RBA Interest-Rate Cut to Boost Saving Not Spending, Westpac’s Kelly Says

By Tracy Withers - Nov 6, 2011 8:00 PM GMT+0700

Australian consumers are more likely to save than spend any extra money available to them following the central bank’s decision to cut interest rates for the first time in more than two years, according to Westpac Banking Corp. (WBC) Chief Executive Officer Gail Kelly.

The Reserve Bank of Australia cut the benchmark a quarter of a percentage point to 4.5 percent on Nov. 1, citing slowing inflation and weaker global growth. Sydney-based Westpac lowered its variable mortgage rate by the same amount.

“What will happen is that customers will take the extra cash that they’ve got and probably apply it more to debt repayment and to savings,” Kelly told the Australian Broadcasting Corp.’s “Inside Business” program yesterday.

Australia’s resources industry boom, fueled by demand for iron ore, liquefied natural gas and coal from emerging economies such as China and India, may cushion the nation from the financial turmoil Europe’s sovereign debt crisis is causing. The central bank last week lowered its forecasts for economic growth over the next two years, while adding that the mining-related parts of the economy are growing strongly.

“Ultimately what we need for the economy to grow is for people and businesses to regain confidence and to decide now is the time to spend more and indeed to invest more,” Kelly said. “I think we’re a little bit off that at this point.”

Kelly, the only woman to lead an Australian bank or top-30 company, said she thought the RBA will need to make further rate cuts. “Let’s wait and see how Europe travels over the next period, but there don’t seem to be too many signs that things will settle too early,” she said.

‘Customers Are Cautious’

Westpac, Australia’s second-largest lender, on Nov. 2 said second-half profit fell 13 percent as lending growth slowed and debt market turmoil triggered a drop in earnings at the bank’s treasury unit.

Slower lending signals that “customers are cautious, that they’re preferring to sit on their hands at the moment,” Kelly said. Consumers and companies who found themselves with too much debt during the global financial crisis “won’t want to find themselves in that position again, so I don’t think it’s a bad thing,” she said.

As domestic spending slows, and Europe’s debt crisis threatens global demand, Australia is well placed to react, Kelly said. The central bank is able to lower interest rates and the government has scope to provide further stimulus if needed, she said.

“I’d have to say I’m really happy and pleased to be a banker living in Australia,” she said. “We have the tools to play to manage a downturn. We’ve got room to go if the Reserve Bank believes it is necessary to be able to provide further support to the economy.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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Sprint Prices $4 Billion Notes Offering That May Be Used to Fund Clearwire

By Sarah Frier - Nov 6, 2011 12:32 AM GMT+0700

Sprint Nextel Corp. (S), the third- largest U.S. wireless operator, priced $4 billion of debt that it plans to use as it upgrades its network to higher-speed technology and offers customers Apple Inc.’s iPhone.

The company is issuing $3 billion of seven-year 9 percent notes and $1 billion of ten-year, 11.5 percent notes, Sprint said in a statement yesterday. The sale is expected to be completed Nov. 9.

The debt sale gives Sprint additional financing as it struggles to compete against larger rivals Verizon Wireless and AT&T. Sprint plans to upgrade its network to a wireless technology called Long-Term Evolution, or LTE, and last month began selling the iPhone, which the carrier subsidizes upfront to garner future service revenue.

Sprint also said it may use proceeds from the notes offering to help financing partner Clearwire Corp. (CLWR), the unprofitable wholesale wireless carrier. Money from Sprint would allow Kirkland, Washington-based Clearwire to fund its operations and help pay for a planned network upgrade.

“The fact that funding Clearwire is mentioned as a possible use of proceeds suggests the companies are moving in the right direction,” Jonathan Chaplin, an analyst at Credit Suisse in New York, said in a note to investors. He rates both Sprint and Clearwire shares “outperform.”

Clearwire said this week it has capital for 12 months and that its future may depend on Sprint, with which it is in talks for a new wholesale agreement. Sprint had previously signaled that it wouldn’t provide Clearwire with financial backing.

Clearwire gained 8 percent to $1.89 yesterday. The shares have lost 63 percent this year on concern that the company will run out of money.

Positive for Sprint

The debt sale is a positive for Sprint because it shows that the company has access to capital markets, Chaplin said. Sprint said last week it plans to refinance $4 billion of its debt and seek as much as $3 billion in financing from suppliers.

Sprint shares rose 2.1 percent to $2.87 yesterday. The company also had its credit rating cut further into junk by Standard & Poor’s because of costs related to a planned network upgrade.

Sprint said proceeds from the sale of the seven- and 10- year notes will be used “for general corporate purposes, which may include, among other things, redemptions or service requirements of outstanding debt, network expansion and modernization and potential funding of Clearwire,” according to a company statement.

Leigh Horner, a Sprint spokeswoman, declined to comment beyond the statement. Mike DiGioia, a Clearwire spokesman, also declined to comment.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

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

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Stevens Inflation Forecast Seen too High by Bond Markets: Australia Credit

By Candice Zachariahs - Nov 6, 2011 8:00 PM GMT+0700

Australian inflation-linked bonds are signaling that gains in consumer prices may slow more than the central bank is expecting as an export boom peaks.

Yields on the securities show that traders reduced their forecast for annual inflation over the next five years by six basis points last week, the steepest decline since September, to 2.42 percent. At one point the debt implied a rate of 2.37 percent for inflation, the lowest in 14 months. That compares with the 1.83 percent indicated by similar bonds in the U.S.

The Reserve Bank of Australia, which cut interest rates last week for the first time in 2 1/2 years, may be too bullish in estimating that gross domestic product will expand 4 percent in the 12 months ending June 30, 2012, according to the bond market. Money-market securities show traders expect the RBA will lower what is still the highest benchmark rate among major developed economies by one percentage point within 12 months.

“Given what’s happening globally, the RBA rate cut and the fact that the economy hasn’t performed as well as some people thought, growth expectations are softer and that’s being reflected in real yields as well,” said Sally Auld, a Sydney- based interest-rate strategist at JPMorgan Chase & Co. “The RBA’s global growth forecasts look a little optimistic, and that translates through to the Australian growth figures as well.”

Linker Gains

Australian inflation-linked notes have generated 13.7 percent returns this year, outpacing the 10.5 percent offered by the rest of the nation’s government debt, Bank of America Merrill Lynch indexes show.

The RBA lowered its GDP forecast for the 12 months ending June 30, 2012, from a previous estimate of 4.5 percent made in August. It dropped inflation expectations to 2 percent for the same period and estimates consumer prices will climb 3.25 percent in the full year of 2012. The RBA previously forecast inflation of 2.5 percent through June next year and 3.5 percent for the whole of 2012.

The so-called breakeven rate on Australia’s five-year inflation debt remains the highest across eight developed markets tracked by Bloomberg, though the gap to the U.K.’s second-highest level has narrowed to seven basis points.

Central bank Governor Glenn Stevens said Nov. 1 after his first rate cut in 2 1/2 years that Europe’s debt crisis is spilling into Asia.

“The RBA is cutting because of the risks of what might happen, not because of what it thinks will happen,” said Sean Keane, an analyst in Auckland at financial advisory group Triple T Consulting and a former head of Asia-Pacific rates trading at Credit Suisse Group AG. “There’s no immediate trigger for further RBA rate cuts as the slowdown we are seeing in Australia is coming off reasonably strong levels.”

Bonds Rallying

Investors are seeking the safest securities, driving rallies in sovereign bonds from Australia, Germany and the U.S.

Euro-area finance ministers meet in Brussels today as more than one European Union government teeters on the brink. Greek Prime Minister George Papandreou, trying to preserve international aid before the nation runs out of money next month, has been striving to form a unity government.

His Italian counterpart Silvio Berlusconi also faces mounting pressure to step down as 10-year borrowing costs for the region’s third-biggest economy approach the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts.

Australian Yields Drop

The yield on Australia’s benchmark 10-year government bond tumbled 23 basis points, or 0.23 percentage point, last week to 4.31 percent, the largest drop since Aug. 5. The longest- maturity bond, due April 2027, slid 24 basis points to 4.65 percent and is the nation’s only sovereign security to yield more than the RBA’s 4.5 percent benchmark.

Australia’s central bank cut its key rate after underlying inflation slowed to 0.3 percent in the three months ended Sept. 30, the weakest quarterly pace in 14 years. The overall consumer price index rose at a 3.5 percent annual rate, down from a 2 1/2-year high of 3.6 percent in the second quarter, a government report on Oct. 26 showed. Annual CPI gains have averaged 3.1 percent since 2000.

The implied yield on December interbank cash rate futures was 4.265 percent, indicating the market expects the central bank will cut rates again at its Dec. 6 meeting. The RBA will lower its benchmark by one percentage point within 12 months, the steepest reductions in the Group of 10 currencies, according to Credit Suisse Group AG indexes based on interest-rate swaps.

