway Inc., would require taxpayers with incomes of $1 million or more pay at least the same percentage in taxes as middle-income Americans, according to an administration official.

“Class warfare will simply divide this country more,” Republican Representative Paul Ryan, chairman of the House Budget Committee, said on the “Fox News Sunday” program. “It will attack job creators, divide people, and it doesn’t grow the economy.”

Priorities

By proposing to put more of a tax burden on the wealthiest taxpayers and on corporations by ending some tax preferences, Obama is seeking to put pressure on Republicans and frame the argument he is making to voters about the nation’s priorities.

“Should we keep tax breaks for millionaires and billionaires -- or should we invest in education and technology and infrastructure, all the things that are going to help us out-innovate and out-educate and out-build other countries in the future?” Obama said Sept. 12 as he released the legislative text of his jobs plan.

During his bus tour last month through rural areas of Minnesota, Iowa and Illinois, Obama quoted from a New York Times opinion article in which Buffett wrote that the nation’s richest individuals have been “coddled long enough by a billionaire-friendly Congress.” Buffett argued for raising taxes for the “mega-rich” in the U.S.

Buffett as Adviser

Buffett has served as an informal adviser to the president since Obama’s 2008 election campaign. He plans to hold a Sept. 30 fundraiser in New York for Obama’s re-election bid.

While Obama hasn’t set a minimum tax for those with $1 million-plus in income, his prime target is the differential between the tax rates on capital gains and ordinary income. Today’s 20-percentage-point difference gives taxpayers an incentive to find ways to reclassify wage income as investment income.

In addition to the cuts in Medicare and Medicaid, Obama also will seek $260 billion in savings from other so-called mandatory programs not subject to annual appropriations, the officials said. While the officials wouldn’t specify which ones, farm subsidies and contributions to retirement programs for federal workers are among those programs.

Another $1.1 trillion would come from savings from winding down the wars in Afghanistan and Iraq, the officials said.

Jobs Plan

The jobs plan the president has proposed is a $447 billion package of tax cuts and spending. He proposes to pay for it largely by capping itemized deductions and some exclusions for individuals earning more than $200,000 a year and married couples earning more than $250,000.

He also would tax the carried interest, or profits-based compensation, of private equity managers, real estate investors and venture capitalists as ordinary income, instead of more lightly taxed capital gains, and limit the oil and gas industry’s ability to claim domestic manufacturing deductions for drilling.

Obama will incorporate all those tax proposals in his deficit plan, along with the expiration of the tax cuts passed under the administration of President George W. Bush for individuals making more than $200,000 and couples making more the $250,000, an official said.

The officials said Obama will frame specific changes as only suggestions to the panel and focus on a call for a tax overhaul that meets the revenue target, complies with his Buffett rule and lowers rates.

The tax increases and spending cuts Obama will propose would come on top of the more than $1 trillion in cuts to discretionary spending that he and Congress agreed to when they raised the national debt limit in August, for a total of more than $4 trillion over 10 years.

To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net

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

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Stocks, Euro Slump on Concerns About Greek Debt

Stocks and U.S. futures fell, sending the MSCI All-Country World Index lower for the first time in five days, as the euro weakened amid concern about Greece’s debt. Treasuries gained and copper retreated.

The MSCI All-Country World Index declined 1.1 percent at 1:03 p.m. in London. The Stoxx Europe 600 Index dropped 1.7 percent and futures on the Standard & Poor’s 500 Index sank 1.5 percent. The euro depreciated 1 percent and the Dollar Index rose for a second day. The yield on the 10-year Treasury fell five basis points and the similar-maturity Greek yield jumped 167 basis points. Copper reached a nine-month low and gold added 0.3 percent. Japan’s markets were shut for a public holiday.

“The Greek situation could be coming to a head,” said Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management, which oversees about $10 billion. “Some hair cut might be needed for Greece if they don’t receive additional funding. That could create a domino effect in countries like Spain, Italy and Portugal. That’s what the market is fearing.”

Greece’s ability to avoid default hangs in the balance this week as international monitors will assess whether Prime Minister George Papandreou can meet the conditions of rescue loans. German Chancellor Angela Merkel’s party lost a regional election in Berlin yesterday amid voter anger over her handling of the debt crisis. OPEC Secretary-General Abdalla El-Badri said today that global demand for oil is rising less than expected.

Banks Tumble

More than 11 stocks declined for each that advanced in the Stoxx 600, as all 19 industry groups fell. BHP Billiton Ltd. and Rio Tinto Group led mining companies lower, losing more than 4 percent. Barclays Plc, the U.K.’s second-biggest bank by assets, and France’s Societe Generale SA tumbled more than 5 percent.

The drop in S&P 500 futures indicated the U.S. equity benchmark will fall after posting the third-biggest weekly gain since 2009. President Barack Obama will propose a new levy on U.S. taxpayers making more than $1 million, adopting a suggestion from billionaire investor Warren Buffett, according to an administration official.1

Tyco International Ltd., the world’s largest publicly traded maker of security systems, said it will break up into three publicly traded companies to drive growth. Shares of the company rose $2.10, or 4.6 percent, to $45.80 before U.S. trading opened.

The euro slid 1.1 percent against the yen, depreciating against a majority of its 16 most-traded peers. The Dollar Index, which tracks the U.S. currency versus those of six trading partners, advanced 0.7 percent. The yen appreciated against all of its 16 major counterparts.

Fed Meeting

Finance chiefs from the euro region said last week that the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. Federal Reserve policy makers will gather in Washington tomorrow for a two-day meeting to discuss whether additional measures are needed to help revive the economic recovery.

The yield on the German 10-year bund dropped six basis points, while the Italian yield climbed eight basis points. That drove the difference in yield between the two securities 14 basis points higher to 380 basis points. The Greek two-year note yield surged 613 basis points, or 6.13 percentage points, snapping a three-day decline. The Greek-German 10-year spread widened 177 basis points to 21.10 percentage points.

The yield on the 10-year Treasury note fell four basis points to 2.005 percent. The two-year yield dropped to a record 0.1512 percent, according to data compiled by Bloomberg. Wall Street’s biggest bond traders are stockpiling Treasuries at the fastest pace since 2007 on speculation the Federal Reserve will announce a plan this week to buy longer-term debt to spur the faltering economy.

Primary Dealers

The 20 primary dealers held $15.1 billion of Treasury securities due in more than one year as of Sept. 7, the most since December and up from a $75 billion bet against the debt on May 6, Fed data show.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 12.5 basis points to 337.5.

The S&P GSCI index of 24 commodities fell 0.6 percent, led by industrial metals and energy. Copper declined 3 percent to $8,433.25 a metric ton. Gold jumped to $1,818.18 an ounce.

Oil dropped 0.8 percent to $87.30 a barrel, after earlier reaching the lowest in a week in New York on concern weaker economic growth in the U.S., the world’s largest consumer of crude, and Europe will hurt demand.

