Sarkozy to Seek China Aid as EU Expands Rescue Fund

By Jonathan Stearns and Helene Fouquet - Oct 27, 2011 5:28 PM GMT+0700
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Chinese President Hu Jintao (R) welcomes his French counterpart Nicolas Sarkozy (L). Photographer: Eric Feferberg/AFP/Getty Images

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Oct. 27 (Bloomberg) -- Guy Verhofstadt, member of the European Parliament and former prime minister of Belgium, discusses efforts to solve the debt crisis. European leaders persuaded bondholders to take 50 percent losses on Greek debt and boosted the firepower of the rescue fund to 1 trillion euros ($1.4 trillion). Verhofstadt speaks from Strasbourg with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

French President Nicolas Sarkozy said he plans to call Chinese counterpart Hu Jintao today to discuss China contributing to Europe’s efforts to resolve the region’s debt crisis.

The European Financial Stability Facility will be worth about $1.4 trillion after European leaders agreed to leverage existing guarantees by as much as five times, Sarkozy said at a briefing in Brussels at 4 a.m. local time. The presidents will speak about noon Brussels time and Chinese support will be welcomed, he said. Jiang Yu, China’s foreign ministry spokeswoman, said Beijing is ready to work with Europe to stabilize markets.

Sarkozy’s outreach precedes a Group of 20 summit he will host next week, and coincides with European efforts to bolster the role of the International Monetary Fund in overcoming the euro-region’s woes. Australia’s finance chief said that while it’s “appropriate” to look at the IMF’s resources, Europeans must look to themselves first for bailout money.

“China will need time to evaluate this plan very carefully,” said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd. “What worries China is that there is so much disagreement among European policy makers. It doesn’t want to be seen spending money on a plan that even Europeans don’t want to support.”

Greek Debt

Chinese Premier Wen Jiabao has signaled willingness to aid the European Union as financial turmoil within the region threatens to crush export demand in China’s biggest market. The expansion of the rescue fund and a deal for bondholders to take 50 percent losses on Greek debt may help Sarkozy and German Chancellor Angela Merkel to convince the world that Europe is getting to grips with the crisis.

Sarkozy and Hu’s conversation comes a day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors. China has the world’s largest foreign currency reserves at more than $3.2 trillion.

The EFSF, established last year to sell bonds to finance loans for distressed euro nations, has since also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the Greece-triggered debt troubles have spread. The EFSF said Regling’s visit to China this week is linked to the fund’s original debt-issuance role.

‘Normal’ Discussion

“It is a normal round of discussion with important buyers of EFSF bonds,” Christof Roche, spokesman for the Luxembourg- based facility, said by e-mail yesterday. He declined to comment further when contacted by Bloomberg News by telephone. Agence France-Presse reported that Regling will travel on to Tokyo, citing a European Union official in Asia.

Jiang, the Chinese foreign ministry spokeswoman, didn’t give details of how China might work with the EU.

China “welcomes’’ the agreement reached by EU leaders, Jiang said at a regular press briefing in Beijing. “It is conducive to lifting market confidence.’’

The European Union must ensure the safety of China’s investments, the official Xinhua News Agency reported today, citing Wang Hua, an official in the Western Europe division of the International Department under the Communist Party’s Central Committee.

A press official at the People’s Bank of China said he wasn’t aware of the issue and asked for faxed questions, which weren’t answered. Calls to the press office of China Investment Corp., the nation’s $300 billion sovereign wealth fund, weren’t immediately answered.

American Angst

Europe is facing international calls to end a debt crisis that President Barack Obama has said “is scaring the world” and U.S. Treasury Secretary Timothy F. Geithner has described as a “catastrophic risk.”

With the G-20 leaders gathering in Cannes, France, Nov. 3- 4, euro-area government heads gathered in Brussels yesterday for the 14th time to tackle troubles that began in Greece two years ago, then engulfed Ireland and Portugal and now threaten Spain and Italy.

Premier Wen said last month that while China was willing to help, developed nations also needed to put “their own houses in order.”

In Canberra today, Australian Treasurer Wayne Swan echoed that sentiment. “In the first instance, any bailout fund in Europe is a responsibility of the Europeans,” he told reporters. Swan said in a statement later that global markets will demand details of the European plans. “Europe is building its war chest, but the war has not yet been won,” the statement said.

Stocks rose in Asia after the euro-region meeting, with the MSCI Asia Pacific Index advancing 3 percent, the most in more than three weeks.

Pudding Test

“This morning we saw broad positive reaction from the market -- but as they say, the proof of the pudding is in the eating,” Amando Tetangco, governor of the Philippine central bank, said in a mobile-phone text message to reporters today.

Bank of Korea Governor Kim Choong Soo said his nation hasn’t been approached and hasn’t considered joining the European financing effort. Indonesian Vice Finance Minister Mahendra Siregar said his country also hasn’t been asked to contribute. Japan’s Finance Minister Jun Azumi said the European statement today was a “big step forward,” speaking at parliament in Tokyo.

The question of leveraging the AAA rated EFSF has arisen because of the political hurdles in countries such as Germany, the biggest European economy, to increasing the national guarantees that back the fund.

Japan’s Ante

As part of its original role, the EFSF is providing 17.7 billion euros under Ireland’s aid package of 67.5 billion euros and 26 billion euros under Portugal’s rescue of 78 billion euros. So far, the EFSF has sold two five-year bonds and one 10- year security, all in the first half of this year. The Japanese government bought more than a fifth of the inaugural issue in January.

On Oct. 13, the EFSF announced changes to its bond-sale program for the two countries in the second half of 2011. Instead of selling four “benchmark” bonds in the period, as outlined in mid-May, the fund will sell one security for Ireland valued at 3 billion euros and delay issues planned for Portugal until “early 2012.”

The EFSF may have to finance more than 70 billion euros of a planned second aid package for Greece. The initial Greek rescue of 110 billion euros in May 2010 was composed of loans directly from euro-area governments and the IMF.

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net

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

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EU Sets 50% Greek Writedown, $1.4T in Rescue Fund

By James G. Neuger and Stephanie Bodoni - Oct 27, 2011 5:08 PM GMT+0700

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Oct. 27 (Bloomberg) -- Charles Dallara, managing director of the Institute of International Finance, discusses the Greek debt agreement reached by European leaders, who persuaded bondholders to take 50 percent losses. He speaks from Brussels with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

European leaders cajoled bondholders into accepting 50 percent writedowns on Greek debt and boosted their rescue fund’s capacity to 1 trillion euros ($1.4 trillion) in a crisis-fighting package intended to shield the euro area.

