Corzine’s MF Global Seeks to Reorganize as Broker-Dealer Unit to Liquidate

By Tiffany Kary, Linda Sandler and David McLaughlin - Nov 1, 2011 11:11 AM GMT+0700

MF Global Holdings Ltd., the holding company for the broker-dealer run by ex-Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine, filed for bankruptcy protection as it seeks to reorganize after making bets on European sovereign debt. Its broker-dealer unit, MF Global Inc., faces liquidation.

The firm listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Manhattan. MF Global’s board met through the weekend to consider options including sale, a person with direct knowledge of the situation said.

The filing came as MF Global told regulators of potential “deficiencies” in some customer accounts, according to a statement by the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission. Regulators are investigating whether hundreds of millions of dollars are missing from client accounts, according to a person with knowledge of the matter.

“They were trying to get a deal but at the end of the day the majority of their business is built on trust,” Scott Peltz, the national leader of RSM McGladrey’s Financial Advisory Services Group in Chicago, said yesterday in an interview. “They had a huge position in European debt, which led to a lot of the troubles. There will be questions about that.”

Sought to Transform

Corzine, 64, a former governor of New Jersey who helped run Goldman Sachs from 1994 to 1999, sought to transform MF Global into a midsize investment bank after arriving there in March 2010. He increased the firm’s risk and used its own money to trade, including investments in European sovereign debt that rattled markets.

MF Global’s filing is the fifth-largest financial-industry public company bankruptcy by assets, coming after Lehman Brothers Holdings Inc., Washington Mutual Inc., CIT Group Inc. and Conseco Inc., according to BankruptcyData.com. It’s the eighth-largest bankruptcy by assets of any public company, according to the research group.

MF Global owns $6.3 billion of Italian, Spanish, Belgian, Portuguese and Irish debt, the company said in an Oct. 25 presentation. Concerns that it might lose money on the holdings amid Europe’s debt crisis led to demands from regulators to boost capital, credit downgrades, margin calls and bankruptcy, MF Global President Bradley Abelow said. The regulators yesterday said they advised bankruptcy as the “safest” course of action.

SEC and CFTC

“For several days, the SEC, CFTC and other regulators had been closely monitoring developments affecting MF Global Inc.” in anticipation of a transaction, the SEC and CFTC said in their e-mailed statement. “Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm.”

The regulators said they determined that a bankruptcy proceeding “would be the safest and most prudent course of action to protect customer accounts.”

MF Global’s Abelow said the company aims to complete “a successful, rapid reorganization” of its finances in court, while maintaining a “business-as-usual atmosphere.”

Broker-Dealer Unit

The company’s regulated U.S. broker-dealer unit, MF Global Inc., which didn’t file for bankruptcy, was sued yesterday in U.S. District Court in Manhattan by the Securities Investor Protection Corp. The SIPC seeks to liquidate the unit so as to protect customer assets.

Broker-dealers aren’t eligible to file for Chapter 11 bankruptcy, and need to either sell assets, as Bear Stearns Cos. did in 2008 to JPMorgan, or liquidate, as did Lehman Brothers’ brokerage unit and Bernard Madoff’s firm.

SIPC trustee James Giddens was approved yesterday by a federal judge. Giddens is also liquidating Lehman Brothers’ brokerage following its parent-company’s bankruptcy in 2008, the largest in U.S. history.

SIPC Suit

The SIPC, which is overseen by the SEC, acts in brokerage insolvency cases to recover investor funds. Liquidations are overseen by SIPC so as to return or replace customer securities. SIPC, created under the Securities Investor Protection Act, insures losses of as much as $500,000 per customer in registered securities.

“The defendant has failed or is in danger of failing to meet its obligations to its customers,” the SIPC said in court papers of MF Global. “Specifically, the defendant is unable to meet its obligations as they mature.”

The firm has drawn almost all of a $1.2 billion credit line that was amended last year to give it more liquidity, Abelow said. The broker-dealer unit has borrowed about $210 million of a $300 million secured credit line, he said. JPMorgan Chase & Co. (JPM) is the agent for the two credit lines.

MF Global’s finance unit, MF Global Finance USA Inc., also filed for bankruptcy, listing debt of as much as $50 million and assets of as much as $500 million. The holding company asked the bankruptcy court for permission to continue intercompany transactions between its bankrupt businesses and non-bankrupt units, allowing MF Global to maintain its deposits, investments and bank accounts.

Protecting Assets

“The boards of directors of both entities authorized the filing of the Chapter 11 petition in order to protect their assets,” the companies said yesterday in a statement. MF Global U.K. Ltd. separately entered administration in Britain with administrators appointed from KPMG LLP, the Financial Services Authority said.

MF Global reported a $191.6 million quarterly loss on Oct. 25 and Moody’s Investors Service and Fitch Ratings cut its credit rankings to junk. Before the bankruptcy filing, MF Global was suspended yesterday from doing new business with the New York Federal Reserve, according to a statement on the regulator’s website, and trading in the stock was halted.

MF Global declined 67 percent last week and its bonds started trading at distressed levels amid its disclosures of bets on European sovereign debt. MF Global held talks with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, said the person familiar with the situation, who asked not to be identified because the talks were private.

Evercore Hired

The firm was getting advice from Evercore Partners Inc. (EVR) as it sought buyers. Skadden, Arps, Slate Meagher & Flom LLP is representing the company as bankruptcy counsel. The case was assigned to U.S. Bankruptcy Judge Martin Glenn, who handled Borders Group Inc.’s bankruptcy.

MF Global, based in the U.S. with offices in at least seven other countries, has about 2,870 employees. Revenue was $2.2 billion in fiscal 2011, with a net loss for the parent of $81.2 million.

The broker of commodities, derivatives, equity and foreign exchange had $7.2 billion of customer funds in segregated accounts as of Aug. 31, according to the Commodity Futures Trading Commission. It was one of 22 primary dealers authorized to trade U.S. government securities with the New York Fed and is a member of more than 70 financial exchanges, according to its website.

Unsecured Creditors

A list of unsecured creditors filed by MF Global includes New York-based JPMorgan, as trustee for holders of $1.2 billion in debt, and Deutsche Bank AG (DBK), as trustee for holders of more than $1 billion in notes due in 2016 and 2018.

JPMorgan itself holds less than $80 million of the debt, said Joseph Evangelisti, a spokesman for the bank. JPMorgan also has $26 million in collateral belonging to MF Global that “may be subject to liens in favor” of the bank, MF Global said.

Armin Niedermeier, a spokesman for Frankfurt-based Deutsche Bank, declined to comment on the filing.

Other unsecured creditors include Headstrong Services LLC, owed $3.9 million; Comcast Corp.’s CNBC, owed $845,397; New York-based law firm Sullivan & Cromwell LLP, owed $596,939; Oracle Corp., owed $302,704; and Bloomberg Finance LP, owed $276,064. Bloomberg Finance is a unit of Bloomberg LP, the parent of Bloomberg News.

Deadline Extension

MF Global asked for a Jan. 30 deadline to file its full list of debt and assets, seeking a 75-day extension of the usual two-week window given under bankruptcy law.

The company “is one of the largest brokers in markets for commodities and listed derivatives,” making it large and complex enough to require more time, MF Global said in court papers.

MF Global’s $325 million of 6.25 percent notes due 2016 fell 1.25 cents to 48.75 cents on the dollar at 3:49 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Regulatory Authority. The notes, which were sold in August at face value, dropped to as low as 35 cents on the dollar after the company filed for bankruptcy.

Shareholders

MF Global’s largest common shareholders as of Sept. 30 were Pyramis Global Advisors LLC, with 8.4 percent, and RS Investments in San Francisco, with 7.8 percent, according to court papers. RS has sold its entire stake, Erin Burke, a spokeswoman for the firm, said in an e-mail.

Fine Capital Partners LP held 7.4 percent and Cadian Capital Management LLC had 6.2 percent, the company said. J.C. Flowers & Co. owns 1.5 million preferred shares, MF Global said.

Sugar Brokerage

MF Global, formerly part of Man Group Plc (EMG), has its roots in a sugar brokerage founded by James Man in England in 1793. MF Global became a public company in a 2007 spinoff. It was built up before the spinoff by acquiring the assets of bankrupt brokerage Refco Inc. in 2005.

Corzine reached out to Goldman Sachs about selling all or part of the company, according to two people with knowledge of the firm’s deliberations. Macquarie Group Ltd. examined MF Global’s books, according to a person with knowledge of the situation. David Wells, a spokesman for Goldman, didn’t return a call seeking comment. Paula Chirhart, a spokeswoman for Macquarie in New York, declined to comment.

Barclays Plc was among banks that looked at MF Global, another person said. Kerrie Cohen, a spokeswoman for the U.K.- based bank in New York, declined to comment.