Real Yields

Australia’s target rate is still at least two percentage points higher than any other G-10 country. The RBA said last week its forecasts are based on an unchanged interest rate.

“There’s good demand for Australian inflation-linked debt as real yields here look quite high in a relative sense with negative rates on offer in some countries,” Auld said.

The yield on Australia’s inflation-linked note maturing in August 2015 was 1.34 percent last week, compared with negative 1.172 percent for the Treasury Inflation-Protected Security due in July 2015.

The Australian dollar fell 3 percent to $1.0375 in the five days ended Nov. 4, snapping four weeks of gains. The so-called Aussie, the world’s fifth-most traded currency, is down from $1.1081 on July 27, its strongest since exchange controls were scrapped in 1983.

Jobs Growth Slows

Australian employment weakened this year from record growth in 2010. Economists forecast the jobless rate climbed in October to match the highest level since a year earlier as the Aussie’s strength hurt tourism and manufacturing and concerns that Europe and the U.S. will fall back into recession undermined business confidence. The statistics bureau will say on Nov. 10 that the jobless rate rose to 5.3 percent, according to the median estimate in a Bloomberg News survey of strategists.

The chance of a significant acceleration in wage growth has lessened, the RBA said Nov. 4. Hiring has been fueled by a mining investment boom driven by China and India’s demand for iron ore, liquefied natural gas and coal, boosting prices for Australia’s resources, the central bank said.

‘Economic Uncertainty’

“The bank’s liaison suggests that the general increase in economic uncertainty has led some firms to wait for evidence of stronger demand before hiring additional workers,” the RBA said.

Australian government bonds returned 11 percent this year, trailing U.K., Swedish and New Zealand securities among 26 markets tracked by Bloomberg/EFFAS indexes. The debt gained from January through September in the longest monthly rally since 1997, a Bank of America Merrill Lynch index shows.

The cost of insuring Australian corporate debt climbed last week by the most since the five days ended Sept. 23 as Greek Prime Minister George Papandreou called for a referendum on accepting bailout terms and then stepped back from holding a vote after opposition from European counterparts.

The Markit iTraxx Australia index of credit-default swaps jumped 20 basis points to 176 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices in the privately negotiated market. The advance pared some of the index’s 51 basis-point drop in October to 166, the biggest monthly decline since July 2009.

Corporate Spreads

The extra yield investors demand to hold Australian corporate bonds instead of government debt widened 6 basis points last month to 247 basis points and reached 253 on Oct. 27, the highest since August 2009, Bank of America Merrill Lynch index data show.

The five-year Australian breakeven rate had reached a 4 1/2-year high of 3.14 percentage point in May as flooding in the nation’s northeast drove up food prices and surging revenue from a record mining boom spurred expectations that economic growth would accelerate.

“You’ve seen a re-pricing of the growth-inflation trade- off as investors start to focus on a subdued outlook globally and Australia is a part of that,” said Justin Tyler, a portfolio manager who helps manage A$4.3 billion in inflation- linked assets at Aberdeen Asset Management Ltd. in Sydney. “The RBA has acknowledged weakness in the non-mining sectors of the economy, perhaps more specifically than has been the case in the past statements.”

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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BP’s $7.1 Billion Sale of Argentine Oil Stake Is Scrapped by Cnooc Venture

By Nathan Crooks and Rodrigo Orihuela - Nov 6, 2011 7:52 PM GMT+0700

BP Plc (BP/)’s $7.1 billion deal to sell a stake in Argentine crude producer Pan American Energy LLC to China’s Cnooc Ltd. (883) collapsed, 10 days after Argentina’s leader ordered oil companies to repatriate future export revenue.

Bridas Corp., a company owned by Cnooc and Argentina’s billionaire Bulgheroni family, said yesterday it canceled the deal because of legal reasons and BP’s behavior during the talks. The British company struck the agreement to sell its 60 percent stake in Pan American to Bridas a year ago as it sought to conserve capital after the oil spill at a Gulf of Mexico well left it with a bill of more than $40 billion.

“This isn’t of huge concern,” said Jason Kenney, London- based head of European oil and gas equity research at Banco Santander SA. “They still have plenty to sell. They can keep Pan American and do very well out of it.”

BP has “received a letter from Bridas Corp. exercising their right to terminate the share purchase agreement under which it had agreed to purchase BP’s 60% interest in Pan American Energy LLC.,” London-based BP spokesman Mark Salt said in an e-mailed statement today. “BP will now be considering all its strategic options regarding PAE.”

In her first move after winning re-election, President Cristina Fernandez de Kirchner on Oct. 26 ordered gas, oil and mining companies to repatriate all future export revenue as part of an effort to strengthen central bank controls on dollar purchases.

Continue Negotiations

“Both the Chinese and Argentine governments have always been positive about this transaction,” Bridas said in a statement e-mailed late yesterday. “Neither the European financial crisis nor any measure that has been taken in Argentina have influenced this decision.”

Bridas is willing to continue negotiations, the company said. BP said on Oct. 25 that each party would have the right to terminate the accord without notice after Nov. 1 unless both agreed to extend the deadline. The U.K.-based company also said it expected the deal to be completed in 2012.

“We don’t know how BP is going to react, you’ll have to ask them” said Bridas. “From Bridas’ point of view, there is no reason not to continue with investment programs in Argentina.”

BP Chief Executive Officer Bob Dudley said last week the stake is “not an asset we’re desperate to sell.”

‘No Adverse Effect’

Cnooc said in a statement today that the decision by Bridas to terminate the proposed acquisition “will not have any material adverse effect on the existing business or financial position of the group.”

The decision isn’t related to Bridas’s acquisition of Esso service stations in Argentina from Exxon Mobil Corp. (XOM), the Argentine company said.

“This won’t necessarily be seen as a positive for BP shares,” said Kenney. “Even so, there’s no real reason to see it as a problem.”

Moody’s Investors Service on Oct. 31 cut its ratings on Argentine oil companies including Pan American and placed them on review, citing the “high level of unpredictability of the Argentine government and heightened risk of increased capital controls and regulatory changes in the country.”

Fitch Ratings on Oct. 28 downgraded Pan American and Argentine oil producer YPF SA, Argentina’s largest energy company, because of the South American country’s move to repatriate export revenue.

To contact the reporters on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net; Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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Greek Opposition Chief Will Support Unity Government If Papandreou Resigns

By Marcus Bensasson, Maria Petrakis and Natalie Weeks - Nov 6, 2011 7:41 PM GMT+0700

Greek Prime Minister George Papandreou, trying to preserve international aid before the nation runs out of money next month, raced to form a unity government after the opposition’s leader demanded he step down before considering his offer.

“As long as Mr. Papandreou doesn’t resign he is blocking what is foreseen by the constitution,” Antonis Samaras, leader of New Democracy, the biggest opposition party, said in comments televised live on state-run NET TV. “I am determined to help as long as he resigns and everything takes its course.”

Samaras spoke after meeting with Greek President Karolos Papoulias in Athens today. Samaras has so far balked at joining forces with Papandreou’s socialist party even if the premier steps aside and yesterday repeated a demand for elections.

Finance Minister Evangelos Venizelos has said he wants a unity government agreed on before euro-area finance ministers meet in Brussels tomorrow, and government spokesman Elias Mosialos said a deal must come by this evening. “It would be useful today, tomorrow at the latest, to have agreed on the name of the new prime minister as well,” Mosialos said in remarks broadcast on state-run NET TV today.

Papandreou met with Papoulias yesterday as pressure mounted on the 59-year-old to step down after he was forced to cancel a referendum that may have led to Greece being ejected from the euro. The premier won a confidence motion early on Nov. 5 after pledging to disaffected members of his ruling Pasok party that he would not stay on.

Elections Now

“Mr. Papandreou isn’t seeking a national salvation government; he’s trying to bind everyone to his personal choices, which lead to dead ends,” Samaras said yesterday in a televised address. “No program can achieve anything without the approval and support of the people which is why we insist on elections now.”

The premier’s offer capped a tumultuous week that started with him securing a second bailout from the European Union, then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote. Papandreou, who will lead a Cabinet meeting at 4 p.m. in Athens, must heal political divisions to secure an agreement on the aid and avert the first default by an EU nation.

More than one EU government is teetering on the brink. Italian Prime Minister Silvio Berlusconi also faces mounting pressure to step down as 10-year borrowing costs for the region’s third-biggest economy approach the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts. The premier reiterated today that he won’t resign.

Deal Sought Today

European stocks declined for the first week in six and the euro fell the most in two months versus the dollar to $1.3792, its first weekly loss since the five days ended Oct. 7, amid the Greek turmoil and after a Group of 20 summit in Cannes, France, failed on Nov. 4 to agree on increasing resources for the IMF.