The 17-nation euro and stocks climbed while bond spreads narrowed after leaders emerged early today from a 10-hour summit in Brussels armed with a plan they said points the way out of the quagmire, albeit with some details still to be ironed out.

“Overall the outcome is better than we anticipated one week ago,” Laurent Bilke, global head of inflation strategy at Nomura International Plc in London, said in an interview. “There are several issues left open, but I do believe that getting a more necessary debt relief for Greece is a pretty important step.”

Last-ditch talks with bank representatives led to the debt- relief accord, in an effort to quarantine Greece and prevent speculation against Italy and France from ravaging the euro zone and wreaking global economic havoc. Greek Prime Minister George Papandreou will address the nation at 8 p.m. in Athens to outline the summit’s ramifications for the country at the eye of the two-year sovereign debt crisis.

“The world’s attention was on these talks,” German Chancellor Angela Merkel told reporters in Brussels at about 4:15 a.m. “We Europeans showed tonight that we reached the right conclusions.”

ECB Role

Measures include recapitalization of European banks, a potentially bigger role for the International Monetary Fund, a commitment from Italy to do more to reduce its debt and a signal from leaders that the European Central Bank will maintain bond purchases in the secondary market.

The euro advanced to a seven-week high against the dollar, rising above $1.40 for the first time since September. It was at $1.4007 at 11:48 a.m. in Brussels. The Stoxx Europe 600 Index surged 2.6 percent.

“It’s long on words, short on detail,” said Peter Dixon, an economist at Commerzbank AG in London. “The solution that’s been put in place now gives us enough ammunition to stave off any immediate problems but we may well run into other problems down the track.”

The summit was the 14th in the 21 months since Europe pledged solidarity with Greece, and came amid mounting global pressure for the bloc to deliver a credible anti-crisis toolkit before a Group of 20 meeting Nov. 3-4 in Cannes, France.

Banks Summoned

Europe’s leaders took the unusual step of summoning the banks’ representative, Managing Director Charles Dallara of the Institute of International Finance, into the summit to break the deadlock over how to cut Greece’s debt to 120 percent of gross domestic product by 2020 from a forecast of about 170 percent next year.

Dallara squared off with a group led by Merkel and French President Nicolas Sarkozy around midnight after issuing an e- mailed statement that “there is no agreement on any element of a deal.”

Sarkozy said the bankers were escorted in “not to negotiate, but to inform them on decisions taken by the 17 and then they themselves went on to think and work on it.” Luxembourg Prime Minister Jean-Claude Juncker said the banks’ resistance was broken by a threat “to move toward a scenario of total insolvency of Greece, which would have cost states a lot of money and which would have ruined the banks.”

Insolvency Threat

The resulting “voluntary” losses by bondholders were the key plank in a second bailout for Greece, which was awarded 110 billion euros in May 2010 at the outbreak of the crisis. The new program includes 130 billion euros of official aid, up from 109 billion euros envisioned in July.

The Washington-based IMF, meanwhile, said it is ready to disburse its 2.2 billion-euro share of the next installment of Greece’s original bailout. The release of the euro zone’s 5.8 billion-euro share was approved last week.

Greek, Spanish, Italian and French bonds all rallied today, with the spreads over benchmark German bunds narrowing. The yield on German 10-year bonds jumped eight basis points, the most in more than 11 weeks, to 2.11 percent at 10:05 a.m. London

The yield on Greek bonds due in October 2022 fell 117 basis points to 24.15 percent, Spanish 10-year yields dropped 16 basis points to 5.32 percent and Italy’s 10-year bonds advanced for a second day, with yields falling 13 basis points to 5.81 percent.

ECB President Jean-Claude Trichet, who has warned against the spillover effects of bond writedowns on the banking system, didn’t take part in the confrontation with bankers on the debt relief. He later praised the leaders’ determination to get ahead of the crisis.

Trichet’s Call

The measures agreed “have to be fully implemented, as rapidly and effectively as possible,” Trichet, who leaves office Oct. 31, said afterwards.

Leaders tiptoed around the politically independent ECB’s broader role in keeping the euro sound, making no mention of its bond-purchase program in a 15-page statement. The Frankfurt- based central bank has bought 169.5 billion euros in bonds so far, starting with Greece, Ireland and Portugal last year, then extending the coverage to Italy and Spain in August.

While Trichet didn’t mention the controversial purchases either, his successor, Mario Draghi of Italy, indicated that the policy will continue. Speaking in Rome yesterday, Draghi said the ECB remains “determined to avoid a poor functioning of monetary and financial markets.”

Leaders backed two ways of leveraging up the 440 billion- euro rescue fund, which was designed last year to shield smaller countries such as Greece, Ireland and Portugal, and lacks the heft to protect Italy, the euro area’s third-largest economy.

Leverage Options

Under plans to be spelled out in November, the fund will be used to insure bond sales and to create a special investment vehicle that would court outside money, from public and private financial institutions and investors.

Canadian Prime Minister Stephen Harper, speaking at a conference in Perth, Australia, called the agreement “grounds for cautious optimism,” and urged European leaders to work out details of the plan and implement it.

Europe cast about for more international money to aid the rescue, with France’s Sarkozy set to call Chinese leader Hu Jintao tomorrow with the goal of tapping into the world’s largest foreign exchange reserves.

While the mechanics are a work in progress, European Union President Herman Van Rompuy said the leverage effect would multiply the power of the fund by a factor of four to five. He compared it to normal banking business that needn’t entail excessive risks.

‘Detail Further’

“It will be important to detail further the modalities of how this enhanced EFSF will operate and deliver the scale of support envisaged,” IMF Managing Director Christine Lagarde said.

Europe also struck a bank-recapitalization accord, setting a June 30, 2012, deadline for lenders to reach core capital reserves of 9 percent after writing down their sovereign-debt holdings. Banks below that target would face “constraints” on paying dividends and awarding bonuses, a statement said.

The European Banking Authority estimated banks’ capital needs at 106 billion euros, with Spanish banks requiring 26.2 billion euros and Italian banks 14.8 billion euros. It gave them until Dec. 25 to submit money-raising plans to national supervisors.

