Economic Calendar

Wednesday, November 2, 2011

Tepco Detects Nuclear Fission at Fukushima Station

By Tsuyoshi Inajima and Yuji Okada - Nov 2, 2011 3:38 PM GMT+0700

Tokyo Electric Power Co. detected signs of nuclear fission at its crippled Fukushima atomic power plant, raising the risk of increased radiation emissions. No increase in radiation was found at the site and the situation is under control, officials said.

The company, known as Tepco, began spraying boric acid on the No. 2 reactor at 2:48 a.m. Japan time to prevent accidental chain reactions. Tepco said it may have found xenon, which is associated with nuclear fission, while examining gases taken from the reactor, according to an e-mailed statement today.

“Given the signs, it’s certain that fission is occurring,” Junichi Matsumoto, a general manager at Tepco who regularly talks to the media, told reporters in Tokyo today. There’s been no large-scale or sustained criticality and no increase in radiation, he said.

Fission taking place in the reactor can lead to increases in radiation emissions and raises concerns about further leaks after another radioactive hot spot was discovered in Tokyo on Oct. 29. It’s possible there are similar reactions occurring in the No. 1 and No. 3 reactors, the other cores damaged at the station, Matsumoto said.

“Melted fuel in the No. 2 reactor may have undergone a sustained process of nuclear fission or re-criticality,” Tetsuo Ito, the head of Kinki University’s Atomic Energy Research Institute, said by phone. “The nuclear fission should be containable by injecting boron into the reactor to absorb neutrons.”

Loss of Cooling

Shares of Tepco declined 2.6 percent to close at 302 yen on the Tokyo Stock Exchange. They’ve fallen 86 percent since the disaster. The benchmark Nikkei 225 Stock Average was down 2.2 percent.

Eight months after the March 11 earthquake and tsunami wrecked the Fukushima Dai-Ichi plant, causing a loss of cooling and the meltdowns of three reactors, Tepco is trying to prevent further leakage of radiation that has spread across the world.

The incident, the worst atomic disaster since Chernobyl in 1986, was responsible for the biggest discharge of radioactive material into the ocean in history, according to a study from a French nuclear safety institute.

“We are evaluating whether there are many reactions or not or whether its stopped, Matsumoto said. The incident won’t affect its schedule of bringing the plant under control by the end of this year, Matsumoto said.

Yasuhiro Sonoda, a member of the ruling Democratic Party of Japan, on Oct. 31 drank a glass of filtered water from the Fukushima plant to demonstrate the situation is being brought under control.

Publicity Stunt

Sonoda denied reporters’ claims it was a publicity stunt. ‘‘I drank it because there shouldn’t be any concerns about the water,” he said. “I didn’t intend to say it’s completely safe by drinking it.”

No significant changes in temperatures and pressures of the reactor and radiation levels at the site have been detected, said Hiroyuki Usami, a spokesman for Tepco.

The temperature of the bottom of the No. 2 reactor pressure vessel was 76 degrees Celsius (167 Fahrenheit) at 5 a.m. today, compared with 77.4 degrees a day earlier and 77.5 degrees two days ago, according to Tepco’s data. Radiation levels taken near the west gate of the plant have been stable at about 11 microsieverts per hour for the past few days, the data shows.

Splitting Atoms

Should fissioning have occurred the injection of boron will have stopped it, said Tadashi Narabayashi, a former reactor safety researcher at Toshiba Corp. (6502) and now a nuclear engineering professor at Hokkaido University.

Fissioning involves the splitting of atoms, which, in the case of certain uranium isotopes, can lead to an uncontrolled reaction and emittance of radiation.

Tepco and the government have said they are on track to bring the damaged reactors into a safe state known as cold shutdown by the end of the year.

Tepco and the Japan Atomic Energy Agency are reexamining the gases, said Toshiyuki Koganeya, a spokesman for the Nuclear and Industrial Safety Agency, the government regulator.

Even if Tepco’s analysis is correct, nuclear fission would be taking place in a “very restricted part” of the reactor, said Koganeya. The regulator believes fuel accumulated at the bottom of the pressure vessel and containment vessel is unlikely to start melting again, he said.

Damaged Reactors

Fukushima sustained major damage at four of its six reactor buildings at the Dai-Ichi plant, including the three core meltdowns and possible damage to a spent fuel pool.

The radioactive cesium that flowed into the sea from the plant was 20 times the amount estimated by Tepco, according to the Institute for Radiological Protection and Nuclear Safety, which is funded by the French government.

The oceanic study estimates 27,000 terabecquerels of radioactive cesium 137 leaked into the sea from the plant. The

Fukushima station may have emitted more than twice the amount of radiation than estimated by the Japanese government at the height of the Fukushima accident, according to another study by the Atmospheric Chemistry and Physics journal.

Tepco has declined to comment on both studies.

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Teo Chian Wei at cwteo@bloomberg.net





Read more...

Poll to Confirm Greece in Euro: Papandreou

By Maria Petrakis, Natalie Weeks and Marcus Bensasson - Nov 2, 2011 7:04 PM GMT+0700

Nov. 2 (Bloomberg) -- Daniel Speckhard, a former U.S. ambassador to Greece, discusses the Greek debt crisis and the outlook for Prime Minister George Papandreou's leadership. Papandreou triggered the latest upheaval in the two-year-long debt crisis by abruptly announcing on Oct. 31 a parliamentary confidence vote and his desire to hold a referendum on Europe's bailout. Speckhard speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)


Greek Prime Minister George Papandreou stuck to plans to hold a referendum on Europe’s rescue package to confirm the nation’s membership of the euro amid signs his government may collapse.

“The referendum will be a clear mandate and strong message within and outside Greece on our European course and our participation in the euro,” Papandreou told his ministers in Athens early today, according to an e-mailed transcript. It will “ensure this course in the most decisive way.” The Cabinet voted unanimously to endorse the plan.

Papandreou flies to France today to face European leaders surprised by his decision to put the bailout plan to a national vote and call a confidence vote in parliament. His grip on power weakened after a lawmaker from his socialist Pasok party defected, leaving him with 152 deputies in the 300-seat chamber, while another, Vasso Papandreou, called for the formation of a national unity government.

Another four lawmakers have criticized the plans for the referendum, stopping short of defection, and six members of the party called on the premier to resign in a joint letter, Athens News Agency said yesterday. Opposition parties have ramped up calls for elections.

Antonis Samaras, head of the biggest opposition party, New Democracy, told his deputies in the Greek Parliament today that elections were imperative.

“Papandreou put the country at the epicenter of a global storm for his own interests,” Samaras said in a speech televised live on state-run NET TV. “We are at the point where his own lawmakers are telling him to leave and he remains.”

‘Yes or No’

Papandreou didn’t say what the exact question in the referendum would be.

“The dilemma isn’t ‘this or another government,’” Papandreou said. “The dilemma is ‘yes or no to the loan accord’, ‘yes or no to Europe’, ‘yes or no to the euro.’”

The euro erased a decline of as much as 0.5 percent against the dollar after Papandreou’s Cabinet backed his proposal. The currency was at $1.3771 per dollar at 1:19 p.m. in Athens, having earlier traded as low as $1.3637.

Papandreou’s decision to seek the support of Greek voters is a fresh challenge to a European Union-led bailout agreed last week that involves a 50 percent writedown on Greek debt and further austerity measures in that country. The risk is that rejection by a referendum would spark a disorderly default and call into doubt Greece’s membership of the euro.

Venizelos Leaves Hospital

Government spokesman Elias Mosialos told reporters in Athens after the meeting the referendum would be held “as soon as possible.” Finance Minister Evangelos Venizelos is being discharged from a one-day hospital stay to accompany Papandreou to Cannes, a ministry official said.

“Every day in dealing with the Greek deal is like getting on the Coney Island rollercoaster,” Charles Dallara, managing director of the Institute of International Finance, said on the BBC’s Newsnight program. “You take some sharp turns, they’re unexpected, and it rattles you around a little bit but then it settles out and you have to move forward and that’s what we’ve had to do in the past 36 hours or so. We remain focused on this deal.”

Papandreou, 59, wants to hold the referendum after details of last week’s second bailout package for Greece are approved. The vote of confidence in Parliament is currently scheduled to begin today and to conclude at the end of this week.

Talks in Cannes

Papandreou will travel to Cannes, France, today to brief German Chancellor Angela Merkel, French President Nicolas Sarkozy and European Central Bank President Mario Draghi and other officials on developments in the country. Merkel, Sarkozy and Draghi will meet at 6 p.m. local time in Cannes and be joined by Papandreou three hours later, a spokesman for Luxembourg Prime Minister Jean-Claude Juncker said.

