Apple’s IPhone 4S Gets Consumer Reports’ Recommendation After Antenna Fix

By Adam Satariano - Nov 9, 2011 4:50 AM GMT+0700

Consumer Reports is recommending the new iPhone 4S after Apple Inc. (AAPL) fixed an antenna glitch that left the magazine unwilling to endorse the previous model.

The iPhone 4S, released last month, doesn’t have the same reception problems as the iPhone 4, even though the devices have similar body designs, Consumer Reports said today on its website. The flaw had caused the iPhone 4 to drop calls when gripped a certain way. After initially playing down the issue, which became known as “Antennagate,” Apple gave out free cases and issued a software update designed to fix the glitch.

“While it closely resembles the iPhone 4 in appearance, it doesn’t suffer the reception problem we found in its predecessor in special tests in our labs,” said Mike Gikas of Consumer Reports.

The endorsement provides another boost to the iPhone 4S, which has already broken sales records for Apple and its carrier partners. The company sold more than 4 million of the devices in its debut weekend, more than twice as many as the iPhone 4 in its rollout in 2010. The iPhone is Apple’s top-selling product, accounting for 39 percent of sales last quarter.

Consumer Reports also praised the new phone’s battery, countering the complaints of some users, who say the new model’s power doesn’t last as long. Apple said earlier this month that it was working on a software update to address those concerns.

Still, the iPhone 4S isn’t better than new smartphones based on Google Inc. (GOOG)’s Android operating system, the magazine said. The Galaxy S II from Samsung Electronics Co. and the Droid Bionic from Motorola Mobility Holdings Inc. also earned top marks from Consumer Reports.

Apple rose $6.50 to $406.23 at the close today in U.S. trading. Shares of the Cupertino, California-based company have climbed 26 percent this year.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Iran Worked to ‘Miniaturize’ Weapon Design

By Jonathan Tirone and Margaret Talev - Nov 9, 2011 6:51 AM GMT+0700

Iran continued working on nuclear weapons at least until last year, including efforts to shrink a Pakistani warhead design to fit atop its ballistic missiles, a report from United Nations inspectors said.

The International Atomic Energy Agency, drawing on evidence collected over eight years, reported yesterday that Iran carried out “work on the development of an indigenous design of a nuclear weapon including the testing of components.”

The IAEA document shows that Iran worked to redesign and miniaturize a Pakistani nuclear-weapon design by using a web of front companies and overseas experts, according to the report and an international official familiar with the IAEA’s investigation.

Such a warhead could be mounted on Iran’s Shahab-3 missile, which has the range to reach Israel, according to the report.

The IAEA report adds to international pressure on Iran to answer questions about its program. It was released amid reports in Israeli media that Prime Minister Benjamin Netanyahu is pressing his Cabinet to support possible military action to halt Iran’s nuclear program.

The U.S. may pursue additional sanctions against Iran following release of the report and is waiting to see how Iran responds, according to two U.S. officials who briefed reporters on condition of anonymity. Iran already is under UN sanctions and the U.S. has put sanctions on Iranian government agencies, financial institutions and government officials.

Sporadic Development

The administration officials said the IAEA’s conclusions don’t conflict with U.S. intelligence estimates that Tehran’s government scaled back nuclear weapons development in 2003 while maintaining capability to resume. The officials said Iran’s nuclear weapons efforts have proceeded sporadically since 2003 and that the U.S. believes advancement since then hasn’t been dramatic.

In its report, the international agency said, “some activities relevant to the development of a nuclear explosive device continued after 2003” and “some may still be ongoing.”

Until now, atomic inspectors had only voiced concerns publicly about the “possible existence” of weapons work in Iran.

State-run PressTV said Iran “has rejected” the IAEA report as “unbalanced and politically motivated.” Iran has told IAEA inspectors that evidence used against the Persian Gulf country was forged.

The agency’s report brought calls in the U.S. for tougher action against Iran.

Call for Action

It’s “further proof that the U.S. and other responsible nations must take decisive action to stop the regime from acquiring a nuclear capability,” said U.S. Representative Ileana Ros-Lehtinen, a Florida Republican who is chairman of the House Foreign Affairs Committee.