Potential Bidder

Hannah Grove, a spokeswoman for State Street Corp. (STT), which was also reported to be a potential bidder, declined to comment.

“We’re investing in the future of this business,” Corzine said in a May statement that announced new hires in MF Global’s commodities and derivatives areas. In August, the company sold $325 million in senior unsecured notes to repay part of the $1.2 billion revolving credit facility, according to company statements.

MF Global increased net capital at the U.S. unit after Finra raised concerns about the risks to its European debt portfolio, it said in September.

“We are confident that we have the resources, capital, liquidity and expertise to successfully manage our European exposures to their end date maturity of December 2012,” Diana DeSocio, a spokeswoman for the broker, said in an Oct. 24 statement.

Along with the creditors holding millions of dollars in bonds are vendors owed much smaller sums.

Tim Jones is the president of Cedar Knolls, New Jersey- based Ticker Consulting LLC, which advises financial companies such as MF Global on electronic-trading and risk-management systems. Jones, who has an unsecured claim of about $22,800 for services he provided to MF Global, said that in bankruptcy there’s always a chance a debt can’t be collected.

“I’ll move on,” Jones said. “My W-2 will be a little bit light, and hopefully I can find places to make that money up.”

The case is MF Global Holdings Ltd. (MF), 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net; Linda Sandler in New York at lsandler@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.

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S. Korea Plans $50B Fund for Reunification

By Brian Fowler and Eunkyung Seo - Nov 1, 2011 2:05 PM GMT+0700

South Korea will set up a fund as early as this year to begin raising up to 55 trillion won ($50 billion) to pay for its eventual reunification with North Korea.

Individual Koreans at home and abroad will be able to make donations to the fund and the government in Seoul may earmark money including budget surpluses, Unification Minister Yu Woo Ik said in his first interview since being sworn in on Sept. 19. While foreigners will also be allowed to donate, there is no plan to ask overseas governments to contribute, he said.

Yu, 61, is asking South Koreans to put aside more than 60 years of animosity on the divided peninsula and prepare for the fiscal shock of incorporating their impoverished northern neighbors. Fifty South Koreans died last year in attacks blamed on Kim Jong Il’s regime and negotiations to resume six-nation talks aimed at shutting down North Korea’s nuclear-weapons program have made little progress.

“Government agencies are near an agreement over the unification account and I hope lawmakers will pass legislation within this year,” Yu said in his office in Seoul yesterday. “This will unite people and foster their desire for unification.”

Yu, who begins a six-day visit to the U.S. tomorrow to meet lawmakers, State Department officials and United Nations Secretary-General Ban Ki-moon, said he expects the two Koreas to reunite within his own lifetime.

Peaceful Transition

The fund would meet the minimum cost of unification estimated by external researchers, assuming it takes place within the next 20 years and is a peaceful transition, according to his ministry.

Yu and his counterparts at other government agencies are not considering the idea of a special tax to fund unification, said Park Soo Jin, the ministry’s deputy spokeswoman.

President Lee Myung Bak called on South Koreans to think about the option of a “unification tax” in a speech on Aug. 15, 2010. North Korea said the idea was as a “petty trick” to conceal Lee’s aim of regime change in Pyongyang.

“We’re looking at the issue of how to finance the possible unification from various perspectives, considering public opinion and fiscal conditions,” said Suh Kyu Sik, a deputy director of the Finance Ministry. “Unification is one of major reasons that we are trying to improve our fiscal strength as fast as possible.”

Food Handouts

Yu said figures for the cost reach as high as 269 trillion won, or almost a quarter of South Korea’s 2010 gross domestic product. Its economy is more than 40 times larger than North Korea’s, which has relied on outside handouts since the mid-1990s when an estimated 2 million people died from famine, according to South Korea’s central bank.

The population of Kim’s totalitarian state is almost half that of South Korea’s 49 million people. East Germany’s population was about one-quarter that of West Germany’s 61 million when the Berlin Wall fell in 1989, and per capita income was almost one-third that of its larger neighbor, according to a 2009 report by Goldman Sachs Group Inc.

“We cannot apply the German unification model to Korea as the North is much poorer and has a bigger population,” said Moon Chung In, a professor of political science at Yonsei University in Seoul. “Germany had a strong economy while ours is still fragile.”

Generational Costs

South Korea’s budget, which has been in deficit since 2008, is projected to be balanced in 2013, according to the finance ministry. North Korea relies on China to prop up its economy, with bilateral trade accounting for 83 percent of the nation’s $4.2 billion in international commerce last year, according to the Seoul-based Korea Trade-Investment Promotion Agency.

“Reunification won’t result in a debt crisis or multiple sovereign-rating downgrades as most people fear,” said Kwon Young Sun, a Hong Kong-based economist at Nomura Holdings Inc. “South Korea could spread the cost across generations and share the burden with other countries.”

Yu, a former South Korean ambassador to China and chief-of- staff to Lee, promised a more "flexible" approach to North Korea when he replaced Hyun In Taek. Hyun, who once suggested abolishing the Unification Ministry, was vilified by the state- run media in Pyongyang as an "anti-reunification maniac."

Artillery Attack

Still, he dismissed the chances of a summit between Lee and Kim in the near-term after the deadly shelling of a border island and sinking of a South Korean navy ship last year. North Korea blames the South for provoking the artillery attack and denies responsibility for torpedoing the ship.

“A summit between the leaders of the two Koreas would be a very strong and effective event,” said Yu, a former professor of geography at the Korea Military Academy and Seoul National University who received his doctorate from the University of Kiel in Germany. “But we don’t have any specific plan for it at the moment because it’s hard to see any tangible or substantial results.”

North Korea, which remains technically at war with the South after their 1950-1953 conflict ended in a cease-fire, tested nuclear weapons in 2006 and 2009. Six-nation talks on its nuclear program involving China, Japan, Russia, the U.S. and South Korea haven’t convened since 2008. U.S. and North Korean officials resumed direct talks last month that have not yielded any breakthroughs.

‘Fear of War’

Working toward unification with North Korea is better than living with the fear of war, said Kim Seok Joong, 43-year-old orthopedic surgeon from Seoul.

“I want peaceful unification for my five-year-old son, he said. ‘‘I will contribute regularly to the fund if it’s run in a transparent way and not to be used for political purpose.’’

Kim Do Hyung, 38, a manager at SK Telecom Co. in Seoul, said he questions the goal of unifying the Korean peninsula and that he won’t be paying many into the fund.

‘‘My parents may want a unified Korea at whatever cost but my generation is different,’’ he said. ‘‘We’re the ones who’d have to shoulder all the burden and my life is tough enough.”

Kim’s regime has vowed to build a “thriving nation” where all citizens can enjoy meat soup by 2012, the 100th birthday of his father and North Korea’s founder, Kim Il Sung. He is grooming his son Kim Jong Un to succeed him amid worsening food shortages and a “rapid” rise in child malnutrition, according to a UN report in September.

The country faces a shortfall of as much as 700,000 metric tons of food this year, which could affect a quarter of the population, Hiroyuki Konuma, the UN Food & Agriculture Organization’s Asia representative said on Sept. 15.

The Korean Central News Agency reports on an almost daily basis on Kim Jong Il’s exploits, ranging from the multiple holes-in-one he scored in his first game of golf to advice given to farmers and engineers to improve farm and factory output.

“All the stories idolizing the Kim family may undermine North Korea’s credibility both at home and abroad,” Yu said. “The North Koreans I’ve met haven’t been free to say they whether they believe these myths, but defectors from the North don’t believe in them.”

To contact the reporters on this story: Brian Fowler in Tokyo at bfowler4@ bloomberg.net Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editors responsible for this story: Peter Hirschberg in Hong Kong at phirschberg@bloomberg.net Paul Panckhurst at ppanckhurst@bloomberg.net

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Japan May Ready Sustained Yen Intervention

By Aki Ito and Toru Fujioka - Nov 1, 2011 8:19 AM GMT+0700

Japan’s government signaled it is prepared for sustained intervention to ward off speculators from yen purchases after currency appreciation forced companies from Panasonic Corp. (6752) to Honda Motor Co. to lower earnings forecasts.

Finance Minister Jun Azumi said in Tokyo he will “continue to intervene until I am satisfied,” after yen sales yesterday that Credit Suisse Group AG analysts estimated may have exceeded $50 billion. The intervention was the first since August, when Japan spent 4.51 trillion yen ($57 billion) seeking to stem the currency’s surge to a postwar high against the dollar.

The effort showed support by Prime Minister Yoshihiko Noda for exporters seeing a loss in competitiveness after the yen rose 15 percent against the dollar and 21 percent versus the euro the past two years. With Nissan Motor Co. Chief Executive Officer Carlos Ghosn warning last month about a hollowing out of industry, lack of action risked undermining Noda’s agenda, said Hideo Kumano, an economist at Dai-Ichi Life Research Institute.