The 6 p.m. meeting will also be attended by Juncker, European Commission President Jose Manuel Barroso, International Monetary Fund Managing Director Christine Lagarde and EU Monetary Affairs Commissioner Olli Rehn.

The new round of political turmoil throws into doubt Greece’s ability to access the emergency funding that’s keeping its finances afloat. The IMF’s Executive Board was due to meet in mid-November to decide on paying its part of the sixth bailout tranche, which is worth a total of 8 billion euros ($11 billion).

Germany Seeks Assurances

A German lawmaker from Merkel’s Christian Democrats, Wolfgang Bosbach who heads parliament’s interior-affairs committee, said he “can’t imagine” that the next bailout tranche for Greece will be disbursed without assurances that the country meets its commitments under the aid plan.

“Solidarity can’t just mean that we pay and accept liabilities for Greece, solidarity must also mean that Greece, the country that receives aid, meets its commitments,” Bosbach said on Germany’s ZDF public television.

Greek officials will also have to outline to international officials in the coming weeks how they will secure a seventh round of funding. Venizelos said the government needs to impose “rescue measures” to secure “the long-term sustainability of Greek public debt.” Greece has a 14.4 billion-euro bond maturing in March, Bloomberg data shows.

Papandreou’s confidence isn’t borne out by opinion polls. Most of the 1,009 people surveyed on Oct. 27, the day the new bailout package was announced, said the accord should be put to a referendum, according to the results of a 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.

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 editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Tim Quinson at tquinson@bloomberg.net


Read more...

Toyota, Honda Miss Forecasts of U.S. Gains

By Alan Ohnsman and Craig Trudell - Nov 2, 2011 5:37 AM GMT+0700

Toyota Motor Corp. (7203) and Honda Motor Co. posted U.S. sales declines for October rather than the increases they had forecast, while Nissan Motor Co. and Hyundai Motor Co. (005380) led gains for Asian automakers amid improving demand.

Deliveries fell 7.9 percent from a year earlier for Toyota and 0.5 percent for Tokyo-based Honda, as both did better than analysts had estimated. Sales rose 18 percent for Nissan, 23 percent for Hyundai and 21 percent for Kia Motors Corp. (000270) Total U.S. sales grew 7.5 percent, according to Autodata Corp.

“Unfortunately we came up a little short,” Bob Carter, Toyota’s group vice president of U.S. sales, said in a conference call yesterday, blaming a lower-than-expected supply of Corolla small cars. “If you’re watching on Skype, you can see I’m having crow for lunch.”

Toyota and Honda are trying to rebound from production losses caused by Japan’s March earthquake and now must contend with possible parts shortages because of flooding in Thailand. Even with their declines, industrywide U.S. sales rose to a seasonally adjusted annual rate of 13.3 million cars and light trucks, beating the 13.2 million average of 14 analyst estimates compiled by Bloomberg. It was the fastest pace since February.

Toyota sales were expected to fall 9.1 percent, the average of five estimates. The average for Honda was a 2.5 percent drop.

Late Skid

“The pace for both Toyota and Honda through the first three weeks of the month was pretty strong, so it still seemed possible” that they would report sales gains, said Jesse Toprak, an analyst at TrueCar.com, an industry pricing and data service in Santa Monica, California.

“The meltdown in the financial markets the last few days of the month and unseasonable weather in the East Coast did play a role in slowing sales at the end of the month,” he said.

Toyota’s Carter forecast an October gain after the Toyota City, Japan-based company reported September sales. Honda U.S. sales chief John Mendel predicted a sales increase in an interview last week.

Toyota, Asia’s largest automaker, reported sales of 134,046 Toyota, Lexus and Scion vehicles last month, a drop from 145,474 a year earlier.

The October decline cut Toyota’s U.S. market share for the month to 13.1 percent from 15.3 percent a year earlier, according to Woodcliff Lake, New Jersey-based Autodata.

Production is still improving and supplies of the new Camry sedan jumped to 35,000 units for sale this month, Carter said. Still, Toyota canceled overtime shifts at North American plants in Indiana, Kentucky and Canada as it assesses the effect of the Thai floods on parts.

Honda Outlook

Honda, which Mendel estimates missed out on 200,000 deliveries since the March earthquake, may lose some U.S. and Canadian output through late December because of parts shortages caused by the Thai floods, he told dealers this week.

“The Japanese who are just putting inventory back on dealer lots are now going to be again faced with more production shortfalls” because of the flooding, Maryann Keller, principal of a self-titled auto-industry consulting firm in Stamford, Connecticut, said in a Bloomberg Radio interview. The industry still is “in a modest upward trend,” she said.

Honda’s October sales fell to 98,333 Honda and Acura vehicles from 98,811 a year earlier. The company said that adjusting for one fewer selling day compared with October 2010, the deliveries rose 3.3 percent.

The company’s market share for the month was 9.6 percent, down from 10.4 percent a year earlier, Autodata said.

Nissan Gains

Nissan, Japan’s second-largest automaker, said its U.S. sales rose 18 percent last month, beating the 16 percent average of five analysts’ estimates. The Yokohama-based company’s deliveries totaled 82,346, up from 69,773, including gains of more than 40 percent for Versa and Sentra small cars and a 37 percent increase for Juke crossovers.

Market share for Nissan rose to 8.1 percent from 7.3 percent, according to Autodata.

“We’d have done even better if it weren’t for that northeaster that screwed things up in the East Coast,” Al Castignetti, Nissan’s vice president of U.S. sales, said in an interview. He estimated that the Nissan brand lost about 1,000 sales during the past weekend as a result of the storm.

The U.S. Northeast’s biggest October snowstorm in decades knocked out power to more than 3 million homes and businesses.

Hyundai, Kia

Hyundai, South Korea’s largest automaker, reported a sales increase of 23 percent to 52,402 units for the month. The Seoul- based company’s gains were led by Sonata and Elantra sedans and the new three-door Veloster hatchback.

Kia, a Hyundai affiliate and South Korea’s second-biggest automaker, said its sales rose 21 percent to 37,690 vehicles, paced by deliveries of Optima sedans and Soul wagons.

Combined sales for the two companies, which operate separately, increased 22 percent in October. The average estimate of three analysts was for a 15 percent gain.

Hyundai’s U.S. market share advanced to 5.1 percent from 4.5 percent a year earlier, while Seoul-based Kia’s was up 0.4 percentage point to 3.7 percent, Autodata said.

“I don’t think Hyundai can continue to grow at this 20 percent pace next year,” said Toprak, the TrueCar analyst. “But we should still see stable growth for Hyundai and Kia through 2012.”

To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net





Read more...

Obama Uses Local Television Stations to Sell Jobs Plan, Pressure Congress

By Kate Andersen Brower - Nov 2, 2011 6:25 AM GMT+0700

President Barack Obama bypassed national news outlets by appearing on local television stations from Florida to Oregon to make the case for his jobs plan.

With Obama’s re-election hinging on the state of the economy and congressional Republicans blocking his $447 billion package of tax cuts and spending, the administration invited stations from some key electoral states for interviews with the president and briefings with White House officials.

“What we need right now is Congress to go ahead and act,” he said in an interview with WTVT in Tampa, Florida. “They have been not acting in the interests of Floridians or the American people, we need to get moving.”

The president used the interviews to promote the plan that he introduced in September as he heads into an election year with the nation’s unemployment rate stalled at 9.1 percent. Senate Democrats are seeking action this week on two parts of his plan: a $60 billion measure funding infrastructure projects and a House-passed bill repealing a tax-withholding requirement for government contractors.

Tomorrow the president will make remarks at a bridge linking Washington with its suburbs in Virginia to highlight spending proposals for nation’s transportation system.

Obama blocked out an hour and twenty minutes in his schedule to tape nine five-minute television interviews with local stations including the Tampa outlet, Philadelphia’s WPVI; Minneapolis’s WCCO; Portsmouth, Virginia’s WAVY, and Denver’s KUSA. Florida, Pennsylvania, Minnesota, Virginia and Colorado will be battleground states in the 2012 presidential election. He also was interviewed by KTRK in Houston, KSAZ in Phoenix, KETV in Omaha, Nebraska and KGW in Portland, Oregon.

Local Issues

Many of the questions focused on national issues with local significance. In his interview with WAVY in Virginia, Obama was asked about the congressional supercommittee charged with coming up with a deficit reduction plan and the impact of defense cuts in the Portsmouth area.