The main goal of a government of wider cooperation is securing approval for the Oct. 26 agreement with international lenders, Papandreou told reporters in Athens yesterday. Last month’s accord “is a prerequisite for our remaining in the euro,” he said.

Mosialos said he believed the outlines of an agreement could be achieved today and that a full Cabinet could be settled on at a later stage.

Opposition LAOS party leader George Karatzaferis, who controls 16 seats in Parliament and who supports Papandreou’s plan, was critical of Samaras’s approach.

“Papandreou, by bringing things to a head, has basically, without expecting this to happen, sacrificed his own political career,” Sassan Ghahramani, chief executive officer of SGH Macro Advisors, said on Bloomberg Television’s “Street Smart.”

Bond Yields

Greek two-year bond yields climbed above 100 percent for the first time, German 10-year bonds posted their biggest weekly advance on record and Italian borrowing costs surged to euro-era records after European leaders said that Greece may have to exit the euro following Papandreou’s referendum decision.

Papandreou won the confidence vote in the 300-member parliament by 153 votes to 145. The government will need the backing of 180 lawmakers to secure approval for Greece’s second aid package, negotiated in Brussels last month. Disbursement of funds was halted after Papandreou’s call for a referendum was opposed by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

“With a cooperation government that includes wider political forces, it is logical that the loan agreement will be passed in parliament,” Mosialos said. If parties decide today on a “serious” cooperation government, elections don’t need to be held in the next two or three “critical months,” he said.

Losing Autonomy

Finance Minister Evangelos Venizelos told lawmakers he wants to head to tomorrow’s Brussels meeting with a government deal in hand. “Society must at last be able to breathe, and on Monday the country must be represented in a credible and reliable way” at the euro-group talks, he said.

Most Greeks would prefer to see a national unity government rather than have the country opt for elections, an opinion poll in Proto Thema newspaper showed.

Fifty-two percent of the 1,000 people surveyed by Alco for the Athens-based newspaper said they preferred a unity government compared with 36 percent who said the country should hold elections. The poll was conducted Nov. 2 to Nov. 4 and the margin of error wasn’t provided.

“In the eyes of Angela Merkel and Nicolas Sarkozy, Papandreou doesn’t have much credibility left,” Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics, said in a Bloomberg TV interview. “Greece needs to have a new face to the rest of the world.”

Papademos Touted

Lucas Papademos, the former vice-president of the European Central Bank and a former governor of the Greek central bank, has been mentioned in the Greek media as a possible candidate for the post of prime minister in a unity government.

An adviser to Papandreou, Papademos was the top choice to lead such a government, according to a Kapa Research poll of 1,009 people surveyed for To Vima newspaper last week. Other names cited by the media include Venizelos and former Economy Minister Stefanos Manos.

Papandreou, a graduate of the London School of Economics and former foreign minister, had survived a confidence vote in June called to rally support for austerity measures demanded by international lenders in return for a continuation of a 2010 bailout, the first for an EU nation. The EU and the IMF agreed to provide 110 billion euros ($152 billion) in May last year in return for cuts in government spending and public sector jobs.

Debt Writedown

His referendum plan triggered a suspension in assistance by EU leaders less than a week after they’d approved a second rescue that pledged a further 130 billion euros and wrote down the value of Greek debt by 50 percent.

“The IMF will almost certainly release the sixth tranche of its bailout and we can now expect Greece to avoid involuntary default before Christmas,” Dominic Rossi, global chief investment officer for equities at Fidelity International Ltd. said in an e-mail. “However, in the long run, fundamental problems persist and serious questions still remain on whether Greece will be able to deliver on its commitments.”

The surprise referendum announcement triggered the biggest two-day slide in the MSCI World Index in almost three years and sent spreads on French, Greek and Italian bonds over bunds to euro-era records. France now pays 123 basis points more than Germany to borrow for 10 years.

Political Price

St. Paul, Minnesota-born Papandreou, whose father formed the party at the end of Greece’s military rule, had said he was prepared to lose his job if it meant pushing through austerity measures needed to fix Greece’s finances. The nation’s debt is expected to balloon to 162 percent of gross domestic product this year.

“I would be very surprised if Greece doesn’t default in the next few weeks,” said Lex Van Dam, who manages $500 million in assets at Hampstead Capital LLC in London. “I cannot see how the Europeans will pay the next tranche knowing that the Greeks will try and renegotiate the rest of the original Oct. 26 package once this payment has been made.”

To contact the reporters on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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BP’s Deal to Sell Stake in Argentine Oil Producer to CNOOC, Bridas Fails

By Nathan Crooks and Rodrigo Orihuela - Nov 6, 2011 6:09 PM GMT+0700

BP Plc (BP/)’s $7.1 billion deal to sell a stake in Argentine crude producer Pan American Energy LLC to China’s Cnooc Ltd. (883) collapsed, 10 days after Argentina’s leader ordered oil companies to repatriate future export revenue.

Bridas Corp., a company owned by Cnooc and Argentina’s billionaire Bulgheroni family, said yesterday it canceled the deal because of legal reasons and BP’s behavior during the talks. The British company struck the agreement to sell its 60 percent stake in Pan American to Bridas a year ago as it sought to conserve capital after the oil spill at a Gulf of Mexico well left it with a bill of more than $40 billion.

“This isn’t of huge concern,” said Jason Kenney, London- based head of European oil and gas equity research at Banco Santander SA. “They still have plenty to sell. They can keep Pan American and do very well out of it.”

In her first move after winning re-election, President Cristina Fernandez de Kirchner on Oct. 26 ordered gas, oil and mining companies to repatriate all future export revenue as part of an effort to strengthen central bank controls on dollar purchases.

“Both the Chinese and Argentine governments have always been positive about this transaction,” Bridas said in a statement e-mailed late yesterday. “Neither the European financial crisis nor any measure that has been taken in Argentina have influenced this decision.”

Negotiations

Bridas is willing to continue negotiations, the company said. BP said on Oct. 25 that each party would have the right to terminate the accord without notice after Nov. 1 unless both agreed to extend the deadline. The U.K.-based company also said it expected the deal to be completed in 2012.

BP Chief Executive Officer Bob Dudley said last week the stake is “not an asset we’re desperate to sell.”

“We don’t know how BP is going to react, you’ll have to ask them” said Bridas. “From Bridas’ point of view, there is no reason not to continue with investment programs in Argentina.”

BP spokesman Mark Salt in London said he had no immediate comment on the breakdown in the negotiations with Bridas.

The decision isn’t related to Bridas’s acquisition of Esso service stations in Argentina from Exxon Mobil Corp. (XOM), the Argentine company said.

“This won’t necessarily be seen as a positive for BP shares,” said Kenney. “Even so, there’s no real reason to see it as a problem.”

Moody’s Investors Service on Oct. 31 cut its ratings on Argentine oil companies including Pan American and placed them on review, citing the “high level of unpredictability of the Argentine government and heightened risk of increased capital controls and regulatory changes in the country.”

Fitch Ratings on Oct. 28 downgraded Pan American and Argentine oil producer YPF SA, Argentina’s largest energy company, because of the South American country’s move to repatriate export revenue.

To contact the reporters on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net; Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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Former Penn State Coach Jerry Sandusky Accused of Child Sex Abuse

By Nancy Kercheval - Nov 6, 2011 11:01 AM GMT+0700

An ex-Pennsylvania State University defensive coordinator under football Coach Joe Paterno was charged with sexually assaulting boys, and two school officials were accused of lying to a grand jury about what they knew of the incidents.

Gerald “Jerry” Sandusky, 67, of State College, Pennsylvania, was released on $100,000 unsecured bail yesterday after appearing on charges involving sexual abuse of children while he was founder of Second Mile, a charitable organization that operates programs for young people. The charges involve sexual assaults or advances on eight boys from 1994 to 2009, according to Pennsylvania Attorney General Linda Kelly.

Penn State Athletics Director Timothy Curley, 57, and Senior Vice President Charles Schultz, 62, who oversaw the university police, were charged with failing to report the allegations as well as perjury, Kelly said. They are scheduled to surrender tomorrow in Harrisburg, Pennsylvania, she said.

“This is a case about a sexual predator who used his position within the university and community to repeatedly prey on young boys,” Kelly said in a statement. “It is also a case about high-ranking university officials who allegedly failed to report the sexual assault of a young boy after the information was brought to their attention, and later made false statements to a grand jury that was investigating a series of assaults on young boys.”

‘Back-Cracking’

All the boys came to know Sandusky through the Second Mile program, which had camps on the Penn State campus, Kelly said. One victim told the grand jury the advances began as “back cracking” and rubbing when he was 11 or 12 years old and later escalated to sex acts during overnight visits at Sandusky’s home.

