Buffett Buyback Means S&P 500 May Be a Value

By Whitney Kisling and Nikolaj Gammeltoft - Sep 28, 2011 3:48 AM GMT+0700
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Berkshire Hathaway CEO Warren Buffett attends the Fortune Most Powerful Women summit at Mandarin Oriental Hotel on October 5, 2010 in Washington. Photographer: Jemal Countess/Getty Images for Time Inc.

Warren Buffett’s determination that Berkshire Hathaway Inc. (BRK/A) shares are cheap enough to buy back may mean the Standard & Poor’s 500 Index is also a bargain.

The company is authorized to repurchase stock for the first time in four decades as long as its price is less than 1.1 times book value, or assets minus liabilities, according to a statement yesterday. The level is 29 percent below Berkshire’s average of 1.55 since 2000, almost the same discount investors are getting in the S&P 500, according to data compiled by Bloomberg. Shares of Omaha, Nebraska-based Berkshire fell to $100,000 for the first time in almost two years on Sept. 22.

Declines that have erased about $2.8 trillion from the value of American equities in the last two months are luring Buffett, who said his company spent more to buy stocks on Aug. 8 than any other time this year. The S&P 500 tumbled 6.7 percent that day and has lost 15 percent from its 2011 high on April 29, driven down by concerns Europe’s debt crisis will spread and shrink the global economy. The benchmark index rose 1.1 percent to 1,175.38 today.

“If he thought the possibilities of a recession were on the horizon, then he’d wait to do this,” James Dunigan, who helps oversee $109 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “You can make a number of arguments that on some traditional measures, the market is undervalued.”

Buffett didn’t respond to an interview request e-mailed to his assistant, Carrie Kizer.

Market Valuations

Repurchasing Berkshire stock is a bet that market valuations are too low partly because so many of its investments are public, Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. Berkshire owns stakes in 27 companies whose trading is overseen by the U.S. Securities and Exchange Commission, an August filing showed.

“This announcement is a bit out of character and for that reason is seen as very constructive both in terms what he sees as an opportunity to buy a great asset, namely Berkshire stock, trading at a discount to historical book value as well as the portfolio of companies within Berkshire that he thinks is undervalued,” Luschini said.

The plan may signal that Buffett, Berkshire’s chairman and chief executive officer, is finding fewer opportunities in the stock market, said Michael Shaoul, who helps oversee more than $1 billion as chairman of Marketfield Asset Management in New York. While the S&P 500 is priced close to the same discount to its historical book value as Berkshire, fewer than 20 percent of its companies are trading below the 1.1 ratio Buffett requires for his own repurchases, data compiled by Bloomberg show.

‘Not a Dime’

Buffett previously preferred to use profits to buy companies and securities issued by others. “Not a dime of cash” has been spent on buybacks or dividends in four decades, the billionaire told investors in his annual letter, published on Feb. 26. Buffett invested $5 billion in Goldman Sachs Group Inc. (GS) and $3 billion in General Electric Co. in 2008 when the Lehman Brothers Holdings Inc. failure cut companies off from traditional sources of funding.

Goldman, CME

Decatur, Illinois-based Archer-Daniels-Midland Co. (ADM), the biggest U.S. grain processor, Goldman Sachs, the New York-based securities firm, Chicago-based CME Group Inc. (CME), the largest futures exchange operator, and 89 other companies have price-to- book multiples below 1.1, the data show. Excluding intangible assets, such as goodwill, 47 of the 500 companies in the benchmark U.S. equity gauge meet the criteria.

“It could be argued that if the market is cheap in his view, he could find something else to buy instead of his own stock, since making timely acquisitions was the way he built up his company in the first place,” Shaoul wrote in an e-mail. “I am sure that is the question most people are asking.”

Comparing a stock’s price to book value may not be the most reliable valuation technique because assets reflect estimates that may not prove accurate, Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania, said in a telephone interview.

“Analyzing book value is a difficult way to determine the relative worth of a company,” he said. “It’s because of a lot of intangibles that you really don’t know what the value is. It’ll give you an idea about the trend.”

The S&P 500’s book value fell from about $533 a share in May 2008 to $442 a share in March 2009, monthly data compiled by Bloomberg show. The decline occurred as banks and financial companies were in the process of writing off more than $2 trillion in loans tied to subprime mortgages, the data show.

Matching Berkshire

Lowering the S&P 500’s price-to-book ratio to match Berkshire’s would cut the index’s price by 42 percent, data compiled by Bloomberg show. The benchmark gauge for American equity has combined book value of $611.38 a share, based on the most recent filings of its companies. Cutting the multiple from 1.9 to 1.1 would send the S&P 500 to about 673 from 1,162.95, according to data compiled by Bloomberg.

Berkshire’s Class A shares dropped 17 percent to $100,320 apiece in 2011 prior to the buyback announcement. They were trading at 16.3 times earnings as of Sept. 22, the lowest price- earnings ratio of 2011, according to data compiled by Bloomberg.

“The underlying businesses of Berkshire are worth considerably more than this amount,” the company said yesterday in a statement. “If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares.”

Railroad Acquisition

Buffett bought railroad Burlington Northern Santa Fe last year for $26.5 billion in what he described as an “all-in wager” on the U.S. economy. In July, Buffett told Bloomberg Television he expected economic growth to continue and would “bet very heavily” against a second recession in three years.

Buffett said his company spent more on stocks on Aug. 8 than any day this year, when the S&P 500 tumbled 6.7 percent, the most since December 2008. “I like buying on sale,” he said in an Aug. 15 interview with Charlie Rose broadcast on PBS.

Last week’s rout erased $1 trillion from U.S. equities amid concern Greek insolvency is inevitable and Europe can’t contain the damage. The S&P 500 last week was trading at 12.4 times earnings in the past 12 months, 4.6 percent below its average valuation at the lowest point during the last nine bear markets, according to data compiled by Bloomberg.

“He has a lot of investments in the largest companies in the market, so putting his money in Berkshire is another way of being bullish on the market,” said Eric Green, a Philadelphia- based fund manager at Penn Capital Management which oversees about $6 billion, said in a telephone interview. “If the stock market is going down, then his stock will go down, and he’s certainly smart enough to know that and he thinks the market is undervalued.”

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

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

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Fisher: Central Bank Is Under Attack

By Vivien Lou Chen and Margot Habiby - Sep 28, 2011 4:09 AM GMT+0700
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Richard Fisher, president of the Federal Reserve Bank of Dallas. Photographer: Daniel Acker/Bloomberg

Federal Reserve Bank of Dallas President Richard Fisher said the central bank’s independence is under attack from both ends of the political spectrum in Congress, and he singled out two of the critics by name.

“We are being attacked from the right and from the left, and I don’t see much difference between a certain congressman from Texas named Ron Paul and a certain congressman from Massachusetts named Barney Frank,” Fisher said in response to audience questions after a speech in Dallas. Paul is a Republican and Frank is a Democrat.

Fisher’s remarks are uncommon among central bank officials, who tend to defer to Congress and its members, said Sung Won Sohn, former chief economist at Wells Fargo & Co. The Dallas Fed chief is the only member of the Federal Open Market Committee to have run for Congress, losing as a Democrat to Republican Senator Kay Bailey Hutchison twice, in 1993 and 1994.

His comments are “true as a factual matter,” said Sohn, who served as a White House staff economist under Richard Nixon from 1973 to 1974 and is now a professor at California State University-Channel Islands. “But a person in the position of president of a Federal Reserve bank should be careful about what he says and how he says it because the Fed actually reports to Congress and Congress can do anything it wants to the Fed.”

‘End the Fed’

Paul, now a Republican presidential candidate, advocates limited government and has written a book titled “End the Fed.” In 2010, the House passed his legislation requiring audits of central bank interest-rate decisions. The Senate rejected the measure, and Congress ended up approving a compromise that requires disclosure of details of the Fed’s emergency lending and monetary-policy actions during the financial crisis.

Frank, who has served in Congress since 1981, says regional Federal Reserve bank presidents shouldn’t be allowed to vote on interest rates because they aren’t appointed by elected officials. He said this month he will submit a new version of legislation to cut the voting rights of five rotating regional representatives from the 12-member Federal Open Market Committee.

“I don’t see any difference between them,” Fisher said, referring to Frank and Paul. “They believe we have too much independence. They believe that Congress should be in charge of monetary policy.”

Fed bank presidents are chosen by the bank’s boards, unlike members of the central bank’s Washington-based Board of Governors, who are nominated by the U.S. president and confirmed by the Senate.