Banks that fail to raise enough capital on the markets will first tap national governments, falling back on the EFSF rescue fund only as a last resort.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Stephanie Bodoni in Brussels at sbodoni@bloomberg.net

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

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Akamai’s Forecast Tops Estimates; Kenny Resigns as President

By Brian Womack - Oct 27, 2011 5:18 AM GMT+0700

Akamai Technologies Inc., the operator of a server network that lets businesses speed data delivery, forecast fourth-quarter sales that topped some analysts’ estimates. The shares rose as much as 14 percent.

Revenue in the current period is projected to be $303 million to $315 million, the company said on a conference call today. That compares with the $310.9 million average estimate of analysts, according to Bloomberg data. Akamai also said David Kenny resigned as president and will leave the board.

Akamai, whose customers include Apple Inc., is benefiting from demand for new services, such as security protection. That may be helping to counter the impact of rising competition in its more traditional business, which lets customers more quickly transmit digital content on networks around the world.

“It’s a lot higher-margin business,” said Ilya Grozovsky, an analyst at Morgan Joseph TriArtisan LLC in New York, referring to the new offerings like security. “Ultimately, it’s a much better service for the customers. So they’re willing to pay more and they’re willing to stick with you.” Grozovsky rates the stock a “buy” and doesn’t own it.

Third Quarter

For the third quarter, revenue climbed 11 percent to $281.9 million, the Cambridge, Massachusetts-based company said in a statement. That surpassed the $279.2 million average analyst estimate compiled by Bloomberg.

Net income increased to $42.3 million, or 23 cents a share, from $39.7 million, or 21 cents, a year earlier. Profit excluding some costs was 34 cents, beating the 33-cent average estimate.

Akamai rose as high as $27.15 in extended trading. The stock rose 2.1 percent to $23.78 at the close in New York. The shares have declined 49 percent this year.

Kenny, who became Akamai’s president last year, will serve as a consultant to the company on business strategy. Chief Executive Officer Paul Sagan was given the additional title of president to succeed Kenny in that role.

The shift will leave the company without the executive who was responsible for much of its international expansion, said Donna Jaegers, a Denver-based analyst at D.A. Davidson & Co., who rates Akamai shares “buy.”

“It will leave a temporary void,” she said.

Kenny is leaving Akamai to pursue opportunities in consumer Internet, he said in the statement. Jaegers said that may point to an eventual landing at Yahoo! Inc., the Web portal that has been exploring strategic options after firing Chief Executive Officer Carol Bartz last month. Kenny is a member of Yahoo’s board.

Jeff Young, a spokesman at Akamai, declined to comment further about Kenny’s plans.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

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

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Hynix Reports Wider-Than-Estimated Third-Quarter Loss as Chip Prices Fall

By Jun Yang - Oct 27, 2011 6:53 AM GMT+0700

Hynix Semiconductor Inc. (000660), the world’s second-largest maker of computer-memory chips, posted a wider-than-estimated third-quarter loss after weak demand for personal computers led to a decline in chip prices.

The net loss was 562.6 billion won ($496 million), compared with a profit of 1.04 trillion won a year earlier, Ichon, South Korea-based Hynix said today in a statement. Analysts expected a loss of 398.5 billion won, according to the median of four estimates in a survey by Bloomberg News.

Hynix and other makers of memory chips known as DRAM have suffered from weakening demand as makers of traditional PCs cut back on purchases, with consumers flocking to mobile devices such as Apple Inc.’s iPad. The South Korean company, on sale by former creditors, is seeking to boost sales with different types of memory used in new mobile devices.

“DRAM prices have fallen so much, and there’s a limit to what they can do no matter how much they try to cut costs and improve their product mix,” Park Hyun, a Seoul-based analyst at Tong Yang Securities Inc., said before today’s announcement.

The company’s operating loss, or sales minus the cost of goods sold and administrative costs, was 276.8 billion won on sales of 2.29 trillion won.

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Amazon’s Apple War Costs Investors $13B

By Danielle Kucera - Oct 27, 2011 4:14 AM GMT+0700

Amazon.com Inc.’s escalating pursuit of Apple Inc. squeezed its profit forecast for this quarter, prompting investors to erase $13 billion from the company’s market value.

Amazon’s operations could lose $200 million in the fourth quarter as costs mount, the Seattle-based company said yesterday. The shares fell 13 percent to $198.40 at the close, the biggest decline since October 2008.

The company is taking on Apple in the market for tablet computers and sales of digital songs, books and movies. To gain an edge in tablets, Amazon is selling its new Kindle Fire device for as low as $199 -- less than half the price of Apple’s cheapest iPad. At that price, the company will lose $10 per device, research firm IHS Inc. estimates.

“Competing with Apple isn’t easy,” said Colin Sebastian, an analyst at Robert W. Baird & Co. “It comes at a cost, but the traditional media business they have would wilt on the vine without Amazon making this transition to digital.”

Last quarter’s profit also disappointed analysts, missing estimates by 42 percent -- the biggest negative surprise of any technology business in the Standard & Poor’s 500 Index

The stock had advanced 26 percent this year before today and set a record of $246.71 this month, raising pressure on Amazon to deliver stronger results.

Bezos’s Stake

Chief Executive Officer Jeff Bezos, Amazon’s founder and largest shareholder, saw his stake lose $2.5 billion in value. He reported holding 88.1 million shares as of Aug. 18.

Amazon’s operating results may range from a loss of $200 million to a profit of $250 million this quarter, the company said yesterday. Analysts were projecting a gain of $512.7 million on average, according to Bloomberg data. Sales will be $16.5 billion to $18.7 billion, Amazon said.

The last time Amazon suffered an operating loss was in the third quarter of 2001, when it fell $68.9 million into the red.

Third-quarter net income fell 73 percent to $63 million, or 14 cents a share, from $231 million, or 51 cents, a year earlier. That missed the 24 cents predicted by analysts.

Technology has fared worse than most industries this quarter in meeting investors’ earnings expectations, with about a third of companies missing estimates.

Amazon added 17 new fulfillment centers this year, and that overhead has weighed on margins, Chief Financial Officer Tom Szkutak said yesterday in a conference call. It’s also building out the infrastructure for its Web services offerings.

“We’ve added a lot of capacity to support those growth rates,” Szkutak said.