Sandusky has been aware of the allegations for three years, his attorney Joe Amendola said after yesterday’s court appearance. The investigation began in 2009 after the victim’s mother reported allegations of sexual assault to officials at her son’s high school.

“He’s shaky as you can imagine being a 67-year-old never having to face criminal charges in his life,” Amendola said of Sandusky. “Having the distinguished career he had, these are very serious allegations.”

Curley and Schultz allegedly received a first-hand report of a 2002 sexual attack by Sandusky on a boy in the Penn State locker room showers and failed to report the incident, Kelly said.

Eyewitness Ignored

“One of the most compelling and disturbing pieces of testimony in this investigation came from an eyewitness to a late-night sexual assault that allegedly occurred in March of 2002, in the locker room of the Lasch Football Building on the University Park Campus,” Kelly said. “Hearing what sounded like sexual activity in the showers of a building that was supposed to be empty, a graduate assistant reportedly observed Sandusky sexually assaulting a naked boy who appeared to be about 10 years old.”

The graduate assistant first reported the incident to Paterno, who went to Curley. He then met with Curley and Schultz, senior vice president for finance and business.

“Despite a powerful eyewitness statement about the sexual assault of a child, this incident was not reported to any law enforcement or child protective agency, as required by Pennsylvania law,” Kelly said.

Predator Walked Free

Instead, Curley and Schultz told Sandusky he was banned from bringing any Second Mile children to the football building.

“The failure of top university officials to act on reports of Sandusky’s alleged sexual misconduct, even after it was reported to them in graphic detail by an eyewitness, allowed a predator to walk free for years -- continuing to target new victims,” Kelly said.

University President Graham Spanier said Curley and Schultz have his “unconditional support,” according to the university website Live.

Sandusky, who played for Paterno’s Nittany Lions, was assistant coach from 1969 until his retirement at the end of the 1999 season. He had been considered the heir apparent upon the retirement of Paterno, who at 84, is still coaching.

“I am confident the record will show that these charges are groundless and that they conducted themselves professionally and appropriately,” Spanier said, while acknowledging the allegations against Sandusky are “troubling.”

Schultz “is innocent of all charges,” attorney Tom Farrell said on the website. “We believe in the legal system and we believe it will vindicate him.”

Curley “will vigorously challenge the charges in court, and we are confident he will be exonerated,” attorney Caroline Roberto said in a website statement.

Sandusky is charged with seven felony counts of involuntary sex, as well as charges of aggravated indecent assault, unlawful contact with a minor, endangering the welfare of a child, and corruption of minors, according to the attorney general’s office.

Curley and Schultz are each charged with one count of perjury, along with one count each of failure to report under the Child Protective Services Law, prosecutors said.

To contact the reporter on this story: Nancy Kercheval in Washington at nkercheval@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net

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MF Global Customers Say Money Safeguards Failed

By Matthew Leising - Nov 6, 2011 1:31 AM GMT+0700

Customers of MF Global Holdings Inc. whose money is still trapped at the futures broker almost a week after filing for bankruptcy protection say the safeguards meant to protect them failed as exchanges and regulators work to move client positions.

CME Group Inc. (CME), the world’s largest futures exchange that’s also responsible for auditing its clearing members such as MF Global under its authority as a self-regulating organization, said on Nov. 4 it was in the process of transferring about 15,000 positions. Under a court order in the bankruptcy case, no funds or collateral not backing futures positions can be transferred to another futures broker.

“It shows a terrible weakness in the exchanges, the industry and the regulators,” said Elaine Knuth, an MF Global customer since 2005 who trades agricultural commodities for her own account. Her positions total between $100,000 and $500,000, she said. “The whole system broke down.”

MF Global, the holding company for the broker-dealer run by ex-Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy protection on Oct. 31 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 in U.S. Bankruptcy Court in Manhattan.

Account ‘Deficiencies’

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.

Corzine, 64, quit as chairman and chief executive officer of MF Global on Nov. 4. Corzine who was paid more than $4 million since joining the firm 20 months ago, won’t seek severance pay, the company said. Corzine’s resignation came four days after the filing as the company’s $6.3 billion bets on European sovereign debt rattled investors.

MF Global customers may have to wait years to get their money back if the futures broker is sued, Frederick Grede, the liquidation trustee overseeing the bankruptcy of futures brokerage Sentinel Management Group Inc. said Nov. 2.

“People should expect that the money on deposit with MF Global will be tied up for some time,” Grede said. A former chief executive officer of the Hong Kong Futures Exchange, he has sought to recover about $600 million of customer money from Sentinel, the futures broker that filed for bankruptcy in 2007. “I still have extensive litigation with regard to the customers” of Sentinel, he said. “It’s been four years.”

Locating Money

MF Global has located $658.8 million in customer funds in a custodial account at JPMorgan Chase & Co., according to two people with knowledge of the matter. The account contained a total of $2.2 billion as of Oct. 31, including both the firm’s own money and customer funds, said one of the people, who declined to be identified because the information is private.

About $593 million of funds remain unaccounted for, said another person with knowledge of regulatory probes into the firm’s collapse. That amount has decreased from the shortfall of $633 million the CFTC cited Nov. 2, the person said.

JPMorgan doesn’t have “any information” about whether the account balances are “related in any way to the ‘missing’ customer funds,” Jennifer Zuccarelli, a spokeswoman for the New York-based lender, said in response to questions from Bloomberg News. “What we can confirm is that the accounts and their balances have been and continue to be wholly transparent to MF Global” and the trustee appointed to locate customer assets.

Losing Trust

CME Group is losing the trust of investors who use the exchange and expect their money to be protected, said a trader with $500,000 in an MF Global account that’s been frozen since Oct. 31, who asked not to be named because he fears reprisals. CME Group said the trapped money may be tied up in the bankruptcy proceedings, said the person, who has been trading since 1987.

“We understand the frustration and the need for accurate information,” Michael Shore, a spokesman for the CME Group, said in an e-mailed statement. “We have been using a number of channels to communicate with customers as soon as information has been available and will continue to provide updates throughout the process.”

The CME is working with the CFTC and the Securities Investor Protection Corp., or SIPC, trustee to transfer MF Global accounts and CME Clearing-held collateral to other qualified clearing firms, as is legally permitted, he said.

CME Group is reducing the initial margin required to back futures trades to ease the bulk transfer of accounts held by MF Global customers, the company said in a statement today.

Temporary Relief

“This is a short-term accommodation to maintain market integrity and provide temporary relief to customers whose accounts have been disrupted by this event,” the Chicago-based exchange owner said in the e-mailed statement.

James W. Giddens, the trustee liquidating the MF Global brokerage, froze 150,000 customer accounts on Oct. 31, including 50,000 commodities accounts that he aims to transfer to other futures brokers. Customers will hear from their future brokers when the transfers are made, the trustee said in a Nov. 3 statement. The trustee and his team will be working through the weekend to complete bulk transfers, and will probably transfer individual accounts next week, Giddens said.

CME Group has said the segregated MF Global account positions will move to two or more of five clearing members, ABN AMRO Chicago Clearing, ADM Investor Services, Dorman Trading, FC Stone, R.J. O’Brien, and Rosenthal Collins Group.

Customer Money

CME Group and the CFTC should have protected customer money in late October when it was clear the firm was in trouble, said an introducing broker who has been an MF Global customer for five years and also requested anonymity for fear of reprisal.

Dave Gary, a CFTC spokesman, didn’t immediately return a call for comment.

Exchanges including CME Group and Intercontinental Exchange Inc. said earlier this week that MF Global customers could only liquidate existing positions and not add new ones. They directed MF Global customers to the firm to broker the close out trades.

Knuth said she wasn’t able to liquidate her positions through MF Global because it was impossible to get through to the firm to place the order.

“It seems like they had one poor clerk handling all the orders. It was insane,” she said, adding that MF Global clients should have been allowed to liquidate trades in an orderly fashion. “It’s not supposed to happen like this, it’s shocking. What disheartens and disgusts me is the true damage it’s done to people’s livelihoods and businesses. They can’t risk having their funds tied up for months or years. There is no recovery from that.”

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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Qantas Offers Free Flights to Customers Disrupted by Grounding of Fleet

By Tracy Withers - Nov 6, 2011 5:43 AM GMT+0700

Qantas Airways Ltd. (QAN), Australia’s biggest carrier, is offering free flights to passengers disrupted when it grounded its fleet for two days a week ago.

Customers are entitled to a free return economy flight within Australia or to New Zealand over a two-year period from Dec. 14, the Sydney-based airline said in a statement today.

“Throughout the long period of industrial activity we have been acutely aware of the impact on our customers,” Qantas Chief Executive Officer Alan Joyce said in the statement. “This ticket offer is one of a range of initiatives we will be launching as a way of saying sorry.”