“There’s no reason why you have to see those kinds of draconian defense cuts as long as Congress does its job,” he said. “The way to do it is to have a balanced approach, the one that I advocated, which says you’ve got to not only reduce spending but you’ve also got to have additional revenues from the most fortunate.”

White House press secretary Jay Carney said the president is seeking to reach a broader audience.

“There are Americans all around the country in the many, many millions who get their news primarily through local television, local affiliates,” Carney said. “We need to reach Americans where they live, if you will, to communicate with them via the media that they consume.”

To contact the reporters on this story: Kate Andersen Brower in Washington at Kandersen7@bloomberg.net

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





Read more...

OpenTable Shares Drop After Third-Quarter Revenue Falls Short of Estimates

By Nick Turner - Nov 2, 2011 4:56 AM GMT+0700

OpenTable Inc. (OPEN), the restaurant- reservation website, tumbled as much as 16 percent in extended trading after third-quarter sales missed analysts’ estimates.

Revenue rose 40 percent to $34.4 million, the San Francisco-based company said today in a statement. Analysts had projected $35.8 million, according to Bloomberg data. Excluding some items, profit was 30 cents a share, matching predictions.

While OpenTable is attracting more restaurants and diners to its network, the company faces a sluggish economy, rising employee costs and mounting competition. Google Inc. pushed deeper into the market in September with the acquisition of the Zagat restaurant guides.

OpenTable plunged as much as $7.10 to $36 in late trading following the report. The shares, already down 39 percent this year, had closed at $43.10.

Operating expenses jumped 43 percent to $28.5 million, outpacing sales growth. The costs were fueled by a 51 percent increase in staff, the company said. Net income rose 5.8 percent to $4.06 million, or 17 cents a share, from $3.84 million, or 16 cents, a year earlier.

OpenTable now works with 23,866 restaurants, a 57 percent increase from the year-earlier period. The number of seated diners who used the service climbed 48 percent to 23.6 million in the quarter. Toptable.com, a 2010 acquisition, helped boost international reservations, the company said.

“We’re pleased with the progress we made in our international segment,” Chief Executive Officer Matt Roberts said in the statement.

To contact the reporter on this story: Nick Turner in San Francisco at nturner7@bloomberg.net

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




Read more...

JPMorgan Seeks Lien on All MF Global Assets

By Linda Sandler, David McLaughlin and Tiffany Kary - Nov 2, 2011 1:31 AM GMT+0700

JPMorgan Chase & Co. (JPM) seeks a lien on all of MF Global Holdings Ltd.’s assets and may have a lien on its operating account balance of $26.6 million, the bank said.

MF Global, which filed for bankruptcy with assets of $41 billion, has five operating accounts, all with JPMorgan. The bank may have a lien on the entire balance because of so-called setoff rights related to a credit line to MF Global where it acts and agent and lender, the New York-based bank said in a filing.

“JPMorgan asserts, and the debtors admit, that ‘by virtue of such setoff rights, such funds may be subject to liens in favor of’” JPMorgan, it said.

Lenders move to protect themselves after a bankruptcy filing. JPMorgan, the biggest U.S. bank, made the statement in an objection filed in U.S. Bankruptcy Court in Manhattan today to a cash management plan proposed by the company. Limits should be placed on the company’s use of cash, it said.

JPMorgan holds less than $80 million of the MF Global’s debt, said Joseph Evangelisti, a spokesman for the New York- based bank and acts as an agent to lenders for a $1.2 billion credit line to MF Global Holdings and a $300 million credit line to its broker-dealer unit.

Protect Collateral

JPMorgan seeks the on all of MF Global’s assets to protect its collateral, including proceeds of potential lawsuits, as well as reimbursement for its own legal fees in the bankruptcy, it said in the filing. The bank also asked Bankruptcy Court judge Martin Glenn in Manhattan to limit intercompany transfers and order the company to deliver it a budget and full list of its assets. MF Global has asked to have until Jan. 30 to report a full list of its assets and debts. Glenn will hold a hearing today beginning at 3 p.m.

“Although JPMorgan is hopeful the debtors will be able to generate meaningful recoveries for creditors, no one, including the debtors, can predict whether, when and to what extent this may actually occur,” lawyers from Simpson, Thacher & Bartlett LLP wrote, representing the bank.

JPMorgan said it won’t allow its collateral to backstop payment of the administrative expenses for MF Global’s bankruptcy. MF Global asked for a carve-out for some of its professionals of $4 million, which would apply if a reorganization fails and there aren’t enough assets to pay for the costs of liquidation.

No Recovery Prediction

MF Global’s request should be limited because the firm has “no reliable basis for predicting the extent to which creditors may expect to see a recovery here,” JPMorgan said in a filing today in bankruptcy court.

“There is a real risk that every dollar of cash collateral spent as the debtors propose will be potentially lost” if the request is granted, the bank said.

MF Global filed the eighth-largest U.S. bankruptcy yesterday, after failing to find a buyer over the weekend. The New York-based futures broker suffered a ratings downgrade and loss of customers after revealing it had investments related to $6.3 billion in European sovereign debt, leading to the filing. Regulators are investigating hundreds of millions of dollars that may be missing from its client accounts, two people have told Bloomberg News.

MF Global drew almost all of a $1.2 billion credit line that was amended last year to give it more liquidity, and its broker-dealer unit has borrowed about $210 million of a $300 million secured credit line. JPMorgan Chase is the agent to lenders who supplied credit for both loans.

The bankruptcy 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: Linda Sandler in New York at lsandler@bloomberg.net; Tiffany Kary in New York at tkary@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





Read more...

U.S. Lawmakers to Propose Transaction Tax

By Phil Mattingly - Nov 2, 2011 4:53 AM GMT+0700

Two U.S. lawmakers will introduce measures to impose a transaction tax on financial firms that resembles a proposal released by the European Union.

Senator Tom Harkin, an Iowa Democrat, and Representative Peter DeFazio, an Oregon Democrat, will introduce the bills tomorrow in their respective chambers. The bills will give the United States an increased role in the international debate over a transaction tax, which is likely to be discussed at the Group of 20 summit this week in Cannes, France.

“It’s a significant way to raise some needed revenue,” Harkin said in an interview today in Washington. “Quite frankly, I bet nobody would even feel it.”

The European Union in September proposed a financial- transaction tax that would take effect in 2014 and raise about $57 billion euros ($78 billion) a year. Germany and France have led a push for global implementation.

The bills are unlikely to become law: Republicans, who have opposed transaction taxes in the past, control a majority in the House. President Barack Obama’s administration has also voiced concerns over the proposal and declined to give a direct endorsement in advance of the G-20 summit that opens Nov. 3.

The chances a transaction tax could pass in the U.S. “are less than 50/50” primarily because of Republican opposition, Brian Gardner, senior vice president of research for Keefe, Bruyette & Woods Inc. in Washington, said in a Sept. 28 note to clients.

U.S. exchange operators fell the most since August on the news that the lawmakers would propose the tax.

Stocks Drop

NYSE Euronext (NYX) declined 6.8 percent, the most since Aug. 18, to $24.76, while Nasdaq OMX Group Inc. (NDAQ) fell 2.8 percent to $24.36. CME Group Inc. (CME) slumped 8.6 percent to $251.88 in the biggest retreat since Aug. 10.

The exchanges would be negatively affected by the tax because “volume will drop off,” Sam Ginzburg, a partner and head of capital markets at First New York Securities LLC, a New York-based proprietary trading firm, said today.

“I shudder to think of the landscape of the market if this happens,” Ginzburg said.

Harkin and DeFazio introduced similar proposals in recent years that fell short; the lawmakers expressed hope that the European proposals may increase support in the U.S. Congress.

Lower Rate

Harkin and DeFazio are proposing a lower rate for the U.S. While the EU proposal would apply a tax of 0.1 percent on trades of stocks and bonds, the U.S. tax would be “about three basis points” or 0.03 percent, Harkin said.

“We’re simplifying it, looking at a lower rate and actually substantially mirroring the proposal in Europe,” DeFazio said in an interview.

The lawmakers have the backing of union groups and associations that fought for tighter regulations in the wake of the 2008 financial crisis. The AFL-CIO and National Nurses United, a professional association and union for nurses, have scheduled a rally in front of the Treasury Department on Nov. 3 in support of the fee.

Americans for Financial Reform, an umbrella group of unions, civil rights lawyers and consumer advocates, is circulating petitions in support of the measure.

Obama administration officials support efforts to assess fees on financial firms that pose a risk to the larger economy; however, they oppose levying fees on ordinary investors.