Startup Competition

In addition to competing with Apple in a range of markets, including digital music and movies, Amazon is vying with startups such as Spotify Ltd., which offer streaming songs. For now, Amazon’s growth plans aren’t doing enough to spur profit, even as sales climb, Sebastian said.

“If they don’t show a corresponding increase in earnings, investors start to scratch their heads,” the San Francisco- based analyst said.

Amazon doesn’t deserve a valuation that puts it ahead of Apple by some measures, said Colin Gillis, an analyst at BGC Partners LP. With an operating margin of 30.8 last quarter, Apple squeezes more profitability from sales, even with its own investment in new products, he said. Amazon traded at 119.5 times earnings, compared with Apple’s 14.4 times before today, according to data compiled by Bloomberg.

“Ultimately, does this deserve an ultra-premium valuation? No,” said Gillis, who rates Amazon a “sell.”

Shipping Costs

The stock’s lofty value reflects investors’ belief that Amazon’s new products will pay off down the road, said Josh Stewart, a Salt Lake City-based analyst at Wasatch Advisors Inc., which oversees about $11 billion in assets, including Amazon shares. The online retailer has historically acted more like a private company, investing for the long term and ignoring quarterly earnings, he said.

“We’ve been selling some of our investment going into the quarter because it’s had a run, and it’s a really expensive stock,” Stewart said in an interview. “We own more Apple than we do Amazon.”

Still, Amazon has had unprofitable periods before, as they built up their distribution. And that paid off, he said. “They realized how important it would be to get the scale early on.”

The company’s soaring shipping expenses also are dragging on profit, Gillis said. More customers are using Amazon’s Prime program, which offers unlimited two-day shipping for $79 a year. The company’s shipping fees generated $360 million in the third quarter, dwarfed by $918 million in shipping expenses.

Sales Gains

Even as profit shrinks, revenue is benefiting from surging Kindle orders, propelled by customers ditching paper books in favor of electronic versions. Net sales climbed 44 percent last quarter to $10.9 billion, in line with estimates.

“They could invest less and add more to cash flow today, but that’s leaving room for someone else to take market share tomorrow,” Sebastian said. “As an investor, you have to share their long-term vision.”

The company upgraded its Kindle e-readers and introduced the Kindle Fire tablet to more directly challenge Apple -- something Hewlett-Packard Co. and Research In Motion Ltd. have struggled to do. The Fire tablet, due next month, has a 7-inch display, smaller than the iPad’s 9.7-inch screen. It will run on Google Inc.’s Android software and offer Wi-Fi connectivity.

Amazon is pricing its devices to spur sales, said Kerry Rice, an analyst at Needham & Co. in San Francisco.

“They don’t care that the operating margin is 1 percent or 2 percent,” he said.

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

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Apple May Gain as VA Seeks Security for 100,000 Devices

By Kathleen Miller - Oct 27, 2011 1:43 AM GMT+0700
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The U.S. Department of Veterans Affairs is exploring security systems that would permit employees to use as many as 100,000 mobile devices, including Apple Inc.’s iPad. Photographer: Christof Stache/AFP/Getty Images

The U.S. Department of Veterans Affairs is exploring security systems that would permit employees to use as many as 100,000 mobile devices, including Apple Inc. (AAPL)’s iPad and phones using Google Inc. (GOOG)’s Android, without endangering the privacy of sensitive information.

VA officials are researching “mobile device management” services that will protect e-mail and control access to agency computer networks for people using smartphones and tablet computers, according to a VA request for information issued last week and updated today.

“We want to make sure that veteran information is protected while still enabling productivity enhancing applications,” Roger Baker, the agency’s chief information officer, said in an e-mailed statement.

The VA’s decision may open a new market for Apple, which has until now lagged behind competitors Dell Inc. (DELL) and Research In Motion Ltd. (RIM) in selling technology to the government. The VA is looking for technology that would allow its employees to use as many as 100,000 iPads and iPhones within 18 months, including a mix of government-owned and personal mobile devices, Jo Schuda, a VA spokeswoman, said in an e-mail today.

Enterprise Network

The request, previously reported by Nextgov.com, is a precursor to a formal bid solicitation. It specifies that the agency wants a secure connection for a range of operating systems, including Apple’s iOS, Android, and Windows phones, to its enterprise network.

The request is good news for Apple, said Dan Jacobs, chief executive officer of The Federal Market Group, a consulting company based in Warrenton, Virgina. "More people are using their iPads" as computers, he said.

Apple is seeking a security certification from the National Institute of Standards and Technology, the agency that provides technology recommendations to the federal government. The institute certified RIM’s tablet computer, known as the PlayBook, on July 21, making it the first tablet device cleared by the agency. A decision on Apple’s iPad is pending, said Randy Easter, director of the cryptographic module validation program at NIST.

Cupertino, California-based Apple reported $65.2 billion in revenue for its fiscal year that ended Sept. 25, 2010.

Government Sales

Little of that comes from U.S. government business: In the 12 months ending Sept. 30, 2010, the latest fiscal year for which complete data are available, the federal government spent $50.8 million on Apple products, either directly or through resellers and integrators, according to data compiled by Bloomberg Government.

By contrast, $1.9 billion of products made by Dell, a technology company with roughly the same revenue as Apple last year, were bought by the government that year. Dell, of Round Rock, Texas, reported revenue of $61.5 billion in the 12 months ending Jan. 28, 2011.

Research in Motion, based in Waterloo, Ontario, is the only smartphone maker whose products have received Pentagon security certification. The federal government bought $90.2 million worth of RIM products in the fiscal year ending Sept. 30, 2010, according to data compiled by Bloomberg Government.

To contact the reporter on this story: Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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Netflix Said to Cut Jobs After Subscriber Loss

By Ronald Grover and Cliff Edwards - Oct 27, 2011 3:03 AM GMT+0700

Netflix Inc., the mail-order and online video service, eliminated more than 15 jobs after losing 800,000 U.S. subscribers in the third quarter, according to two people with knowledge of the decision.

The cuts, which began before earnings were announced on Oct. 24, are mostly in human resources, where Netflix had hired in anticipation of faster growth and the creation of separate companies for its mail-order and streaming businesses, said the people, who weren’t authorized to speak publicly.

Netflix, based in Los Gatos, California, has put its global expansion on hold while it tries to contain a subscriber revolt over a price increase and the aborted plan to split the two operations. The shares fell 35 percent yesterday after the company disclosed the defections and predicted losses next year.