The MSCI Emerging Markets Index declined 2.2 percent. Poland’s WIG20 Index sank 2.6 percent, led by a 3.9 percent drop in PKO Bank Polski SA, the country’s biggest bank. Benchmark indexes in Hungary and the Czech Republic slid by more than 2 percent. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong sank 3.7 percent to the lowest close since May 2009.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Rob Verdonck in London at rverdonck@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace in London at swallace6@bloomberg.net

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AT&T Approaches Rivals to Save T-Mobile Bid

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AT&T is seeking ways to salvage its agreement to acquire T-Mobile USA from Bonn-based Deutsche Telekom AG after the Justice Department sued on Aug. 31 to stop the deal. Photographer: Stephen Yang/Bloomberg

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Sept. 14 (Bloomberg) -- Technology and telecommunications analyst Afzal Bari says the next big hurdle for AT&T Inc.'s $39 billion bid for T-Mobile USA is resolving the Aug. 31 lawsuit filed by the U.S. Justice Department. In a Bloomberg Government Briefing, Bari outlines what might result from the lawsuit and a separate regulatory review from the Federal Communication Commission. (Source: Bloomberg)

AT&T Inc. (T) is approaching smaller rivals including MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc. (LEAP) to sell spectrum and subscribers as part of an attempt to save its $39 billion takeover of T-Mobile USA Inc., said two people with direct knowledge of the situation.

AT&T has also reached out to CenturyLink Inc. (CTL), Dish Network Corp. (DISH) and Sprint Nextel Corp. (S) to gauge their interest in buying assets, said the people, who declined to be identified because the talks are private.

AT&T, based in Dallas, is seeking ways to salvage its agreement to acquire T-Mobile USA from Bonn-based Deutsche Telekom AG (DTE) after the Justice Department sued on Aug. 31 to stop the deal. The talks with competitors are preliminary and may not lead to a deal, and the Justice Department may also deem the remedies insufficient, the people said.

AT&T, which would become the largest U.S. wireless operator with the purchase, has said it will fight the Justice Department in court and has asked for an expedited hearing for the case. The company and the DOJ are scheduled to meet in court Sept. 21 to explore whether a settlement may be reached.

Bank of America Corp. is advising AT&T on potential asset sales, according to the people. JPMorgan Chase & Co., Greenhill & Co. and Evercore Partners Inc. were AT&T’s original advisers on the deal.

Sprint, the third-biggest U.S. mobile operator, filed a Sept. 6 antitrust lawsuit against the T-Mobile deal.

Spokesmen for AT&T, MetroPCS, Leap, CenturyLink, Dish, Sprint and Bank of America declined to comment.

AT&T has agreed to compensate Deutsche Telekom with $3 billion in cash, as well as wireless spectrum and roaming agreements, if the deal isn’t completed. Deutsche Telekom has also said it will work to close the deal. In addition to the DOJ, the companies need approval from the Federal Communications Commission to complete the transaction.

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net.

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net.

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Infineon Sits on $3 Billion Acquisition Cash as Biggest Rivals Don’t Tempt

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Peter Bauer, chief executive officer of Infineon Technologies AG, has said he’s most interested in purchases that would boost the power, power-conversion and power management operations of Mittal’s division. Photographer: Guenter Schiffmann

Infineon Technologies AG (IFX), flush with as much as $3 billion in cash for acquisitions, is struggling to find an attractive target that would boost its most profitable business, power semiconductors.

“We want technology and intellectual property that is complementary to our own and these companies aren’t very exciting investments,” Arunjai Mittal, head of Infineon’s Industrial & Multimarkets division, said in an interview at the headquarters of Europe’s second-largest maker of semiconductors in Neubiberg, Germany.

Mittal was referring to the nine other companies in IMS Research Data’s top 10 ranking of global power semiconductor makers, including Toshiba Corp. (6502), STMicroelectronics NV (STM), Vishay Intertechnology Inc. (VSH), International Rectifier Corp. (IRF), Fairchild Semiconductor International Inc. (FCS) and Renesas Electronics Corp. (6723)

Infineon, which in July raised its full-year sales forecast, has benefited from surging demand for chips used in energy and consumer-electronics products as well as in cars. Chief Executive Officer Peter Bauer has said he’s most interested in purchases that would boost the power, power- conversion and power-management operations of Mittal’s division. Such chips are used in trains, windmills, lighting, mobile phones and games consoles.

The company also completed the sale of its mobile chip unit to Intel Corp. (INTC) this year for $1.4 billion, helping to boost net cash at the end of June to 2.2 billion euros ($3 billion).

Market Share

“Experts tell us that 85 percent of M&A deals, particularly when a public company buys a public company, fail,” Mittal said. “These companies often don’t offer the uniqueness that would make it worth it,” unless the target’s share price is “wrong” and Infineon’s share price is “right,” Mittal said, explaining why Infineon has been “on the fence” until now.

Infineon shares are currently trading at 10.36 times earnings, compared with a median of 9.49 for the publicly listed companies in IMS Research’s ranking of the 10 largest power-chip companies, according to Bloomberg data.

“It’s difficult for them to find attractive technology or additional complementary technology as they already have a very broad product portfolio and also for the next generation of products they are well positioned,” Guenther Hollfelder, an analyst at UniCredit in London, said via phone. “They’ll probably become more active in share buybacks.”

Infineon shares have fallen 11 percent this year, compared with a 14 percent decline in the Stoxx 600 Technology Index of 24 companies. The German company has a market value of 6.8 billion euros.

Doubts

Mittal said he would need to be “very sure” about the strategic benefits to pay as much as the 78 percent premium that U.S. rival Texas Instruments Inc. (TXN)’s agreed for National Semiconductor Corp. (NSM)

Texas Instruments, the second-largest U.S. chipmaker, agreed in April to buy National Semiconductor for about $6.5 billion to add higher margin analog semiconductors.

The part of the power semiconductor market in which Infineon competes was worth $15.8 billion in 2010, according to IMS Research. Last year, Infineon had the biggest piece of that total at 11.2 percent, ahead of Toshiba’s 6.8 percent.

“The gap to number two is so large now that they would have to invest so much it would be nearly impossible for them to catch up quickly,” Mittal said. “We have at least two years’ lead.”

Growth Forecast

Researcher IHS iSuppli predicts that semiconductors specifically made for power management will grow 13.4 percent this year for revenue of $35.3 billion, on rising demand for energy-efficient consumer devices and industrial equipment. Over the next five years, the power chips market will grow 10.2 percent, the researcher said.

Infineon predicts Mittal’s IMM unit, which contributes about 45 percent of total revenue, will grow by more than 10 percent annually, compared with about 10 percent for the automotive unit and about 5 percent to 7 percent for chip card and security.