“Noda will encounter difficulty in gaining support for his budget package and participation in the Trans-Pacific Partnership,” if the yen’s exchange rate provokes a wave of corporate complaints, said Tokyo-based Kumano, who previously worked at the Bank of Japan. Noda has placed a priority on a third package of reconstruction spending from the aftermath of the March earthquake and tsunami, and on considering joining the TPP forum of trade talks with the U.S.

Impact of Sales

Yesterday’s sales spurred the biggest intraday drop in the yen against the dollar since October 2008. It sank 2.9 percent in New York after reaching a low of 79.53 earlier and also declined 1.9 percent versus the euro, to 109.33. The Japanese currency traded at 78.31 per dollar and 108.29 per euro at 10:09 a.m. in Tokyo today.

Japanese media speculated today that the intervention was bigger than the previous one, with the Asahi newspaper estimating sales of 10 trillion yen and the Yomiuri newspaper reporting intervention of 6 trillion yen.

Japan’s policy makers gave no indication of a Swiss-style target for their currency. Like Japan, Switzerland has seen its exchange rate appreciate as investors sought a haven from the euro-region’s debt crisis and from a U.S. economy burdened by the wreckage of a housing-market collapse. Swiss officials put a floor on the euro versus the franc and pledged to defend it.

‘Powerful Precedent’

“A Japanese floor would create a powerful precedent for the rest of Asia, something both the U.S. and Europe are loath to see,” Credit Suisse strategists led by Ray Farris in Singapore wrote in a note to clients. American policy makers have sought to persuade China, which manages its exchange rate, to allow greater appreciation against the dollar.

Rather than a target for the yen, Japanese policy makers have indicated they are concerned about any speculative trading that causes sharp, one-sided moves. A government official said on condition of anonymity that yesterday’s move was triggered by an abrupt climb in the yen in Sydney trading that was indicative of speculative activity. It reached a post-World War II high of 75.35 during Australian morning trading.

Azumi reiterated today that he is ready to take appropriate action in currency markets. He also said he will tell the G-20 that authorities acted because yen movements were straying from economic fundamentals.

Tactical Approach

While currency policy in Japan is set by the finance ministry, comments by Bank of Japan Governor Masaaki Shirakawa also indicated a more tactical than strategic approach toward the yen. He told reporters in Osaka yesterday that it isn’t really strong in nominal effective terms.

“Shirakawa’s remark that the yen is not particularly strong on a trade-weighted basis suggests little real enthusiasm at the central bank” for intervention, said Julian Jessop, chief global economist at Capital Economics Ltd. in London.

With the U.S. Federal Reserve and European Central Bank meeting this week to consider monetary stimulus, and no sign yet that the euro-region debt crisis is over, economic fundamentals argue in favor of continued yen strength, analysts said. Brown Brothers Harriman & Co. strategists predicted the currency will “retest levels near 76.”

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo indicated disapproval of the yen sales, saying yesterday that “unilateral interventions neither have a lasting effect nor are they good from the point of view of global stability.”

G-20 Criticism

Even so, Europeans may be loath to criticize Japan at the Group of 20 summit in Cannes, France, Nov. 3-4 given that they are seeking Asian contributions for an expanded rescue fund, UBS AG analysts said in a note.

For Noda, who took office in September, the yen’s surge risked distracting from his efforts to foster an economic rebound from three quarters of contraction, worsened by a record earthquake in the northeast that left about 19,000 people dead or missing and triggered a nuclear crisis.

Noda’s cabinet last month approved a 12.1 trillion yen spending plan to rebuild after the March disaster and to help companies cope with the currency. The package is subject to parliamentary approval.

Japan’s industrial output fell 4 percent in September from August, a sharper drop than analysts surveyed by Bloomberg News forecast. Export growth slowed to 2.4 percent from a year earlier in September from 2.8 percent in August, while retail sales also fell more than expected.

Stocks Fall

Stocks in Japan fell yesterday as Mitsui O.S.K. Lines Ltd. projected a loss and Fujifilm Holdings Corp. (4901) cut its profit forecast. Even after the intervention, which at one point during the day sparked a gain in the benchmark Nikkei 225 Stock Average of as much as 1.1 percent, the Nikkei closed down 0.7 percent. It fell 0.9 percent today.

Panasonic, the maker of Viera televisions, yesterday forecast a full-year loss of 420 billion yen, its biggest in a decade. It cited the impact of a stronger yen and one-time charges. Honda, Japan’s third-largest carmaker, reported second- quarter profit that missed analysts’ estimates as the strong yen eroded earnings.

“We’d like the government to do more intervention,” Yuji Isoda, manager of investor relations at Nippon Yusen K.K. told reporters in Tokyo yesterday. “Ideally we’d like the yen to weaken to around 85 yen to 90 yen against the dollar.”

BOJ Pressure

Pressure may also rise on the central bank to do more, after it expanded planned government-bond purchases by 5 trillion yen last week.

“The root cause for yen appreciation is the Bank of Japan’s passive stance toward monetary policies, compared with the Federal Reserve,” said Atsushi Ito, a senior rate strategist in Tokyo at UBS AG.

Former Japanese Finance Ministry official Eisuke Sakakibara said earlier this month that intervention efforts by Japan will only be successful if coordinated with other nations. Sakakibara became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance.

“The most we can expect is for intervention to slow the speed of the yen’s gains,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. In Tokyo and a former official in the BOJ’s foreign exchange division. “The government can’t keep intervening forever.”

To contact the reporters on this story: Aki Ito in Tokyo at aito16@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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China PMI Drops to Lowest in Almost 3 Years

By Bloomberg News - Nov 1, 2011 9:39 AM GMT+0700

A Chinese manufacturing index dropped to the lowest level since February 2009, bolstering the case for fiscal or monetary loosening to support the expansion of the world’s second-biggest economy.

The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement today. That was lower than any of 16 economist estimates in a Bloomberg News survey that had a median forecast of 51.8. A reading above 50 indicates expansion.

An index of export orders contracted for the second time in three months as Europe’s failure to resolve its debt crisis dims the outlook for shipments to China’s biggest market. South Korea reported today the weakest export growth since 2009 and Taiwan’s government said yesterday that the island’s economy expanded by the least in two years.

The PMI reading “is a reflection of slowing momentum in the economy” and exports may “slow sharply in coming months,” said Wang Tao, a Hong Kong-based economist at UBS AG. “Policy will ease more visibly in the first quarter of 2012.”

A separate manufacturing index released today by HSBC Holdings Plc and Markit Economics rose to 51 from 49.9. The surveys have different sample sizes and methodologies.

Premier Wen Jiabao said last week that economic policies will be “fine-tuned” as needed. That fueled speculation that the government may ease reserve requirements for smaller banks and add fiscal stimulus, putting growth ahead of inflation risks.

‘Weak’ Figure

The MSCI Asia Pacific Index fell 0.9 percent as of 11:07 a.m. in Tokyo. The benchmark Shanghai Composite Index rose 0.3 percent on speculation that more easing is possible after the government last month offered tax breaks for smaller companies that have been hardest hit by lending curbs and slowing growth.

“The weak PMI figure may prompt the government to loosen policies going forward such as a cut in reserve-requirement ratios for small banks and that’ll be positive for stocks,” Liu Li-Gang, head of Greater China Economics at Australia & New Zealand Banking Group Ltd., said in an interview in Bloomberg’s Shanghai office. “China’s economy is poised for a soft landing in the fourth quarter rather than a hard landing.”

On Oct. 26, the government announced a trial of changes to value-added taxes, a move that HSBC Holdings Plc economist Qu Hongbin said heralds the “official start” of selective easing. The finance ministry yesterday raised the threshold for payment of VAT and business taxes.

Exports, Orders

The manufacturing index from the logistics federation and National Bureau of Statistics is based on a survey of purchasing managers in more than 820 companies in 20 industries. The gauge hasn’t fallen below 50, the level dividing expansion from contraction, since February 2009.

The gauge of new export orders declined to 48.6 from 50.9 the previous month. The new orders index fell to 50.5 from 51.3 in September, the lowest reading since February 2009. A measure of output dropped to 52.3 from 52.7 in September.

The data “indicate fourth-quarter economic growth will continue to slow,” Zhang Liqun, a senior researcher at the Development Research Center of the State Council, said in today’s statement. “Export and investment growth will continue to fall.”

China’s economy grew 10.4 percent in 2010 and 9.4 percent in the first nine months of this year.

Shipyard Orders Drop

Positive signs for policy makers include a decline in a measure of input prices to 46.2 in October from 56.6 the previous month, the first reading below 50 since March 2009.

The drop suggests cost pressures on companies are decreasing, although it may also signal destocking is increasing because of expectations prices will fall, Zhang said.