Netflix gained 2.6 percent to $79.40 at the close in New York. The shares have retreated more than 70 percent from their all-time high set in July.

Chief Executive Officer Reed Hastings met personally with staffers who were being cut to explain the decision, according to one of the people.

Steve Swasey, a Netflix spokesman, declined to comment on the job cuts. He said last week the company had eliminated the position of chief marketing officer for the planned DVD service. Netflix finished 2010 with 2,180 employees, according to data compiled by Bloomberg.

Moody’s Investors Service today lowered its rating outlook on $200 million of Netflix debt to stable from positive, citing the subscriber loss and the company’s forecast for negative cash flow for upcoming quarters.

The company said on Oct. 24 it would hold off on further international expansion after introducing service in Great Britain and Ireland in early 2012 and in Latin America this year. On Oct. 10, the company abandoned plans to create a new DVD service called Qwikster.

To contact the reporters on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net; Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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‘Incensed’ Moynihan Pushes Back at BofA’s Critics With Localized Campaign

By Hugh Son - Oct 27, 2011 12:14 AM GMT+0700

Bank of America Corp. Chief Executive Officer Brian T. Moynihan said he’s “incensed” by public criticism of his company and is pushing back by reminding local leaders of its contributions to their economies.

Moynihan, 52, told employees in a global town hall meeting last week from the firm’s Charlotte, North Carolina, headquarters that the “place to win the battle” over the bank’s battered public image is at the state and municipal level.

Bank of America’s outreach campaign is part of Moynihan’s effort to turn around the lender since he took over as CEO in January 2010 following two taxpayer bailouts. His plan to charge some debit-card users a $5 monthly fee drew reprimands from President Barack Obama and lawmakers, including U.S. Senator Richard Durbin, the Illinois Democrat who said customers should withdraw their deposits in protest.

“I, like you, get a little incensed when you think about how much good all of you do, whether it’s volunteer hours, charitable giving we do, serving clients and customers well,” Moynihan said during the Oct. 18 gathering. To the bank’s critics, he said, “You ought to think a little about that before you start yelling at us.”

Moynihan is laboring to rebuild the bank’s reputation with customers, employees and investors. Even before the debit-card fee sparked protests in Los Angeles and Boston, state attorneys general blamed the bank for using improper documents to justify foreclosures. To help reverse a stock decline this year of more than 50 percent, the lender is cutting expenses by eliminating more than 30,000 jobs.

Local Calls

The firm’s 135 market presidents have made about 1,500 phone calls and visits to local officials and community leaders across the country in two weeks, Anne Finucane, global head of strategy and marketing, said at the meeting. The effort begins with a letter explaining how much the bank lends to area businesses and the employees it has in the region, she said.

The company is trying to improve its standing with local officials and small firms because “research shows us that’s a more important indicator of reputation,” Finucane told employees. The firm has bought print advertising in 27 markets and television ads in 15 markets, she said.

Bank of America’s deposit-taking unit has the greatest concentration of locations in the most populous states, with 980 in California, 651 in Florida, 459 in Texas and 398 in New York, according to data on the Federal Deposit Insurance Corp.’s website. Minnesota, Utah and Colorado each have just one branch, the FDIC data show.

Campaign Makes Sense

“We are seeking to re-engage in a very straightforward manner on the issues people care about most, which is, ‘Are we lending and investing, and how much of it are we doing in that community?’” Finucane, 59, said in an interview. “We’re working to answer that question on a local basis.”

The campaign makes sense as part of a larger effort to improve relations with regulators and investors, said Michael Robinson, a senior vice president of Levick Strategic Communications in Washington and former head of public affairs at the Securities and Exchange Commission.

“When you feel like you’re getting assaulted on every front, you’ve got to move deliberately, you do the grass-roots plan, you work with the analysts and agencies,” said Robinson, who isn’t advising Bank of America. “They are an engine of the economy, and taking every opportunity to quantify that is a smart strategy.”

Second-Worst Company

Bank of America ranked lowest in a 24-bank survey of small business customer satisfaction from J.D. Power and Associates this month. Wells Fargo & Co., Citigroup Inc. and JPMorgan Chase & Co. also were in the bottom five. Earlier this year, Bank of America was named the country’s second-worst company by Consumerist.com after BP Plc, the firm blamed for the worst U.S. offshore oil spill. Consumers Union, the publisher of Consumer Reports that was founded in 1936, owns the website.

Bank of America had the highest customer satisfaction with its telephone service of the four largest U.S. lenders, Vocal Laboratories Inc. said yesterday. Sixty-eight percent of those surveyed were “very satisfied” with their interactions, compared with 63 percent for Wells Fargo, 56 percent for JPMorgan and 52 percent for Citigroup.

The lender’s letter-writing initiative began in early September, before the backlash from debit-card users and the Occupy Wall Street movement gained momentum, said a person with direct knowledge of the plan who asked to remain anonymous because it isn’t public.

Avoiding ‘Politics’

In media appearances, Moynihan has avoided directly addressing the complaints from Durbin and others, saying in an Oct. 5 Washington conference that he wanted to “stay away from the politics” of the debate.

Speaking to his employees last week, Moynihan was more combative, saying that critics “usually quiet down pretty quickly when they start to understand the facts and figures.”

He leavened his remarks with humor. When an employee said the CEO must be exhausted from dealing with naysayers, he drew laughter by saying “I’m not tired. Do I look that bad?”

The event followed the bank’s release of third-quarter results, a profit of $6.2 billion after one-time accounting gains. The firm was eclipsed by JPMorgan as the largest U.S. lender by assets during the quarter, and Moynihan told employees that he “could care less” that his company isn’t No. 1 anymore. Moynihan is selling assets and scaling back businesses including mortgage lending to improve capital levels.

‘Devastating’ Slowdown

Management is most focused on two areas, Chief Financial Officer Bruce Thompson said during last week’s meeting. One is cutting the $2 billion in quarterly expenses at the legacy-asset unit, the so-called bad bank managing the firm’s defaulted and delinquent loans. Most of those stem from the 2008 takeover of subprime lender Countrywide Financial Corp.

The other is to improve trading revenue, which plunged more than 70 percent to $1.07 billion in the quarter as the threat of a Greek default and Standard & Poor’s U.S. credit downgrade roiled markets. There are early signs of a rebound, he said.