Retail Investors

“We’re very much synched up with the goal of assuring that the largest financial institutions” bear the burden for risky investments, Lael Brainard, the Treasury undersecretary for international affairs, told reporters yesterday. The Obama administration has proposed a “financial crisis responsibility fee” to be paid by the largest banks, not retail investors.

Bank trade groups like the Financial Services Forum and Securities Industry and Financial Markets association have opposed transaction tax proposals in the past. In September, they joined with five other business trade groups to send a letter to Treasury Secretary Timothy F. Geithner opposing the idea, which was gathering support in Europe.

“The G-20 members have committed to work together to support policies that will lead to strong, sustainable and balanced growth,” the trade groups, which included the U.S. Chamber of Commerce and the Business Roundtable, wrote in the Sept. 22 letter. “The imposition of a financial transaction tax would run counter to achieving these objectives.”

The European Commission, the EU’s executive arm, will discuss its proposals for a transaction tax at this week’s summit in France, EU officials said last week. There is not yet strong support for a global tax, so discussions will serve as a way to keep the topic in focus for future years, the officials said.

To contact the reporter on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net




Read more...

MF Global Failed to Separate Client Collateral From Own Accounts, CME Says

By Silla Brush and Matthew Leising - Nov 2, 2011 2:15 AM GMT+0700

Nov. 1 (Bloomberg) -- Andrew Stoltmann, a Chicago lawyer who represents investors in securities litigation, talks about MF Global Holdings Ltd. and prospects for stronger securities regulation. MF Global, under investigation by U.S. regulators after filing for bankruptcy protection, violated requirements that it keep clients’ collateral separate from its own accounts, said CME Group Inc. Chief Executive Officer Craig Donohue on a conference call with analysts today. Stoltmann speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Nov. 1 (Bloomberg) -- Darrell Duffie, a professor at Stanford University's Graduate School of Business, talks about allegations that MF Global Holdings Ltd. violated requirements that it keep clients' collateral separate from its own accounts. He speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Nov. 1 (Bloomberg) -- William Cohan, author of "Money and Power: How Goldman Sachs Came to Rule the World" and a Bloomberg View columnist, talks about the performance of MF Global Holdings Ltd. Chief Executive Officer Jon Corzine. MF Global told regulators about potential "deficiencies" in some customer accounts, according to a statement by the Securities and Exchange Commission and the Commodity Futures Trading Commission. Cohan speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)


MF Global Holdings Ltd. (MF), under investigation by U.S. regulators after filing for bankruptcy protection, violated requirements that it keep clients’ collateral separate from its own accounts, the head of the world’s largest futures exchange said.

Craig Donohue, CME Group’s chief executive officer, said on a conference call with analysts today that MF Global isn’t in compliance with the rules of the exchange and the Commodity Futures Trading Commission.

“While we are unable to determine the precise scope of the firm’s violation at this time, we are investigating the circumstances of the firm’s failure,” Donohue said.

MF Global, the holding company for the futures broker run by former New Jersey Governor and ex-Goldman Sachs Group Inc. Co-Chairman Jon Corzine, is being investigated by regulators for hundreds of millions of dollars that may be missing from client accounts, according to two people with knowledge of the matter.

CME Group’s Chicago Mercantile Exchange is the designated self-regulatory organization for MF Global, meaning it audits and monitors the firm’s positions on a regular basis, said Laurie Bischel, a CME Group spokeswoman.

MF Global told regulators yesterday about shortfalls in accounts that it managed for clients in the futures market, the CFTC and Securities and Exchange Commission said in an e-mailed statement. MF Global was ordered by the CFTC’s enforcement division to preserve records for the review, said one of the people, who spoke on condition of anonymity because the probe isn’t public.

Shortfall

The shortfall may be about $700 million, two other people with knowledge of the matter said today.

Corzine, 64, now faces a regulatory probe as well as a bankruptcy. He wagered $6.3 billion of the firm’s own money on sovereign European debt in a bid to increase profits. Dozens of MF Global employees were involved in structuring, booking and clearing the trades tied to European debt, and the company’s board of directors approved the transactions, according to a person familiar with the situation.

The firm reported a $191.6 million quarterly loss on Oct. 25 as Europe’s debt crisis led to demands from regulators to boost capital, as well as credit downgrades and margin calls, MF Global President Bradley Abelow said.

BlackRock Role

BlackRock Solutions, a unit of BlackRock Inc., was called in on Oct. 28 to examine MF Global’s balance sheet and determine if some assets could be sold, according to a person briefed on the discussions. BlackRock ended its review when it became clear the firm wouldn’t find buyers and that there were shortfalls in client accounts, said the person, who spoke on condition of anonymity because the talks were private.

Bobbie Collins, a spokeswoman for BlackRock, declined to comment.

Corzine and Diana Desocio, an MF Global spokeswoman, didn’t respond to e-mails or phone messages seeking comment.

Under the regulations, futures brokers that trade on exchanges are required to keep their clients’ collateral, often cash or securities, separate from their own accounts. The segregated collateral is meant to reduce risk in futures trades. MF Global had almost $7.3 billion in customer funds in segregated accounts as of Aug. 31, according to the most recent CFTC data.

“It’s kind of considered the third rail of the brokerage industry that when you’re holding your customers’ funds in their names, you don’t touch them -- even in an emergency situation when you’re running short of cash,” Darrell Duffie, a professor at Stanford University’s Graduate School of Business, said in a telephone interview.

‘Mishandled’

“The fact that the CME has stated that customer funds have been mishandled increases the likelihood that this is not just a simple accounting error or IT glitch,” he said. “The CME obviously has access to its own clearing account records and would probably have based its statement on a review of those records.”

The missing funds were reported yesterday by the New York Times. MF Global customers have been calling the Washington offices of the Securities Investor Protection Corp. today asking for their money, a lawyer for the corporation said.

“What customers ask is, ‘When am I getting my money?’” said Kevin Bell, senior associate general counsel of the government-created entity, which is overseeing the liquidation of the brokerage. “You tell them to sit tight, and start gathering their information so they can file claims. Canceled checks, trade confirmations, account statements.”

‘Prudent’

The regulators said in their statement yesterday that they advised bankruptcy as the “safest and most prudent course of action to protect customer accounts and assets.”

MF Global listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed in U.S. Bankruptcy Court in Manhattan.

Corzine, who won the top job at Goldman Sachs by leading the firm’s fixed-income unit, was recruited to the firm in 1975 as a trainee on the government bond desk. He graduated in 1969 from the University of Illinois at Urbana-Champaign, served in the Marine Corps Reserve and received his master’s degree in business administration from the University of Chicago in 1973.

Senate

Corzine, a Democrat, was elected to the U.S. Senate a year after he left Goldman Sachs in 1999 with an estimated $400 million as the firm went public. He became governor in 2006 and was defeated in November 2009 by Republican Chris Christie.

MF Global’s board met through the weekend to consider options including a sale, a person with direct knowledge of the situation said. The firm was in discussions with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, a person with knowledge of the matter said on Oct. 28.

Interactive Brokers Group Inc. decided against a rescue early yesterday after a discrepancy surfaced in MF Global’s customer accounts, said Hans Stoll, an Interactive Brokers board member and a professor of finance at Vanderbilt University in Nashville, Tenn.

“The board certainly considered that purchase and stepped away from it at a point where it became clear there were lots of uncertainties about the accounts and segregated funds and those sorts of things,” Stoll said in a telephone interview.

Even if Interactive Brokers had decided to go ahead, regulators wouldn’t have approved a deal because of the uncertainty over client funds, one of the people with knowledge of the matter said today.

Thomas Peterffy, Interactive Brokers’ chief executive officer, declined to comment today.

“The first thing you do in any liquidation is go through the accounts and figure out what’s in there and whether they’ve been properly credited,” said Peter Henning, a law professor at Wayne State University in Detroit. “If they say it’s been credited and in fact they’re not there, then you have some very major problems.”

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net




Read more...

Bank of America Eliminates Plan for $5 Debit-Card Fee

By Hugh Son - Nov 2, 2011 3:59 AM GMT+0700

Nov. 1 (Bloomberg) -- Bank of America Corp. (BAC), the second- biggest U.S. lender by deposits, abandoned plans to charge $5 a month for debit cards after a nationwide backlash from consumers and lawmakers.

The bank canceled the fee, which would have started in January, after listening “to our customers very closely,” David Darnell, co-chief operating officer, said in a statement today. The lender also cited competitive pressure.