About 80,000 passengers were stranded when Qantas grounded 108 aircraft that fly from 22 airports worldwide on Oct. 29 in an attempt to end labor union strikes. Australia’s industrial- relations regulator ordered an end to the stoppages and flights resumed Oct. 31.

The disruption cost Qantas A$68 million ($71 million), the airline has said. The offer of free flights may cost the carrier as much as A$20 million, the Sydney-based Daily Telegraph newspaper reported today.

Qantas has agreed with regulators that customers will be compensated for all reasonable losses arising from the grounding, and will be contacting affected customers, the airline said.

Rewarding Loyalty

“We deeply regret the inconvenience caused over recent months and last weekend in particular,” Joyce said. “Now that no more industrial action can take place and the cloud of further strike action has lifted, we are 100 percent focused on what matters to customers, getting them to their destinations, safely, on time and in comfort, and in rewarding their loyalty to Qantas.”

Further announcements will be made in relation to overseas- based customers and frequent fliers, the airline said.

The grounding of the fleet was the only alternative because the labor disputes were causing a slump in sales for the airline, Joyce told an Australian Senate Committee hearing on Nov. 4. Weeks of sporadic strikes caused a “massive” collapse in corporate bookings in October, he said.

Fair Work Australia, the nation’s labor regulator, ordered an end to union actions, barred Qantas from staging a planned lock out and gave both sides until Nov. 21 to agree to new contracts or face the possibility of compulsory arbitration.

Prime Minister Julia Gillard said on Oct. 31 the airline took an “extreme” approach by grounding its fleet. Australians and the tourism industry were “grossly inconvenienced by this high-handed ambush,” Assistant Treasurer Bill Shorten said a day after the grounding.

Qantas engineers and baggage handlers have staged stoppages seeking higher pay and job-security measures. Long-haul pilots have also held protests in a bid to get the same employment conditions whether they fly for Qantas’s namesake carrier or planes from its budget arm Jetstar.

Qantas rose 2.5 percent to A$1.615 at the close of Sydney trading on Nov. 4. The carrier rose 4.5 percent last week, compared with a 1.7 percent decline for the benchmark S&P/ASX 200 Index.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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Papandreou’s Unity Government Bid Hits Resistance as Crisis Talks Begin

By Marcus Bensasson and Maria Petrakis - Nov 6, 2011 6:41 AM GMT+0700

Greek Prime Minister George Papandreou, trying to preserve international aid before the nation runs out of money next month, struggled to form a new unity government after the opposition’s leader rebuffed his offer yesterday.

Greek President Karolos Paloulias meets with Antonis Samaras, the leader of New Democracy, the biggest opposition party, at 1 p.m. in Athens today to try to convince him to join a government of national unity. Samaras has so far balked at joining forces with Papandreou’s socialist party even if the premier steps aside and yesterday repeated a demand for elections.

Papandreou met with Papoulias yesterday as pressure mounted on the 59-year-old to step down after he was forced to cancel a referendum that may have led to Greece being ejected from the euro. The premier won a confidence motion early on Nov. 5 after pledging to disaffected members of his ruling Pasok party that he would not stay on.

“Mr. Papandreou isn’t seeking a national salvation government,” Samaras said yesterday in a televised address. “He’s trying to bind everyone to his personal choices, which lead to dead ends. But the nation needs a government with a strong mandate and legitimacy from the people. No program can achieve anything without the approval and support of the people which is why we insist on elections now.”

The premier’s offer capped a tumultuous week that started with him securing a second bailout from the European Union, then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote. Papandreou, who will lead a cabinet meeting at 6 p.m. in Athens, must heal political divisions to secure an agreement on the aid and avert the first default by an EU nation.

New Bailout

European stocks declined for the first week in six and the euro fell the most in two months versus the dollar to $1.3792, its first weekly loss since the five days ended Oct. 7, amid the Greek turmoil and after a Group of 20 summit in Cannes, France, failed on Nov. 4 to agree on increasing resources for the IMF.

The main goal of a government of wider cooperation is securing approval for the Oct. 26 agreement with international lenders. Last month’s accord “is a prerequisite for our remaining in the euro,” to Papandreou told reporters in Athens yesterday.

Opposition LAOS party leader George Karatzaferis, who controls 16 seats in Parliament and who supports Papandreou’s plan, was critical of Samaras’s approach.

‘Sacrificed Career’

“Papandreou, by bringing things to a head, has basically, without expecting this to happen, sacrificed his own political career,” Sassan Ghahramani, chief executive officer of SGH Macro Advisors, said on Bloomberg Television’s “Street Smart.”

Greek two-year bond yields climbed above 100 percent for the first time, German 10-year bonds posted their biggest weekly advance on record and Italian borrowing costs surged to euro-era records after European leaders said that Greece may have to exit the euro following Papandreou’s referendum decision.

Papandreou won the confidence vote in the 300-member parliament by 153 votes to 145. The government will need the backing of 180 lawmakers to secure approval for Greece’s second aid package, negotiated in Brussels last month. Disbursement of funds was halted after Papandreou’s call for a referendum was opposed by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

Losing Autonomy

Finance Minister Evangelos Venizelos told lawmakers the outline of a government agreement needs to be in place before a meeting with European finance ministers in Brussels tomorrow.

“The country risks losing its autonomy, its level of life, and the international context is becoming more stifling every day,” Venizelos said. “Society must at last be able to breathe, and on Monday the country must be represented in a credible and reliable way at the euro group” in Brussels.

Most Greeks would prefer to see a national unity government rather than have the country opt for elections, an opinion poll in Proto Thema newspaper showed.

Fifty-two percent of the 1,000 people surveyed by Alco for the Athens-based newspaper said they preferred a unity government compared with 36 percent who said the country should hold elections. The poll was conducted Nov. 2 to Nov. 4 and the margin of error wasn’t provided.

“In the eyes of Angela Merkel and Nicolas Sarkozy, Papandreou doesn’t have much credibility left,” Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics, said in a Bloomberg TV interview. “Greece needs to have a new face to the rest of the world.”

Papademos Touted

Lucas Papademos, the former vice-president of the European Central Bank and a former governor of the Greek central bank, has been mentioned in the Greek media as a possible candidate for the post of prime minister in a unity government.

An adviser to Papandreou, Papademos was the top choice to lead such a government, according to a Kapa Research poll of 1,009 people surveyed for To Vima newspaper last week. Other names cited by the media include Venizelos and former Economy Minister Stefanos Manos.

Papandreou, a graduate of the London School of Economics and former foreign minister, had survived a confidence vote in June called to rally support for austerity measures demanded by international lenders in return for a continuation of a 2010 bailout, the first for an EU nation. The EU and the IMF agreed to provide 110 billion euros ($152 billion) in May last year in return for cuts in government spending and public sector jobs.

Debt Writedown

His referendum plan triggered a suspension in assistance by EU leaders less than a week after they’d approving a second rescue that pledged a further 130 billion euros and wrote down the value of Greek debt by 50 percent.

“The IMF will almost certainly release the sixth tranche of its bailout and we can now expect Greece to avoid involuntary default before Christmas,” Dominic Rossi, global chief investment officer for equities at Fidelity International Ltd. said in an e-mail. “However, in the long run, fundamental problems persist and serious questions still remain on whether Greece will be able to deliver on its commitments.”

The surprise referendum announcement triggered the biggest two-day slide in the MSCI World Index in almost three years and sent spreads on French, Greek and Italian bonds over bunds to euro-era records. France now pays 123 basis points more than Germany to borrow for 10 years.

St. Paul, Minnesota-born Papandreou, whose father formed the party at the end of Greece’s military rule, had said he was prepared to lose his job if it meant pushing through austerity measures needed to fix Greece’s finances. The nation’s debt is expected to balloon to 162 percent of gross domestic product this year.

“I would be very surprised if Greece doesn’t default in the next few weeks,” said Lex Van Dam, who manages $500 million in assets at Hampstead Capital LLC in London. “I cannot see how the Europeans will pay the next tranche knowing that the Greeks will try and renegotiate the rest of the original Oct. 26 package once this payment has been made.”

To contact the reporters on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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Manchester United Wins to Celebrate Ferguson’s 25th Anniversary

By Bob Bensch - Nov 6, 2011 2:56 AM GMT+0700

Manchester United marked Alex Ferguson’s 25th anniversary as manager with a 1-0 win over Sunderland in English soccer’s Premier League.

An own goal from former defender Wes Brown gave United the home victory. Prior to the match the club renamed one of the stands at Old Trafford in Ferguson’s honor.

“It was an anxious day for the players and I think they showed that today,” Ferguson told Sky Sports. “Sunderland threw everything into it and played very well.”

First-place Manchester City and Newcastle both won to remain the league’s only unbeaten teams.