Mittal also said he’s not concerned about the impact of the current economic woes as the sovereign debt crisis battered Europe and global markets. Researcher Gartner Inc. slashed its forecast for worldwide semiconductor sales Sept. 15, predicting they will drop 0.1 percent this year, citing excess inventory and slowing demand and a worsening economic outlook. It previously forecast a 5.1 percent rise.

“We’re on the right path and there is nothing to be concerned about, unless another Lehman Brothers type of event happens,” Mittal said. Capacity utilization at Infineon is still “very high” and if a customer didn’t place an order in the last three months, it would be impossible for the company to deliver within three months, he said.

“In any case I would expect my division’s business to grow twice as much as the GDP.”

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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Google’s Schmidt Urges Support for Jobs Bill, Stimulus

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Eric Schmidt, chairman of Google Inc. Photographer: David Paul Morris/Bloomberg

Google Inc. Chairman Eric Schmidt said lawmakers should approve more government stimulus to prompt companies to hire, and called the political focus on cutting spending “ludicrous.”

“The economy is, today, stuck behind the power curve -- it needs a lot of encouragement,” Schmidt said in an interview today on ABC’s “This Week with Christiane Amanpour.” Without a measure like President Barack Obama’s jobs bill, “we’re set up for years of extraordinarily low growth in the economy and no real solution to the jobless problem.”

Schmidt said lawmakers need to pass the jobs bill, which is aimed at helping small businesses expand and young people and veterans find jobs. Obama proposed the $447 billion plan this month, which includes initiatives to boost spending on school construction and cut payroll taxes.

“Business can create enormous numbers of new jobs in America, all we need to see is more demand,” Schmidt said.

Schmidt is scheduled to testify to a subcommittee of the Senate Judiciary Committee on Sept. 21, followed by representatives of companies who say Mountain View, California- based Google’s power via its Internet search engine is too vast.

The subcommittee is examining whether Google is hurting competition in the Internet industry, a charge that Schmidt said the company avoids by “focusing on the end user.”

Neither the U.S. nor the European Union authorities “have complained against anything yet, but they’re looking and that’s appropriate for a democracy,” he said. Regarding the results of the inquiries, Schmidt said “we won’t know for a long time, but I’m pretty comfortable that we are in pretty good shape.”

Jeff Katz, chief executive officer of Nextag Inc., and Jeremy Stoppelman, CEO of Yelp Inc., also are scheduled to testify at the hearing.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editor responsible for this story: Romaine Bostick at rbostick@bloomberg.net

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Wall Street May Be Blocked Off Again as Police Monitor Protests

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Demonstrators rally at Bowling Green park in lower Manhattan on Saturday. Photographer: Ramin Talaie/Bloomberg

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Police officers guard the bull sculpture at Bowling Green park. Photographer: Ramin Talaie/Bloomberg

New York City police may limit access to Wall Street for a third day, requiring workers and residents to show identification, after a weekend of protests targeting financial firms.

The arrangements, including the identification requirement, “will be re-assessed” this morning, Paul Browne, a police spokesman, said in an e-mail.

About 300 to 400 people demonstrated near Chase Manhattan Plaza yesterday, down from 1,000 on Sept. 17, for a protest dubbed “#OccupyWallStreet.” A smaller group, followed by a column of police motorcycles, marched uptown on Broadway as people beat drums, strummed guitars and held up signs reading “end corporate welfare” and “we are too big to fail.”

The demonstration aims to get President Barack Obama to establish a commission to end “the influence money has over our representatives in Washington,” according to the website of Adbusters, a group promoting the demonstration that asked protesters to occupy Wall Street “for a few months.”

“People have a right to protest, and if they want to protest, we’ll be happy to make sure they have locations to do it,” New York City Mayor Michael Bloomberg said Sept. 15 at a press conference. “As long as they do it where other people’s rights are respected, this is the place where people can speak their minds, and that’s what makes New York, New York.”

Police partitioned Wall Street’s pedestrian walkway throughout the weekend, preventing the protesters from gaining a toehold there.

Protest Area

The city established a protest area on Broad Street and Exchange Place, adjacent to the New York Stock Exchange, that protesters elected not to use, Browne said. Employees and residents seeking access to Wall Street between Broadway and William Street were required to show identification, he said.

New York Stock Exchange owner NYSE Euronext (NYX), Deutsche Bank AG (DBK) and Bank of New York Mellon Corp. (BK) are among firms with operations in the area. Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS) and Citigroup Inc. (C) are among financial firms whose main offices aren’t on Wall Street.

Rich Adamonis, a spokesman at NYSE Euronext, Duncan King of Deutsche Bank, and Bank of New York’s Ron Gruendl declined to comment on the demonstration.

Protests also are planned for financial districts in Madrid, Milan, London and Paris, according to a bulletin from the National Cybersecurity and Communications Integration Center obtained by Bloomberg News. The NCCIC is part of the Department of Homeland Security. Chris Ortman, an agency spokesman, confirmed the bulletin’s authenticity.

The mayor is the founder and majority owner of Bloomberg News parent Bloomberg LP.

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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U.S. Stock Futures Decline as Investors Await Whether Greece Will Default

U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will drop after posting the third-biggest weekly gain since 2009, as investors await a decision on whether Greece will receive a payment that would help prevent a default.

S&P 500 futures expiring in December lost 1.5 percent to 1,193.4 at 11:58 p.m. Hong Kong time. The index surged 5.4 percent last week, the most since the period ended July 1.

Greece’s ability to avoid default hangs in the balance this week as international monitors get set to assess whether Prime Minister George Papandreou can meet the conditions of rescue loans. The Greek leader canceled a U.S. visit that was to begin yesterday, saying he needed to remain in the country for a “critical” seven days.

“The Greek situation could be coming to a head,” said Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management, which oversees about $10 billion. “Some hair cut might be needed for Greece if they don’t receive additional funding. That could create a domino effect in countries like Spain, Italy and Portugal. That’s what the market is fearing.”

European Union and International Monetary Fund inspectors hold a teleconference call today with Finance Minister Evangelos Venizelos, to judge whether the government is eligible for its next aid payment due next month.

U.S. stocks advanced between Sept. 9 and Sept. 16 as government officials and central bankers took steps to ease the European debt crisis.

Decisive Action

The S&P 500 climbed to the highest level since Aug. 31 at the end of the week after European Central Bank President Jean- Claude Trichet pressed euro-area governments to take decisive action to halt the debt crisis. The ECB extended an emergency lifeline to lenders, after central bankers said they would provide dollar loans, and French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are convinced Greece will remain in the euro zone.