“Two weeks into the quarter, we’re doing a lot better so far than we were in August and September,” Thompson said.

The bank rankled some customers this month when its website was hobbled for several days, inviting speculation that the debit-fee increase had spurred an attack by hackers. While the website was never completely down, the fact that people couldn’t use it was “devastating” to employees, said Cathy Bessant, global head of technology and operations.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net;

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

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Bove: Goldman May Get ‘Windfall’ If It Buys MF

By Laura Marcinek - Oct 27, 2011 2:20 AM GMT+0700

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Oct. 26 (Bloomberg) -- Sean Egan, president of Egan-Jones Ratings Co., talks about challenges facing MF Global Holdings Ltd. and the outlook for the company. Bonds of the futures brokerage tumbled to levels considered “distressed” as the firm struggles to transform itself into an investment bank. The company is exploring strategic options, including a potential sale, according to a person with knowledge of the matter. Egan speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Goldman Sachs Group Inc. is among firms that could gain by buying part or all of MF Global Holdings Ltd., said Richard Bove, an analyst at Rochdale Securities LLC.

“Goldman could benefit from MF Global’s plight,” Bove said in a note today. “One might argue that Goldman is over capitalized and that it has too much liquidity. Buying some or all of MF Global might create the opportunity to make a windfall profit.”

MF Global, run by Chairman and Chief Executive Officer Jon Corzine, is exploring strategic options, including a potential sale, after reporting its biggest quarterly loss ever and having its credit ratings cut by Moody’s Investors Service, a person with knowledge of the matter said today.

The firm needs to generate liquidity and find a partner with excess capital and a “sizable” trading operation, Bove said in a telephone interview. Goldman Sachs, which Corzine helped run from 1994 to 1999, and Citigroup Inc., both based in New York, would be “logical buyers,” he said.

David Wells, a Goldman Sachs spokesman, and Danielle Romero-Apsilos at Citigroup declined to comment.

Large deposit-taking banks may not want to buy MF Global because they would have to set aside cash to back the futures trades placed by the firm’s customers, said Allan Zavarro, the former global head of futures trading for ABN Amro Bank NV. Regulatory capital in the range of 6 percent to 10 percent of client funds on deposit must be set aside by the broker or bank, Zavarro said.

Capital Allocation

“I’m not sure the big banks would want a big futures position on their books now because they have to allocate regulatory capital to it,” he said in an Oct. 25 telephone interview. As of Aug. 31, MF Global had $7.2 billion of customer funds in segregated accounts, according to the Commodity Futures Trading Commission.

In 2008, MF Global sold $300 million in preferred shares and notes to the public and as much as $300 million in equity- linked securities to buyout firm JC Flowers & Co. to help repay a $1.05 billion bridge loan.

Evercore Partners Inc., the investment bank founded by former U.S. Deputy Treasury Secretary Roger Altman, might also show interest in a deal with MF Global, Bove said. The firm is advising MF Global on the review of its business, said a person with knowledge of the matter today. Evercore may be interested in providing advisory clients with the ability to raise funds through a fixed-income trading platform, Bove said.

“It wouldn’t surprise me at all if Evercore jumped up as a company that was going to acquire them,” he said. Such a deal might not resolve MF Global’s liquidity needs, he said.

Evercore would more likely be interested in fee-based, low- capital-intensive businesses, said Warren Gardiner, an analyst for Ticonderoga Securities LLC.

Dana Gorman, a spokesman for Evercore, declined to comment.

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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Asian Stocks Rise on European Bank Plans

By Yoshiaki Nohara - Oct 27, 2011 8:15 AM GMT+0700

Asian stocks swung between gains and losses after Europe reached an accord on plans to recapitalize banks while talks with lenders on bondholder losses as part of a second Greek bailout ran aground.

Sumitomo Mitsui Financial Group Inc., Japan’s second- biggest lender, fell 0.6 percent, reversing earlier gains. Komatsu Ltd., Japan’s largest construction machinery maker, gained 0.6 percent after orders for U.S. durable goods excluding transportation equipment increased. Hyundai Motor Co., South Korea’s No. 1 carmaker by market value that gets 58 percent of its revenue abroad, advanced 0.5 percent.

“The situation in Europe is still very fluid and we still have to see exactly what is decided,” said Diane Lin, a fund manager with Sydney-based fund Pengana Capital Ltd., which manages about $1.1 billion in global assets. “At this stage, different information and stories are coming off of different sources. Until that’s decided, we can’t really know what will happen.”

The MSCI Asia Pacific Index gained fell 0.1 percent to 119.11 as of 10:14 a.m. in Tokyo after rising as much as 0.4 percent. The measure dropped 0.2 percent yesterday. About the same number of stocks on the index gained and fell with eight of 10 groups climbing.

Debt Writedown

French President Nicolas Sarkozy and German Chancellor Angela Merkel want to meet Greek creditors in Brussels to break a deadlock of the terms of a debt writedown, said a person familiar with the matter. Sarkozy plans to call Chinese leader Hu Jintao today to discuss China contributing to a fund European leaders may set up to bolster its debt-crisis fight, according to a person familiar with the matter.

Japan’s Nikkei 225 Stock Average added 0.1 percent and South Korea’s Kospi Index gained 0.4 percent.

Trading in Australia was halted by a technical problem five minutes after the open at 10 a.m. Sydney time. Matthew Gibbs, a spokesman for bourse operator ASX Ltd., said by telephone the exchange is working on the problem, though is unsure when trading will resume.

Futures on the Standard & Poor’s 500 Index rose 0.2 percent today. In New York, the index added 1.1 percent yesterday after European Union leaders reached an agreement on a plan to recapitalize banks even as talks on bondholder losses hit an impasse. The European leaders convened for the second summit in four days -- and the 14th in 21 months -- amid mounting global exasperation over their failure to extinguish the two-year-old crisis that threatens to ravage Italy and France and brake the world economy.

Europe’s situation “is certainly clearer than we’ve had over the past few days,” said Stan Shamu, a strategist at IG Markets in Melbourne. “This does seem a little bit more positive, and we’ve also got positive economic data out of the U.S., and that did really boost sentiment.”