Substance Versus Structure

Fisher ``gets the fundamental thing wrong because my point wasn’t about the substance of policy, it’s about the structure,” Frank said in a telephone interview today. “I would like to see more independence. In fact, I’d like to see more independence from the business community and from the financial community.”

Rachel Mills, a spokeswoman for Paul, said the congressman “prides himself on his ability to build coalitions with people across the aisle on issues they agree on.” She said Paul and Frank have a “respectful” and “cordial” relationship even when they disagree on how they would change the Fed.

Fisher served under two administrations. He was an assistant to Treasury Secretary W. Michael Blumenthal in the Carter administration, during the dollar crash of 1978, and deputy U.S. trade representative under President Bill Clinton with the rank of ambassador from 1997 to 2001. Today, he described himself as “apolitical.”

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Margot Habiby in Dallas at mhabiby@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Papandreou Wins Vote on Property Tax

By Natalie Weeks and Marcus Bensasson - Sep 28, 2011 4:01 AM GMT+0700

Greek Prime Minister George Papandreou won parliamentary backing for a property tax to meet deficit-reduction targets required to avoid default.

Papandreou’s Socialist Pasok party won the vote in Athens late yesterday by 155 to 142 after Finance Minister Evangelos Venizelos told Greeks they face economic collapse if they don’t plug a budget gap that is exceeding the target set in a bailout, putting an 8 billion-euro ($11 billion) aid payment due next month at risk.

“Implementation of the measures is the biggest challenge for the government as the trade unions and parts of the civil service will mount significant resistance, raising the risk of inertia and inaction,” Wolfango Piccoli, an analyst in London at Eurasia Group, said before the vote.

Concern that a potential default in Greece could damage Europe’s core countries and plunge the global economy into recession dominated weekend talks of policy makers, investors and bankers in Washington, where the International Monetary Fund and World Bank held their annual meetings. President Barack Obama underscored the urgency when he said Sept. 26 that European governments are “trying to take responsible actions, but those actions haven’t been quite as quick as they need to be.”

Greek bonds have tumbled and credit insurance has soared, putting the chance of default at more than 90 percent, as Papandreou struggled to rein in the deficit and a recession deepened in its third year. Two-year notes yield more than 70 percent.

Loan Payment Due

Venizelos said yesterday he expected approval of the next loan tranche “in time.” Papandreou dined with German Chancellor Angela Merkel in Berlin as lawmakers in Athens voted on the tax and also ratified an upgrade of the euro area’s 440 billion-euro bailout fund.

The property tax was part of a package of cuts announced earlier this month after officials from the European Union and IMF told Greece it wasn’t meeting the terms of a May 2010 rescue.

The state budget deficit in the eight months to the end of August widened 22 percent to 18.9 billion euros, more than the target of 18.1 billion euros for the period. Greece has pledged to reduce its general government deficit to about 7.5 percent of gross domestic product this year from 10.5 percent in 2010.

The property levy, to be collected via electricity bills, will provide an annual yield of 1.1 percent of GDP. It will generate as much as 1.8 billion euros, according to Eurobank EFG.

Wages, Pensions

Venizelos also announced an additional 20 percent wage cut, on top of 15 percent for the civil service and 25 percent in the wider public sector. Pensions are being reduced 4 percent on average, in addition to previous cuts of 10 percent. A lowering of the tax-free threshold to 5,000 euros will mean higher taxes for all Greeks.

More than 74 percent of 1,002 Greeks polled by Rass for To Paron newspaper opposed the property tax. The poll also showed that 59 percent believed Papandreou’s government won’t be able to avert a default. The survey had a 3.1 percentage point margin of error. Papandreou’s government trails the opposition party in all polls.

Unions have called general strikes for Oct. 5 and Oct. 19, while public-transit companies including the Athens subway have held strikes over the past few days to oppose the measures.

To contact the reporter on this story: Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

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

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U.S. Stocks Hold Gains After Late-Day Selloff

By Michael P. Regan and Rita Nazareth - Sep 28, 2011 3:31 AM GMT+0700
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Traders work on the floor at the New York Stock Exchange on Sept. 27, 2011. Photographer: Seth Wenig

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Sept. 27 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks rose, with benchmark indexes weathering a final-hour selloff, after Greece made progress in meeting requirements for more international aid and Germany vowed continued support for the country. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

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Sept. 27 (Bloomberg) -- Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., discusses the prospects of a Greek default, the euro-zone debt crisis and the U.S. economy. El-Erian, speaking with Betty Liu on Bloomberg Television's "In the Loop," also talks about financial markets and Federal Reserve policy. Source: Bloomberg)

Global stocks rose the most in six weeks, with U.S. shares weathering a late-day selloff, as Greece made progress in meeting requirements for more international aid and Germany vowed continued support for the country. Treasuries trimmed losses and the euro pared gains.

The MSCI All-Country World Index surged 2.9 percent as of 4 p.m. New York time and benchmark gauges in France and Germany climbed more than 5 percent. The Standard & Poor’s 500 Index rose 1.1 percent to 1,175.38 after surging as much as 2.8 percent. Silver rebounded after a three-day, 26 percent slide. The 30-year Treasury yield rose nine basis points after surging as much as 13 points and the euro trimmed a 1 percent gain versus the dollar in half. Oil surged the most in four months.

U.S. stocks retreated from their session highs following a Financial Times report that some euro-area countries are demanding private creditors take bigger writedowns on their Greek bond holdings. Stocks rallied earlier as Greek Prime Minister George Papandreou won a vote on a new property tax in the parliament, bolstering his chances of pushing through austerity cuts aimed at securing further international financial aid for the country.

“Think of Europe as a hospital patient,” David Sowerby, a Bloomfield Hills, Michigan-based portfolio manager at Loomis Sayles & Co., which oversees $150 billion, said in a telephone interview. “There are lots of doctors in the room, but no clear-cut remedy.”

Broad Advance

Producers of raw materials and industrial companies led gains among all 10 groups in the S&P 500, rallying more than 1.6 percent. Hewlett-Packard Co., Walt Disney Co. and United Technologies Corp. climbed at least 2.2 percent to lead the Dow Jones Industrial Average up 146.83 points, or 1.3 percent, to 11,190.69.

U.S. stocks pared their advance as gauges of financial firms, energy producers and industrial companies retreated more than 1.5 percent each after 3 p.m. in New York. After touching a high of 1,195.86 just after 2 p.m., the S&P 500 lost 20 points before the close, or about two-thirds of the rally at its highest level.

The Financial Times reported that as many as seven of the 17 nations using the euro believe private creditors should absorb bigger losses on their Greek bond holdings, a division that may threaten an agreement reached with private investors in July. The paper cited unnamed senior European officials.

The S&P 500 added to yesterday’s 2.3 percent advance and has climbed about 5 percent since falling as low as 1,114.22 on Sept. 22, the first time this month it slipped below its 2011 closing low of 1,119.46 on Aug. 8.

Government Funding

The U.S. Senate reached a bipartisan deal on stopgap spending designed to avoid a government shutdown. Senators approved legislation yesterday, 79-12, to finance the government through Nov. 18, a measure including $2.65 billion for federal disaster assistance.

Stocks remained higher in morning trading after U.S. consumer confidence rose less than forecast in September, as a measure of the difficulty of finding jobs rose to the highest in almost three decades. The Conference Board’s index increased to 45.4, from a revised 45.2 reading in August and below the 46 median forecast in a Bloomberg News survey of economists.

Home prices in the U.S. declined less than forecast in July from a year earlier, with the S&P/Case-Shiller index of property values in 20 cities dropping 4.1 percent from July 2010 compared with the median forecast of economists for a 4.4 percent decline.

Treasury Auction

Treasuries remained lower after the government’s $35 billion auction of two-year notes drew a yield of 0.249 percent, compared with the average forecast of 0.251 percent in a Bloomberg News survey of nine of the Federal Reserve’s primary dealers. Yields on existing two-year notes rose one basis point to 0.24 percent.

The Stoxx Europe 600 Index surged 4.4 percent and is up 7 percent after sliding to a two-year low on Sept. 22, capping the biggest three-day gain since May 2010. Allianz SE and Axa SA, Europe’s biggest insurers, climbed at least 8 percent. BNP Paribas SA and Deutsche Bank AG, the largest banks in France and Germany, rallied more than 12 percent.

The Euribor-OIS spread, which measures banks’ reluctance to lend to one another in Europe, declined for a second day. The spread, the difference between three-month Euribor and overnight index swaps, narrowed to 80.5 basis points, according to data compiled by Bloomberg. The gap rose to 89 basis points on Sept. 23, the widest since March 2009.