The IAEA report also “could increase the risk of a military attack on Iran’s nuclear facilities” and therefore “justified a certain risk premium on the price of oil,” Commerzbank wrote today in a research note. Crude oil for December delivery rose $1.28 to $96.80 a barrel on the New York Mercantile Exchange, the highest settlement since July 28. Futures are up 5.9 percent this year.

Iran worked on high explosives design and the development of a neutron generator, the part of an atomic bomb that starts a nuclear chain reaction, according to the senior international official.

Four-Year Program

“Iran embarked on a four-year program, from around 2006 onwards, on the further validation of the design of this neutron source,” the IAEA report said, citing one member state that shared information with inspectors.

The IAEA revealed details of “large-scale high explosives” experiments conducted near Marivan in 2003. The experiments, which drew on technology shared by a Russian nuclear scientist, would have helped Iran calibrate the explosive impact of a bomb’s uranium core, according to the report.

“The information comes from a wide variety of independent sources, including from a number of member states, from the agency’s own efforts and from information provided by Iran itself,” the report said.

It is the first time that the IAEA has published a comprehensive analysis of Iran’s nuclear-weapons work. Data before 2003 is more comprehensive than information seen thereafter, according to the senior official. The Vienna-based agency shared a copy of the information with Iranian authorities before the report was published, the official said.

Uranium Supply

Iran increased its supply of 20 percent-enriched uranium to 73.7 kilograms from 70.8 kilograms reported in September at a pilot nuclear facility in Natanz about 300 kilometers (186 miles) south of Tehran, the IAEA said. Iran has produced 4,922 kilograms of uranium enriched to less than 5 percent compared with 4,543 kilograms in the last IAEA report.

About 630 kilograms of low-enriched uranium, if further purified, could yield the 15 kilograms to 22 kilograms of weapons-grade uranium needed by an expert bomb maker to craft a weapon, according to the London-based Verification Research, Training and Information Center, a non-governmental observer to the IAEA that is funded by European governments.

To contact the reporters on this story: Jonathan Tirone in Vienna at jtirone@bloomberg.net; Margaret Talev in Washington at mtalev@bloomberg.net

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

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MF Global Settlement Over Losses in Doubt After Bankruptcy

By David Glovin and David Voreacos - Nov 9, 2011 6:24 AM GMT+0700

A $90 million settlement of an investor lawsuit against MF Global Holdings Ltd. and its former parent, Man Group Plc (EMG), over a 2008 wheat-trading loss was cast into doubt by the futures broker’s bankruptcy filing.

A Manhattan federal judge is scheduled to decide on Nov. 18 whether to approve the settlement. The case is a class-action, or group, suit against MF Global, Man Group, underwriters of MF Global’s initial public offering in July 2007, and some of the firm’s officers and directors.

The settlement allows investors to back out of the deal if they’re not paid the full $90 million, court records show. Lawsuits against the firm were automatically halted after MF Global filed for bankruptcy protection on Oct. 31. A bankruptcy judge must decide whether MF Global may contribute to the accord. MF Global’s portion of the settlement, which covers shareholders from July 2007 to February 2008, is $2.5 million.

“If the bankruptcy court gives us approval, we’ll go forward,” Mark Rosen, a lawyer for the investors, said in an interview today. “It’s not in our hands right now. It’s in the hands of the bankruptcy court.”

Rosen wouldn’t say what investors would do if the bankruptcy court refuses to permit the suit against MF Global to proceed. Man Group is contributing $32.5 million to the settlement of litigation with a group of public pension funds. Court records don’t identify other contributors.

Lawyers for Man Group and MF Global’s underwriters didn’t return calls seeking comment on the prospects for the settlement.

Wheat Futures

MF Global sought bankruptcy protection last month after disclosing investments related to $6.3 billion in European sovereign debt. Its operating unit, MF Global Inc., is being overseen by a trustee probing possible fraud. The Federal Bureau of Investigation is also investigating, according to a person familiar with the matter.

Jon Corzine, a former New Jersey governor and ex-Goldman Sachs Group Inc. (GS) co-chairman, quit as MF Global’s chief executive officer on Nov 4.