Dell Inc. climbed 8.8 percent last week after boosting its share buyback program, helping send technology companies in the S&P 500 to a 7.1 percent increase, the most since July 2009. Hartford Financial Services Group Inc. rallied 14 percent after Credit Suisse Group AG boosted its rating, and Aetna Inc. advanced 9.3 percent after saying profit will probably beat its forecast. Goodrich Corp. surged 10 percent amid speculation United Technologies Corp. may buy the company.

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net

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

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Obama Said to Propose New Tax on Wealthy

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U.S. President Barack Obama. Photographer: Joshua Roberts/Pool via Bloomberg

President Barack Obama will propose a new levy on U.S. taxpayers making more than $1 million to help trim the nation’s debt, adopting a suggestion from billionaire investor Warren Buffett, according to an administration official.

The tax will be among recommendations the president makes to a special congressional committee charged with finding ways to cut $1.5 trillion from the nation’s long-term deficit, according to the official who wasn’t authorized to speak on the record. Obama is set to unveil his deficit-cutting proposals tomorrow.

The president hasn’t settled on the top earners’ new minimum tax rate, which is designed to make sure the wealthiest taxpayers don’t pay a lower effective rate than middle-income earners, the official said. Obama has already proposed limiting some deductions for those in the highest income brackets, taxing carried interest as regular income and ending breaks for gas and oil companies to pay for a $447 billion jobs package.

The New York Times reported the president’s plan yesterday.

Any new tax will likely face opposition from Republicans, who control the U.S. House and have argued that raising taxes on higher-income individuals would hurt small businesses and stifle investment. A spokesman for House Speaker John Boehner didn’t immediately respond to a request for comment.

Rejecting Taxes

In a Sept. 15 speech to the Economic Club of Washington, Boehner, an Ohio Republican, said the 12-member panel should focus solely on cuts to federal spending and overhauling Social Security, Medicare and Medicaid to reach the $1.5 trillion in deficit cuts. He rejected tax increases.

“Tax increases, I think, are off the table, and I don’t think they’re a viable option for the joint committee,” he said.

Obama’s prime target is the differential between the tax rates on capital gains and ordinary income. Today’s 20 percentage-point difference gives taxpayers an incentive to find ways to reclassify wage income as investment income.

The 1986 tax overhaul signed by President Ronald Reagan equalized the two rates at 28 percent. Later increases in the ordinary rate and cuts in the capital gains rate created today’s gap between the 35 percent basic rate and the 15 percent rate that also applies to dividends.

Panel Deadline

Former President Bill Clinton, speaking on CBS’s “Face the Nation,” said Obama was right to focus on economic growth in the short term. Spending restraint, economic growth and new revenue will be needed to balance the federal budget over time, he said.

“Basically he’s asking us to return to the tax rates of the 90s for the wealthiest Americans who have been the big beneficiaries of the last decade, which has been very tough for middle-class and low-income people,” Clinton said.

Mitch McConnell, the Senate Republican leader, countered on NBC’s “Meet the Press” that tax increases like Obama proposed have already been rejected by lawmakers of both parties.

“It’s a bad thing to do in the middle of an economic downturn,” McConnell said. “It won’t just hit individuals. Over 700,000 of our most successful small businesses pay taxes as individuals.”

Republicans may be open to restructuring the tax code in a way that raises revenue, as long as the revenue increases come through economic growth, not higher rates, said McConnell, a Kentucky Republican. They also want to look at means-testing, or cutting off entitlement programs for higher-income people, for Social Security and Medicare, he said.

“If Warren Buffett would like to give up some of his benefits, we’d be happy to talk about it,” McConnell said.

The bipartisan panel has a Nov. 23 deadline to reach agreement on a plan. On taxes, the group is likely to consider setting targets for major changes to be considered over the next year, before income-tax cuts first enacted under President George W. Bush are set to expire at the end of 2012.

With the nation’s jobless rate at 9.1 percent, the economy is a top issue for both parties in next year’s elections for president and Congress. Obama is confronting skepticism from voters about his policies as public opinion polls show his approval ratings are dropping.

A majority of Americans don’t believe his jobs plan will help lower the unemployment rate, a Bloomberg National Poll conducted Sept. 9-12 shows. The poll found 62 percent disapprove of his handling of the economy. The president’s overall job- approval rating was 45 percent, the lowest since he was inaugurated in January 2009.

GDP Growth

Gross domestic product climbed at a 1 percent annual rate in the second quarter, down from a 1.3 percent prior estimate, according to revised Commerce Department figures released last month. Combined with the 0.4 percent annual rate of growth in the first three months of the year, the past two quarters were the weakest of the recovery that began in mid 2009.

Buffett has served as an informal adviser to the president since Obama’s 2008 election campaign and conferred with the president before his Sept. 8 address to Congress. He plans to hold a Sept. 30 fundraiser in New York City for Obama’s re- election bid.

Obama has cited Buffett to counter critics of his policy proposals, particularly on taxes.

During his bus tour last month through rural areas of Minnesota, Iowa and Illinois, Obama quoted from a New York Times opinion article in which Buffett wrote that the nation’s richest individuals have been “coddled long enough by a billionaire- friendly Congress.” Buffett argued for raising taxes for the “mega rich” in the U.S.

Buffett’s Taxes

In the article, the 81-year-old chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A) said his federal tax bill last year, or the income tax he paid and payroll taxes paid by him and on his behalf, was $6,938,744.

“That sounds like a lot of money,” Buffett wrote. “But what I paid was only 17.4 percent of my taxable income -- and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.”

About 8.4 million U.S. households had assets of $1 million or more, excluding primary residences, according to a March report by Spectrem Group, a Chicago-based consulting firm. It also showed that the number of U.S. millionaires increased by 8 percent in 2010.

To contact the reporter on this story: Hans Nichols in Washington at hnichols2@bloomberg.net

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

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Obama to Propose $1.5 Trillion in Taxes

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U.S. President Barack Obama speaks in the State Dining Room of the White House in Washington, D.C., U.S. Photographer: Andrew Harrer/Bloomberg

President Barack Obama will call for $1.5 trillion in tax increases mostly targeting the wealthy over the next decade as part of a plan to cut the U.S federal deficit by $3 trillion, administration officials said.

Obama’s plan, which he is scheduled to unveil at 10:30 a.m. Washington time today at the White House, will form his recommendations to the 12-member congressional committee charged with finding ways to trim at least $1.5 trillion from the deficit. The panel has a Nov. 23 deadline to reach a deal.

The proposal puts Obama in direct conflict with Republican congressional leaders such as House Speaker John Boehner, who last week said his party wouldn’t accept tax increases and urged the bipartisan supercommittee to focus on scaling back entitlement programs such as the Medicare health-insurance plan for the elderly.

Obama will threaten to veto any deficit plan that reduces Medicare benefits unless wealthy Americans also are asked to pay more in taxes, according to the officials, who briefed reporters on condition of anonymity. While Obama will include Medicare-benefit cuts in his proposal, the administration will insist on tax increases as a condition, they said.