In a sign manufacturing growth is moderating, new orders placed at Chinese shipyards in the first nine months of the year dropped 42.8 percent, the Ministry of Industry and Information Technology said on its website on Oct. 20. Guangzhou Shipyard International Co. said last week its third-quarter net income dropped 45 percent from a year earlier due to higher costs and an impairment provision for shipbuilding contracts.

--Zheng Lifei, Victoria Ruan, With assistance from Ailing Tan in Singapore, Regina Tan in Beijing and Zhang Shidong in Shanghai. Editors: Nerys Avery, Paul Panckhurst

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at +86-10-6649-7560 or lzheng32@bloomberg.net;

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Obama Order Targets Drug Price ‘Gouging’

By Drew Armstrong and Anna Edney - Nov 1, 2011 2:29 AM GMT+0700

President Barack Obama directed U.S. regulators to gather information from drugmakers about potential shortages so the government can respond before patients’ lives are threatened and help prosecutors head off “price gouging.”

More than half of hospitals and medical centers said last year that shortages compromised patient care, according to a survey from the American Society of Health-System Pharmacists, a Bethesda, Maryland-based trade group. About 97 percent said the shortages drove up costs through purchases from resellers.

The administration said early notice will allow it to work with manufacturers to find alternate sources for medicines, increase production or bring new plants online. The Food and Drug Administration plans to more than double the size of its office dealing with shortages, from five people to 11, said FDA Commissioner Margaret Hamburg.

“This is one of those slow-rolling problems that could end up resulting in disaster for patients and health-care facilities all across the country,” Obama said, signing an executive order from the Oval Office at the White House with a cancer patient and a pharmacy manager at his side.

His administration is calling on Congress to pass legislation that would make it mandatory for drugmakers to report the shortages.

“We don’t have a whole lot of teeth,” Hamburg said. Without mandatory reporting, “we’re really asking for our partners in industry to work more closely with us,” she said.

In the order signed today, Obama also asked the Justice Department to look into potentially illegal mark-ups by resellers.

Shortages Nearly Triple

Drug shortages almost tripled to 178 in 2010 from 61 in 2005, according to an FDA report released today. Sterile injectables account for 80 percent of the 127 shortages the FDA studied, 28 percent of which were cancer drugs.

Manufacturing issues, at 43 percent, was the main reason reported to the FDA for a drug shorts, the agency said. Delays in production or shipping accounted for 15 percent of the shortages while active ingredient scarcity caused 10 percent.

Most sterile injectables have one manufacturer that produces at least 90 percent of the drug. FDA helped prevent 38 shortages in 2010 and 99 to date this year, the agency said.

During a shortage, hospital pharmacies sometimes turn to third-party resellers who obtain the drugs from pharmacies or other resellers and offer them to hospitals in need.

While these so-called gray-market resellers can provide life-saving drugs that are in low supply, they charge on average sevenfold the typical contract price, with some surgical and other medically critical treatments increasing 20-fold, according to a survey by the Premier Healthcare Alliance.

Gray Market Activities

A 2011 report by the Institute for Safe Medication Practices examined gray market activities associated with drug shortages. Fifty-six percent of 549 hospital purchasing agents and pharmacists reported receiving daily solicitations from vendors and 52 percent said they bought drugs from gray market suppliers in the past two years. Respondents gave examples markups, including a 1,500 percent increase for the anesthetic propofol, according to the institute, a nonprofit group based in Horsham, Pennsylvania that aims to prevent medication errors.

The administration’s plan won’t ease shortages because drugmakers have little incentive to raise output when Medicare and Medicaid, the two big U.S. public health programs, limit how fast the price of a drug can rise, said Devon Herrick, senior fellow at the national Center for Policy Analysis, a policy research organization in Dallas.

“Firms have little incentive to ramp up production,” Herrick said.

Hospitals and purchasing organizations recommended that reports of price gouging be monitored and investigated by appropriate federal agencies. The FDA accepts reports of price gouging on its website.

Obama directed the FDA to work with the Justice Department to “examine whether potential shortages have led to illegal price gouging or stockpiling of life-saving medications,” the administration said in a statement.

To contact the reporters on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net; Anna Edney in Washington at aedney@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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AT&T to Begin Selling First LTE Smartphones From Samsung, HTC on Nov. 6

By Scott Moritz - Nov 1, 2011 3:07 AM GMT+0700

AT&T Inc. (T), the second-largest U.S. mobile carrier, plans to start selling its first handsets using a faster standard called long-term evolution on Nov. 6, a bid to catch up with larger rival Verizon Wireless.

AT&T’s first LTE phones, both running Google Inc. (GOOG)’s Android software, will be the $200 Vivid from HTC Corp. (2498) and the $250 Galaxy S II Skyrocket from Samsung Electronics Co., according to a statement from the carrier today. To get those prices, customers need to sign up for two-year service agreements.

The Dallas-based carrier said it is expanding its LTE service to Boston, Washington, Baltimore, and Athens, Georgia, after starting it in five markets last month. AT&T plans to offer LTE in 15 cities by year-end. Verizon started selling its first LTE handset, the HTC Thunderbolt, in March and offers LTE in about 165 metropolitan areas.

AT&T “is going to be rolling out markets fairly rapidly now, so they’ll come on line rather quickly,” said Chris King, a Stifel Nicolaus &Co. analyst in Baltimore. He rates AT&T “buy.”

AT&T and Verizon Wireless, co-owned by Verizon Communications Inc. (VZ) and Vodafone Group Plc, are boosting network speeds and offering devices with more capabilities to lure higher-spending customers. Both the Vivid and the Skyrocket have 4.5-inch (11.4-centimeter) screens, accommodating users who are increasingly browsing the Web and watching video on their handsets.

Shares of AT&T fell 1.4 percent to $29.31 at the close in New York. The stock is little changed this year.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net Or Ville Heiskanen at vheiskanen@bloomberg.net

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MetroPCS May Be No Answer for U.S. Concerns With AT&T Deal

By Olga Kharif and Scott Moritz - Nov 1, 2011 3:23 AM GMT+0700

MetroPCS Communications Inc. (PCS), the wireless carrier looking to expand, may struggle to become a viable replacement for T-Mobile USA as AT&T Inc. (T) tries to win government approval to buy the company from Deutsche Telekom AG.

MetroPCS has less than one-third the customers of T-Mobile, the fourth-largest U.S. wireless carrier, and covers less than half the U.S. population. The company would need to spend as much as $10 billion for wireless spectrum and customers to compete with Verizon Wireless, Sprint Nextel Corp. (S) and AT&T, said Michael Mahoney, senior managing director and portfolio manager at San Francisco-based Falcon Point Capital LLC. That is probably beyond its capability, he said.

“They are a very niche player right now, with a specific brand image,” Mahoney said in an interview. “They need to be more than that to be a credible nationwide player.”

MetroPCS has emerged as the frontrunner to buy assets from AT&T and T-Mobile USA as those companies seek to complete their merger, people familiar with the matter said this month. AT&T is trying to sell assets to address regulatory concerns that a reduction in nationwide providers to three from four would undermine competition, after the U.S. Justice Department sued to block the merger in August.

MetroPCS, based in Richardson, Texas, fell 4.9 percent to $8.50 at the close in New York. The stock has lost 33 percent this year. AT&T, based in Dallas, fell 1.4 percent to $29.31 and is little changed this year.

Drew Crowell, a MetroPCS spokesman, declined to comment on potential transactions. The company reports earnings tomorrow.

National Competitor?

To compete with the largest three operators, any company would need a critical mass of customers and wireless spectrum. Wireless licenses are distributed by the federal government and allow operators to offer service in specific areas.

MetroPCS had 9.1 million wireless subscribers at the end of June, compared with 33.6 million subscribers for T-Mobile. Verizon Wireless, AT&T and Sprint had 107.7 million, 100.7 million and 53.3 million, respectively, at the end of September.

MetroPCS probably needs 25 million users to compete with the industry giants, Mahoney said. That means it has to acquire the equivalent of about half the subscribers at T-Mobile, which AT&T has agreed to buy from Deutsche Telekom for $39 billion.

MetroPCS had $2.16 billion in cash and short-term investments at the end of June. It’s unlikely to spend more than $4 billion, though it could also use stock or debt for acquisitions, Michael Nelson, an analyst with Mizuho Securities USA Inc. in New York, said in an interview.

‘No-Brainer’

The company would also need more wireless licenses to be a national player, Mahoney said. MetroPCS currently has rights to offer service in regions with 146 million people, about 46 percent of the population, though it hasn’t built networks in all those places. It doesn’t operate in many smaller towns and has limited service in cities such as Chicago and Seattle.

To compete nationally, MetroPCS probably has to add spectrum to cover at least two-thirds of the population, or more than 200 million people, Mahoney said. The costs for the licenses and network to get there may exceed the company’s current resources, he said.