‘Urgent Requirement’

“There has been no concrete alteration in the structure of the euro zone since the end of last week but the market has been willing to clutch at the idea that politicians at least recognize there is an urgent requirement for action,” Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, said in a report today.

A benchmark gauge of U.S. corporate credit fell for a third day from about the highest levels in more than two years. The Markit CDX North America Investment Grade Index, which typically falls as investor confidence improves and rises as it deteriorates, declined 0.4 basis point to a mid-price of 136.5 basis points.

The yield on the 10-year Spanish bond declined 11 basis points to 5.05 percent even after the government sold 3.22 billion euros ($4.3 billion) of three- and six-month bills at higher yields than previous auctions. Italy’s 10-year bond yield slid five basis points to 5.598 percent, according to Bloomberg generic rates, after an auction in that nation also resulted in higher borrowing costs.

‘Time to Move’

U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will use more force to resolve the region’s crisis after they heard the concerns of global finance officials during meetings in Washington last weekend. The crisis is “starting to hurt growth everywhere, in countries as far away as China, Brazil and India, Korea,” Geithner said on ABC’s “World News With Diane Sawyer” program. “It’s time to move.”

German Chancellor Angela Merkel said that Greece is ready to meet the terms of international inspectors ruling on its bailout aid, voicing her government’s support for the debt-laden nation’s economic success.

“We want a strong Greece in the euro area and Germany is ready to offer all kinds of help that is needed,” Merkel said before hosting Greek Prime Minister George Papandreou for dinner in Berlin today. Greece has a “high responsibility to meet the conditions and expectations.”

The euro appreciated 1.1 percent against the yen after yesterday touching the lowest level in 10 years. The New Zealand dollar advanced 1 percent against the U.S. currency, with the Australian currency rising 0.7 percent.

Metals Rebound

Gold futures gained the most in seven weeks, climbing 3.6 percent to $1,652.50 an ounce. Silver futures rose 5.2 percent to $31.536 an ounce and London-traded copper rebounded from a 17 percent slide in seven days. Oil surged the most since May 9, advancing 5.3 percent to $84.45 a barrel in New York.

The MSCI Emerging Markets Index added 4.8 percent, the biggest rally since May 2009, after closing yesterday at a two- year low. South Korea’s Kospi Index jumped 5 percent, the most since January 2009. Indonesia’s Jakarta Composite Index added 4.8 percent and benchmark indexes gained more than 3.3 percent in Poland, Hungary and the Czech Republic. The South African rand appreciated 2.6 percent against the dollar as commodity prices surged.

Israel’s TA-25 Index rose 1.4 percent after the central bank unexpectedly cut the benchmark interest rate for the first time in 2 1/2 years yesterday after the market closed.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; 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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Wall Street Protesters Joined by Susan Sarandon

By Charles Mead - Sep 28, 2011 4:35 AM GMT+0700
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Demonstrators opposed to corporate profits on Wall Street march in the Financial District on September 26, 2011 New York City. Photographer: Spencer Platt/Getty Images

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Demonstrators opposed to corporate profits on Wall Street march in the Financial District on September 26, 2011 New York City. Photographer: Spencer Platt/Getty Images

Wall Street protesters, joined today by Oscar-winning actress Susan Sarandon, vowed to continue weeks of demonstrations after police squirted pepper spray at some participants and arrests mounted.

About 100 people camped out with mattresses and sleeping bags in Zuccotti Park as demonstrations against financial firms continued for an 11th day. Sarandon, 64, who appeared last year in Oliver Stone’s “Wall Street: Money Never Sleeps,” toured an area that includes a makeshift kitchen and library with titles such as “The Wage Slave’s Glossary” and “Nickel and Dimed: On (Not) Getting By in America.”(For a slide show of Amy Arbus’s portraits of Wall Street protesters, click here.)

“I’m here to understand what’s going on and to lend my support,” Sarandon, who won an Academy Award for best actress for her role in the 1995 film “Dead Man Walking,” said in an interview. “There’s a lot of different kinds of people here who want to shift the paradigm to something that’s addressing the huge gap between the rich and the poor.”

The group plans to march through the financial district each business day to mark the New York Stock Exchange’s opening and closing bells. The protest, dubbed “#OccupyWallStreet,” 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.

‘Continuum of Force’

“We’re raising awareness of the fact that the current economic system is changeable,” said Dylan O’Keefe, 19, of Northampton, Massachusetts, who said he attended about five days of protests. “I really don’t have faith in the political process anymore, mostly because of corporate interests. I don’t even plan on voting.”

About 80 of the 100 people arrested since the demonstrations began were taken into custody on Sept. 24, when a police officer used pepper spray “in a continuum of force that obviated the use of batons,” Paul Browne, a spokesman for the New York City Police Department, said in an e-mail.

“Protesters who engage in civil disobedience can expect to be arrested,” Browne said. “Those who resist arrest can expect some measure of force will be used in making them.”

The Sept. 24 march and the use of pepper spray “really inspired me to come here,” said Esther Martin, 24, of New Orleans, who said she had a temporary job selling Bob Marley and Marilyn Monroe posters before joining the protest. “It’s giving a body to the discontent people feel from not having jobs or money, and the disappointment about bailouts for Wall Street.”

Zhi Wang, a smoothie vendor with a food cart on the park’s south sidewalk, said he’s likely lost “a couple hundred” dollars from protesters occupying the area.

“Right now it’s slow,” said Wang, 22. “There used to be lunch people sitting here. Now I don’t see any.”

To contact the reporter on this story: Charles Mead in New York at cmead11@bloomberg.net

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

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Health-Benefit Costs Rise Most in Six Years, Surpassing $15,000 per Family

By Jeffrey Young - Sep 28, 2011 12:12 AM GMT+0700
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“Rising health-care costs have crowded out other elements of the compensation package,” said Randall Abbott, a senior health-care consultant at Towers Watson & Co. Photographer: George Frey/Bloomberg

The cost for businesses to buy health coverage for workers rose the most this year since 2005 and may reach $32,175 for a family in 2021, according to a survey of private and public employers.

The average cost of a family policy climbed 9 percent in 2011 to $15,073, according to a poll of 2,088 private companies and state and local government agencies by the Henry J. Kaiser Family Foundation in Menlo Park, California, and the Chicago- based American Hospital Association’s Health Research and Educational Trust.

The groups’ findings, based on data collected through May, show that health insurance is consuming a bigger share of employer costs, preempting pay raises and making companies pass on more medical costs to their workers, benefit consultants said. The premiums reported are in effect for the full year.

“Rising health-care costs have crowded out other elements of the compensation package,” said Randall Abbott, a senior health-care consultant at Towers Watson & Co. (TW) “That’s the price we are paying, beyond the fact that health-care cost in and of itself continues to be more expensive.”

The average price of a family plan has risen 113 percent since 2001, the organizations reported.

Health Overhaul Effect

The health law enacted last year accounts for 1 to 2 percentage points of the premium increases in 2011, said Drew Altman, chief executive officer of the Kaiser Family Foundation. Other contributors include higher medical prices and insurers raising premiums in anticipation of an economic recovery that would spur greater use of health-care services, he said during a conference call with reporters today.

Premium increases aren’t the result of the health overhaul, White House Deputy Chief of Staff Nancy-Ann DeParle wrote in a blog post. Premiums rose partly because insurers overestimated the new law’s effect and the gain in health-care spending this year, she wrote. Thirteen of the 14 largest insurers exceeded profit in the first quarter, she wrote.

Contributing to the rise in premiums are escalating prices for medical products and services, fewer young and healthy people in the insurance pool and new preventive benefits under the health overhaul, said Karen Ignagni, the chief executive officer of the Washington-based America’s Health Insurance Plans, said in a statement.

Premium Increases

The survey findings are at odds with other studies and with companies’ financial statements, suggesting this year’s premium increases may be smaller, New York-based Goldman Sachs Group Inc. (GS) analyst Matthew Borsch wrote in a research note today.

As premiums rise, wages are projected to increase 2.1 percent on average this year, according to the survey issued today. Two-thirds of companies plan to ask workers to pay a bigger portion of premiums next year, New York-based Towers Watson reported this month.

Employees are paying 28 percent of premiums on average for family plans this year, similar to 2010. The proportion of health insurance premiums paid by workers has risen 131 percent since 2001, according to the report. Sixty percent of employers said they offered medical benefits this year, a decrease from 69 percent in 2010.

To defray the cost, companies are offering health benefits with deductibles of at least $2,400 for a family plan paired with a tax-free medical expense account, the survey shows. High- deductible plans carry lower premiums and shift more medical costs to workers, according to the report.