Manchester City defeated Queen’s Park Rangers 3-2 and Newcastle beat Everton 2-1. Arsenal defeated West Brom 3-0, Aston Villa beat Norwich 3-2, Chelsea won 1-0 at Blackburn, while Liverpool and Swansea finished 0-0.

Ferguson, who was hired on Nov. 6, 1986, walked onto the field through a honor guard of both teams and Sunderland manager Steve Bruce, a former United defender. United then announced at a ceremony that Old Trafford’s North Stand, the biggest at the stadium, was renamed for the manager.

“I couldn’t believe it,” Ferguson said. “I didn’t expect that. I have to thank the club, it’s fantastic of them to do that.”

United got the only goal it needed in first-half stoppage time courtesy of Brown, who left the club for Sunderland in the summer. Nani sent in a corner kick which Brown, pressured by Danny Welbeck, headed into his own goal.

Manchester City remains five points ahead of United after rallying past QPR.

Yaya Toure’s goal in the 74th minute gave City the victory at Loftus Road in London. Jay Bothroyd put QPR in front before Edin Dzeko and David Silva scored for City.

Toure’s Game Winner

QPR tied the game in the 69th minute when Bothroyd’s header bounced in off the back of Heidar Helguson. Toure then won the game by heading in Aleksandar Kolarov’s cross with 16 minutes left.

Newcastle stayed a point behind Manchester United by beating Everton. The Magpies took the lead on own goal from John Heitinga and Ryan Taylor’s score before Jack Rodwell scored for Everton in first-half injury time.

Robin van Persie netted his league-leading 11th goal to help Arsenal past West Brom. Thomas Vermaelen and Mikel Arteta also scored as the Gunners won their fourth straight league match.

The victory moves Arsenal even with sixth-place Liverpool on 19 points. Liverpool settled for the home draw with Swansea after Dirk Kuyt scored in the 88th minute only to be ruled offside.

Darren Bent had two goals in Aston Villa’s home win over Norwich, while Frank Lampard scored as Chelsea beat Blackburn to end a two-match losing run in the league.

Wolverhampton hosts Wigan, Stoke visits Bolton and Tottenham is at Fulham in tomorrow’s games.

To contact the reporter on this story: Bob Bensch in London at bbensch@bloomberg.net.

To contact the editor responsible for this story: Christopher Elser at celser@bloomberg.net.

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Australian Rate Cut to Boost Saving Not Spending, Westpac Chief Kelly Says

By Tracy Withers - Nov 6, 2011 6:30 AM GMT+0700

Australia’s first interest-rate cut since April 2009 may boost consumer saving rather than spending, adding to the case for further reductions, according to Westpac Banking Corp. (WBC) Chief Executive Officer Gail Kelly.

The Reserve Bank of Australia cut the benchmark a quarter of a percentage point to 4.5 percent on Nov. 1, citing slowing inflation and weaker global growth. Sydney-based Westpac lowered its variable mortgage rate by the same amount.

“What will happen is that customers will take the extra cash that they’ve got and probably apply it more to debt repayment and to savings,” Kelly told the Australian Broadcasting Corp.’s “Inside Business” program.

“Ultimately what we need for the economy to grow is for people and businesses to regain confidence and to decide now is the time to spend more and indeed to invest more,” she said. “I think we’re a little bit off that at this point.”

Westpac, Australia’s second-largest lender, on Nov. 2 said second-half profit fell 13 percent as lending growth slowed and debt market turmoil triggered a drop in earnings at the bank’s treasury unit.

Slower lending signals that “customers are cautious, that they’re preferring to sit on their hands at the moment,” Kelly said. Consumers and companies who found themselves with too much debt during the global financial crisis “won’t want to find themselves in that position again, so I don’t think its a bad thing,” she said.

As domestic spending slows, and Europe’s debt crisis threatens global demand, Australia is well placed to react, Kelly said. The central bank is able to lower interest rates and the government has scope to provide further stimulus if needed, she said.

“I’d have to say I’m really happy and pleased to be a banker living in Australia,” she said. “We have the tools to play to manage a downturn. We’ve got room to go if the Reserve Bank believes it is necessary to be able to provide further support to the economy.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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Drosselmeyer Wins Breeders’ Cup Classic Horse Race Beating Game on Dude

By Nancy Kercheval - Nov 6, 2011 7:13 AM GMT+0700

Drosselmeyer, the winner of the 2010 Belmont Stakes, battled down the stretch today to overtake Game on Dude to win the $5 million Breeders’ Cup Classic, the richest thoroughbred horse race in North America.

Drosselmeyer, with Mike Smith aboard, crossed the finish line ahead of Game on Dude and third-place Ruler on Ice at Churchill Downs in Louisville, Kentucky.

“You have to keep him moving,” jockey Mike Smith, who won his 15th Breeders Cup race to tie Jerry Bailey, said in a televised interview. “He’s like a bicycle, you have to keep pedaling. He can run all day.”

The winner, leaving the gate at 14-1, returned $31.60, $13.20 and $8.80 on a $2 bet. Game on Dude paid $13.60 and $9.20 and Ruler on Ice returned $9.80.

Smith, angling the horse to the middle of the track, started his move down the stretch to overtake Game on Dude, who was ridden by his former fiancée, Chantal Sutherland.

“I saw white and said, ‘you’ve got to be kidding,’” said Sutherland, whose horse set the pace for the race.

Drosselmeyer covered the 1 1/4 miles in two minutes, 4.27 seconds.

Last year in the Classic, Smith left the track in tears as he rode the defending champion mare Zenyatta to her first career defeat, losing by a neck.

Classic Sweep

The victory gave trainer Bill Mott a sweep of the classics this year. He won the $2 million Ladies’ Classic yesterday with Royal Delta.

“It was an incredible thrill,” Mott said. “We knew he’d get the distance since he had already won the Belmont.”

In the Mile race, three-time winner Goldikova was deprived of a record fourth win by 64-1 longshot Court Vision. She ended her career with a third-place finish. Turallure was second.

“I think the mileage and the years have taken their toll,” said Freddy Head, Goldikova’s trainer. “We had a good run. I’m very, very, very proud.”

Afleet Again, at 41-1, won the Marathon and Hansen defeated favorite Union Rags by a head in the $2 million Juvenile to become the early odds-on favorite in the 2012 Kentucky Derby.

The $26 Million Breeders’ Cup Championship is the richest two-day sporting event in the world.

To contact the reporter on this story: Nancy Kercheval in Washington at nkercheval@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net

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Groupon's IPO biggest by U.S. Web company since Google

By Alistair Barr and Clare Baldwin

Fri Nov 4, 2011 12:55pm EDT

(Reuters) - Groupon Inc raised $700 million after increasing the size of its initial public offering, becoming the largest IPO by a U.S. Internet company since Google Inc raised $1.7 billion in 2004.

The global leader in "daily deals" is now valued at almost $13 billion after saying it increased the offering by 5 million shares to 35 million in total and pricing them at $20 each, above an initial range of $16 to $18.

The debut of the three-year-old company, which sells Internet coupons for everything from spa treatments to nose jobs, is one of this year's most closely watched. Its tiny float represents just above 5 percent of the company and helped drive up demand and price.

That constraint -- one of the smallest floats of the past decade -- should support Groupon's share price when it begins trading on the Nasdaq on Friday under the ticker GRPN, analysts say.

But in the longer run, they cited concerns about competition from the deep-pocketed likes of Google and Amazon.com Inc; the need to spend continuously to drive user growth; and questions about accounting after the company altered its IPO filings twice to change the way it accounted for revenue.

"Groupon is expensive. The $12.8 billion valuation is only achievable because of the low float," said Rob Romero, head of technology-focused hedge fund firm Connective Capital Management.

"Today's reaction to LinkedIn floating additional share supply is an indication of how tight supply-demand of shares can distort valuation for a new IPO."

LinkedIn, which remains well above its $45 IPO price, plummeted 9 percent after-hours after unveiling a proposal to sell up to $500 million in stock. It had floated 8.3 percent of its shares during the IPO.

Pandora Media, a music streaming service and another recent dotcom debutante, sold 9.2 percent of the company.

At $12.8 billion, Groupon commands a price tag more than twice what Google offered to buy the company last year.

WIDESPREAD CRITICISM

Beyond Friday, Groupon shares may prove volatile on concern about the company's ability to generate long-term profit and revenue growth, plus the likelihood that existing investors will sell some of their holdings at some point.

Quirky music major and CEO Andrew Mason and his executive team spent almost two weeks on the road pitching to investors and addressing widespread criticism about Groupon's replicable business model, slowing growth and accounting concerns.

"The post-IPO investor will be taking a risk on this deal," said Josef Schuster, founder of IPO research and investment house IPOX Schuster. "It's maybe a good trade for a day trader, in and out in a single day, but I don't want to be in it for the long run."