U.S. durable goods excluding transportation equipment rose in September by the most in six months. Another report showed purchases of new houses increased more than forecast in September as discounted prices lured buyers in some parts of the country.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

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Sarkozy Said to Plan Plea to China for EU Fund

By Jonathan Stearns and Helene Fouquet - Oct 27, 2011 2:02 AM GMT+0700
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Hu Jintao, China's president. Photographer: Joshua Roberts/Bloomberg

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Oct. 26 (Bloomberg) -- Mike Franklin, head of investment strategy at Beaufort International, discusses today's European debt crisis summit in Brussels. He speaks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

French President Nicolas Sarkozy plans to call Chinese leader Hu Jintao tomorrow to discuss China contributing to a fund European leaders may set up to bolster their debt-crisis fight, said a person familiar with the matter.

The investment vehicle was one of the options being considered by European leaders at a summit tonight to expand the reach of its 440 billion-euro ($612 billion) European Financial Stability Facility.

Sarkozy’s plea to his Chinese counterpart would come the day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors.

The EFSF, established last year to sell bonds to finance loans for distressed euro nations, has since also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the Greece-triggered debt troubles have spread. The EFSF said Regling’s visit to China this week is linked to the fund’s original debt-issuance role.

“It is a normal round of discussion with important buyers of EFSF bonds,” Christof Roche, spokesman for the Luxembourg- based facility, said by e-mail today. He declined to comment further when contacted by Bloomberg News by telephone. Agence France-Presse reported that Regling will travel on to Tokyo, citing a European Union official in Asia.

China may be willing to respond to a European request to help them fund a package to solve the euro region’s debt crisis, AFP said, citing unidentified government officials familiar with the situation.

International Calls

Europe is facing international calls to end a debt crisis that President Barack Obama has said “is scaring the world” and U.S. Treasury Secretary Timothy F. Geithner has described as a “catastrophic risk.” With a Group of 20 meeting looming on Nov. 3-4, euro-area government heads gathered in Brussels today for the 14th time to tackle troubles that began in Greece two years ago, then engulfed Ireland and Portugal and now threaten Spain and Italy.

The question of leveraging the AAA rated EFSF has arisen because of the political hurdles in countries such as Germany, the biggest European economy, to increasing the national guarantees that back the fund. Talks about creating a special investment vehicle funded by public and private investors began this week and its effectiveness would hinge on negotiations with credit-rating companies and international investors, according to people familiar with the deliberations.

A second leveraging possibility being considered is to let the EFSF guarantee a portion of national debt sales in the euro region. Neither option excludes the other.

EFSF Sales

As part of its original role, the EFSF is providing 17.7 billion euros under Ireland’s aid package of 67.5 billion euros and 26 billion euros under Portugal’s rescue of 78 billion euros. So far, the EFSF has sold two five-year bonds and one 10- year security, all in the first half of this year. The Japanese government bought more than a fifth of the inaugural issue in January.

On Oct. 13, the EFSF announced changes to its bond-sale program for the two countries in the second half of 2011. Instead of selling four “benchmark” bonds in the period, as outlined in mid-May, the fund will sell one security for Ireland valued at 3 billion euros and delay issues planned for Portugal until “early 2012.”

The EFSF may have to finance more than 70 billion euros of a planned second aid package for Greece. The initial Greek rescue of 110 billion euros in May 2010 was composed of loans directly from euro-area governments and the IMF.

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net; Helene Fouquet in Brussels at hfouquet1@bloomberg.net

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

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U.S. Stocks Climb on EU Bank Agreement as Economic Reports Top Forecasts

By Rita Nazareth - Oct 27, 2011 3:58 AM GMT+0700

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Oct. 26 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks rose, following the biggest decline in three weeks for the Standard & Poor’s 500 Index, as Europe reached an agreement on plans to recapitalize banks and American economic reports surpassed forecasts. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

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Oct. 26 (Bloomberg) -- Alec Young, a global-equity strategist at S&P Capital IQ, talks about the impact of the European sovereign-debt crisis on stocks, S&P's strategy for equities and the outlook for the U.S. economy and stocks. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

U.S. stocks rose, following the biggest decline in three weeks for the Standard & Poor’s 500 Index, as Europe reached an agreement on plans to recapitalize banks and American economic reports surpassed forecasts.

Financial stocks in the S&P 500 advanced 2 percent, reversing an earlier decline, as European leaders agreed on a plan to safeguard banks even as talks on bondholder losses ran aground. Alcoa Inc. and Caterpillar Inc. increased at least 1.8 percent to pace gains among companies most-tied to the economy. Boeing Co. climbed 4.5 percent as earnings topped estimates.

The S&P 500 gained 1.1 percent to 1,242 at 4 p.m. New York time, after falling as much as 0.7 percent today. The index fell 2 percent yesterday. The Dow Jones Industrial Average climbed 162.42 points, or 1.4 percent, to 11,869.04.

“This European situation has been kicked down the road far enough,” Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets, said in a telephone interview. “There’s a general feeling that we’re coming close to perhaps not the final chapter in this, but the next chapter in terms of getting the banks recapitalized and keeping the system from locking up.”

The S&P 500 rose from the threshold of a bear market early this month on steps by European leaders to support banks and higher-than-estimated corporate earnings. The benchmark gauge for American equities has rallied 9.8 percent in October, following a five-month decline.

European Plan

EU leaders said in a statement that they reached an agreement on a plan to recapitalize banks. The European leaders convened for the second summit in four days -- and the 14th in 21 months -- amid mounting global exasperation over their failure to extinguish the two-year-old crisis that now threatens to ravage Italy and France and brake the world economy.

French President Nicolas Sarkozy and German Chancellor Angela Merkel want to meet Greek creditors in Brussels to break a deadlock of the terms of a debt writedown, said a person familiar with the matter. Sarkozy plans to call Chinese leader Hu Jintao tomorrow to discuss China contributing to a fund European leaders may set up to bolster its debt-crisis fight, according to a person familiar with the matter.

“We’re at a key juncture here,” Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc, said in a telephone interview. “The growth outlook is improving. That holds the key as to capital markets’ ability to be able absorb any of these continuous overpromising and underdelivering coming out of Europe.”

Economic Data

Stocks also rallied as orders for U.S. durable goods excluding transportation equipment rose in September by the most in six months. Separate data showed purchases of new houses increased more than forecast in September as discounted prices lured buyers in some parts of the country.