The average premium for a high-deductible plan this year is $13,704 for a family. Among workers offered health benefits, 17 percent are enrolled in a high-deductible health plan with a savings option, an increase from 13 percent in 2010 and 8 percent in 2009, researchers found.

The 2010 health-care law had a limited effect on employer- sponsored health benefits because few provisions have taken effect, according to the study.

To contact the reporter on this story: Jeffrey Young in Washington at jyoung89@bloomberg.net.

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.

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Roubini: U.S. in Throes of Economic Contraction

By Liza Horowitz and Matt Winkler - Sep 28, 2011 1:12 AM GMT+0700
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The debt crisis in Europe could have consequences that are “worse” than the collapse of Lehman Brothers Holdings Inc. in 2008. Photographer: Tim Wegner/Laif/Redux

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Sept. 27 (Bloomberg) -- Paul Parker, global head of mergers and acquisitions at Barclays Capital, Wilbur Ross, chairman of WL Ross & Co. LLC, and Nouriel Roubini, chairman of Roubini Global Economics LLC, participate in a panel discussion on the outlook for corporate mergers and acquisitions. Matthew Winkler, editor-in-chief of Bloomberg News, moderates. The panel is part of the Bloomberg Link Dealmakers Summit in New York. (Source: Bloomberg)

Most advanced economies are lapsing back into recession while the U.S. is already in the throes of an economic contraction, according to Nouriel Roubini, co- founder and chairman of Roubini Global Economics LLC.

“The way I see the global economy, I think we’re entering into a recession again in most advanced economies,” Roubini said in a panel discussion today at the Bloomberg Dealmakers Summit in New York. “I think we’re already into one in the U.S. based on the hard and soft data -- same with most of the euro zone, same with the United Kingdom.”

The Conference Board today said that confidence among U.S. consumers stagnated in September near a two-year low as the share of households saying it was difficult to find a job climbed to the highest level in almost three decades. European leaders over the weekend faced pressure at the annual meetings of the International Monetary Fund to solve a debt crisis already spilling over into other parts of the world.

“At this point, the issue is not whether there is going to be a recession or a double-dip but whether it’s going to be relatively mild or whether it’s going to be a severe recession and a global financial crisis,” Roubini said. “The answer to that question depends on what’s going to happen in the euro zone and whether they can get their act together.”

“We are running out of policy bullets,” said Roubini, a professor at New York University’s Stern School of Business. The debt crisis in Europe could have consequences that are “worse” than the collapse of Lehman Brothers Holdings Inc. in 2008.

Predicted Bubble

Roubini predicted the bubble in U.S. housing prices before the market peaked in 2006. His forecasts haven’t all been accurate. When the Standard & Poor’s 500 Index fell to a 12-year low on March 9, 2009, he said it probably would drop to 600 or lower by the end of that year. Instead, the U.S. equity benchmark gained 65 percent for the rest of 2009.

Speaking at the same panel, billionaire Wilbur Ross, chairman of private-equity firm WL Ross & Co., said that Ireland will likely be the first country to recover from the debt crisis.

“The reason why I like Ireland is because unlike what I call the Club Med countries it doesn’t need reforming,” he said. “My leading indicator for Ireland is pub sales.”

“Club Med” countries is a term occasionally used to refer to nations in southern Europe.

European banks are “extremely dependent on the wholesale funding markets, in plain English, hot money,” Ross said. “That’s what makes them vulnerable.”

To contact the reporters on this story: Liza Horowitz in New York at lhorowitz2@bloomberg.net; Matt Winkler in New York at mwinkler@bloomberg.net

To contact the editor responsible for this story: Kevin Costelloe kcostelloe@bloomberg.net

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Greek Leaders Appeal for Support as U.S. Presses for EU Action

By Maria Petrakis and Tony Czuczka - Sep 27, 2011 5:12 PM GMT+0700

Greek leaders appealed for support at home and abroad to avert default before key legislative votes as the U.S. criticized European leaders for moving too slowly to stem the debt crisis.

Prime Minister George Papandreou traveled to Berlin two days before lawmakers there were to ratify an overhaul of the euro rescue fund, pledging success in a struggle to restore budget balance. Finance Minister Evangelos Venizelos promised “superhuman” efforts hours before a vote in Athens on an unpopular property tax needed to avoid default.

President Barack Obama underscored the urgency late yesterday when he said European governments are “trying to take responsible actions, but those actions haven’t been quite as quick as they need to be.” His treasury secretary, Timothy F. Geithner, said Europe has “not very much time” to act.

Concerns that Europe’s debt crisis may plunge the global economy into recession dominated weekend talks of policy makers, investors and bankers in Washington, where the International Monetary Fund and World Bank held their annual meetings. Geithner called on euro-area leaders to beef up their 440 billion-euro ($594 billion) bailout fund, warning that failure threatened “cascading default, bank runs and catastrophic risk.”

European stocks rallied for a third straight day as investors bet as policy makers will heed the warnings to step up their efforts. The benchmark Stoxx Europe 600 Index climbed as much as 2.6 percent today.

Papandreou’s Majority

With 154 votes in the 300-seat chamber, Papandreou needs to rally his Pasok socialist lawmakers as he did in June to push through budget cuts and asset sales. Three months after that vote, which cost Papandreou two of his deputies, a deepening slump forced him to impose additional cuts and the real-estate levy affecting owners of 5 million homes and stores. The debate is scheduled to start at 6 p.m.

“The parliamentary votes on the required measures will be close,” said Wolfango Piccoli, an analyst in London at Eurasia Group. “Some Pasok deputies could resign ahead of the crucial voting sessions, but the government is expected to secure the parliamentary approval for the necessary laws and the release of the 8 billion-euro loan.”

Greece faces a “moment of truth” and has to fully implement its savings plans in order to qualify for the next installment of international aid, European Commission spokesman Amadeu Altafaj told reporters in Brussels yesterday.

Vote Delayed

He said that euro-area ministers are unlikely to approve the payment at their Oct. 3 meeting as originally planned. Greece has said it needs the money next month. Venizelos said today he expects the decision to be made and the money received “in time.”

Papandreou, who will dine with German Chancellor Angela Merkel in Berlin, said Greece can overcome the debt crisis and bolster all Europe with the help of stronger leadership from policy makers.

Greece will live up to all its commitments and deserves “respect” for its efforts thus far, Papandreou said in a speech to the German industry federation. He noted that from a “huge” primary budget deficit in 2009, Greece will probably see a primary surplus next year.

Greeks ask whether this is a Sisyphean task or whether the country can surmount the crisis, Papandreou said. “My answer is yes we can,” he said. “Greece has the potential, Europe has the potential,” and can achieve it through global cooperation. “We are not a poor country, we’re a country that has been governed badly.”

Greek Cuts

Venizelos has announced an additional 20 percent wage cut, on top of 15 percent for the civil service and 25 percent in the wider public sector. Pensions are being reduced 4 percent on average, in addition to previous cuts of 10 percent. A lowering of the tax-free threshold to 5,000 euros will mean higher taxes for all Greeks.

The two most contentious issues are a property tax to be levied via electricity bills, which will provide an annual yield of 1.1 percent of gross domestic product, and plans to put 30,000 public servants into a “reserve” system on reduced pay. The latter measure may not need renewed parliamentary approval as it was part of measures passed in June.

More than 74 percent of 1,002 Greeks polled by Rass for To Paron newspaper opposed the property tax. The poll also showed that 59 percent believed Papandreou’s government won’t be able to avert a default. The survey had a 3.1 percentage point margin of error. Papandreou trails the opposition party in all polls.

Unions have already called general strikes for Oct. 5 and Oct. 19, while public transit companies including the subway in the Greek capital have held strikes over the past few days to oppose the measures.

“Implementation of the measures is the biggest challenge for the government as the trade unions and parts of the civil service will mount significant resistance, raising the risk of inertia and inaction,” said Piccoli.

To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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Geithner Tells Europe to ‘Get On With It’ After Global Chiding Over Crisis

By Ian Katz - Sep 27, 2011 10:24 AM GMT+0700

U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region’s debt crisis after a chiding from counterparts around the world.

“They heard from everybody around the world” in Washington meetings last week, Geithner said on ABC’s “World News With Diane Sawyer” program. Europe’s crisis is “starting to hurt growth everywhere, in countries as far away as China, Brazil and India, Korea. And they heard the same message from us they heard from everybody else, which is it’s time to move.”

Geithner’s remarks maintain pressure on Europe ahead of finance minister and central bank gatherings next week and a decision on whether to disburse a loan Greece may need to avoid default. Speculation that rescue efforts will be strengthened spurred a rally in stocks even after Dutch and Finnish officials said they won’t boost commitments to a euro-area bailout fund.