Bank of America reversed course after rivals including JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) decided against similar charges, leaving the Charlotte, North Carolina-based firm the only U.S. lender among the biggest five with plans to introduce the fee. Citigroup Inc. (C) and U.S. Bancorp had already rejected the idea, while SunTrust Banks Inc. (STI) and Regions Financial Corp. eliminated their check-card fees yesterday.

“For a lot of consumers, this was the last straw,” said Jean Ann Fox, director of financial services for the Washington- based Consumer Federation of America. “Banks have been making a lot of changes to accounts, adding fees and raising the minimum balance needed, and consumers were clear that they objected to one more fee.”

Card issuers must seek other ways to replace revenue lost after the U.S. capped fees on debit-card purchases last month at about half the previous level. The limits, mandated by the Dodd- Frank Act, may cut annual revenue by $8 billion at the biggest U.S. banks, according to data compiled by Bloomberg Government.

Bank of America fell 6.3 percent to close at $6.40 in New York. The shares have dropped 52 percent this year, the worst performance in the Dow Jones Industrial Average (INDU) and the 24- company KBW Bank Index.

Big Retail

Some of the largest chain stores backed the cap, and the Arlington, Virginia-based Retail Industry Leaders Association said in a statement today that the trade group plans to push for similar relief on credit cards.

Lenders will “find more subtle ways to make up for this lost revenue, increases that may fly under the radar,” said Bill Hardekopf, chief executive officer of Birmingham, Alabama- based research firm LowCards.com. “Banks may increase existing fees or raise the introductory interest rates on credit cards.”

Bank of America CEO Brian T. Moynihan, 52, had defended Bank of America’s plans, saying Oct. 18 that the debit-card fee would encourage customers to use more services with the company so they’d be exempt.

Customers Protest

The charges had fueled demonstrations in Los Angeles and Boston and prompted a Washington woman to collect more than 300,000 petitions in protest. President Barack Obama criticized the moves as “not necessarily fair to consumers” and Representative Brad Miller, a North Carolina Democrat and member of the Financial Services Committee, introduced a bill last month that would make it easier to switch banks.

Last week, Bank of America managers considered adding ways customers could avoid the fee, including setting up direct deposits or using credit cards, said a person with knowledge of the lender’s plans. The company dropped the fee entirely after it became clear it was among the only firms that still planned to assess it, the person said.

“Consumers across America have a much larger voice in this process today than they did even a few weeks ago,” U.S. Senator Richard Durbin, an Illinois Democrat who pushed for the fee caps, said today.

Bank of America said Sept. 29 it would charge customers who used their debit cards for purchases if they had less than $20,000 in total balances or lacked a mortgage or Merrill Lynch brokerage account, drawing criticism that it would mostly hurt lower-income customers.

“The public backlash over debit-card fees should serve as a big wake-up call to banks that they can’t take their customers for granted,” Pamela Banks, senior policy counsel for Consumers Union, the advocacy arm of Consumer Reports magazine, said in a statement.

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

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net





Read more...

All MF Global Funds Accounted For, Held by Brokerage

By Tiffany Kary and Linda Sandler - Nov 2, 2011 5:35 AM GMT+0700

MF Global Holdings Ltd. (MF), run by former New Jersey governor and Goldman Sachs Group Inc. (GS) co- chairman Jon Corzine, has accounted for all its customer funds, said Kenneth Ziman, a lawyer for MF Global, citing the company’s management.

“To the best knowledge of management, there is no shortfall,” Ziman told U.S. Bankruptcy judge Martin Glenn in Manhattan, who inquired about whether a shortfall in customer accounts would affect the case, citing media reports that hundreds of millions of dollars were missing. Most of MF Global’s U.S. assets are held at its brokerage unit, Ziman said.

The brokerage unit is not part of the main bankruptcy case, in which creditors are trying to recover on their claims against the company. The Securities Investor Protection Corp. has appointed a trustee to liquidate the assets in the brokerage.

SIPC, which has people in New York looking at MF Global’s assets, said it hasn’t verified whether the assets are accounted for, said Stephen Harbeck, SIPC’s president and chief executive officer.

“I certainly hope it’s true, but it’s far too early for me to know one way or the other,” Harbeck said.

Trustee James Giddens’s spokesman Jake Sargent didn’t immediately respond to an e-mail seeking comment on the MF Global lawyer’s assertion.

Shot Out of Cannon

MF Global’s ratings downgrade and earnings report “created a circumstances like a rock rolling down the hill, except for us the rock was shot out of a cannon,” Ziman said, describing events leading up to the filing.

MF Global filed the eighth-largest U.S. bankruptcy yesterday, after failing to find a buyer over the weekend. The New York-based futures broker suffered a ratings downgrade and loss of customers after revealing it had investments related to $6.3 billion in European sovereign debt, leading to the filing. Regulators are investigating hundreds of millions of dollars that may be missing from its client accounts, two people have told Bloomberg News.

Glenn asked whether the bankrupt units owed other subsidiaries money, or the other way around, and how that would affect the case.

“I don’t know which way the money is running, whether the intercompany balances are positive or negative with respect to MF Global,” Glenn said.

No Money

“There is no money flowing,” Ziman answered the judge, saying that most of the company’s U.S. assets are with its broker dealer, and foreign funds are mostly with regulated entities.

MF Global has blocked all outstanding checks and won’t try to pay pre-bankruptcy claims, Ziman said. He told the judge the company is spending $2.7 million to $3 million every ten days.

JPMorgan Chase & Co. (JPM) was granted a lien on all of MF Global Holding’s available assets and given other protections under an agreement that will let MF Global access $8 million of its cash collateral. The bank said in a court filing that it may have a lien on its operating account balance of $26.6 million.

Glenn approved MF Global’s use of the $8 million cash collateral until Nov. 14, when he’ll consider further requests for funding. At the rate the company is spending, that would keep it operating for about a month. Glenn said he was concerned about whether there will be anything left for other creditors as MF Global has very few liquid assets.

Lawsuit Recoveries

Glenn said his approval is subject to a final order detailing how MF Global will use the cash. He also approved what he called an extraordinary measure that will let MF Global give JPMorgan rights to certain lawsuit recoveries as protection of its collateral. Under bankruptcy law, creditors can seek to recover money transferred out of the estate for 90 days prior to its filing.

Glenn asked Ziman how much was transferred out of the two bankrupt entities in the 90 days prior to the filing. Ziman said he didn’t know.

Ziman told Glenn the company may need to come back to court before Nov. 14, as it’s currently working on getting a so-called debtor-in-possession loan to fund operations as it reorganizes.

Lawsuit proceeds, which could seek to recover money transferred out of the company before its bankruptcy, could be the only assets to provide recoveries to unsecured creditors, Glenn said.

JPMorgan Objects

JPMorgan had earlier objected to the decision to use its collateral.

“These are truly extraordinary circumstances,” said Peter Pantaleo, a lawyer representing JPMorgan Chase. “We have businesses that have lost 70 to 80 percent of their asset value, and been seized by regulators.”

“This really is money at risk, it’s one lender being pressed into service as an involuntary debtor-in-possession lender, lending against God knows what,” Pantaleo told Glenn. “This may be the only recovery this creditor has.”

Most companies in bankruptcy receive a new loan from a large lender or outside party, known as debtor-in-possession financing, to fund their Chapter 11 case. MF Global is working on lining up such financing, Ziman told Glenn.

The company needs access to the cash “to essentially live to fight another day at the parent company level,” and to make investments in its non-debtor units to try and bring value to the estate, Ziman said. “This is lifeline cash,” he said.

Five Accounts

MF Global, which filed for bankruptcy with assets of $41 billion, has five operating accounts, all with JPMorgan. The bank may have a lien on the entire balance because of so-called setoff rights related to a credit line to MF Global where it acts as agent and lender, the New York-based bank said in a filing.

JPMorgan holds less than $80 million of MF Global’s debt, said Joseph Evangelisti, a spokesman for the biggest U.S. bank. It acts as an agent to lenders for a $1.2 billion credit line to MF Global Holdings and a $300 million credit line to its broker- dealer unit.

MF Global drew almost all of a $1.2 billion credit line that was amended last year to give it more liquidity, and its broker-dealer unit has borrowed about $210 million of a $300 million secured credit line.

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

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





Read more...

Merkel, Sarkozy Press Greece to Stick to Bailout

By Rebecca Christie - Nov 2, 2011 2:21 AM GMT+0700

European leaders pressed Greece to uphold the terms of a five-day-old bailout in a bid to stop the deal unraveling on the eve of a global summit, after Prime Minister George Papandreou said he’d put the plan to a referendum.

German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks on Greece today and called on Europe to implement the package of measures thrashed out in Brussels last week.