To pull the deal off, the company cut its valuation by about half. Existing shareholders aren't selling. And it skipped meetings with potential investors in Europe and Asia.

If underwriters, led by Morgan Stanley, Goldman Sachs and Credit Suisse, exercise their right to buy just over 5 million more Groupon shares in the IPO, known as the greenshoe, Groupon will raise more than $800 million, before fees.

Wall Street will scrutinize Groupon's Friday showing for clues as to how other highly anticipated dotcom IPOs -- from the likes of Facebook or Zynga -- may fare.

LinkedIn surged on the first day of trading in May and remains far above its $45 IPO price. Pandora's shares surged initially, then slumped. Its shares traded below the $16 IPO price on Thursday at just over $15.

Groupon "is a company with permission to market to 150 million consumers daily. No other company in the world has ever had that type of reach," said Boyan Josic, chief executive at DailyDealMedia, which tracks the industry.

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Talks on Greek coalition to start soon: Papandreou

By Lefteris Papadimas and Renee Maltezou

ATHENS | Sat Nov 5, 2011 8:18am EDT

(Reuters) - Negotiations to form a Greek coalition government will start soon, Prime Minister George Papandreou said on Saturday, launching a new push to save the nation from bankruptcy and prevent its crisis from sweeping over Europe and beyond.

Papandreou told the Greek president that the nation had to forge a political consensus to prove it wanted to keep the euro, as European leaders try to persuade the outside world that the currency bloc can overcome its huge debt problems.

"In order to create this wider cooperation, we will start the necessary procedures and contacts soon," he told reporters after meeting President Karolos Papoulias.

Hours after surviving a parliamentary confidence vote, Papandreou said Greece had to avoid early elections, calling for a broad-based government to secure a bailout from the euro zone, the main weapon in Europe's battle against the spreading economic crisis.

"My aim is to immediately create a government of cooperation," he told the president in the presence of reporters before they held talks behind closed doors. "A lack of consensus would worry our European partners over our country's will to stay in the euro zone."

Political sources involved in the dealmaking said negotiations are being led behind the scenes by Finance Minister Evangelos Venizelos, who aims to head the new coalition.

FAMOUS FATHER, FAMOUS GRANDFATHER

The sources said Papandreou, a socialist whose father and grandfather were Greek prime ministers, would step aside to make way for Venizelos, the man he beat to his PASOK party's leadership in 2004.

Without saying when he might quit, Papandreou -- who has led

Greece through two years of political, economic and social turmoil -- said he was ready to discuss who should lead the new government which would rule until elections probably early next year.

"The last thing I care about is my post. I don't care even if I am not re-elected. The time has come to make a new effort ... I never thought of politics as a profession," he told parliament before the vote in the early hours of Saturday.

A new coalition is likely to exclude the main opposition party, the conservative New Democracy.

Papandreou said the coalition should aim to ram the 130-billion-euro bailout deal through the assembly, the last financial lifeline for a nation that is due to run out of money in December.

Under heavy domestic and international pressure, the prime minister has backed down on a proposal for a referendum on the euro zone rescue. Greek voters could well have rejected the deal, potentially sinking euro zone leaders' attempts to stop the debt crisis devastating economies such as Italy and Spain.

THINGS MAY TURN UGLY

Greeks, burdened by waves of spending and welfare cuts plus tax rises which have pushed the country into a long recession, expressed disgust at the political wrangling up at parliament.

"I'm sick of politicians in Greece, and feel that things will now turn ugly. If only they could cooperate, everything would be much better," said Tassos Pagonis, a 48-year-old Athens taxi driver. "But will Greece be saved? I'm afraid not. Europeans don't trust us anymore, they will throw us out."

Pagonis expressed a fear widespread in the nation -- that Greece might be forced out of the euro zone to go it alone with a revived national currency. "I hope we don't return to the drachma," he said.

Pensioner Yiannis Vlahos, 83, compared the fates of Greece and Germany, which occupied the country in World War Two.

"When the Germans left we had some hope. They were ruined by World War Two but they worked hard and became the strongest economy. We Greeks haven't learned our lesson, we only steal," he said. "We ourselves hate our beautiful country."

Papandreou's socialist government won with 153 votes in the 300 member parliament, and a rebellion by some dissidents in his PASOK party failed to materialize after he indicated that his term as prime minister was close to an end.

The leaders of France and Germany told Papandreou this week that Greece would not get a cent more of aid if Greece failed to approve the bailout, meaning that the state would run out of money in December.

Newspapers labeled Papandreou's confidence victory as little more than a deal paving the way for a new government without Papandreou. The pro-government Ta Nea ran with "New government now!"

Greece has been racked by torment since soon after Papandreou won power in 2009 and revealed that the real budget deficit was three times bigger than original estimates put out by his conservative predecessor.

International investors took fright, Greece's borrowing costs soared and Papandreou was forced to go cap in hand last year to the only bodies still willing to lend at affordable rates -- the European Union and IMF.

In return they demanded wave after wave of spending cuts, tax rises and pension cuts which provoked widespread protests on the streets on Greek cities, with bloody clashes between demonstrators and riot police in Athens.

FAILING AGAIN

Masamichi Adachi, senior economist at JP Morgan Securities Japan, said the main concern was what would happen when international lenders returned to Athens in the coming months to assess the progress of the austerity plan and "find them failing again."

"This is just pushing away the timing of the real problem. Of course it's welcome that Greece didn't blow up today, but it doesn't solve the problem."

Analysts said Papandreou's victory had been Pyrrhic, and many ordinary Greeks said they were disenchanted with Byzantine political wrangling that was not addressing their basic need for jobs and cash.

Sources said Venizelos has won the backing of leaders of some smaller parties to support a coalition that he would head. The leaders of the far-right LAOS party and another center-right party indicated after Papandreou's speech that they would cooperate in a new coalition.

In parliament, Venizelos said a new government should rule until next February and then call elections.

Opposition leader Antonis Samaras counted his New Democracy party out of the coalition, saying Papandreou had spurned his call for a national unity government. "Mr Papandreou rejected our proposal. The only solution is elections," he said.

(Additional reporting by Reuters Athens bureau; Writing by David Stamp)

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MF Global CEO Jon Corzine quits as big bet fails

By Jonathan Stempel and Christopher Doering

Sat Nov 5, 2011 12:29am EDT

(Reuters) - Jon Corzine, one of Wall Street's best-known stars, stepped down as MF Global Holdings Ltd's chairman and chief executive after his bets on European debt drove the futures brokerage into bankruptcy.

The departure was announced on Friday, hours before conflicting reports surfaced about the whereabouts of $633 million of missing customer money, whose disappearance derailed MF Global's effort this week to quickly sell a variety of assets.

JPMorgan Chase & Co said late on Friday it had no information about whether balances in MF Global accounts at the bank contained any of the missing customer funds. It also declined to disclose the balances of those funds.

"The accounts and their balances have been and continue to be wholly transparent to MF Global and the recently appointed (brokerage) trustee," JPMorgan said in a statement.

Earlier in the day, Bloomberg News had said customer funds had been found in a JPMorgan custodial account holding $658.8 million, citing two people with knowledge of the matter.

Corzine, a former chief of Goldman Sachs & Co, characterized his abrupt departure from a company he once joked as "too small to care about" as "difficult" but voluntary.

It was effective on Friday, four days after MF Global sought bankruptcy protection, a company spokeswoman said.

Corzine, 64, joined MF Global in March 2010 as his ticket back to Wall Street, after stints as a U.S. senator from New Jersey and one-term governor of that state. He had run Goldman from 1994 to early 1999.

But when MF Global's $6.3 billion bet on sovereign debt from Belgium, Ireland, Italy, Portugal and Spain went public, counterparties and investors headed for the exits.

"He was seeking redemption," said Robert Fagenson, former vice chairman of the New York Stock Exchange. "When you're not dealing with a Goldman Sachs-type of balance sheet, though, you can't take Goldman Sachs-type bets."

MF Global's decline accelerated last week as the New York-based company revealed more details about its European exposure, posted a larger-than-expected quarterly loss, and was downgraded by major credit rating agencies to "junk" status.

Many investors were also spooked by MF Global's roughly 30-to-1 leverage ratio, based on more than $40 billion of assets and just $1.4 billion of equity. Corzine himself has said that much leverage is unacceptably high.

The bankruptcy is the seventh-largest in U.S. history, according to BankruptcyData.com and Reuters data.

"My how the mighty are fallen," said Jim Rogers, a prominent commodities investor. "It is inconceivable to me he would do this after Refco," he added, referring to a brokerage that failed in a 2005 accounting scandal.

CFTC'S GENSLER OUT

Corzine's departure comes as the head of the U.S. futures regulator working on a sweeping review into the business practices of MF Global has said he will not be participating in any further parts of the inquiry.