Europe has “some time, but not very much time,” Geithner said in the interview late yesterday. “If you listen carefully to what they said this weekend, not just to us in private, but what they said publicly, they’re foreshadowing now the escalation that’s going to come. And we’d like them to get on with it.”

The MSCI Asia Pacific index of stocks gained 2.9 percent as of 11:48 a.m. Tokyo time, after national benchmark indexes rallied yesterday in all 18 western European markets except Greece and Norway. Futures contracts on the U.S. Standard & Poor’s 500 Index advanced 0.3 percent. The euro headed for a third session of gains, up 0.2 percent at $1.3554.

Europe’s Pledge

Euro-region finance chiefs committed at a gathering of the Group of 20 in Washington Sept. 22 to boost the flexibility of their rescue fund and “maximize its impact” by the time of the next G-20 conclave. Euro-area finance ministers meet Oct. 3. European Central Bank officials have indicated they will consider expanding liquidity provisions when they meet Oct. 6.

Geithner set the tone at the annual meeting of the International Monetary Fund and World Bank by warning that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” That gathering followed the G-20 session.

People’s Bank of China Governor Zhou Xiaochuan said at the talks that the euro-area crisis “needs to be resolved promptly.” Japan’s Finance Minister Jun Azumi said many G-20 members urged Europeans to implement a July plan to expand powers of the European Financial Stability Facility.

Japan Aid

Azumi told reporters in Tokyo today that Japan may weigh expanding its support to Europe through a regional bond fund if nations implement their pledged fiscal measures.

European leaders “recognized the need to escalate,” Geithner said in the ABC interview. “They’re going to have to put a much more powerful financial framework behind this. I really believe that you’re going to see them do that, but we wanted to make sure they do it as quickly as they can and as definitively as they can.”

German Chancellor Angela Merkel said Sept. 25 that euro- region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states and said expanding the powers of the region’s rescue fund, known as the EFSF, was necessary to avoid contagion.

The challenge of debt sustainability in Europe is in part a consequence of the 1999 inception of the euro as a single currency, the U.S. Treasury chief signaled.

Euro’s Legacy

European governments took advantage of the lower interest rates “that came with monetary union, and they borrowed a lot. And they spent too much. And the governments got very big. Benefits got very generous,” he said.

Turning to the U.S., Geithner said “there’s a very good chance” Congress will approve President Barack Obama’s $447 billion jobs proposal. The plan, incorporating payroll-tax cuts and a $105 billion infrastructure program, is designed to help pull down the nation’s 9.1 percent unemployment rate.

Geithner was in Louisville, Kentucky, yesterday to meet with leaders from businesses including Ford Motor Co. (F) to discuss the jobs proposal and to tour operations of package-delivery company United Parcel Service Inc. (UPS)

The European crisis “hurts us not just because it means that growth around the world will be slower and we’ll export less, but it hurts people very directly and very quickly when stock prices fall and the value of their pensions fall,” Geithner said on ABC. “It makes people more tentative. And that’s why it’s so important to us that they move.”

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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European Stocks Rally for Third Day; U.S. Index Futures Advance

By Corinne Gretler - Sep 27, 2011 5:45 PM GMT+0700

European stocks climbed for a third straight day as policy makers increased efforts to contain the region’s sovereign-debt crisis. Asian shares and U.S. index futures advanced.

BNP Paribas (BNP) SA and Societe Generale SA led a rally in banks, soaring at least 8 percent. MAN SE (MAN) rose the most in 10 months as European Union regulators cleared Volkswagen AG (VOW)’s takeover of the truckmaker. Novartis AG (NOVN), Europe’s second-biggest drugmaker by sales, rose 1.7 percent after its Seebri treatment showed positive results in two studies.

The benchmark Stoxx Europe 600 Index climbed 2.6 percent to 226.08 at 11:43 a.m. in London. The gauge has surged 5.2 percent over the past three trading days after falling to a two-year low on Sept. 22. That’s the biggest three-day gain this month.

“The markets are hoping that international leaders and politicians will act together and do what is needed to avoid a disaster,” said Lars Knudsen, who manages about $110 million at LGT Capital Management AG in Pfaeffikon, Switzerland. “Politicians are starting to feel pressure to act on the crisis. It is important that the European leaders act now.”

The Stoxx 600 fell 26 percent from this year’s peak in February through Sept. 22 as European and U.S. economic reports trailed forecasts, adding to concern that the global recovery is at risk. The decline left the measure trading at 9 times estimated earnings, the cheapest since March 2009, data compiled by Bloomberg show.

Asian, U.S. Shares

The MSCI Asia Pacific Index rallied 4 percent today, while Standard & Poor’s 500 Index futures increased 1.2 percent.

U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region’s debt crisis after a chiding from counterparts around the world.

“They heard from everybody around the world” in Washington meetings last week, Geithner said on ABC’s “World News With Diane Sawyer” program. Europe’s crisis is “starting to hurt growth everywhere, in countries as far away as China, Brazil and India, Korea. And they heard the same message from us they heard from everybody else, which is it’s time to move.”

Financial markets are looking for stronger leadership from policy makers to help Greece overcome the current debt crisis, Greek Prime Minister George Papandreou said in a speech to a German industry federation event in Berlin.Papandreou tests the strength of his parliamentary majority today as lawmakers vote on a property tax that is key to persuading the EU and International Monetary Fund to release an aid installment and avert default.

Greek Aid

Greek Finance Minister Evangelos Venizelos said he expects euro-area authorities to approve an aid payment this month and that it will be received “in time.” He spoke to reporters in Athens today.

Traders are “suddenly becoming increasingly confident that European leaders can now reach an agreement to successfully contain the debt crisis,” said Chris Weston, an institutional trader at IG Markets in Melbourne. “Investors must hold their nerve and at the same time central banks and finance ministers need to remain ‘on message’ as any suggestions that the rescue plans may go away will likely be enough to see markets take fright once again.”

In the U.S., a report at 9 a.m. New York time may show home prices declined in July from a year earlier. The S&P/Case- Shiller index of property values in 20 cities fell 4.4 percent from July 2010, the 10th consecutive year-to-year drop, according to the median forecast of 27 economists surveyed by Bloomberg News. Another report may show consumer confidence held in September near a two-year low.

Banks Climb

BNP Paribas and Societe Generale (GLE), France’s largest banks, pushed a gauge of European lenders higher, soaring 8.9 percent to 28.66 euros and 8 percent to 18.95 euros, respectively. Credit Agricole SA (ACA) jumped 6.9 percent to 4.91 euros.

Austria’s Erste Group Bank AG (EBS) surged 84 percent to 20.84 euros while Deutsche Bank AG (DBK), Germany’s biggest lender, increased 7.8 percent to 27.26 euros.

Allianz SE (ALV) and Axa SA (CS), Europe’s biggest insurers, climbed 7.3 percent to 69.73 euros and 8 percent to 9.70 euros, respectively. A gauge of insurance companies in the Stoxx 600 is heading for the biggest two-day gain since March 2009.

MAN rose 8.2 percent to 63.87 euros, the biggest increase since Nov. 15. Volkswagen’s takeover obtained antitrust approval without the need for asset sales or other remedies, the European Commission said late yesterday. The Wolfsburg, Germany-based carmaker will own 55.9 percent of MAN’s voting rights after the deal closes. Volkswagen preferred shares gained 3.7 percent to 105.35 euros.

Novartis Study

Novartis added 1.7 percent to 49.94 Swiss francs after the company’s Seebri drug improved lung function in patients with smoker’s cough and helped them exercise for longer, according to two studies that the Swiss drugmaker is using to apply for regulatory approval.

Novartis also received approval in Japan for Gilenya, a multiple sclerosis treatment, and Ilaris for cryopyrin- associated periodic syndrome, an auto-inflammatory disease.

Rio Tinto Group, the world’s second-largest mining company, rose 4.8 percent to 3,108 pence as copper gained for the first day in eight in London trading.

Antofagasta Plc (ANTO), the copper producer controlled by Chile’s Luksic family, climbed 7.9 percent to 1,025 pence and Kenmare Resources Plc (KMR) jumped 5.5 percent to 45.80 euro cents. Vedanta Resources Plc (VED) rallied 10 percent to 1,180 pence, the biggest gain since May 2010.

Logica Plc (LOG), the Anglo-Dutch computer services provider, gained 6.8 percent to 79.20 pence as Les Echos reported that Thales SA, Europe’s largest defense-electronics producer, plans to sell its Business Solutions unit, citing unidentified people. The newspaper named Logica as one of the possible buyers.