The administration and congressional Republicans are at odds over how to re-ignite the economy, drive down unemployment and grapple with the nation’s long-term deficit. Administration forecasters project the U.S. economy will grow at a sluggish 1.7 percent rate this year and the jobless rate will average 9.1 percent in 2011 and show little change in 2012, when the presidential election takes place.

Medicare Eligibility

To deal with the deficit, Obama won’t support any increase in the eligibility age for Medicare, as he did while trying to negotiate a broad deficit-reduction package with Boehner in July, said one of the administration officials. The officials said Obama only accepted the measure as a concession to Republicans to assure speedy passage of an increase in federal borrowing authority to avert a U.S. debt default.

The administration officials declined to specify what Medicare-benefit cuts Obama will propose, though one said the administration has previously supported a sliding scale of premiums based on income level.

Obama will seek $248 billion in Medicare cuts, including reductions in payments to health-care providers and $72 billion in savings from the Medicaid state-federal health program for the poor, the officials said.

Social Security Untouched

The president won’t propose changes to Social Security, White House officials said. Before negotiations with Boehner fell apart during the summer, Obama accepted altering Social Security’s cost-of-living adjustment formula, which would have lowered annual benefit increases.

Obama also plans to adopt billionaire investor Warren Buffett’s suggestion that the nation’s “mega-wealthy” pay more taxes, prompting one leading Republican to accuse the president of engaging in “class warfare.”

The provision, which the White House is calling the Buffett rule after the 81-year-old chairman and chief executive officer of Berkshire Hathaway Inc., would require taxpayers with incomes of $1 million or more pay at least the same percentage in taxes as middle-income Americans, according to an administration official.

“Class warfare will simply divide this country more,” Republican Representative Paul Ryan, chairman of the House Budget Committee, said on the “Fox News Sunday” program. “It will attack job creators, divide people, and it doesn’t grow the economy.”

Priorities

By proposing to put more of a tax burden on the wealthiest taxpayers and on corporations by ending some tax preferences, Obama is seeking to put pressure on Republicans and frame the argument he is making to voters about the nation’s priorities.

“Should we keep tax breaks for millionaires and billionaires -- or should we invest in education and technology and infrastructure, all the things that are going to help us out-innovate and out-educate and out-build other countries in the future?” Obama said Sept. 12 as he released the legislative text of his jobs plan.

During his bus tour last month through rural areas of Minnesota, Iowa and Illinois, Obama quoted from a New York Times opinion article in which Buffett wrote that the nation’s richest individuals have been “coddled long enough by a billionaire-friendly Congress.” Buffett argued for raising taxes for the “mega-rich” in the U.S.

Buffett as Adviser

Buffett has served as an informal adviser to the president since Obama’s 2008 election campaign. He plans to hold a Sept. 30 fundraiser in New York for Obama’s re-election bid.

While Obama hasn’t set a minimum tax for those with $1 million-plus in income, his prime target is the differential between the tax rates on capital gains and ordinary income. Today’s 20-percentage-point difference gives taxpayers an incentive to find ways to reclassify wage income as investment income.

In addition to the cuts in Medicare and Medicaid, Obama also will seek $260 billion in savings from other so-called mandatory programs not subject to annual appropriations, the officials said. While the officials wouldn’t specify which ones, farm subsidies and contributions to retirement programs for federal workers are among those programs.

Another $1.1 trillion would come from savings from winding down the wars in Afghanistan and Iraq, the officials said.

Jobs Plan

The jobs plan the president has proposed is a $447 billion package of tax cuts and spending. He proposes to pay for it largely by capping itemized deductions and some exclusions for individuals earning more than $200,000 a year and married couples earning more than $250,000.

He also would tax the carried interest, or profits-based compensation, of private equity managers, real estate investors and venture capitalists as ordinary income, instead of more lightly taxed capital gains, and limit the oil and gas industry’s ability to claim domestic manufacturing deductions for drilling.

Obama will incorporate all those tax proposals in his deficit plan, along with the expiration of the tax cuts passed under the administration of President George W. Bush for individuals making more than $200,000 and couples making more the $250,000, an official said.

The officials said Obama will frame specific changes as only suggestions to the panel and focus on a call for a tax overhaul that meets the revenue target, complies with his Buffett rule and lowers rates.

The tax increases and spending cuts Obama will propose would come on top of the more than $1 trillion in cuts to discretionary spending that he and Congress agreed to when they raised the national debt limit in August, for a total of more than $4 trillion over 10 years.

To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net

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

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Finance Chiefs Fail to Bolster Euro on Greece

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The euro slid to $1.3706 as of 6:31 a.m. in Singapore from $1.3796 in New York on Sept. 16, when it fell 0.6 percent. It Photographer: Chris Ratcliffe/Bloomberg

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Sept. 19 (Bloomberg) -- Ron William, a technical strategist at MIG Bank, talks about the outlook for gold and currencies. William speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

The euro dropped against the dollar and yen for a second day after European officials failed to offer a plan to halt the region’s debt crisis and as Greece struggles to avoid default.

The 17-nation currency slid against most of its 16 major peers before European Union and International Monetary Fund officials speak today with Greek Finance Minister Evangelos Venizelos to judge whether his government is eligible for its next aid payment. The dollar rose against the majority of its most-traded counterparts as Asian stocks slid and investors bought the safest assets on concern Europe’s debt crisis will weigh on global growth.

“The failure of the European finance ministers to come up with anything concrete is a huge disappointment for the markets,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “The euro is coming off and we’d expect that to carry on.”

The euro slid 0.9 percent to $1.3666 as of 11:04 a.m. in Singapore from $1.3796 in New York on Sept. 16. It declined to 105.06 yen from 105.95 last week. The dollar rose 0.1 percent to 76.88 yen.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against currencies including the euro, yen and pound, advanced 0.7 percent to 77.139.

The MSCI Asia-Pacific excluding Japan Index of shares slumped 1.9 percent. Markets in Japan are closed today for a public holiday.

Greek Review

The IMF and EU are reviewing whether Greece can meet the conditions of its rescue loans and is eligible for the next payment due in October and for a second rescue package. They suspended their assessment earlier this month after discovering a hole in the budget.

The crisis which began in Greece has spread to larger European nations including Spain and Italy, where government bond yields rose for a fourth-straight week in the five days ended Sept. 16.

German Finance Minister Wolfgang Schaeuble and Bundesbank President Jens Weidmann rejected using the European Central Bank to boost the euro-area rescue fund’s firepower, rebuffing a suggestion by U.S. Treasury Secretary Timothy Geithner.

“We don’t think that real economic and social problems can be solved by means of monetary policy,” Schaeuble told reporters on Sept. 17. “That has never been the European model and it won’t be.”

Europe’s finance chiefs, who wrapped up two days of talks in Wroclaw, Poland, on Sept. 17 also said that the debt burden leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation.