The company has options to expand beyond the purchase of AT&T-T-Mobile assets. The company recently said it may buy spectrum from Clearwire Corp. (CLWR), which is looking to raise funds to finance a network overhaul.

Another possibility is merging with Leap Wireless International Inc. (LEAP), a similar pay-as-you-go service provider based in San Diego, Timothy Horan, an analyst at Oppenheimer & Co., said in an interview. Leap, which had 5.75 million customers at the end of the second quarter, operates in regions that would complement MetroPCS’s territory, he said.

“Leap-MetroPCS is a no-brainer,” Mahoney said. “It completely makes sense.”

Failed Talks

Leap’s stock has tumbled in the past four years and its market value has dropped to less than $600 million. The company also had $3.25 billion in bonds and loans at the end of June.

The two companies have considered a combination in the past and haven’t been able to reach an agreement. They discussed a merger in 2007 and failed to agree on terms.

Rather than spend money to acquire customers or wireless licenses in new territories, MetroPCS is more likely to expand in current regions, said Kevin Smithen, an analyst at Macquarie Securities USA Inc. in New York. Adding spectrum in such areas would let MetroPCS offer more subscribers faster mobile Web access, reducing customer turnover and boosting organic growth, he said.

“They need the spectrum immediately,” Smithen said in an interview. In the second quarter, MetroPCS’s monthly churn, or customer losses, reached 3.9 percent.

Quality Suffers

The company is battling a spectrum crunch as more customers buy smartphones that use more data, which may have hurt service quality, said Walter Piecyk, an analyst at BTIG LLC in New York. While MetroPCS ranks high among other prepaid service providers on cost of service, it’s among the lowest in performance and reliability, according to J.D. Power & Associates.

“When they buy the spectrum, a lot of concerns over their growth are going to be resolved,” Piecyk said in an interview. “Maybe they can be more aggressive on price to grow their base even faster.”

MetroPCS might buy spectrum and customers in San Francisco, Dallas, Jacksonville, Florida, and Bakersfield, California, where the combined AT&T-T-Mobile would hold more than 50 percent of the market, Nelson said. MetroPCS already operates in the four metro areas, and is building out a 4G wireless network to offer faster services for smartphones.

MetroPCS Chief Executive Officer Roger Linquist said during the company’s second-quarter call that it’s interested in acquiring spectrum, though they will be “disciplined and opportunistic” in doing so.

Strategic Fit?

Besides the company’s financial limitations, analysts such as Nelson are skeptical that MetroPCS even wants to expand geographically on a large scale. Moving into less populated regions would clash with the existing strategy, he said.

“MetroPCS management has repeatedly stated in the past their desire to focus on large urban markets,” Nelson said. “I do not think it’s their intention to become a nationwide provider.”

To contact the reporters on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net. Scott Moritz in New York, at smoritz6@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Yahoo Dips as Company Said to Reject Sale

By Serena Saitto, Jeffrey McCracken and Brian Womack - Nov 1, 2011 4:15 AM GMT+0700

Yahoo! Inc. shares dropped the most in more than two months after the company was said to be leaning toward selling its Asian assets and redistributing the proceeds to shareholders, rather than selling itself to a group of buyers.

This scenario is emerging as the most likely option for Yahoo and would let the Internet company eventually pay a special dividend or buy back shares, according to five people familiar with the situation, who declined to be identified because the talks are private.

The shares declined 5.6 percent to $15.64 at the close, the biggest drop since Aug. 4. Before today, the stock had surged 28 percent since the company fired Chief Executive Officer Carol Bartz in early September, making it a more expensive target for private-equity buyers, the people said last week.

Yahoo has been exploring options while searching for a replacement for Bartz, who struggled to boost revenue growth or fend off competition from Google Inc. and Facebook Inc. Co- founder Jerry Yang said on Oct. 20 that the company isn’t necessarily on the block.

“The intent going in is not to put ourselves up for sale,” Yang said that day at the All Things Digital Asia conference in Hong Kong. “The intent is to look at all options. There’s plenty of options for the board, and plenty of options for our shareholders to realize value.”

No decision has been made yet and Yahoo could still sell to a group of investors, the people said. Yahoo may also sell a minority stake in the company, or seek a buyer for the entire company after finding buyers for Asian assets, said the people. A change of ownership entirely would put the tax-efficiency of the Asian asset deals at risk, one of the people said.

Dana Lengkeek, a spokeswoman for Sunnyvale, California- based Yahoo, declined to comment.

Interest in Yahoo

“Multiple parties” have expressed interest in Yahoo, according to a September memo by Yang. KKR & Co. and Blackstone Group LP (BX) are among the private-equity firms considering possible bids for Yahoo, people with knowledge of the matter have said.

In addition, Alibaba Group Holding Ltd., whose biggest shareholder is Yahoo, has discussed a plan with private equity firm Silver Lake and Russia’s Digital Sky Technologies to make a joint bid, people familiar with the matter have said. Another group that is interested includes Providence Equity Partners Inc. and former News Corp. (NWSA) executive Peter Chernin, people said.

The sheer number of parties that have mulled offers for Yahoo is contributing to the difficulty in reaching an agreement, the people said. Amassing the financing needed to acquire a $20.9 billion company is another hurdle, the people said.

Tax Implications

Alibaba Chairman Jack Ma has publicly expressed interest in buying Yahoo’s stake in his company. Alibaba has no comment on the Bloomberg story, John Spelich, a spokesman, said by phone in Hong Kong. Yahoo also co-owns Yahoo Japan with Softbank Corp. (9984) of Japan.

Softbank and Yahoo Japan have been in talks with Yahoo to buy its stake in Yahoo Japan for nine months but the talks are complicated by tax considerations, one person with direct knowledge of the situation said earlier this month.

The Wall Street Journal reported Oct. 28 that Yahoo is exploring a tax-free disposal of its Asian assets.

The plan involves creating a new subsidiary into which Alibaba would put cash and some assets from Alibaba or another party, the Wall Street Journal reported. The stock of that company would be swapped for Yahoo’s stake, leaving Yahoo with the cash and assets and giving Alibaba its shares back, the Journal reported. Under U.S. tax law, such a deal isn’t considered a sale and therefore is not taxable, the paper said.

A change of ownership of Yahoo would threaten the tax- efficiency of this arrangement, said one person with direct knowledge of the situation.

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

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

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Obama in ‘Excellent Health,’ ‘Fit for Duty’: Doctor

By Catherine Dodge - Nov 1, 2011 4:30 AM GMT+0700

President Barack Obama is in “excellent health” and all indications are he will remain so for the duration of his term, the president’s doctor wrote in a physical exam report released by the White House.

Obama is “fit at 50” and tobacco free, the physician, Jeffrey C. Kuhlman, wrote. Steps the president takes to stay well include eating a healthy diet and keeping physically active. The report said Obama on occasion drinks alcohol in moderation.

The president’s blood pressure is “normal” at 107/71 and his cholesterol level is “ideal.” He has a 10-year coronary heart disease risk of just 2 percent. Obama’s heart rate was 67 beats per minute.

Obama’s medications include “rare” anti-inflammatory drugs related to strenuous physical activity and immunizations associated with world travel. He had “benign skin tags” removed from his neck.

Obama had his physical last week. The president’s previous exam was in February 2010.

To contact the reporter on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net

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

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IMF Faces Discontent on Currency Appraisals

By Sandrine Rastello - Nov 1, 2011 4:14 AM GMT+0700

The International Monetary Fund, facing “dissatisfaction” about how it assesses countries’ exchange rates, agreed to better take into account other data such as capital flows when reviewing member nations’ external stability.

The decision was endorsed by the board of directors Oct. 24 after discussing a review of the fund’s economic and financial surveillance. In a report, IMF staff said they faced “continued discontent” from the economists and officials it consulted about exchange-rate analysis. Some said they found too much focus on that measurement while others said there was not enough candor.

“Despite technical improvements in the Fund’s exchange rate assessments, there is considerable dissatisfaction among stakeholders with the Fund’s external stability analysis and policy advice,” the Washington-based agency’s staff said in the report. “Nearly two-fifths of executive directors felt that a significant share of staff reports had insufficient coverage of capital flows and reserve adequacy issues.”

IMF analysis of exchange rates has been a sensitive point with some countries, including China, which prevented the publication of reports on that nation’s economy in 2007 and 2008. That stalemate ended in 2009, after the IMF dropped the phrase “fundamental misalignment” to describe certain exchange rates in a bid to improve cooperation with member states.

Gaining Influence

The review, which takes place every three years, also discussed how to gain more influence on policies of the agency’s 187 member nations. It noted that the IMF currently has the most sway in countries that borrow from it and is paid little heed in the U.S. and in the euro area.