Alstom SA (ALO), the third-largest maker of power equipment, increased 6.6 percent to 25.46 euros as Morgan Stanley analyst Ben Uglow, who has an “overweight” rating for the shares, said the stock is “very attractive.”

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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

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Global Takeover Rebound Falters on Europe

By Zachary R. Mider, Jacqueline Simmons and Jeffrey McCracken - Sep 27, 2011 11:01 AM GMT+0700

The global rebound in mergers and acquisitions stumbled in the third quarter as takeovers by U.S. and Asian acquirers failed to compensate for a 43 percent decline in purchases by European companies.

Dealmaking dropped 22 percent to $504 billion from the prior three-month period, according to data compiled by Bloomberg, as European suitors retreated. St. Louis-based Express Scripts Inc.’s $29.1 billion bid for Medco Health Solutions Inc. and Tokyo-based Nippon Steel Corp.’s $9.5 billion offer for Sumitomo Metal Industries Ltd. blunted the drop.

U.S. and Asian companies are putting stockpiles of cash to work as a dimming economic outlook makes it more difficult for them to expand on their own. While their counterparts in Europe are also seeking growth, the deepening debt crisis there discouraged some from pursuing deals.

“The broader economic climate in Europe is bringing uncertainty to decision-making,” said Hernan Cristerna, head of M&A for Europe, the Middle East and Africa at JPMorgan Chase & Co. (JPM), the top adviser on deals this year. “New mandates have been coming through, but we are realistic that it might be difficult to execute some of them in the current environment.”

The rout in Europe imperils what is on track to be the second year of a global recovery in dealmaking. Companies have struck $1.78 trillion of deals this year, 18 percent more than the $1.51 trillion they put together at the same point in 2010.

U.S. Versus Europe

For every $2 U.S. companies spent on acquisitions in the third quarter, European ones spent less than $1. For most of the past decade, U.S. and Europe disbursed about the same amount.

U.S. deals included two big bets by technology giants: Google Inc.’s $12.5 billion offer for Motorola Mobility Holdings Inc. and Hewlett-Packard Co.’s proposed $10.3 billion acquisition of U.K. software maker Autonomy Corp. Melbourne’s BHP Billiton Ltd. bought Houston-based Petrohawk Energy Corp. for about $12 billion, its largest acquisition.

“We are continuing to see healthy activity in both the tech and in natural resources sectors, but the macro environment is such that CEOs are being prudent,” said Yoel Zaoui, global co-head of M&A at Goldman Sachs Group Inc. (GS)

Goldman Sachs is second to JPMorgan in advising on transactions this year. Morgan Stanley (MS) and Credit Suisse Group AG (CSGN) round out the top four. M&A advisers and private-equity executives will gather today to discuss the outlook for dealmaking at the Bloomberg Dealmakers Summit in New York.

Deal volume sank alongside the outlook for the global economy. Spanish and Italian government bond yields increased to euro-era records during the quarter as Greece attempted to avoid default. In the U.S., credit concerns increased as Standard & Poor’s lowered the nation’s rating, saying lawmakers haven’t done enough to curb record budget deficits.

Stretched Timelines

“Timelines are being stretched, and whether these deals ultimately get done remains an open question,” said Giuseppe Monarchi, head of M&A for Europe, the Middle East and Africa at Credit Suisse in London.

PPR, the French owner of luxury brands such as Gucci, shelved plans this month to sell its Redcats online retail unit, partly because of the financing squeeze. The Paris-based company initially attracted buyout firms such as TPG Capital and CVC Capital Partners Ltd., people with knowledge of the matter said in July.

Some companies are opting for spinoffs or breakups rather than takeovers. Kraft Foods Inc., whose brands include Oreo cookies and Cadbury chocolate, last month revealed plans to spin off its North American grocery business. Tyco International Ltd., the security-system maker that fielded advances from Schneider Electric SA this year, announced plans for its own breakup this month.

Spinoff Option

“For now, we’ll continue to see strategic reorganizations, such as spinoffs and divestitures, and some sizable acquisitions by companies with substantial cash reserves,” said Henrik Aslaksen, global head of M&A for Deutsche Bank AG (DBK) in London. The top 1,000 non-financial companies worldwide are sitting on about $3.3 trillion in cash and equivalents, according to data compiled by Bloomberg.

Siemens AG Chief Executive Officer Peter Loescher said Sept. 24 that the German maker of trains, scanners and power plants is seeking acquisitions and that prices are becoming “more attractive by the day.” Nestle SA, which had more than $3 billion in cash and equivalents at the end of June, said in August that it opted not to buy back more shares, prompting speculation it’s saving for takeovers.

Asian Deals

Acquirers in the Asia-Pacific region kept spending in the third quarter, with volume climbing about 4 percent to $158 billion from the previous period, including Nippon Steel’s deal to create the world’s second-largest steelmaker.

“Given the undiminished appetite of Asian corporates for M&A opportunities globally, combined with their strong overall financial positioning, we don’t expect any slowdown in M&A activity to be long drawn out,” said Colin Banfield, Asia- Pacific head of M&A at Citigroup Inc. (C)

Still, much like in Europe, market turmoil has put off or quashed some large transactions clients had contemplated, said Stephen Gore, head of M&A for Asia at UBS AG. (UBSN)

“Trying to take a decision to execute a large, transformational transaction when there is a high level of global uncertainty about macro-economic conditions is difficult,” he said.

IMF Forecast

The International Monetary Fund reduced its forecast for global growth Sept. 20 and said Europe and the U.S. risk re- entering recession if they fail to solve their financial problems. The world economy probably will expand 4 percent this year and next, the IMF said, compared with previous projections of 4.3 percent and 4.5 percent.

Slowing economic growth may actually push some companies to seek acquisitions, to realize cost savings or enter new markets, said Patrick Ramsey, co-head of Americas mergers at Bank of America Corp. (BAC)

“The challenge of organic growth has only gotten harder as the slope of economic recovery has become shallower,” he said.

To contact the reporters on this story: Zachary Mider in New York at zmider1@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editors responsible for this story: Jacqueline Simmons at jackiem@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net

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Stocks, Metals Gain on European Crisis Outlook

By Stephen Kirkland and Shiyin Chen - Sep 27, 2011 6:53 PM GMT+0700
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Copper rose 2.7 percent and silver futures advanced 9.8 percent. Photographer: Chris Rank/Bloomberg

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Sept. 27 (Bloomberg) -- Lothar Mentel, chief investment officer at Octopus Investments Ltd., talks about investment strategy for commodities and equities. He speaks with Owen Thomas on Bloomberg Television's "On the Move." (Source: Bloomberg)

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Traders gesture as they work on the floor of the London Metal Exchange in London. Photographer: Simon Dawson/Bloomberg

Stocks gained for a third day and commodities rallied, with copper snapping a seven-day slump, on optimism European leaders will solve the region’s debt crisis. Treasuries and bunds declined.

The MSCI All-Country World Index added 2.1 percent, led by banks, at 7:45 a.m. in New York. The Stoxx Europe 600 Index jumped 3.3 percent as gauges in France and Germany climbed at least 4.4 percent. Standard & Poor’s 500 Index futures rose 1.7 percent. Copper jumped 3.9 percent and silver futures surged 11 percent. The 30-year Treasury yield increased 11 basis points, with the 10-year German yield gaining 13 basis points. Italian and Spanish 10-year bonds traded higher after the nations sold debt. The euro strengthened 0.5 percent to $1.3599.

U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will use more force to resolve the region’s crisis after they heard the concerns of global finance officials during meetings in Washington last weekend. Opting for a government default in the euro region would be “voting for suicide,” European Central Bank Executive Board member Lorenzo Bini Smaghi said in an interview with the Australian Financial Review published today.

European leaders “finally get it,” Pacific Investment Management Co.’s Mohamed El-Erian said in a radio interview with Tom Keene and Ken Prewitt on “Bloomberg Surveillance.” Germany still faces major decisions on the nature of the European Union, and political challenges shouldn’t be underestimated, El-Erian said.

BNP Paribas

The Stoxx 600 is heading for the biggest three-day gain this month after sliding to a two-year low on Sept. 22. Allianz SE and Axa SA, Europe’s biggest insurers, climbed at least 9 percent. BNP Paribas SA and Deutsche Bank AG, the largest banks in France and Germany, rallied 9.7 percent and 10 percent, respectively.