MF Global listed $39.7 billion in debt and $41 billion in assets and said it has about $26 million in cash. About $593 million of customer funds are unaccounted for, according to a person with knowledge of probes into the collapse.

The investor lawsuit follows an earlier scandal. Shares of the broker fell 28 percent on Feb. 28, 2008, after the firm disclosed that Evan Brent Dooley, an employee in the office in Memphis, Tennessee, lost $141.5 million making bad wheat futures trades.

Risk Management

Investors said they lost $1.14 billion after shares fell. MF Global’s underwriters included Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM)

Dooley, who was fired by MF Global, was indicted by a federal grand jury in Chicago for wire fraud and violations of the Commodity Exchange Act. He’s accused of persuading MF Global to open a trading account in his name and acting as guarantor by misrepresenting his financial condition. The case is pending.

The investor complaint accuses MF Global of lying in its public filings about its “highly touted risk management.”

It focuses on Dooley’s trading and what the complaint said was “wholly inadequate” back-office systems that were “overwhelmed” after the 2005 acquisition of assets from Refco Inc. Refco went bankrupt two months after its August 2005 IPO that raised $670 million. CEO Phillip Bennett was convicted of hiding hundreds of millions of dollars in bad debt.

‘Key Risk Areas’

“Controls over key risk areas such as broker trading and broker execution of trades requested by customers were either nonexistent or, at best, ineffective,” the complaint said.

The complaint cited an “overstretched risk management back office” and a failure to require brokers to adhere to internal margin trading requirements and Commodity Futures Trading Commission regulations.

Aside from the Dooley trading losses, the lawsuit cited a $77 million settlement by the firm and an employee over trading losses involving an offshore hedge fund.

The CFTC filed a fraud lawsuit claiming that MF Global helped a Philadelphia hedge fund, Philadelphia Alternative Asset Management Co., hide trading losses from investors. The fund collapsed in 2005, and a receiver worked to recover assets for investors.

In December 2007, MF Global and the employee settled, agreeing to pay $69 million for the receivership estate, $6 million in legal costs and $2 million in a civil penalty to the CFTC.

The case is Rubin v. MF Global, 08-cv-2233, U.S. District Court, Southern District of New York (Manhattan). 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: David Glovin in Manhattan federal court at glovin@bloomberg.net; David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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Japan Membership in U.S.-Led Trade Pact May Open $48 Billion Farm Market

By Aya Takada and Yasumasa Song - Nov 9, 2011 7:44 AM GMT+0700

Japan’s participation in a free trade group led by the U.S. could open up the country’s agriculture markets worth $48 billion to foreign exporters of rice, sugar and beef, boosting global prices.

Membership in the Trans-Pacific Partnership could lift sales for Tyson Foods Inc. (TSN) and Fonterra Cooperative Group Ltd., as participants aim to eliminate import tariffs within a decade, according to Norinchukin Research Institute. Prime Minister Yoshihiko Noda, who risks splitting his party if he supports joining the trade talks, has said markets must be opened to boost the weak economy, which is struggling to recover from the March earthquake and nuclear disaster.

Tariff elimination could deepen the country’s reliance on food imports to almost 90 percent from 60 percent, the agriculture ministry has forecast. Imports could tighten global supplies and boost prices of rice, which has gained 12 percent this year, and cattle futures, which have advanced 14 percent. Noda’s Democratic Party of Japan is divided over whether to promote trade to lift economic growth or protect farmers who may be harmed by lower tariffs and increased competition.

“Rice exporters in the U.S. and beef shippers from the U.S. and Australia would benefit the most if Japan joins,” Tetsuhide Mikamo, director at Marubeni Research Institute in Tokyo, said in an interview. “The markets are the most protected as domestic growers lack price-competitiveness.”

The partnership could boost the gross domestic product of the world’s third-largest economy by 2.7 trillion yen ($34.7 billion), or 0.54 percent, the cabinet office has forecast.

Rice Imports

A decision on whether to enter talks on the partnership, which would slash tariffs, including a 778 percent duty on rice, is expected this week. Noda is set to meet U.S. President Barack Obama at the Asia-Pacific Economic Cooperation conference this weekend in Honolulu.