An internal audit released this year found that the IMF was overly influenced by developed countries, including the U.S. and the U.K., when assessing their economies and ended up missing signs of fragility that led to the 2008 global financial crisis.

“Two-thirds of mission chiefs saw themselves as largely candid in their dialogue with authorities,” the IMF said today. “However, mission chiefs noted some degree of self censorship in the reports, with one in seven stating that the need to preserve good relationships with authorities limited the candor of their report.”

To improve candor, the IMF should bring in more external views according to the report, which itself leaned on outside contributors, including Nobel Prize-winning economist Joseph Stiglitz.

After popular uprising in the Middle East and North Africa this year in countries that the IMF had praised for their economic policies, the Fund agreed to aim to cover more social issues that are important to the stability of its members.

The IMF also agreed to continue working on assessing the impact economies have on one another, including through their financial institutions. Yearly assessment of countries’ economies should make more room for analysis of their financial stability, it said.

To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net;

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

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Chinatown Buses’ Death Rate Said Seven Times That of Competitors

By Jeff Plungis - Nov 1, 2011 3:12 AM GMT+0700

Curbside bus operators such as ones involved in crashes this year in New York, New Jersey and Virginia are seven times more likely to be involved in a fatal wreck than intercity lines with more conventional business models, U.S. safety investigators said.

Companies that pick up passengers at street locations, such as so-called Chinatown buses, had 1.4 fatal accidents per 100 vehicles, compared with 0.2 crashes for terminal-based operators like Greyhound Lines Inc., the National Transportation Safety Board said in a report today.

The study -- the most detailed look at curbside lines to date -- shows regulation hasn’t kept pace with the fast-growing industry, Senator Charles Schumer, a New York Democrat, said in a telephone interview.

“It cries out for action to make this industry safer,” Schumer said. “The consumer now buys a ticket in the dark.”

Fatal crashes have surged as intercity bus travel becomes the fastest-growing U.S. mode of commercial transportation. In 2011, 28 people have died in eight fatal crashes, including three in an 11-week period involving carriers operating out of, or carrying passengers between, Chinatown neighborhoods in East Coast cities.

“For too long, some bad apples have played fast and loose with passenger safety,” Schumer said today at a news conference on a block of Allen Street in New York’s Chinatown where three curbside carriers operate. “We’re here to say enough is enough.”

Business Model ‘Morphed’

Led by FirstGroup Plc (FGP)’s Bolt Bus and Stagecoach Group Plc (SGC)’s Megabus, as well as Chinatown lines such as Sky Express, U.S. bus departures increased 24 percent last year, according to Joseph Schwieterman, professor of public service at DePaul University in Chicago.

Curbside operators, which offer fares as low as $1, now outnumber terminal-based companies 71 to 51 in the U.S., the NTSB found. “It’s time to recognize that traditional transportation services have morphed into new business models that challenge existing regulatory constructs,” NTSB Chairman Deborah Hersman said in a statement.

The Federal Motor Carrier Safety Administration, which regulates the trucking and bus industries, doesn’t have enough people to do adequate oversight, the NTSB said. The 878 FMCSA and state inspectors are responsible for 765,000 motor carriers, a ratio of 1.15 investigators for every 1,000 companies, it said.

Multiple Identities

Curbside companies make it difficult for regulators to track them, the NTSB said. Some operate under multiple names, the board said. This can spread safety violations among several entities, hindering regulators’ ability to spot patterns and target the correct companies for enforcement actions.

Many curbside carriers use unregulated ticket brokers rather than selling directly to consumers, which also creates problems for regulators, the NTSB said. The Transportation Department has no legal authority to oversee ticket websites, the safety board said. It has asked Congress to change the law.

The motor-carrier safety administration needs better information on the carriers once they’re operating, Hersman said in an interview in New York today. The agency relies on data that’s often wrong, incomplete or out-of-date to flag the riskiest companies, she said.

New Companies

The ease of starting a new company is another challenge for regulators, Hersman said. An operator can pay a $300 application fee, get a minimal amount of insurance, lease a vehicle and begin carrying passengers before the trucking agency inspects it, she said.

“This is backward,” Hersman said. “They don’t give them an audit or a review until after they give them operating authority.”

Consumers often don’t know which company they’ll be traveling on when shopping on sites like Gotobus.com, making it impossible to check safety records before buying tickets, the NTSB said in its report.

Companies should have letter grades from A to D for their safety records posted in bus windows, online and on ticket- broker websites, Schumer said.

Restrictions in U.S. law against regulators stopping buses while they’re in transit has made it difficult to do meaningful inspections, the safety board said. Curbside carriers have few locations where unscheduled inspections can be carried out, it said.

Firstgroup agrees with the NTSB’s conclusions and hopes they start a push for bus-safety legislation, Maureen Richmond, a company spokeswoman, said in an e-mail.

“The NTSB noted the industry has a great safety record overall,” Peter Pantuso, chief executive officer of the Washington-based American Bus Association, said in a telephone interview. The association represents companies include Firstgroup and Stagecoach.

“It is a small number of bad actors we’ve got to get off the road,” he said.

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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Papandreou to Put Loan Plan to Referendum

By Maria Petrakis, Natalie Weeks and Marcus Bensasson - Nov 1, 2011 3:32 AM GMT+0700

Greek Prime Minister George Papandreou pledged to put the European Union’s new agreement on financing for Greece to a referendum, saying Greeks will give him the support to forge ahead with economic reforms.

“For the new agreement, we must go to a referendum for Greeks to decide,” Papandreou told lawmakers of his ruling socialist Pasok party in statements carried live today from Athens on state-run Vouli TV. “Democracy is alive and well and Greeks are being called to rise to a national duty beyond the regular electoral processes.”

Papandreou’s gambit risks pushing the country into default if rejected by voters and raises the ante with dissidents inside his own party. Papandreou’s popularity has plunged after a raft of austerity measures cut pensions and wages, increased taxes and sparked a wave of social unrest. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative.

“Papandreou could lose the referendum, which means that new elections would have to be called,” Thomas Costerg, European economist at Standard Chartered Bank in London, said in an e-mail. “Heightened Greek uncertainty could propagate to other fragile euro-area countries, in particular Italy.”

Confidence Vote

Papandreou also told lawmakers he’ll seek a vote of confidence in parliament. The referendum will likely be held after details of the EU accord are wound up, Papandreou said. The vote of confidence will begin on Nov. 2 and conclude late on Nov. 4, according to statements today by House Speaker Filipos Petsalnikos.

EU leaders carved out a second aid package for Greece at a summit in Brussels lasting into the early hours of Oct. 27, after Papandreou scraped together parliamentary approval for the second round of austerity measures in four months. Greece will receive 130 billion euros ($180 billion) in public funds plus a 50 percent writedown on Greek debt, following a fully taxpayer- funded package of 110 billion euros extended in May 2010.

Most of the 1,009 people surveyed on Oct. 27, the day the agreement was announced, said the accord should be put to a referendum, according to the results of the Kapa Research SA poll, published in To Vima newspaper. Forty-six percent said they’d oppose the plan at such a referendum. In the same poll, more than seven in 10 favored Greece remaining in the euro.

Venizelos’s View

“I can no longer look at polls where the majority is against the agreement, the majority is against the program, but a majority is also in favor of staying in the euro,” Finance Minister Evangelos Venizelos said on Antenna TV after Papandreou announced his decision. A “no” vote at the referendum would lead to “developments” that the government would assess, Venizelos said.

Papandreou, whose term ends in 2013, is seeking renewed support to push through measures including job cuts to turn around an economy that is set to shrink 5.5 percent this year. The program involves new taxes and cuts in spending to plug the EU’s second-biggest budget gap.

The state budget deficit widened to 19.2 billion euros in the January to end-September period from 16.7 billion euros a year earlier, according to an e-mailed statement from the Athens-based Finance Ministry today.

Opposition parties repeated their call for elections. Papandreou’s plans are “reckless” and put Greece’s EU membership at risk, lead opposition New Democracy party spokesman Yiannis Michelakis said.

‘Dangerous’

Papandreou “has tossed Greece’s future in Europe in the air like a coin,” Michelakis said in an e-mailed statement from ND’s Athens offices today. “He is dangerous and must go. There is a solution: elections now. It’s the safest ‘referendum’.”

Papandreou now has just a three-seat majority in parliament and won approval for his latest austerity package amid protests that left one person dead. The budget measures prompted a near- rebellion in Papandreou’s party and violence in the streets.

The New Democracy party, led by Antonis Samaras, would win 22 percent of the vote in elections, with Papandreou’s Pasok party receiving 14.7 percent, with neither receiving enough to form a majority in Parliament, according to the Kapa poll. More than 26 percent of voters said they were undecided on who to back. The margin of error is 3.09 percentage points.