The referendum proposal “surprised all of Europe,” Sarkozy told reporters in Paris. “The plan adopted unanimously by the 17 members of the euro area last Thursday is the only possible way to resolve the problem of Greek debt.”

The plan, designed to aid Greece and stem the wider debt crisis, is “more necessary than ever today,” Merkel and Sarkozy said in a joint statement issued in Berlin and Paris. Germany and France “are convinced that this agreement allows Greece to return to lasting growth” and want to draw up a road map for locking in the second Greek bailout.

Italian Prime Minister Silvio Berlusconi separately called an emergency meeting with ministers tonight in Rome to discuss austerity measures after Italy’s 10-year borrowing costs climbed to the highest levels relative to German bunds since before the creation of the euro.

Papandreou Announcement

Papandreou’s unexpected announcement that he will hold a confidence vote and referendum threatens to overshadow a Nov. 3- 4 Group of 20 summit in Cannes, France. European leaders had designated the talks as a stage to present their plan to stamp out the crisis and end the threat to the global economy.

Crisis talks will in effect start the meeting one day early, as Merkel and Sarkozy are due to meet with European officials and International Monetary Fund representatives in Cannes tomorrow, according to their joint statement. Papandreou, whose country is not a G-20 member, will also travel to the French resort tomorrow, a Greek official said. He will then speak in the Greek parliament Nov. 3 during the vote of confidence.

‘Fully Trust’

“We fully trust that Greece will honor the commitments undertaken in relation to the euro area and the international community,” European Council President Herman Van Rompuy and European Commission President Jose Barroso said in a joint e- mailed statement that acknowledged Greece’s move.

EU officials had hoped to use the Oct. 27 rescue agreement, which includes renewed commitments to fiscal austerity as well as new rescue resources, to anchor their economic agenda at the G-20 summit. Now, officials meeting as the confidence vote plays out in Athens will be called on to assess the deal’s -- and the euro’s -- future, especially if Papandreou’s government falls and Greece comes under more pressure to default or leave the common currency.

“Uncertainty and fear is palpable,” Marc Chandler, chief currency strategist at Brown Brothers Harriman in New York, said by e-mail. “The political cost of the economic austerity does not appear fully appreciated by policy makers or investors.”

Sarkozy was due to meet with Prime Minister Francois Fillon, Finance Minister Francois Baroin, Budget Minister Valerie Pecresse and Bank of France Governor Christian Noyer at 5 p.m. today to discuss Greece. Le Monde newspaper, citing unnamed people close to Sarkozy, said that he was “dismayed” by the Greek plan.

Papandreou Popularity

The Greek prime minister’s personal and government popularity have plunged as cost-cutting measures have sparked a wave of social unrest. The Greek leader announced a confidence vote yesterday that will conclude late on Nov. 4. The referendum would probably be held after the details of the European accord are worked out.

European leaders agreed to boost the European Financial Stability Facility’s firepower to 1 trillion euros ($1.4 trillion), set aside 100 billion euros for Greece and provide 30 billion euros in collateral for a debt swap that will give Greece’s investors new, lower-risk bonds at 50% of the existing bonds’ face value.

The Institute of International Finance, a Washington-based banking group that took part in the debt swap negotiations, affirmed its commitment to the Oct. 27 agreement. “We will work closely with the Greek authorities, euro-area officials and other relevant parties to agree on, finalize and move toward implementation of the details of the voluntary private-sector involvement,” the IIF said in an e-mailed statement today.

Greek Debt

The deal to reduce Greece’s debt load will do nothing to aid the country’s recovery from recession, opposition New Democracy leader Antonis Samaras said on Oct. 27. Papandreou’s majority meanwhile slipped to two today amid a party rebellion.

Whether the EU’s plan would succeed “was a matter for debate. But at least there was a plan,” Yiannis Koutelidakis of Fathom Financial Consulting in London, said in a note. “The risks engendered by this move are profound for the euro in general, not just for Greece as the expulsion of any one member state would critically undermine the Economic and Monetary Union.”

EU officials are now delving into the logistics of how to execute the new plan, such as the precise terms of the debt swap and operations under the rescue fund’s expanded scope. Barroso and Van Rompuy said they expect to discuss the debt crisis “in the margins” of the G-20 meetings. They spoke with Papandreou by phone, their statement said. Papandreou spoke with Merkel today, a Greek official said.

Greece’s Decision

Greece’s decision to call a referendum blindsided its European partners and placed another hurdle in the way of efforts to stanch the debt crisis, according to German lawmakers and others monitoring European developments.

The announcement came “out of the blue, it’s surprising, very risky,” Norbert Barthle, the ranking member of Merkel’s Christian Democratic Union on parliament’s budget committee, said in a telephone interview. “There’s an enormous amount at stake. Do we know how the Greek people will treat their government in this referendum? No. We have a new unknown.”

To contact the reporter on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net

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




Read more...

U.S. Stocks Slump Amid Greece Concern

By Rita Nazareth - Nov 2, 2011 4:18 AM GMT+0700

Nov. 1 (Bloomberg) -- Michael Crofton, chief executive officer at Philadelphia Trust Co., talks about the outlook for U.S. stocks, investment strategy and the European sovereign debt crisis. He speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Nov. 1 (Bloomberg) -- Abby Joseph Cohen, senior U.S. investment strategist at Goldman Sachs Group Inc., talks about the outlook for U.S. stocks and Europe's debt crisis. Cohen speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)


U.S. stocks dropped, driving the Standard & Poor’s 500 Index to the biggest two-day slump in a month, on concern that a Greece referendum pledged by Prime Minister George Papandreou may threaten Europe’s bailout.

All 10 groups in the S&P 500 fell as gauges of financial, energy and industrial shares lost at least 3 percent. Citigroup Inc. (C) and Morgan Stanley retreated more than 7.6 percent, following a 6.2 percent tumble in European lenders. Exchange operators slumped after U.S. lawmakers said they will propose a tax on financial transactions such as stock and bond trades.

The S&P 500 decreased 2.8 percent to 1,218.28 as of 4 p.m. New York time, extending its two-day retreat to 5.2 percent, the biggest drop since Oct. 3. The Dow Jones Industrial Average declined 297.05 points, or 2.5 percent, to 11,657.96 today.

“I just don’t get it,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “A Greek referendum is a very risky proposition. Everybody thought last week that this crisis was behind us on a near-term basis, but Europe is going to be front and center.”

Today’s decline followed the best monthly gain for the S&P 500 since 1991. The drop cut the index’s price to 12.8 times reported earnings, 22 percent below its five-decade average of 16.4, according to data compiled by Bloomberg. The index trades close to the level where three rallies stopped in August and September, the top of a price range that prevailed for 10 weeks.

Greece’s referendum poses a threat to financial stability in the euro region and increases the risk of a “disorderly” default, Fitch Ratings said. Stocks extended losses as government spokesman Angelos Tolkas said Papandreou will proceed with plans for a referendum on the Greek financing package.

Group of 20

Papandreou’s announcement threatens to overshadow a Nov. 3- 4 Group of 20 summit in Cannes, France. German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks on Greece today and called on Europe to implement the package of measures thrashed out in Brussels last week. The plan, designed to aid Greece and stem the wider debt crisis, is “more necessary than ever today,” they said in a joint statement issued in Berlin and Paris.

“It’s frustrating,” David Kelly, chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “The danger of having a referendum is that it could be defeated, in which case Greece presumably would end up defaulting on its debt. Europe is not addressing the basic problem. They are not giving the peripheral countries a way out of a recession.”

Banks Tumble

American banks tumbled following losses in European lenders. The KBW Bank Index (BKX) slumped 4.9 percent as all of its 24 stocks retreated. Citigroup dropped 7.7 percent to $29.17. Morgan Stanley lost 8 percent to $16.23.

MF Global Holdings Ltd., which the New York Stock Exchange is delisting following the brokerage’s bankruptcy filing, will begin trading tomorrow on the over-the-counter venue run by OTC Markets Inc. MF Global shares haven’t changed hands during a regular trading session since Oct. 28, before yesterday’s Chapter 11 filing.

Stocks also fell after data showed a Chinese manufacturing index dropped to the lowest level since February 2009. In the U.S., manufacturing grew less than forecast in October, depressed by a drop in inventories that may set U.S. factories up for stronger growth heading into 2012.

The Morgan Stanley (MS) Cyclical Index lost 3.2 percent amid concern about an economic slowdown. The Dow Jones Transportation Average slid 2.6 percent. General Electric Co. retreated 4.1 percent to $16.02. Exxon Mobil Corp. slumped 2.8 percent to $75.94.