Investor Confidence

German investor confidence dropped in September on concern Europe’s debt crises will curb economic growth, a report tomorrow will show, according to the median estimate of economists surveyed by Bloomberg News. The ZEW Center for European Economic Research in Mannheim will probably say that its index of investor and analyst expectations, which aims to predict developments six months in advance, plunged to minus 45 from minus 37.6 in August. That would be the lowest since December 2008.

Chancellor Angela Merkel’s party was defeated in a Berlin state election and her coalition ally lost all its seats after turning skepticism over euro-area bailouts into a campaign theme, stoking government infighting over the debt crisis.

The Social Democrats, the main opposition party nationally, extended their 10-year rule in the German capital after beating Merkel’s Christian Democrats into second place in yesterday’s election. Merkel’s Free Democratic coalition partner, known as the liberals, crashed out of a regional assembly for the fifth time this year, while the Pirate Party won its first-ever seats.

Euro Shorts

Futures traders increased bets that the euro will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 54,459 on Sept. 13, the most since July 2010.

The dollar rallied before the Federal Open Market Committee gathers tomorrow for a two-day meeting.

The committee may decide to replace some of the short-term Treasury securities in the Federal Reserve’s $1.65 trillion portfolio with long-term debt in a bid to lower rates on everything from mortgages to car loans, according to economists at Wells Fargo & Co., Barclays Capital Inc. and Goldman Sachs Group Inc. Some analysts dub the maneuver “Operation Twist” because it would bend long-term yields lower.

Dollar ‘Outperforming’

“The FOMC are backing up everything they’ve said on a month-by-month basis,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “They’re not going to let the market down. The dollar will be outperforming the euro while Europe’s still in turmoil.”

The dollar also held on to gains as investors flocked to the currency as a refuge amid a decline in Asian stocks. The greenback tends to appreciate during economic and financial turmoil because it benefits as the world’s reserve currency.

“With the yen and the Swiss franc kind of closed off because of central-bank intervention, that leaves the U.S. dollar to be the premium safe haven for now,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. Risk aversion will “keep the U.S. dollar well-bid and put downward pressure on equity markets globally,” he said.

Yen Measures

The yen extended gains against the euro into a second day, even as Japan’s government indicated it may act to curb currency appreciation.

Japan may outline measures to counter the strong yen as early as tomorrow, Economic Policy Minister Motohisa Furukawa suggested in remarks yesterday, Kyodo News reported. The package will be aimed at reducing the negative impact of the currency’s gains on domestic businesses, the report said.

The yen has appreciated 6.9 percent in the past three months, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar, the third best, has gained 2.2 percent.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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UBS Raises Loss to $2.3B; Gruebel Staying

By Thomas Mulier - Sep 19, 2011 5:01 AM GMT+0700

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UBS said on Sept. 15 it may be unprofitable in the third quarter after the loss at its securities unit. Photographer: Peter Frommenwiler/Bloomberg

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Sept. 16 (Bloomberg) -- Kweku Adoboli, the trader arrested yesterday after UBS AG said it discovered unauthorized trades that caused a $2 billion loss, was charged with fraud and false accounting by London police. The 31-year-old appeared at the City of London magistrates' court with his lawyer, Louise Hodges, to face the charges. Bloomberg's Ryan Chilcote reports. (Source: Bloomberg)

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UBS Chief Executive Officer Oswald Gruebel. Photographer: Peter Frommenwiler/Bloomberg

UBS AG (UBSN), Switzerland’s biggest bank, said its loss from unauthorized trading amounted to $2.3 billion, more than initially reported, while Chief Executive Officer Oswald Gruebel dismissed calls to step down.

The loss, first estimated on Sept. 15 at $2 billion, came from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures over the past three months, the Zurich-based bank said in an e-mailed statement yesterday. UBS made the latest disclosures two days after London police charged a 31-year-old trader with fraud and false accounting.

“The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio,” UBS said in the statement. The magnitude of the risk was masked by “fictitious positions,” it said.

Gruebel, 67, who joined UBS out of retirement in 2009 after record losses during the financial crisis led to a government rescue, told Swiss newspaper Der Sonntag that he doesn’t plan to resign because of the loss. His comments were confirmed by spokesman Serge Steiner. In a separate interview, he told Swiss TV’s Tagesschau news show that he is ultimately responsible and will have to “take the consequences.” Gruebel, whose career in finance spans half a century, is a former trader who also led UBS’s biggest Swiss rival, Credit Suisse Group AG.

“It shows that in the end even a guy like Gruebel who knows a lot about investment banking cannot avoid a catastrophe,” said Tobias Straumann, a financial historian at the University of Zurich. UBS commissioned Straumann to conduct a probe into its internal controls during the subprime crisis.

‘The Sword’

Questions remain over whether Gruebel, investment-banking chief Carsten Kengeter or other senior executives will be pushed out following the loss.

“The sword will have to go up the food chain,” Jason Kennedy, chief executive officer of Kennedy Group, a London- based search firm, said in a phone interview.

While the bank said the trading losses occurred over the past three months, London police charged UBS trader Kweku Adoboli with false accounting offenses dating to October 2008, and fraud dating back to January 2009, according to the court charge sheet.

Adoboli didn’t enter a plea, and his law firm, Kingsley Napley, didn’t comment after the hearing. No one was available to answer a call to its offices late yesterday.

The trader, whom UBS didn’t identify by name, “revealed his unauthorized activity” following “inquiries directed at him by UBS control functions that were reviewing his positions,” the bank said. UBS has covered the risk from the trading and its equities business is operating normally again within risk limits, the bank said.

Unprofitable in Quarter

UBS notified the police and regulators of the unauthorized trades early in the morning of Sept. 15. Adoboli was arrested at 3:30 a.m. and remains in police custody. He is being held until Sept. 22, when he can request bail at a court hearing.

The bank said on Sept. 15 it may be unprofitable in the third quarter after the unauthorized trading at its securities unit. The loss, less than two months after Gruebel said the bank had “one of the best” risk-management units in the industry, exposed flaws in its controls.

Britain’s Financial Services Authority and its Swiss counterpart said they would investigate the trading losses. Deloitte LLP will carry out the probe on behalf of the FSA and the Swiss regulator, the Sunday Telegraph reported yesterday, without saying where it got the information.

‘Controls Failure’

“This is a controls failure,” said Francois Chaulet, who helps manage 250 million euros ($345 million) at Montsegur Finance in Paris. “How are you going to explain to your shareholders and employees that you’ve lost this amount from the acts of a single young employee in a trading room.”

UBS dropped 11 percent to 9.75 francs in Swiss trading on the day the bank announced the loss, the biggest decline since March 2009. Shares rebounded 5.2 percent on Sept. 16, ending the week at 10.26 francs.