Separately, the International Swaps and Derivatives Association said that the euro-area proposals for Greek bonds appear to involve “a voluntary exchange that would not be binding on all holders,” according to an e-mailed statement.

“As such, it does not appear to be likely that the euro zone proposal will trigger payments under existing CDS contracts,” the statement said. “However, whether or not it does so will be decided by the Determinations Committee on the basis of specific facts, if a request is made to them.”

The ISDA statement today follows a review of whether the proposal would constitute a “credit event” for holders of credit-default swaps linked to the securities.

To contact the reporters responsible for this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net

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U.S. Stocks Decline Amid Europe Concerns

By Rita Nazareth - Nov 1, 2011 4:43 AM GMT+0700

Play Video

Oct. 31 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks slumped, giving the Standard & Poor’s 500 Index its biggest decline in almost a month, amid concern European leaders will struggle to raise funds to contain the region’s sovereign debt crisis. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

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Oct. 31 (Bloomberg) -- Laszlo Birinyi, president and founder of research and money management firm Birinyi Associates Inc., talks about investment strategy, the performance of the U.S. equity market and the outlook for stocks. Birinyi speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

U.S. stocks slumped, giving the Standard & Poor’s 500 Index its biggest decline in almost a month, amid concern European leaders will struggle to raise funds to contain the region’s sovereign debt crisis.

Stocks extended losses in the final hour of trading after Greek Prime Minister George Papandreou said he will put the European Union’s new agreement on financing for Greece to a referendum. Morgan Stanley and Citigroup Inc. (C) dropped more than 7.5 percent, following the biggest weekly gain since July 2010 for financial shares in the S&P 500, as European banks retreated. Alcoa Inc. (AA) and Chevron Corp. (CVX) tumbled at least 4.1 percent to pace declines in commodity shares.

The S&P 500 dropped 2.5 percent to 1,253.30 as of 4 p.m. New York time, erasing its 2011 gain and capping the biggest decline since Oct. 3. The benchmark gauge for U.S. equities rose 11 percent in October, the best month since 1991, snapping a five-month retreat. The Dow Jones Industrial Average lost 276.10 points, or 2.3 percent, to 11,955.01 today.

“We’ve been on a buying stampede,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a telephone interview. His firm manages $300 billion. “The market was due for a pullback,” he said. “Europe did get a rescue that buys them more time, but they are not anywhere near a resolution to their crisis.”

Stocks rose last week after European leaders agreed to expand the region’s bailout fund and U.S. economic growth accelerated. Earlier this month, the S&P 500 came within 1 percent of extending a drop from its peak in April to 20 percent, the common definition of a bear market. Since then, it has risen 14 percent.

Role of ‘Savior’

China can’t play the role of “savior,” the official Xinhua news agency said yesterday, as investors awaited the country’s response to Europe’s request for money to boost its bailout fund. Japanese Finance Minister Jun Azumi said today the government took unilateral steps to weaken the yen. Group of 20 leaders will gather Nov. 3-4 in Cannes, France, while central bankers from Australia, the U.S. and Europe will hold interest- rate policy meetings this week.

Papandreou’s gambit risks pushing the country into default if rejected by voters, and raises the ante with dissidents inside his own party. His popularity has plunged after a raft of austerity measures cut pensions and wages, increased taxes and sparked a wave of social unrest. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative.

‘Act Decisively’

The Organization for Economic Cooperation and Development urged Group of 20 governments and central banks to “act decisively” to restore confidence as it lowered its growth forecasts for the U.S. and the euro area.

European stocks slumped, paced by losses in banks, as Italian and Spanish bonds declined. The KBW Bank Index retreated 4.1 percent. Morgan Stanley (MS) fell 8.7 percent to $17.64. Citigroup dropped 7.5 percent to $31.59.

MF Global Holdings Ltd., the holding company for the broker-dealer run by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy after making bets on European sovereign debt.

“The spike in the yield on the Italian note coupled with the actions to ring fence MF Global put investors back on the defensive,” Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets, said in an e-mail. “This morning’s report of a decline in the Chicago business barometer reminded all that the economic fundamentals are still tenuous.”

Business Barometer

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 58.4 in October from 60.4 the prior month. A level of 50 is the dividing line between expansion and contraction. Economists forecast the gauge would drop to 59, according to the median of 55 estimates in a Bloomberg News survey. Projections ranged from 56 to 62.5.

The Morgan Stanley Cyclical Index of companies most-tied to the economy lost 3.2 percent. The Dow Jones Transportation Average, a proxy for the economy, slid 2.4 percent.

Gauges of energy and raw material producers in the S&P 500 retreated at least 4.1 percent on concern about slower demand and as the dollar rallied, reducing the appeal of commodities as an alternative investment. Alcoa dropped 7 percent to $10.76. Chevron erased 4.2 percent to $105.05.

Yahoo! Inc. tumbled 5.6 percent to $15.64. The company is leaning toward selling its Asian assets and redistributing proceeds to shareholders, rather than selling itself to a group of buyers, according to people familiar with the situation. Dana Lengkeek, a spokeswoman for Yahoo, declined to comment.

Bullish Bets

Barton Biggs, the hedge fund manager who bought stocks when the market bottomed in 2009, boosted bullish bets on equities in his Traxis Global Equity Macro Fund after European leaders took action to contain the debt crisis.

The fund’s net long position has risen to 80 percent, Biggs, the founder of Traxis Partners LP, said in an interview with Betty Liu on Bloomberg Television’s “In the Loop” program. That compares with 65 percent on Oct. 17 and 40 percent about a month before that, and near 85 percent six months prior. Investors remain too pessimistic, meaning the rally will continue as they change their mind, he said.

“There’s a tremendous amount of money that’s trapped out of stocks,” Biggs said today. The rally is “going to continue for a while.”

Beating Estimates

American companies are beating Wall Street profit estimates for the 11th straight quarter, enough to revive a bull market that analysts say will eclipse any rally in the past 12 years. Price targets for companies in the index from more than 10,000 estimates suggest the S&P 500 will advance 13 percent to 1,447.93 in a year.

Companies from Google Inc. to Peabody Energy Corp. are delivering higher earnings at a time when Bill Gross, the co- chief investment officer of Pacific Investment Management Co., is warning that Europe’s debt crisis will spur a recession. While more than $6.3 trillion has been erased from global equities since May, analyst forecasts imply the benchmark measure will post its biggest rally since the 1990s technology bubble, when the gain since March 2009 is included.

“This is looking like it’s going to be a really decent quarter,” Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co. in Boston, which manages about $150 billion, said in an Oct. 25 interview. “Valuations are very, very low relative to history, and you don’t have to make heroic assumptions on multiples to get reasonable returns.”

The S&P 500 traded at 11.7 times reported income on Oct. 3, within 14 percent of its price-earnings ratio at the bottom of the financial crisis in March 2009, Bloomberg data show. The index gained 3.8 percent last week.

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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MF Exposes Risk Volcker Wants to Curb

By Christine Harper, Michael J. Moore and Silla Brush - Nov 1, 2011 3:33 AM GMT+0700

Jon Corzine’s risk appetite just provided Paul Volcker with a demonstration of the dangers of Wall Street proprietary trading.

Nineteen months after former New Jersey Governor Corzine took over as chairman and chief executive officer, MF Global Holdings Ltd. (MF) today filed for bankruptcy. The collapse was triggered by Corzine’s decision to boost risk-taking, including a $6.3 billion wager with the firm’s own money on European government debt.

Volcker, a former Federal Reserve chairman who’s advising the Obama administration, pushed for legislation to curb wagering by banks or financial companies that have federal guarantees or are so embedded in financial markets that they’re deemed too big to fail. Regulators and the industry are wrestling over the fine print in the so-called Volcker rule, which takes effect in 2012. Now, three years after Lehman Brothers Holdings Inc. (LEHMQ) failed, MF Global’s implosion may buttress the argument for tighter trading limits.

“In the wake of 2008, when we all should have learned a lesson, Jon Corzine told me himself that it was a relatively staid, not risk-oriented firm and he needed to ratchet up the risk,” William Cohan, author of “Money and Power: How Goldman Sachs Came to Rule the World,” said on Bloomberg Television. “Well he does that and it blows up in his face and for the first time he can’t unwind the trade. Honestly I’m still shocked and it should not have happened.”

MF Global, with 2,894 employees and $2.5 billion in capital, wouldn’t have been affected by the rule, unlike larger rivals such as Goldman Sachs Group Inc. (GS) or JPMorgan Chase & Co. (JPM)

Bailout Risk

Corzine’s failure “is OK because MF Global is not such a large institution that it’s going to bring down the entire financial system with it,” Neil Barofsky, a former special inspector for the U.S. Treasury’s Troubled Asset Relief Program, said on Bloomberg Television’s “InsideTrack.” “If this is Goldman, if this is JPMorgan, if this is any of those institutions, we’re going to have to go in and bail them out and we’re going to bear the brunt of their bad bets, not the shareholders and possibly the debt holders.”