Exchange Operators Sink

Exchange operators sank. Senator Tom Harkin, an Iowa Democrat, and Representative Peter DeFazio, an Oregon Democrat, said they will introduce bills tomorrow in their respective chambers to impose a transaction tax on financial firms. NYSE Euronext declined 6.8 percent to $24.76, while Nasdaq OMX Group Inc. fell 2.8 percent to $24.36. CME Group Inc. slumped 8.6 percent to $251.88.

MetroPCS Communications Inc. (PCS) fell 9.9 percent, the most in the S&P 500, to $7.66. The pay-as-you-go U.S. wireless carrier reported third-quarter profit that missed analysts’ estimates as subscriber growth slowed for the second consecutive quarter.

Baker Hughes Inc. (BHI) tumbled 7.7 percent to $53.54. The oilfield contractor reported third-quarter earnings excluding some items of $1.18 a share, missing the average analyst estimate by 3 percent, according to Bloomberg data.

Advanced Micro Devices Inc. (AMD) sank 9.1 percent to $5.30. The Sunnyvale, California-based maker of chips for Apple Inc.’s computers failed to persuade a U.S. judge to halt a patent dispute S3 Graphics Co. has against Apple at the U.S. International Trade Commission, according to a filing with the trade agency.

Volatility Soars

Volatility indexes are rising again after plunging in October. The benchmark European gauge rose the most in two days since May 2010. The VStoxx Index (V2X), which measures the cost of Euro Stoxx 50 Index options, rose 22 percent to 42.96, extending its two-day increase to 37 percent. The Chicago Board Options Exchange Volatility Index, or VIX, soared 16 percent to 34.77, bringing its two-day gain to 42 percent.

“The market doesn’t like unknowns, and the situation in Greece today was a definite unknown,” Stephen Solaka, who oversees about $50 million including options as co-founder of Belmont Capital Group in Los Angeles, said in a telephone interview. “Bad news is OK, as long as it’s known. Unknown news or surprises cause issues, cause sell-offs and fears to appear. Fear is back on the table.”

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



Read more...

Papandreou’s Call for a Referendum Is No Greek Tragedy: View

By the Editors Nov 2, 2011 3:24 AM GMT+0700

The country that invented drama and democracy is not disappointing the world on either front. Greek Prime Minister George Papandreou on Monday called for two high- stakes votes.

The first asks parliament to say by the end of this week whether it has confidence in his leadership. The second is a referendum in which Greek voters would approve or reject, possibly by year’s end, Europe’s latest debt-crisis workout.

The move blindsided European leaders on the eve of a global summit and rocked lawmakers in Papandreou’s party, some of whom are now calling for him to step down. The next day, stocks tumbled worldwide, the euro declined and Italian bonds plunged.

No doubt, Papandreou’s gambit is extremely risky. He has only a three-seat parliamentary majority. And the referendum, if rejected, could push Greece into default and out of the European Union and the single currency. A doomsday scenario could follow, including financial market mayhem, soaring sovereign borrowing costs and cascading bank failures. Europe and the U.S. could fall back into recession.

Still, it was the right thing to do. Greek citizens deserve a say on one of the most important matters in their lifetimes. Perhaps more important, the move could finally force Europe into the full reckoning required to solve its two-year-old sovereign- debt crisis.

Far Short

Europe’s latest bailout proposal falls far short of what’s needed. Under the deal, private banks holding Greek debt would voluntarily accept a 50 percent write-off on their returns; the European Financial Stability Facility, the EU’s bailout fund, would be leveraged to 1 trillion euros ($1.37 trillion) from 400 billion euros; and European banks would raise 106 billion euros ($145 billion) in new capital by June 2012. As for Greece, it is due to receive 130 billion euros ($180 billion) in public funds on top of 110 billion euros pledged in 2010.

As we have previously pointed out, writedowns of Greece’s sovereign debt should be much steeper. Greek bonds held by the European Central Bank would not be covered, so the writedown is really less than 50 percent. It needs to be closer to 70 percent to make Greece’s debt burden bearable. In addition, the EFSF needs a war chest of at least 3 trillion euros to make sure Europe’s banks are recapitalized and to guarantee the financing needs of Italy and other struggling governments.

Greeks know that this latest bailout proposal will also come with many unpopular strings attached, including further austerity measures. In an Oct. 27 poll for the Greek weekly To Vima, the majority said the deal should be put to a national vote, with 58 percent calling it “negative” or “probably negative.” Deep budget cuts, broken pension promises and heavy government job losses have already led to strikes, street protests and violence.

Papandreou hopes to use the referendum both to improve the terms of the bailout and to win buy-in from voters. To do this, he won’t make the referendum just a question of continued austerity. Instead, he will probably turn it into a vote on Greece’s euro-area membership. In the To Vima poll, 7 in 10 Greeks said they want to keep the euro. In a referendum framed as “stay with the euro, or return to the drachma as an orphan state,” Greeks may very well choose the euro.

The referendum is unpopular with European leaders, but it increases Papandreou’s leverage in negotiations, especially with the Germans. If they don’t offer Greece better bailout terms, the entire EU project could collapse, bringing down the European economy with it. The Greek leader has cunningly avoided naming a date for the referendum, saying only that it would take place after the details of the bailout have been nailed down. He is inviting European leaders to sweeten the pot.

Confidence Vote

Papandreou is also wagering he’ll win the confidence vote, even though he had a difficult time last month passing the austerity measures required to make the latest bailout plan possible. The popularity of his party, the Panhellenic Socialist Movement (Pasok), is in decline. If it spurns him, an early election would be called, and Pasok would probably lose. That leaves his party in the position of having to support him on the confidence vote, or risk losing control of parliament.

If Greek voters support the referendum, Papandreou will win the mandate he needs to continue with austerity measures and thwart the opposition. It could also quiet street protests, and even bring a modicum of political stability to Greece. That would help calm markets and boost confidence throughout Europe.

As Papandreou said in calling the referendum, “Democracy is alive and well, and Greeks are being called to rise to a national duty beyond the regular electoral processes.” Here’s hoping they do.

To contact the Bloomberg View editorial board: view@bloomberg.net.





Read more...

Nokia’s Elop Plans U.S. Smartphone Reentry in 2012 With Multiple Carriers

By Diana ben-Aaron - Nov 2, 2011 12:33 AM GMT+0700

Nokia Oyj (NOK1V) will reenter the U.S. smartphone market in early 2012 with the introduction of devices running Microsoft Corp. (MSFT)’s Windows Phone for multiple U.S. carriers, Chief Executive Officer Stephen Elop said.

“Our intention is to come back in the United States and grow significant share in this market,” Elop said in an interview today at Bloomberg’s headquarters in New York.

Elop, 47, last week unveiled Nokia’s first Windows Phone models after the Espoo, Finland-based company struggled to sell smartphones based on its own 10-year-old software. Nokia has lost more than 60 billion euros ($85 billion) in market value since Apple Inc. introduced the iPhone in 2007. The company intends to widen its range from the 420-euro Lumia 800 and 270- euro Lumia 710 introduced last week with both cheaper and more expensive devices, Elop said.

“Our plans are to be very competitive and to go head-on with the appropriate devices at the appropriate price points,” Elop said. “We know we need to get volume moving and we need from that to develop economies of scale. And then as we do more and more differentiation, we expand gross margin.”

Elop didn’t exclude entering the tablet-computer market, though he said the company hasn’t announced plans to do so. Microsoft’s forthcoming Windows 8, which will have a tiled user interface with dynamic updates similar to Windows Phone, is like a “supercharged” version for tablets, he said.

‘New Opportunity’

“There’s a new tablet opportunity coming,” he said. “We see the opportunity. Unquestionably, that will change the dynamics” of the tablet market.

Windows Phone may be Nokia’s last chance to claw back share in the fast expanding smartphone market from Apple and handset makers such as Samsung Electronics Co. that use Google Inc. (GOOG)’s Android system. Nokia’s homegrown Symbian line has suffered from an outdated, hard-to-use interface and the company was slow to introduce faster processors, bigger device memories and sensitive touch screens.

Nokia has fallen to No. 3 in the smartphone market, behind Samsung and Apple, according to market researcher Strategy Analytics. Nokia is still the largest maker of mobile phones by units, including low-end phones that account for about half its handset revenue.

Elop, a former Microsoft executive, said the Windows Phone line will give users access to more of the popular applications that have eluded Nokia with its older systems.