The cost for European banks to convert euro payments into dollars, measured by the one-year cross-currency basis swap, declined to 68 basis points less than the euro interbank offered rate, from 70.5 basis points yesterday. The cost was 75 basis points under Euribor on Sept. 22, when the swap was the most expensive since December 2008.

“There has been no concrete alteration in the structure of the euro zone since the end of last week but the market has been willing to clutch at the idea that politicians at least recognize there is an urgent requirement for action,” Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, said in a report today.

Default Risk

The cost of insuring against a default on European bank bonds fell, with the Markit iTraxx Financial Index of credit- default swaps dropping 16 basis points to 260, according to JPMorgan Chase & Co.

The gain in S&P 500 futures indicated the U.S. gauge will climb for a third day. Data today may show the S&P/Case-Shiller index of property values in 20 U.S. cities fell 4.4 percent from July 2010, according to the median forecast of economists surveyed by Bloomberg. A separate release may show consumer confidence climbed this month from the lowest in more than two years.

Silver futures rose after falling 26 percent the past three days, and copper rebounded from a 17 percent slide in seven days. Oil advanced 2.5 percent to $82.21 a barrel in New York.

Emerging Markets

The MSCI Emerging Markets Index added 4.3 percent, set for the steepest rally since May 2010, after closing yesterday at a two-year low. South Korea’s Kospi Index (KOSPI) jumped 5 percent, the most since January 2009. Indonesia’s Jakarta Composite index added 5 percent. Benchmark indexes gained more than 3 percent in Poland, Hungary and the Czech Republic. The rand appreciated 2.6 percent against the dollar as commodity prices surged.

Israel’s TA-25 Index rose 1.2 percent after the central bank unexpectedly cut the benchmark interest rate for the first time in 2 1/2 years yesterday after the market closed.

The two-year Treasury note yield rose as high as 0.2432 percent, the highest since Aug. 9, before the government sells $35 billion of the notes today.

The yield on the 10-year Spanish bond declined eight basis points. The government sold 3.22 billion euros ($4.3 billion) of three- and six-month bills, compared with the Treasury’s maximum target of 3.5 billion euros. The yield on the three-month debt was 1.692 percent, compared with an average of 1.357 percent when similar securities were last auctioned on Aug. 23. The six- month bills yielded 2.665 percent, compared with 2.187 percent last month.

Italy’s 10-year bond yield slid five basis points. The nation auctioned 8 billion euros of 182-day bills to yield 3.071 percent, up from 2.14 percent at the last auction of similar- maturity debt on Aug. 26. The Rome-based Treasury also sold 3 billion euros of 76-day bills to yield 1.808 percent. The 3.5 billion euros of 2013 bonds yielded 4.511 percent.

The 17-nation European currency appreciated 0.6 percent against the yen. The New Zealand dollar advanced 0.9 percent against the U.S. currency, with the Australian currency rising 0.8 percent. The Dollar Index, which tracks the U.S. currency against those of six trading partners, fell 0.9 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net;

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net

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Fukushima Desolation Worst Since Nagasaki as Population Flees From Fallout

By Yuriy Humber, Yuji Okada and Stuart Biggs - Sep 27, 2011 3:30 PM GMT+0700
eyond the police roadblocks that mark the no-go zone around Japan’s wrecked Fukushima nuclear plant, six-foot tall weeds invade rice paddies and vines gone wild strangle road signs along empty streets.

Takako Harada, 80, returned to an evacuated area of Iitate village to retrieve her car. Beside her house is an empty cattle pen, the 100 cows slaughtered on government order after radiation from the March 11 atomic disaster saturated the area, forcing 160,000 people to move away and leaving some places uninhabitable for two decades or more.

“Older folks want to return, but the young worry about radiation,” said Harada, whose family ran the farm for 40 years. “I want to farm, but will we be able to sell anything?”

What’s emerging in Japan six months since the nuclear meltdown at the Tokyo Electric Power Co. plant is a radioactive zone bigger than that left by the 1945 atomic bombings at Hiroshima and Nagasaki. While nature reclaims the 20 kilometer (12 mile) no-go zone, Fukushima’s $3.2 billion-a-year farm industry is being devastated and tourists that hiked the prefecture’s mountains and surfed off its beaches have all but vanished.

The March earthquake and tsunami that caused the nuclear crisis and left almost 20,000 people dead or missing may cost 17 trillion yen ($223 billion), hindering recovery of the world’s third-largest economy from two decades of stagnation.

Compensation Costs

A government panel investigating Tokyo Electric’s finances estimated the cost of compensation to people affected by the nuclear disaster will exceed 4 trillion yen, Kyodo News reported today, without saying how it got the information. The stock fell 6.2 percent to 243 yen, the lowest since June 13.

The bulk of radioactive contamination cuts a 5 kilometer to 10 kilometer-wide swath of land running as far as 30 kilometers northwest of the nuclear plant, surveys of radiation hotspots by Japan’s science ministry show. The government extended evacuations beyond the 20-kilometer zone in April to cover this corridor, which includes parts of Iitate village.

No formal evacuation zone was set up in Hiroshima after an atomic bomb was dropped on the city on Aug. 6, 1945, though as the city rebuilt relatively few people lived within 1 kilometer of the blast epicenter, according to the Hiroshima Atomic Bomb Museum. Food shortages forced a partial evacuation of the city in the summer of 1946.

Chernobyl Explosion

On April 26, 1986, an explosion at the Chernobyl reactor hurled 180 metric tons of nuclear fuel into the atmosphere, creating the world’s first exclusion zone of 30 kilometers around a nuclear plant. A quarter of a century later, the zone is still classed as uninhabitable. About 300 residents have returned despite government restrictions.

The government last week said some restrictions may be lifted in outlying areas of the evacuation zone in Fukushima, which translates from Japanese as “Lucky Isle.” Residents seeking answers on which areas are safe complain of mixed messages.

“There are no simple solutions,” Timothy Mousseau, a professor of biological sciences at the University of South Carolina, said. Deciding whether life should go on in radiation tainted areas is a “question of acceptable risks and trade offs.”

To Mousseau, one thing is clear.

‘Consequences’

“There will be consequences for some of the people who are exposed to levels that are being reported from the Fukushima prefecture,” Mousseau said by e-mail from Chernobyl, where he is studying radiation effects.

Japan abandoned any ambition to develop atomic weapons after the 1945 bombings. Two decades later, the nation embraced nuclear power to rebuild the economy after the war in the absence of domestic oil and gas supplies.

Tokyo Electric’s decision in the 1960s to name its atomic plant Fukushima Dai-Ichi has today associated a prefecture of about 2 million people that’s almost half the size of Belgium with radiation contamination. In contrast, Chernobyl is the name of a small town near the namesake plant in what today is Ukraine.

The entire prefecture has been stained because of the link, according to Governor Yuhei Sato.

“At Fukushima airport you don’t see Chinese and Korean visitors like before because of negative associations,” he said.

Stigmatized

The fear of radiation was prevalent after the Hiroshima and Nagasaki bombings and it stigmatized the survivors, known as hibakusha, or people exposed to radiation. Many hibakusha concealed their past for fear of discrimination that would prevent them finding work or marriage partners, according to the Japan Confederation of A-and H-bomb Sufferers Organization.

Some people believed A-bomb survivors could emit radiation and others feared radiation caused genetic mutations, said Evan Douple, Associate Chief of Research at the Radiation Effects Research Foundation in Hiroshima.

An examination of more than 77,000 first-generation children in Hiroshima and Nagasaki after the bombings found no evidence of mutations, he said.

While radiation readings are lower in Fukushima than Hiroshima, Abel Gonzales, the vice-chair of the International Commission on Radiological Protection, said similar prejudices may emerge.

“Stigma. I have the feeling that in Fukushima this will be a very big problem,” Gonzales said in a symposium held in Fukushima City on the six-month anniversary of the disaster.

Bullying

Some children that fled Fukushima are finding out what Gonzales means.

Fukushima schoolchildren were being bullied at their new school in Chiba prefecture near Tokyo for “carrying radiation,” the Sankei newspaper reported in April, citing complaints made to education authorities. An 11-year-old Fukushima boy was hospitalized in Niigata prefecture after being bullied at his new school, Kyodo News reported April 23.

Produce from Fukushima’s rich soil is also being shunned. Peaches, the prefecture’s biggest agricultural product after rice, have halved in price this year. Beef shipments from the prefecture were temporarily suspended and contamination concerns stopped the town of Minami Soma from planting rice, according to local authorities.

Fallow Land

Some land around the Fukushima reactors will lie fallow for two decades or more before radiation levels fall below Japan’s criteria for evacuation, the government said Aug. 26.