Gary Gensler, the chairman of the Commodity Futures Trading Commission, and Corzine worked at Goldman Sachs at the same time and held prominent positions. They both left the investment bank in the late 1990s.

"I don't know if there is an official refusal but he's said he's not going to participate in the MFG inquiry. He's done with it," a source who has participated in meetings on MF Global told Reuters on Friday.

Gensler has not participated in meetings during the last few days, and has chosen to not participate in the review because he doesn't want to create an appearance of a conflict of interest, the source said.

MF Global's problems this week triggered steep declines in stocks of other financial companies, such as Morgan Stanley and investment bank Jefferies Group Inc.

Jefferies, seeking to soothe investors, said on Friday it had a net short position in sovereign risk of Greece, Ireland, Italy, Portugal and Spain. Its shares closed up 0.5 percent on Friday, but lost 18 percent for the week.

"The idea that you might be holding European debt is very frightening" to markets," said Franklin Edwards, a Columbia Business School professor specializing in futures markets, regulation and governance. "There is so much uncertainty."

It is unclear how Corzine's resignation might affect the various ongoing investigations. Neither MF Global nor Corzine has been charged with wrongdoing.

Corzine said he intended to "continue to assist the company and its board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm's assets.

James Giddens, the trustee overseeing the liquidation of the company's MF Global Inc unit, is working with CME Group Inc and others to move about 50,000 accounts to new clearing firms.

Giddens said his team is "securing" MF Global offices in Chicago and New York, plans to work through the weekend to transfer large accounts, and will try through next week to transfer individual accounts. Corzine's departure will not affect that process, a spokesman for Giddens said.

CME late on Friday said it expected to finish transferring all customer segregated positions by the end of the day, for a total transfer of positions in about 15,000 MF Global accounts and $1.45 billion of associated clearing collateral.

'GREAT SADNESS'

In his statement, Corzine said his departure is best for MF Global and its stakeholders.

"I feel great sadness for what has transpired at MF Global and the impact it has had on the firm's clients, employees and many others," he said.

MF Global said Corzine is not seeking severance. He had been entitled to $12.1 million in severance, prorated bonus and other benefits if he were let go without cause, a July 7 regulatory filing shows. The severance portion was $9 million.

Corzine has hired prominent white-collar defense lawyer Andrew Levander of the law firm Dechert to represent him in cases that might stem from the bankruptcy filing, a legal source briefed on the matter said on Thursday.

Chief executives often step down as their companies face federal probes or bankruptcy. Leaving might also give him greater flexibility in dealing with authorities.

"If you're no longer with the company, it gives you freedom to respond from the perspective of solely protecting your own interest," said Barry Pollack, a partner at law firm Miller & Chevalier specializing in white-collar defense.

Chief Operating Officer Bradley Abelow and lead director Edward Goldberg will stay in their positions, MF Global said.

STALLING REFORMS

Brokerages are required to keep customer money segregated from their own cash. Questions about the integrity of MF Global client accounts have also attracted the attention of the Federal Bureau of Investigation.

"To the extent there were diversions of funds in segregated accounts, or funds that were lost, it would certainly violate regulatory rules and perhaps even rise to the level of securities fraud," said Edwards, the Columbia professor. "We just don't know the facts."

It is unclear why regulators such as the Securities and Exchange Commission, Commodity Futures Trading Commission and Financial Industry Regulatory Authority did not do more to rein in MF Global's risk-taking, coming so soon after the 2008 financial crisis.

Last year's Dodd-Frank financial reforms have yet to take full effect, and would likely have done little to avert MF Global's collapse. But Corzine played a key role in stalling reforms designed to stop firms from using customer funds for proprietary trades.

"Many firms, including MF Global and Senator Corzine specifically, have asked us to hold back on tightening up our regulations," CFTC Commissioner Bart Chilton said in a Friday speech.

Corzine's original decision to join MF Global surprised many on Wall Street.

He has referred to himself as a "recidivist banker," and said he was willing to join a small Wall Street company because financial regulatory reform would force big banks to shrink. (Reporting by Jennifer Ablan, Suzanne Barlyn, Nick Brown, Matthew Goldstein, David Henry, Jed Horowitz, Herb Lash, Jennifer Merritt, Marcy Nicholson, Jeanine Prezioso, Jonathan Stempel and Dan Wilchins in New York; Alexandra Alper and Christopher Doering and Sarah N. Lynch in Washington, D.C.; and K.T. Arasu, Karl Plume and Theopolis Waters in Chicago; Editing by Edward Tobin and Tim Dobbyn)

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Bangkok Faces Threat From Water, Angry Residents as Thailand’s Floods Near

By Suttinee Yuvejwattana - Nov 5, 2011 12:33 PM GMT+0700

Bangkok is facing a dual threat from a “massive” flow of floodwater from the north and angry residents intent on tearing down defensive walls to save their flooded neighborhoods, Prime Minister Yingluck Shinawatra said.

“The dikes can’t resist the massive amount of water and there are also problems with water pumps breaking down,” Yingluck said today in a radio address. “The second problem is groups of residents who live north of the flood gates want the gates to be opened to drain water, but people who live on the other side don’t want their areas to flood.”

Bangkok officials are protecting a network of dikes, canals and sandbag barriers to help divert a slow-moving mass of floodwater around the city center and protect industrial zones east of the city. Thailand’s floods have claimed at least 442 lives since late July and shuttered 10,000 factories in provinces north of Bangkok, disrupting global supply chains.

“We should be able to save most of the areas in the east, including the economic zones,” Yingluck said. “For the west, drainage is quite difficult. People in the west need to be patient.”

A 6-kilometer (3.7-mile) wall of sandbags being completed along a canal north of Bangkok will help ease flooding in eastern parts of the capital, Yingluck said. Rising floodwaters in the city’s northern suburbs yesterday forced the closure of the Central Plaza Ladprao shopping mall, close to the city’s famous Chatuchak weekend market.

“Water has spread to a wide area in Bangkok,” Yingluck said. Efforts to save the city of 9.7 million people are slowing the flow of water to the Gulf of Thailand, 30 kilometers (19 miles) to the south, exacerbating flooding in areas north, east and west of the capital.

Inner Bangkok Dry

Bangkok’s business districts of Silom and lower Sukhumvit Road remain dry and Suvarnabhumi Airport and public transport links are unaffected. The airport’s perimeter is protected by a 3.5-meter-high dike, Airports of Thailand Pcl said yesterday.

“I am confident the airport can operate safely and as normal,” Somchai Sawasdeepon, the company’s senior executive vice president, told reporters in Bangkok. “But we will have a team to monitor the situation 24 hours a day.”

Evacuations have been ordered in almost a quarter of Bangkok’s 50 districts, the Bangkok Metropolitan Administration said. An evacuation order for additional areas of Chatuchak and Nong Khen districts was issued yesterday, the BMA said.

The government is balancing the need to protect an area that accounts for about half of Thailand’s industrial output with demands from residents to drain water from parts of outer Bangkok where homes have been inundated for weeks.

Angry Residents

Bangkok Governor Sukhumbhand Pariibatrathis week ordered police to protect water gates on canals after local residents tried to destroy them to ease flooding around their homes. Yingluck said today that people who destroy flood barriers may be prosecuted.

“Residents should be aware of the effects of their actions,” Yingluck said. “If people don’t look at the overall picture and only think about their own situation, it will damage the country. I will focus on the national benefit and won’t let any groups obstruct efforts to solve the problem.”

The disaster worsened last month, when rainfall about 40 percent more than the annual average filled dams north of Bangkok to capacity, prompting authorities to release more than 9 billion cubic meters of water down a river basin the size of Florida, with Bangkok at its southern tip.

Factories Swamped

The deluge spread over 64 of Thailand’s 77 provinces, damaging World Heritage-listed temples in Ayutthaya province, destroying 15 percent of the nation’s rice crop and flooding the homes of almost 10 million people, according to government data.

The floods have already swamped seven industrial parks, halting production at factories operated by companies including Western Digital Corp. and Nidec Corp. Sony Corp.

The Bank of Thailand, which last week slashed its 2011 economic growth forecast to 2.6 percent from 4.1 percent, expects expansion to slow as the global economy weakens and the impact of the nation’s flood crisis increases, according to the minutes of its Oct. 19 meeting.

Rehabilitation efforts have begun in parts of Nakhon Sawan province and will start soon in Ayutthatya as flood waters recede, Yingluck said. The government has an initial budget of more than 100 billion baht ($3.3 billion) to help rebuild damaged areas, she said, adding that Cabinet will discuss new measures to help the economy recover on Nov. 8.

“We can’t lose the battle this time,” Army chief Prayuth Chan-Ocha told reporters yesterday. “If we’re defeated, the damage to the country will be tremendous. Now we’re still fighting, but the enemy is massive.”

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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