The removal of import tariffs and ending of the state- trading system for rice, which restricts imports from entering the retail network, will boost rice purchases from the U.S. and Vietnam, driving most domestic growers out of business, said Nobuhiro Suzuki, a professor of global agricultural sciences at the University of Tokyo.

As much as 90 percent of domestic rice production, or 7.6 million metric tons, could be replaced by imports in the long term, he said, as the government protects growers with an import tariff of 341 yen a kilogram to maintain self-sufficiency.

“Domestic production will be phased out if tariffs are eliminated,” Suzuki said in an interview.

Wheat, Sugar

Under the state trading system, the agriculture ministry buys rice from overseas for sales mainly to feedmakers, alcohol companies and processed foodmakers. Elimination of the system may expand opportunities for trading companies such as Marubeni Corp. (8002), Japan’s largest grain trader, to boost imports for sales to retailers such as its affiliate supermarket operator Daiei Inc. (8263)

The negotiations for the Trans-Pacific Partnership, known as TPP, have involved Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam, in addition to the U.S.

Still, an influx of cheap flour and dairy products from overseas could mean lost sales to Japanese food makers such as Nisshin Seifun Group Inc. (2002) and Morinaga Milk Industry Co. Non-TPP countries Canada and Thailand may also lose sales of wheat, rice and sugar if Japan becomes the 10th member. Increased imports of meat and dairy by Japan would reduce purchases of feed grains such as corn and soybean meal.

Survival

Almost all of Japan’s sugar production, worth 150 billion yen a year, could be replaced by imports should tariffs be removed, according to Tetsuro Shimizu, vice president of basic research at Norinchukin Research Institute. For wheat, 99 percent of Japanese output worth 80 billion yen would be taken over by imports. Imports could also substitute Japanese beef, pork and chicken worth 1.1 trillion yen, he said.

Japanese farmers can survive without being protected by import duties if the government supports streamlining farm operations and supplements their incomes, as consumer tastes for domestic food will remain strong, said Kazuyuki Kinbara, director for international affairs at lobby group Keidanren. The group is Japan’s largest with 1,281 companies, including Nippon Steel and carmaker Toyota Motor Corp. Free-trade agreements will also expand opportunities for Japanese farmers to boost exports, he said

“The TPP will have a negative influence on Japan’s agricultural production, but its overall impact on the Japanese economy should be positive,” said Kenichi Kawasaki, managing director at the economic research department of Nomura Securities Co. “If Japan opens up its markets to foreigners, overseas investors will also be lured to the country.”

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net Yasumasa Song in Tokyo at ysong9@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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Hong Kong’s Tsang ‘Pessimistic’ on Global Growth as City Risks Recession

By Ye Xie and Sophie Leung - Nov 9, 2011 8:08 AM GMT+0700

Hong Kong Chief Executive Donald Tsang said the city’s economy may have slipped into a recession in the third quarter as Europe’s debt crisis roiled markets.

Growth may be as little as 2 percent next year after a likely expansion of 5 percent this year, Tsang said in an interview at Bloomberg LP’s head office in New York yesterday. That would compare with a 7 percent expansion last year.

Hong Kong exports declined in September for the first time in almost two years, and the benchmark Hang Seng Index plunged 21 percent in the third quarter. Third-quarter economic figures are due Nov. 11, with seven of 15 economists in a Bloomberg News survey forecasting a second straight contraction, meeting the technical definition of a recession.

“It’s very likely Hong Kong has entered into a recession, and I doubt if that will be a brief one,” said Law Ka Chung, chief economist at Bank of Communications Co. Ltd. in Hong Kong. “There are so many bombs in Europe waiting to explode and the impact on the global economy may be huge, similar to what we saw in late 2008.”

Europe’s crisis and elevated U.S. unemployment have sapped demand for Asian exports, contributing to an easing in economic growth in nations from China to South Korea. Taiwan’s economy shrank 0.28 percent in the third quarter from the previous three months, the first contraction since 2009, a government report showed Oct. 31. Hong Kong’s second-quarter decline was 0.5 percent.