Corzine, 64, learned the strategy of making big trading bets during his 24 years at New York-based Goldman Sachs, which he ran from 1994 to 1999 before being forced out. It was the most profitable securities firm in Wall Street history before converting to a bank holding company in 2008, when smaller rival Lehman Brothers went bankrupt.

Ramping Up Risk

“Jon Corzine made his bones at Goldman Sachs by going big,” said Cohan, a Bloomberg View columnist who interviewed Corzine for his book on Goldman Sachs. “I see this as a case of Jon Corzine ramping up the risk that MF Global was taking, trying to put it into the big leagues of investment banking, make it more like Goldman Sachs.”

While Corzine was trying to recreate the Goldman Sachs that he remembered, the firm’s current management was reducing risk- taking -- in part in response to the Volcker rule. It closed Goldman Sachs Principal Strategies, a prop-trading team that bet primarily on equities, and the Global Macro Proprietary Trading desk, which wagered on bonds, currencies and commodities.

The Volcker rule will also require Goldman Sachs to reduce investments in private equity and hedge funds to no more than 3 percent of each of the funds -- or 3 percent of Goldman Sachs’s Tier 1 capital. In the latest quarter, such investments were responsible for the firm reporting its second quarterly loss since going public in 1999.

Goldman Sachs

“We’ve already shut down our walled-off proprietary business, so that’s gone,” Goldman Sachs Chief Financial Officer David A. Viniar told analysts after the firm reported a third-quarter loss on Oct. 18. “We think that any investment in funds will be limited to 3 percent.”

Bank executives including Viniar and Morgan Stanley (MS) CEO James Gorman have noted their firms’ cooperation in shutting down standalone prop-trading businesses while warning of reduced market liquidity if the rule is interpreted too strictly.

A version of the Volcker rule released by regulators earlier this month has already been criticized by banks and analysts. Brad Hintz, an analyst at Sanford C. Bernstein & Co., said the rule may shave 25 percent from fixed-income trading desks’ revenue. The Office of the Comptroller of the Currency estimated that it will cost banks $917 million for raising more capital and an additional $50 million in compliance and legal expenses.

Weaker Restrictions

Arthur Levitt, a former Securities and Exchange Commission chairman and adviser to Goldman Sachs, said Wall Street lobbyists will fight to postpone and weaken the regulations.

“This is going to be a long slog, and much of that rule that you see today is going to go up in smoke,” Levitt, a Bloomberg LP board member, said on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt on Oct. 13. Levitt said he was speaking for himself and not expressing the views of Goldman Sachs.

MF Global’s board had met through the weekend in New York to consider options including a sale to avert failure, according to a person with direct knowledge of the situation. Following a record loss announced last week, MF Global was suspended today from doing new business with the New York Federal Reserve, according to a statement on the regulator’s website. Trading in MF Global’s stock was also halted.

Shares, Debt

MF Global shares declined 67 percent last week and its bonds started trading at distressed levels amid its disclosures of bets on European sovereign-debt. MF Global held talks with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, said the person, who asked not to be identified because the talks were private.

“MF was highly leveraged and I think Corzine came in trying to do what he did at Goldman Sachs,” Levitt said today on “Bloomberg Surveillance.” “He was a risk-taker, and the markets went against him.”

Regulators including the Federal Reserve and Federal Deposit Insurance Corp. issued a 298-page proposal of the Volcker rule on Oct. 11. The agencies are seeking public comment on the draft and may make changes before it takes effect July 21.

Stand-alone proprietary-trading groups at six bank holding companies -- Bank of America Corp., JPMorgan, Citigroup Inc., Wells Fargo & Co. (WFC), Goldman Sachs and Morgan Stanley -- had a net loss of about $221 million from June 2006 through the end of 2010, according to a July 13 Government Accountability Office report.

Generating Losses

The business of betting money for banks’ own accounts produced positive net revenue in 13 of the 18 quarters examined, totaling $15.6 billion, and generated losses of $15.8 billion in the other five quarters, according to the report. The study didn’t address prop trading conducted in other groups besides the stand-alone desks.

“Mr. Corzine’s activities at MF Global are exactly what the Volcker advocates wanted to protect against,” Richard Bove, a bank analyst at Rochdale Securities LLC, wrote in a note to clients. “It is exactly why they were so adamant that the regulators were not enough to stop speculative activities and a strict law had to be passed to stiffen regulator actions.”

The bankruptcy could also influence debates related to other parts of financial-industry rulemaking. MF Global, alongside hedge funds and brokers, had succeeded in urging the Commodity Futures Trading Commission to open access to derivatives clearinghouses for firms with less net capital than Wall Street’s largest swaps dealers.

The CFTC completed a rule on Oct. 18 that would require clearinghouses to open access to firms with at least $50 million in net capital. Clearinghouses would still be able to scale a member’s participation depending on how much capital a company holds above $50 million. Wall Street’s largest derivatives- dealers have said members need experience and adequate resources to manage defaults.

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Silla Brush in Washington at sbrush@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

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

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MF Global Traders Blocked by CME, Intercontinental Has Customers Fleeing

By Matthew Leising - Nov 1, 2011 1:50 AM GMT+0700

MF Global Holdings Ltd. (MF)’s bankruptcy is sending some of the firm’s customers rushing for new clearing brokers after CME Group Inc. (CME) and Intercontinental Exchange Inc. blocked them from new business on their futures markets.

The holding company for the futures brokerage and broker- dealer run by former New Jersey governor and Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine sought court protection today, less than a week after reporting a record quarterly loss and disclosing a $6.3 billion wager on European sovereign debt. The firm was also suspended from conducting business with the New York Federal Reserve as a primary dealer.

“It’s a real mess, and it’s all hands on deck,” said Jack Scoville, a vice president at Price Futures Group in Chicago, which used MF as its primary clearing firm. “We’re moving out of MF as fast as we possibly can. Everybody is.”

MF Global customers who want to liquidate a position are being told to contact the New York-based firm, according to spokespeople for the exchanges. CME Group, owner of the New York Mercantile Exchange, and Intercontinental Exchange’s U.S. and European markets said they’ve limited all trading for customers of MF Global to liquidation only. Establishing new positions is barred. Both exchange owners cited MF Global’s financial condition for limiting access.

“Until further notice, CME Group will no longer recognize MF Global or any of its divisions as a guarantor for purposes of floor trading privileges,” the Chicago-based exchange owner said in an e-mailed statement today. Intercontinental Exchange limited MF Global from its U.S. and European exchanges as well as its energy over-the-counter clearing business, according to the Atlanta-based company.

Trading Customers

“The process is on to move to new clearing houses,” said Ray Carbone, president of Paramount Options Inc. in New York, which did business with MF Global.

At the end of August, MF Global’s futures trading customers had $7.3 billion on deposit with the firm, according to data compiled by the Commodity Futures Trading Commission. Under U.S. law the client funds are kept in segregated accounts and protected in the event the broker files for bankruptcy.

The filing caused turmoil in commodity markets, Scoville of Price Futures said, with MF Global active in contracts from oil to wheat.

“MF is in the top five in clearing for commodities, so it’s not an insignificant thing,” he said.

Eurex, Europe’s largest futures exchange, said MF Global U.K. Ltd., the clearing member on its market, is fulfilling its clearing obligations, according to an e-mailed statement.

‘Swift Return’

MF Global U.K. entered the special administration regime, with KPMG LLP’s Richard Fleming, Richard Heis and Mike Pink being named joint special administrators, the Financial Services Authority said in a statement today. The administrative regime will allow for “the swift return of client assets,” the FSA said in the statement.

MF Global listed total debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. Its finance unit, MF Global Finance USA Inc., also filed.

“The boards of directors of both entities authorized the filing of the Chapter 11 petition in order to protect their assets,” the companies said today in a statement.

MF Global’s board had met through the weekend in New York to consider options including a sale to avert failure, according to a person with direct knowledge of the situation. It was stopped from doing new business with the New York Fed until it shows it’s able to fulfill its responsibilities as a primary dealer, according to a statement on the regulator’s website before the filing. Trading in MF Global’s stock was also halted.

Unsecured Creditors

The largest unsecured creditors include JPMorgan Chase Bank NA, as trustee for holders of $1.2 billion in debt, and Deutsche Bank Trust Co. as trustee for holders of $690 million in debt.

The company’s $325 million of 6.25 percent bonds, issued at par in August, fell 4 cents to 46 cents on the dollar at 1:46 p.m. in New York, for a yield of 27.1 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its shares, which were halted today, fell 16 percent to $1.20 on Oct. 28 after reaching a low of 99 cents.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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