The Morgan Stanley Cyclical Index of companies most-tied to the economy rallied 1.4 percent. A gauge of homebuilders in S&P indexes gained 1.9 percent. The KBW Bank Index advanced 2.1 percent. Alcoa rose 2.2 percent to $10.36. Caterpillar increased 1.9 percent to $91.57. Bank of America Corp. climbed 2 percent to $6.59.

Today, 52 companies in the S&P 500 were scheduled to report quarterly results. Profit for all companies in the index climbed 16 percent during the third quarter, and will increase 18 percent to a record $99.38 a share for all of 2011, according to analyst estimates compiled by Bloomberg.

Boeing Rallies

Boeing gained 4.5 percent, the most in the Dow, to $66.56. The company topped profit estimates for the quarter when it delivered the first 787 Dreamliner and said the new model’s production costs will be spread over 1,100 planes, matching analysts’ projections.

Clearwire Corp. rallied 20 percent, the second-biggest gain in the Russell 1000 Index, to $1.96. The money-losing wireless broadband provider surged after partner Sprint Nextel Corp. said the two companies are negotiating to extend a network-sharing agreement beyond 2012.

Sprint slumped 7 percent to $2.51. The third-largest U.S. wireless carrier said it needs as much as $7 billion in new capital to pay for new handsets and a network upgrade after posting its 16th straight quarterly loss.

A gauge of companies that rely on consumer discretionary spending had the only decline in the S&P 500, falling 0.4 percent among 10 industry groups.

Amazon.com Inc. tumbled 13 percent, the biggest decline since 2008, to $198.40. Profit at the world’s largest Internet retailer plunged as it ramped up spending on new products. The company is sacrificing profit margins in search of sales volume and market-share gains. Amazon will sell its Kindle Fire tablet for as low as $199, less than half the price of Apple Inc.’s cheapest iPad.

Ford Motor Co. dropped 4.5 percent to $11.87. The company said its automotive operating profit margin may fall this year to 5.7 percent from 6.1 percent last year and 6.5 percent in the first nine months of the year, primarily because of a loss on commodity hedges.

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

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

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Impasse on Greek Debt Threatens EU Deal

By James G. Neuger and Aaron Kirchfeld - Oct 27, 2011 5:55 AM GMT+0700

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Oct. 26 (Bloomberg) -- Mike Franklin, head of investment strategy at Beaufort International, discusses today's European debt crisis summit in Brussels. He speaks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

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Angela Merkel, Germany's chancellor, from left, Enda Kenny, Ireland's prime minister, and David Cameron, the U.K.'s prime minister, arrive for a European Council at the European Council headquarters in Brussels, Belgium. Photographer: Jock Fistick/Bloomberg

European Union talks with banks on bondholder losses as part of a second Greek bailout ran aground, dimming the chances for a comprehensive strategy at a summit to stamp out the debt crisis.

A statement issued close to midnight in Brussels by the Institute of International Finance, the bank lobby, said there was no agreement “on any element of a deal.”

“Work’s not been done yet, but everyone’s coming here today with the goal to progress quite a bit,” German Chancellor Angela Merkel told reporters as she arrived for the summit yesterday at about 5 p.m.

The Greek stalemate darkens the summit’s prospects, since a deal struck at an earlier meeting yesterday on recapitalizing banks and later talks on bolstering the euro area’s 440 billion- euro ($608 billion) rescue fund hinge on steering debt-laden Greece toward financial health.

While policy makers and bondholders were converging on a 50 percent writedown of Greek debt, clashes over collateral to underpin the transaction will limit the summit to issuing a mandate for further talks, an EU official said in Brussels on condition of anonymity.

European leaders convened for the second summit in four days -- and the 14th in 21 months -- amid mounting global exasperation over their failure to extinguish the two-year-old crisis that now threatens to ravage Italy and France and brake the world economy.

Stocks Gain

U.S. stocks gained and the euro erased declines on hopes for progress. The Standard & Poor’s 500 Index added 1.1 percent in New York trading. The euro slid 0.1 percent to $1.3891 at 12:50 a.m. in Brussels.

The outlines of a deal to safeguard banks emerged, centering on a June 30, 2012 deadline for lenders to reach core capital reserves of 9 percent after writing down their sovereign debt holdings, according to a statement after all 27 EU leaders met.

A group of 70 European banks will need to raise 106 billion euros in the next eight months to meet the goal, the European Banking Authority, the banking regulator, said. Greek banks need 30 billion euros; those in Spain need 26.2 billion euros. In France, the need totals 8.8 billion euros and in Italy, it’s 14.8 billion euros.

Dividends, Bonuses

Institutions falling below the target would face “constraints” on paying dividends and awarding bonuses. The leaders showed little appetite for an EU-run plan, bowing to German calls to make European money available only as a last resort.

Details need to be worked out by EU finance ministers, EU President Herman Van Rompuy said in a statement without announcing when that will be done.

The bank-aid program “will only go ahead when the other parts of a full package go ahead and further progress on that needs to happen tonight,” U.K. Prime Minister David Cameron told reporters after he left and the heads of euro states continued their deliberations.

Euro leaders won’t rule out a forced Greek writedown, while continuing to pursue a “voluntary” solution that would scale up a July accord that foresaw 21 percent losses for bondholders, the EU official said.

Bank Lobbying

The IIF, which lobbies on behalf of 450 financial firms, sweetened its offer yesterday, proposing to go beyond the 40 percent losses it mooted last week, said two people with knowledge of the talks.

“We remain open to a dialogue in search of a voluntary agreement,” Charles Dallara, the IIF’s managing director, who was in Brussels, said in the statement. He said there was no deal on the details of any transaction or the size of the writedown.

Merkel and French President Nicolas Sarkozy, leaders of Europe’s two biggest economies, peeled away to meet Dallara, Van Rompuy and International Monetary Fund Managing Director Christine Lagarde in an effort to break the deadlock. The summit reconvened at about 12:45 a.m.

Leaders weighed two options for extending the reach of the fund: using it to insure bond sales and to finance a special investment vehicle that would court outside money, including from the IMF.

Sarkozy plans to call Chinese leader Hu Jintao today to discuss China contributing, said a person familiar with the matter.

While markets clamor for a signal that the euro area will devote 1 trillion euros or more to combating the crisis, the EU won’t be able to produce a number until late November, the EU official said.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Aaron Kirchfeld in Brussels at akirchfeld@bloomberg.net

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

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