‘Bad Times’

“I am pessimistic about short-term global growth,” said Tsang, 67. “I am afraid a major eruption in the largest market in the world, i.e. Europe, is going to affect everyone on earth and Hong Kong cannot be totally exempted,” he said, adding that while a full-year recession is very unlikely, it’s “possible” to have “a couple of quarters of bad times.”

Besides weakness in global trade, Hong Kong is grappling with elevated inflation and the risk of a slumping housing market. Shares of Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, fell 18 percent this year, worse than a 15 percent slide in the benchmark index.

The city won’t relax housing curbs, Tsang said, adding that prices will moderate over time and the market “will not totally collapse.”

Fiscal Surplus

A career civil servant who was previously the city’s financial and chief secretary, Tsang will step down as chief executive in June after more than seven years in office. Under his watch, the economy grew 26 percent and unemployment fell to a 13-year low as Hong Kong’s proximity to China boosted exports, retail spending and services.

Economic growth in China and Hong Kong’s fiscal surplus, enough to fund two years of operations with no revenue, will help the city weather the global slowdown, Tsang said.

Chinese Vice Premier Li Keqiang, in a visit to Hong Kong in August, announced plans to encourage more two-way investment in stock markets to help support the city’s economy. Hong Kong is also seeking to become the offshore center for the Chinese currency to cement its status as Asia’s major financial hub.

About 8 percent of China’s foreign trade is conducted in yuan, with the majority of that settled in Hong Kong, Tsang said. Yuan trade settlement in Hong Kong may reach 1.5 trillion yuan ($237 billion) by the end of this year, he said.

Currency Peg

At an event in New York Nov. 7, Tsang reiterated that his government is committed to retaining the Hong Kong dollar’s fixed link to the U.S. currency, defying speculators who bet against the peg.

“We want a stable currency,” Tsang said Nov. 7. “I am sure the market speculators want us to change and remove the peg; I am sorry, we are going to disappoint you. We won’t do that. It will stay this way.”

Hong Kong’s policy makers have kept its currency at about HK$7.80 per dollar since 1983, giving up the power to set monetary policy independently. William Ackman, founder of hedge fund Pershing Square Capital Management LP, said in September that he’s using options to wager that Hong Kong will allow its currency to appreciate because the peg stokes inflation.

Consumer prices rose 7.9 percent in July, the fastest pace since 1995. Inflation slowed to 5.8 percent in September.

Rising consumer prices are a global phenomenon that has less to do with the currency peg, Tsang said Nov. 7. Hong Kong will maintain the link at least until the yuan becomes fully convertible, “which won’t be tomorrow,” Tsang said.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Sophie Leung in Hong Kong at sleung59@bloomberg.net

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

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Oil Trades Near Three-Month High on Berlusconi Plan, U.S. Fuel Stockpiles

By Ben Sharples - Nov 9, 2011 6:55 AM GMT+0700

Oil traded near a three-month high in New York as investors speculated that an offer to resign by Italy’s Prime Minister Silvio Berlusconi brings Europe closer to resolving its debt crisis. U.S. fuel stockpiles declined.

Futures were little changed after climbing for a fifth day yesterday. Berlusconi offered to step down as soon as Parliament approves austerity measures pledged to European partners. U.S. gasoline supplies dropped 1.49 million barrels last week, the American Petroleum Institute said. An Energy Department report today may show they rose 1 million barrels, according to a Bloomberg News survey.

Crude oil for December delivery was at $96.86 a barrel, up 6 cents, in electronic trading on the New York Mercantile Exchange at 10:52 a.m. Sydney time. The contract yesterday advanced $1.28 to $96.80, the highest settlement since July 28. Prices are 6 percent higher the past year.

Brent oil for December settlement gained 44 cents, or 0.4 percent, to $115 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark contract closed at a premium of $18.20 to New York crude, compared with a record settlement of $27.88 on Oct. 14.

Supplies of distillate fuel, a category that includes heating oil and diesel, fell 2.88 million barrels, the API said. They may decrease 2.2 million barrels, according to the median of 13 analyst estimates before today’s Energy Department report.