Gruebel told staff in a memo yesterday that he was “shocked and disappointed” by the unauthorized trading, describing the events as a setback to UBS’s reputation and its effort to build up capital. He said the loss won’t affect UBS’s capital base, and the risk of someone violating the bank’s controls “always exists.”

‘Buck Stops’

“I and the rest of the firm’s management are fully focused on thoroughly investigating this issue, and will do all it takes to determine how this happened and what we need to do to ensure that it does not recur,” Gruebel said in the memo. “Ultimately, the buck stops with me.”

David Sidwell, the senior independent director on UBS’s board and a former chief financial officer of Morgan Stanley, will lead a three-person committee investigating the trading loss and the bank’s controls, UBS said.

The two other people on the investigative committee are board members Ann Godbehere and Joseph Yam. Godbehere was CFO of Northern Rock Plc until 2009, and held the same position at Swiss Reinsurance Co. from 2003 to 2007. Yam is the former head of the Hong Kong Monetary Authority.

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 bank’s tier 1 capital at the end of the second quarter was 37.39 billion francs ($42.5 billion), giving it a tier 1 capital ratio of 18.1 percent.

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.

Jobs ‘Under Scrutiny’

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

The measures brought limited benefits. UBS’s share among the nine biggest investment banks of revenue from trading stocks and bonds and advising clients on capital-market transactions and mergers more than doubled from 2009 through the first half of this year, yet it remained the lowest.

UBS was aiming for annual savings of 2 billion francs by the end of 2013 through the latest job cuts. More reductions are likely following the trading loss, analysts and recruiters said.

“If you are looking to appease shareholder expectations that means finding other ways to improve earnings, such as cutting costs,” said Jon Nicholson, a managing director in London at recruiting consultant Astbury Marsden. “The bonus pool will be affected and people’s jobs will be under scrutiny.”

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net

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

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Hedge Fund Heavyweight Sees Gold at $2,200

Gold, platinum and Brent oil will lead gains in commodities as investors seek to protect their assets and shortages emerge, according to Tony Hall, the hedge- fund manager who earned 33 percent for his clients this year.

Gold may climb 21 percent to a record $2,200 an ounce by the end of 2011, platinum may gain 10 percent and Brent could rise 26 percent to $140 a barrel in six months, said the London- based chief investment officer of Duet Commodities Fund Ltd., which manages more than $100 million of assets. Its eight-month gain compares with a mean return of 0.6 percent across commodity hedge funds tracked by HedgeFund.net and beat larger rivals such as Clive Capital LLP and Fortress Commodities Offshore Fund Ltd.

“The fear of recession, the fear of worse economic numbers is weighing on commodities and stopping gains from fundamentals from coming through,” said Hall, 31, who spars as a heavyweight boxer. “We still believe in the gold story. If you believe the world is in trouble or in further economic growth disruption, then gold is a good safe haven. If you believe that the world is going to come out okay, then it’s a good inflation hedge.”

At a time when the MSCI All-Country World Index of global equities declined 9.6 percent this year, the Standard & Poor’s GSCI measure of 24 commodities advanced 2.6 percent, led by silver, gold and energy.

Investors held about $431 billion in raw materials by July, an almost fivefold gain in six years, Barclays Capital says. As equity holders contend with losses of $8.5 trillion since May, speculators made their biggest wagers on higher commodity prices in almost three months in the week to Sept. 6 as they anticipated that even weaker economic growth will mean shortages.

Winning Run

Gold advanced 28 percent to $1,823.48 this year, heading for an 11th consecutive annual gain, the longest winning streak in at least nine decades. It’s the second-best performer in the S&P GSCI behind silver, which rose 32 percent. Gold is trading at 45 times the price of silver, down from a multiple of 84 in 2008. Silver, the precious metal most used in industry, rose more than threefold to $40.71 since the end of that year.

The gold price of $2,200 predicted by Hall would be 15 percent more than the all-time high of $1,921.15 reached Sept. 6. It would still be below the then-record $850 reached in 1980, equal to $2,337 now in inflation-adjusted terms. Bullion had tumbled 5.7 percent from its all-time high by Sept. 16.

“I’d say gold will have a very good run higher, and a very good retracement would be justified,” Hall said. “If we see a retracement back to $1,700, I think at that point would be a good opportunity to get in.”

Arno Pilz

Gold and platinum-group metals, used mostly in jewelry and catalytic converters for cars, were the best performers for Duet in the past two months, said Hall, who has traded commodities for about a decade. The fund also profited from betting against silver in May and June, he said. Silver futures traded on the Comex exchange in New York fell from $49.845 an ounce on April 25 to as low as $32.30 on May 12.

That trading idea came from Arno Pilz, 42, who founded the fund with Hall in July 2010. The former head of metals trading at Lehman Brothers Holdings Inc. oversees the fund’s investments in precious and industrial metals while Hall runs the energy trades. They plan to add an agricultural specialist in second- half 2012 at the earliest and cap total assets at $1 billion.

Pilz, who has traded metals since 1999, has a Master of Philosophy degree in management studies from Oxford University’s Templeton College. He makes his own cider and salami and is building a 1:2 scale Land Rover for his two daughters.

Clive Capital

Hall and Pilz beat larger rivals including Clive Capital, which oversees $4.8 billion and fell 11 percent this year, and the $1.1 billion Fortress Commodities Offshore Fund, which returned about 1.8 percent, according to people with direct knowledge of the funds’ performance.

Duet’s best trade was on Brent crude in the second quarter, Hall said. The contract, traded on ICE Futures Europe in London, gained as much as 34 percent this year as fighting erupted in Libya, which has Africa’s largest oil reserves. The disruption to supplies of light crudes, which yield a higher proportion of more profitable products including gasoline, increased demand for similar grades such as Brent.

Brent costs about $24.34 a barrel more than the West Texas Intermediate grade traded on the New York Mercantile Exchange, a global benchmark, up from about parity in 2009. The premium dropped from $25.93 on Sept. 6 after a 600,000-barrel cargo of Libyan crude was offered for shipment, a sign exports may resume, said three people with direct knowledge of the transaction.

‘New Highs’

Brent slumped 12 percent to $111.27 a barrel since early April because of concern that slower economic growth will curb demand for energy. The Paris-based International Energy Agency cut global oil demand forecasts for this year by 200,000 barrels a day and 400,000 a day for 2012 on Sept. 13, and said stockpiles in developed nations fell to below the five-year average for the first time since the global recession in 2008.

“Eventually the crude fundamentals will come through and become the dominant factor,” said Hall, who holds an economics degree from University of Bath. “We are going to see new highs in Brent over the next six months.”

More than half Duet’s commodity book is expressed through options, with crude and precious metals positions concentrated in periods three to six months ahead, said Hall, who previously worked for Credit Suisse Group AG and Deutsche Bank AG.