Radiation risks in the 20 kilometer zone forced the evacuation of about 8 percent, or 160,000, of some 2 million people who live in Fukushima. Almost 56,000 were sent to areas outside Fukushima, prefecture spokesman Masato Abe said by phone. More than 8,000 left on their own accord because of radiation fears, Abe said.

Inside the evacuation areas, levels of radiation higher than the government’s criteria for evacuation have been recorded at 89 of 210 monitoring posts. At 24 of the sites, the reading was higher than the level at which the International Atomic Energy Agency says increases the risk of cancer.

Japan Atomic Energy Institute researcher Toshimitsu Homma used Science Ministry data to compare the geographic scale of the contamination in Fukushima with Chernobyl.

He estimates the no-go zone in Fukushima will cover 132 square kilometers, surrounded by a permanent monitoring area of 264 square kilometers, assuming Japan follows the criteria set by the Soviet Union in 1986.

The two areas combined equal about half the size of the five boroughs that comprise New York City. In the case of Chernobyl, the two zones cover a land mass 25 times greater, according to Homma’s figures.

Intermittent Information

While scientists knew back in March that radiation contamination would create an uninhabitable zone in Fukushima, information to the public has come intermittently, said Hiroaki Koide, a nuclear physics scientist at Kyoto University.

“Many people in Fukushima have to face the reality that they cannot go back to their homes for decades,” Koide said.

Masaki Otsuka said it may be worse than that.

“I don’t think I can ever go back to my house, because it was just 4 kilometers from the Dai-Ichi reactors,” the 51-year- old pipe welder said in an interview at an evacuation center in Azuma, Fukushima city, where he has lived for six months.

People’s distrust of politicians and scientists, as well as conflicting commentary, makes it harder for residents to decide whether to stay or leave, said Michiaki Kai, a professor in environmental health science at Oita University of Nursing and Health Sciences.

Official Contradictions

Similar circumstances affected residents near Chernobyl and those close to the nuclear accident at Three Mile Island in the U.S. in 1979.

“Contradiction in some official statements, and the appearance of non-scientifically based ‘expert’ voices, confused and added stress to the local populations in each case,” said Evelyn Bromet, distinguished professor in the department of psychiatry at Stony Brook State University of New York.

“Lies got told, contradictions got told. In the end it’s easier to believe nobody,” Bromet said in an interview, citing mental health studies she did on people in the areas.

What radiation hasn’t ruined, the earthquake and tsunami devastated. Fukushima prefecture welcomed 56 million domestic and overseas visitors in 2009, equal to 44 percent of Japan’s population.

Surfing Canceled

The coastal town of Minami Soma this year canceled its annual qualifying stage for the world surfing championship, part of a waterfront that lured 84,000 beachgoers in July and August last year, said Hiroshi Tadano, head of the town’s economic division. This year, nobody visited the beaches in the two months.

“Most of the beaches are destroyed,” Tadano said. “And of course, radiation played its part.”

The area’s biggest festival, Soma Noma Oi, a re-enactment of samurai battles, attracted 200,000 visitors last year. This year 37,000 came. Of the 300 horses typically used in the event, 100 were drowned in the tsunami and another 100 were evacuated due to radiation, Tajino said.

Minami Soma resident Miyaguchi, 54, lost his home and parents in the tsunami. He quit his job at Tokyo Electric, leaving him unemployed and housed in an evacuation center.

Still, he has no plans to move away. “Most people who wanted to move away have done so, but I can’t live in big cities like Tokyo,” he said, declining to give his first name.

The future of Fukushima is in the hands of residents like Miyaguchi and Harada who say they want to stay and work to reclaim their land from disaster.

A giant banner in the playground of the closed Haramachi elementary school in Minami Soma makes that a promise: “To all of you wherever you are, we say we won’t give up.”

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net; Stuart Biggs in Tokyo at sbiggs3@bloomberg.net

To contact the editors responsible for this story: Peter Langan at plangan@bloomberg.net; Teo Chian Wei at cwteo@bloomberg.net

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JPMorgan Differs With JPMorgan on Apple IPad

By Adam Satariano and Edmond Lococo - Sep 27, 2011 10:29 AM GMT+0700

JPMorgan Chase & Co. (JPM) analyst Mark Moskowitz said research from his colleagues in Asia about a cut in Apple Inc. (AAPL) iPad orders doesn’t represent the views of the securities firm’s U.S. team.

“Apple is fine,” Moskowitz wrote.

Apple is cutting orders to vendors in the supply chain for its iPad tablet computer, a move that may mean slower sales for companies including Hon Hai Precision Industry Co., according to the earlier report by Hong Kong-based JPMorgan analyst Gokul Hariharan.

Analysts at other firms also issued research aimed at quelling speculation that demand for iPads had diminished -- a concern that dragged down Apple’s stock as much as 3.2 percent in Nasdaq Stock Market trading yesterday. Chris Caso, an analyst at Susquehanna International Group, said the resulting “chatter” was “misleading” and Gene Munster, at Piper Jaffray Cos., said changes in orders may be the result of Apple moving some iPad manufacturing out of Asia to Brazil.

The earlier report “has the equity markets worried about Apple,” Moskowitz wrote yesterday. “Mr. Hariharan’s report focuses on how Hon Hai could be impacted by potential iPad sell- in order cuts. This alert is not the view of the U.S. IT Hardware team.”

Projection Maintained

Moskowitz maintained his projection that Apple will sell 10.9 million to 12 million iPads in the fiscal fourth quarter.

Apple fell $1.13, or 0.3 percent, to $403.17 yesterday in Nasdaq Stock Market trading after earlier declining as much as 3.2 percent. The shares have gained 25 percent this year.

The later note may have been prompted by complaints from Apple or large shareholders, said Bruce Foerster, president of South Beach Capital Markets in Miami.

“If nothing else this should be troublesome and at the end of the day you have to come down on the side of independent research,” said Foerster, a former managing director at securities firms including Lehman Brothers Holdings Inc. “That has to trump all, every time. Otherwise what are you selling?”

Moskowitz and Hariharan declined to comment beyond their respective reports. Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment. Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, didn’t immediately respond to a call and e-mail for comment after regular business hours.

Edmund Ding, a spokesman for Hon Hai, didn’t answer calls to his Taiwan and China mobile phones made today.

Orders Cut

Hariharan’s report, dated Sept. 25, said multiple supply- chain vendors indicated a 25 percent reduction in so-called sell-in orders in the past two weeks, the first such cut that analysts at JPMorgan’s Hong Kong-based electronic manufacturing services team said they have seen. Sell-in orders are those made by a company -- in this case, Apple -- to a supplier.

“We disagree with any talk of a shipment slowdown,” analysts at Barclays Capital wrote in a report. “The numbers being circulated Monday might be related to components and not to actual iPad 2 shipments, in our view. Components checks (are) not a good proxy for actual iPad product shipments.”

Talk of reduced Apple orders to suppliers may be coming from “pull-ins, not cuts,” as production was moved up to the third quarter from the fourth quarter, Susquehanna’s Caso wrote.

Caso said he does project a decline to 11 million to 13 million iPads built in the fourth quarter, from 17 million to 19 million in the third quarter.

“Accelerate Production”

“The 4Q sequential decline was accompanied by an increase in 3Q builds, leading us to conclude that production was likely pulled-in from 4Q to 3Q,” Caso wrote. Apple “has attempted to accelerate production in 3Q to ensure product availability for the holidays.”

Craig Berger, with FBR Capital Markets in New York, wrote a report saying his view was “largely consistent” with the research from JPMorgan’s Asia team on cuts to orders from Apple to iPad suppliers. The cut to fourth-quarter iPad production may reflect Apple being more cautious on overall global demand given recent market turbulence, and discounting some iPad growth in China, he wrote.

“For the iPad, 3Q11 builds were cut by 5%, while 4Q11 production estimates were cut by 24%, an incremental negative for Apple related supply chain participants,” Berger wrote.

IPad builds were cut by 24 percent in the fourth quarter from 17 million to 13 million, as iPad 2 WiFi builds were revised lower, and as ‘iPad 2 Plus’ production was removed from the forecast due to “display manufacturing challenges,” Berger wrote.

Apple’s iPad may account for 73 percent of tablet sales this year, according to research firm Gartner Inc. Products that run on Google Inc. (GOOG)’s Android operating system, including Samsung Electronics Co.’s Galaxy tablets, will probably have about 17 percent of the market, Gartner said on Sept. 22.

Amazon.com Inc. (AMZN) may release a product later this year that could become the No. 2 tablet in the market behind the iPad, Moskowitz wrote in a report earlier this month.

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

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

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