Necessary Apps

“There’s a small number of applications, in the hundreds, that are must haves, and we’ll do whatever is necessary to make sure those are on our platform,” he said. “The popular apps, the high end of the curve, we’ll be very focused on. It’s not a race of total quantity. There’s only so many flashlight apps that you need for a smartphone.”

Some apps will be better than those on competing devices, such as the ESPN sports information app that will be preloaded on the first Lumias and was produced in partnership with Nokia, he said. Nokia will also focus on working with local developers on filling the store with content and programs for each market.

Nokia has tumbled 43 percent in Helsinki trading since Feb. 11, when Elop announced the partnership with Microsoft and said he would phase out Symbian. Investors had been skeptical Nokia would be able to deliver a competitive phone in time for the holiday season. The shares fell 5.2 percent to 4.62 euros at the close in Helsinki amid a broader market decline.

Lumia vs. IPhone

The Lumia 800 flagship phone has a higher-resolution camera than Samsung’s Galaxy Nexus and a lower price tag than Apple Inc. (AAPL)’s iPhone 4S. The device will start selling in Europe this month at the price of 420 euros, excluding taxes and without a phone contract.

Apple last month started selling the iPhone 4S, moving more than 4 million units in the first three days after it was introduced at 629 euros for the cheapest unlocked model in Germany and France. Samsung announced the Galaxy Nexus last month without giving a price.

Apple and Google helped cut Nokia’s smartphone market share to 20.9 percent in the second quarter from 50.8 percent when the iPhone came out in 2007, according to Gartner Inc. estimates.

To differentiate the Lumia phones, Nokia’s marketing campaign will use the distinctive Windows Phone interface with its big, colorful tiles that contrast with the smaller icons of the Apple and Android interfaces as a main selling point.

Unlike an Apple or Google device, a Windows phone doesn’t present users with rows of icons representing apps. Instead, the home screen consists of a layout of tiles that represent the phone’s key functions and as well as entities that are important to the user, such as apps and friend groups. The tiles update themselves with the latest information, such as incoming e-mail and next appointments.

Second to Android?

The company intends to differentiate itself with content as well as hardware, said Elop, pointing to the inclusion of free turn-by-turn driving directions with maps on the Lumia. The driving application is built on technology Nokia acquired three years ago with its purchase of Navteq Corp., whose camera- equipped cars drive the world building electronic atlases. Future innovations could also entail acquisitions, he said.

Elop has said that marketing spending on the Lumia handset series, including that by phone companies and retailers, will triple compared with prior product launches. Nokia lined up 31 phone companies including Vodafone Group Plc (VOD) for the initial sales of the Lumia 800 in six European countries in the next few weeks. Elop today declined to name the first U.S. carriers.

The Lumia 800 will also come to Russia and some Asian markets by yearend, while the lower-priced Lumia 710 will start in those markets in the same period, Nokia said on Oct. 26.

The smartphone market may be big enough to help Nokia win over new customers. Smartphone sales by volume will increase 40 percent next year to 645 million units, Gartner says. Windows Phone may become the No. 2 smartphone operating system in 2015, with a market share of 21 percent, according to the researcher.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net





Read more...

RIM Devises ‘SWAT Team’ to Uncover Cause of BlackBerry Outage

By Jonathan Browning and Hugo Miller - Nov 1, 2011 9:43 PM GMT+0700

Research In Motion Ltd. (RIM), trying to rebuild client faith in its BlackBerry smartphone network after a three-day outage last month, formed a “SWAT team” to find the cause of the failure across five continents.

The group, under Chief Technology Officer David Yach, will go as far as considering whether the server network should be redesigned, Patrick Spence, head of regional sales and marketing, said in an interview today in London.

“Do we need to make any changes to either distribute traffic differently or look at how we do this completely differently?” Spence said. “This will certainly give us pause to figure if there’s something else we need to be doing and so we are looking at what is the longer-term impact. There’s nothing that’s not on the table.”

The network failure began in Europe and the Middle East and spread to North and South America. Co-CEOs Mike Lazaridis and Jim Balsillie came under fire for not addressing the failure publicly until the third day, when Lazaridis issued a video apology. Even before the outage, RIM was fending off investor demands for fresh management and trying to stem market-share losses to competitors including Apple Inc.

RIM said the delays were caused by a core switch failure within its infrastructure. While the system is designed to transfer to a backup switch, that didn’t happen, resulting in a large backlog of data that spread across the network.

RIM routes its traffic through two main centers, in Waterloo for North America and in Slough, southern England, for Europe, the Middle East and Africa, said Nick Dillon, an analyst at research firm Ovum in London.

Help from Operators

The company would consider sending more traffic through network operators, Spence said today.

Carriers including Vodafone Group Plc (VOD), the world’s largest network operator, have offered refunds to some BlackBerry users in territories including South Africa and Egypt.

“We have to earn back their trust, we have to show them that we’re going to make sure that something like this doesn’t happen again,” Spence said. “I believe they’ll stick with us, but it’s up to us to earn that trust.”

RIM last week said a software upgrade for the BlackBerry PlayBook tablet that will include dedicated e-mail won’t come until February, months after it was initially promised and missing the important holiday season.

“It’s such a big transition to move your platform to this entirely new space that it’s more about getting it right for the next decade,” Spence said. “If you gave me a choice I would say I’ll miss a Christmas to line up for the next 10 after that with products and experiences that are second to none.”

The PlayBook, introduced in April, has struggled to compete with Apple’s iPad. The tablet’s shipments dropped by more than half last quarter following criticisms of its e-mail shortcomings and lack of apps. Deliveries to retailers such as Best Buy Co. fell to 200,000 from 500,000 in the previous quarter as Apple shipped 9.25 million of its market-leading iPad.

To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net.

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





Read more...

Fake IPads Flood Market as Scammers Target Holidays’ Top Technology Gift

By Olga Kharif - Nov 1, 2011 11:01 AM GMT+0700

The success of Apple Inc. (AAPL)’s iPad isn’t just drawing more competition to the tablet market. It’s attracting thousands of counterfeit and knockoff products.

On a single day in July, almost 18,000 fakes and clones resembling the iPad and Android devices were available for sale on 23 e-commerce sites, according to MarkMonitor Inc., a San Francisco-based firm that helps companies protect their brands.

The tablets can be illegal -- for instance, if they have a bogus Apple logo -- and often they don’t work well and have no warranty protection, said Fred Felman, chief marketing officer of MarkMonitor. The copycat products and suspected counterfeits found in MarkMonitor’s survey were offered by more than 5,000 sellers, many of them located in China.

Knockoff iPads may proliferate during the year-end holiday season, as shoppers beset by the economic slump go hunting for bargains. That’s creating more competition for Apple, even if many consumers only buy the tablets because they believe they’re getting the real thing. Apple’s advantage is its software is hard to replicate, said Francis Sideco, an analyst at research firm IHS Inc.

“You can only copy to a certain degree,” he said. For instance, knockoff tablets may not connect to Apple’s iTunes and App Store. “It’s not necessarily about hardware but the software, and it’s very difficult to copy that,” Sideco said.

Trudy Muller, an Apple spokeswoman, declined to comment.

No. 2 Product

Apple released the iPad in April 2010, and it quickly emerged as the company’s No. 2 product category behind the iPhone. The tablet generated $6.9 billion for Cupertino, California-based Apple last quarter, out of a total of $28.3 billion.

The device has attracted scads of legitimate competitors, with many manufacturers using Google Inc. (GOOG)’s Android software. Amazon.com Inc. (AMZN) also is jumping into the market this holiday season. It will release its $199 Kindle Fire tablet later this month, aiming to undercut the iPad, which starts at $499.

Counterfeiters are increasingly focusing on mobile technology after years of copying pharmaceuticals, handbags, software and other products. Tablets are obvious targets because they’re the most-desired technology gifts this holiday season -- beating out laptops, televisions, e-readers and video-game consoles, according to the Consumer Electronics Association.

To avoid getting cheated, shoppers should stick with retail sites they know, Felman said. A dramatically low price is another red flag, he said. The clone tablets in MarkMonitor’s survey were typically 69 percent less than the retail price of the genuine item.

Higher prices, meanwhile, often can signal that shoppers are dealing with gray-market goods -- genuine tablets that haven’t been authorized for sale in a given country. Buyers of such devices typically pay a 15 percent premium, and then risk having no warranty or a way to resolve technical problems. More than 5,500 gray-market tablets were offered for sale on the day in July when MarkMonitor conducted its study.

“It’s very important for consumers to understand as they go into the holiday season, there’s a very high likelihood there are scammers out there,” Felman said.

To contact the reporter on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net

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




Read more...