Fuel was also the fund’s worst trade, on a view concerning price differentials of gasoil and other products.

“Energy relative value has been the most disappointing part of the portfolio this year, with our view that middle distillates would outperform other products,” he said.

Gasoil Cracks

The so-called cracks, reflecting the spread between the price of the refined product and crude, slumped 31 percent since peaking at $24.17 a barrel on March 16, according to data from PVM Oil Associates, a London-based brokerage. Gasoil is typically used as a heating fuel.

Speculators held 1.275 million net-long futures and options across 18 commodities tracked by the U.S. Commodity Futures Trading Commission in the week ended Sept. 6, the most since the week ended June 14, data compiled by Bloomberg show. They had raised that combined position for four consecutive weeks. They cut their bullish bets by 5.2 percent in the latest week.

Duet is also bullish on platinum, which gained 2.8 percent to $1,819.38 an ounce this year. The metal, mined mostly in South Africa, will trade as high as $2,000 to $2,200 this year, Hall said. Holdings in exchange-traded products backed by the commodity are at a near-record 44.3 tons, valued at about $2.6 billion, data compiled by Bloomberg show.

Platinum Bull

Platinum is trading at a ratio of 2.5 times the price of palladium, compared with a 10-year average of 3.5. The metals are mined together and both are used in autocatalysts.

Platinum supply will fall 21,000 ounces short of demand this year, widening to a deficit of 54,000 ounces in 2012, Barclays Capital estimates. Mining companies are going as deep as 1.4 miles underground to maintain output, pumping chilled air down mine shafts to cool seams as hot as 160 degrees Fahrenheit.

“Platinum looks like great value in the precious metals complex,” Hall said. “Platinum is a store of value, a precious metal and an industrial metal. If the economy picks up we’re going to see bigger demand in catalytic converters.”

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

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

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Euro, Asia Stocks Fall as Gold Climbs

By Lynn Thomasson - Sep 19, 2011 9:43 AM GMT+0700

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U.S. dollar bills and euro notes are seen arranged for a photograph in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

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Sept. 19 (Bloomberg) -- Andrew Pease, a Sydney-based senior investment strategist for the Asia-Pacific region at Russell Investment Group, talks about regional financial markets and economies. Pease, speaking with Rishaad Salamat on Bloomberg Television's "On the Move Asia," also discusses Europe's sovereign debt crisis and the U.S. economy. (Source: Bloomberg)

The euro weakened against the dollar for a second day, while Asian stocks and commodities dropped after European policymakers failed to introduce a plan to stem the region’s debt crisis. Gold rose and the dollar strengthened against most of its major counterparts.

The euro declined 1 percent to 1.3653 per dollar as of 10:42 a.m. in Hong Kong. The MSCI Asia Pacific Excluding Japan Index fell 1.5 percent, while futures on the Standard & Poor’s 500 Index sank 1.6 percent after the index surged 5.4 percent last week. Gold climbed 0.4 percent to $1,820.37. Copper tumbled as much as 2 percent and oil retreated 1.3 percent. The Dollar Index increased 0.7 percent. Japanese markets were shut for a public holiday.

Finance chiefs from the euro region said last week that the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. German economic reports this week are forecast to show a decline in investor confidence and a slowdown in manufacturing in Europe’s largest economy.

“People were hoping for some positive interaction between European finance ministers and Geithner resulting in a firm, positive response to Europe’s debt crisis,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “Instead, what they got was just greater uncertainty, and nothing was resolved.”

Greece’s ability to avoid default hangs in the balance this week as international monitors will assess whether Prime Minister George Papandreou can meet the conditions of rescue loans. European Union and International Monetary Fund inspectors will speak with Finance Minister Evangelos Venizelos today to judge whether the government is eligible for its next aid payment due next month.

Aussie, Kiwi

The euro slid against 14 of its 16 major peers. Australia’s dollar fell 1.2 percent to $1.0236. New Zealand’s currency, nicknamed the kiwi, slid 0.7 percent to 82.37 U.S. cents.

“The Greek situation could be coming to a head,” said Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management, which oversees about $10 billion. “Some hair cut might be needed for Greece if they don’t receive additional funding. That could create a domino effect in countries like Spain, Italy and Portugal. That’s what the market is fearing.”

S&P 500 futures dropped to 1,192.10, indicating the U.S. equity benchmark will fall after posting the third-biggest weekly gain since 2009. President Barack Obama will propose a new levy on U.S. taxpayers making more than $1 million, adopting a suggestion from billionaire investor Warren Buffett, according to an administration official.

China Property Prices

Hong Kong’s Hang Seng Index tumbled 2.2 percent, the first decline in four days. The Shanghai Stock Exchange Composite Index slumped 1.3 percent. Home prices rose across China last month, defying government curbs and prompting speculation that Beijing may plan more measures to tame asset-price inflation.

South Korea’s Kospi Index lost 0.9 percent. RNL Bio Co., a manufacturer of biomedical products, jumped 8.1 percent. The South Korean government plans to invest about 100 billion won in stem cell-related research next year, President Lee Myung Bak said in a biweekly radio address today, according to the presidential office’s website.

Copper for three-month delivery dropped to as low as $8,526.5 a metric ton. The four-day strike at Freeport-McMoRan Copper & Gold Inc.’s copper mine in Peru has ended, a union official said. Nickel lost 1.2 percent to $21,250 a ton and aluminum slipped 0.6 percent to $2,366 a ton.

Oil, Treasuries

Oil fell to the lowest in a week in New York on speculation that fuel demand will falter amid signs of weaker economic growth in Europe and the U.S., the world’s largest consumer of crude. Futures dropped as much as 1.3 percent to $86.81 a barrel, extending a 1.6 percent decline on Sept. 16.

The yield on the 10-year Treasury note lost 3 basis points to 2.05 percent. Policymakers at the U.S. Federal Reserve will gather tomorrow in Washington for a two-day meeting. Some economists anticipate additional stimulus aimed at reducing long-term borrowing costs and boosting growth.

Wall Street’s biggest bond traders are stockpiling Treasuries at the fastest pace since 2007 on speculation the Federal Reserve will announce a plan this week to buy longer- term debt to spur the faltering economy. The 20 primary dealers held $15.1 billion of Treasury securities due in more than one year as of Sept. 7, the most since December and up from a $75 billion bet against the debt on May 6, Fed data show.

The cost of protecting Asia-Pacific corporate and sovereign bonds from default increased, with the Markit iTraxx Australia index rising 8.5 basis points to 180.5 basis points, according to Deutsche Bank AG. That’s the first increase in five trading days and puts the index on course for its biggest daily rise since Sept. 12, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan climbed 7 basis points to 169.5 basis points as of 9:08 a.m. in Hong Kong, Deutsche Bank prices show.

To contact the reporter on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

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

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