Crude inventories climbed 148,000 barrels, the API said. Analysts forecast a gain of 500,000 barrels in the survey.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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Thiel’s Fund Said to Raise Up to $600 Million to Invest in Next Facebooks

By Ari Levy - Nov 9, 2011 4:59 AM GMT+0700

Founders Fund, the venture capital firm started by Facebook Inc. investor Peter Thiel, is raising as much as $600 million for its fourth fund, according to two people familiar with the matter.

The San Francisco-based firm aims to close the fund this month and will use the capital to invest in early-stage technology companies and more mature startups, said the people, who declined to be named because the fundraising is private.

Founders Fund is trying to bring in more than double the amount it did for its third fund last year, a $250 million pool focused on the Internet, science and engineering. The firm is raising money following the slowest quarter for venture capital fundraising in eight years. Venture firms raised $1.72 billion in the third quarter, down 53 percent from the same period a year earlier, according to the National Venture Capital Association.

Founders Fund didn’t immediately respond to an e-mailed request for comment.

Thiel, 44, co-founded PayPal Inc. and served as chief executive officer until the company was bought by EBay Inc. (EBAY) for $1.5 billion in 2002. He used his fortune to start hedge fund Clarium Capital Management and to invest in startups, including putting the first outside money in Facebook in 2004.

Spotify, Yammer

Along with his firm’s co-founders, Ken Howery and Luke Nosek, Thiel raised the first capital for Founders Fund in 2005 and the second fund in 2007.

Other Founders Fund investments include Spotify Ltd., Europe’s largest legal online music site; Yammer Inc., a social- networking service for businesses; and Quantcast Corp., which measures audience traffic on websites. The firm also invested in Elon Musk’s Space Exploration Technologies Corp., or SpaceX, which is building rockets to carry satellites into space and supply the International Space Station.

After a slowdown last quarter, venture fundraising may be picking up. Kleiner Perkins Caufield & Byers said in a U.S. Securities and Exchange filing last week that it’s seeking $250 million for a China fund. TriplePoint Capital, a provider of venture debt, said last month it raised a $1 billion fund, and ABS Capital Partners said it raised $500 million.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net.

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

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China Telecom Plans to Offer Wireless Service to U.S. Consumers in 2012

By Olga Kharif - Nov 9, 2011 3:02 AM GMT+0700

China Telecom Corp. plans to start selling a wireless service to U.S. consumers under its own brand early next year, seeking to sign up Chinese-Americans, students and tourists who travel often between the two countries.

China’s biggest fixed-line provider will offer users of the service handsets with two lines, one that will work in the U.S. and another in China, Donald Tan, president of China Telecom Americas, said in an interview. Tan declined to discuss pricing, though he said the cost would be “competitive.”

China Telecom, seeking to gain a toehold in the U.S. consumer market, is already in trials with several possible wholesale partners, and will soon choose one as the service’s network, Tan said. He declined to name the U.S. test partners. If the wireless service takes off, China Telecom may consider building or buying its own wireless network in the U.S., Tan said.

“If the service is growing fast, maybe we can set up our own infrastructure,” Tan said. “The money is no big problem for us.”

At the end of June, the Chinese company had $9.6 billion in total current assets, including about $4 billion in cash.

China Telecom’s ability to build or acquire a wireless network in the U.S. may be subject to review by government agencies, such as the Federal Communications Commission or the Department of Justice. Last month, the U.S. government barred Huawei Technologies Co., China’s largest phone-network equipment maker, from participating in a nationwide emergency network because of national security concerns.

Traditional Phone Service

Beyond its fixed-line business, China Telecom provides broadband service and is the country’s third-largest wireless provider behind China Mobile Ltd. and China Unicom (Hong Kong) Ltd. The company, which has 191 million wireline broadband and mobile subscribers, is also looking at making acquisitions to beef up its traditional phone service. It could spend “hundreds of millions or billions” on wireline acquisitions in the U.S., though none is imminent, Tan said.

“We want some acquisitions in the U.S. and other countries on this continent,” Tan said. “It’s a very quick way to growth.”

Verizon Communications Inc. (VZ) and AT&T Inc. (T) are customers of China Telecom’s wireline services. Sprint Nextel Corp. (S) and China Telecom have already interconnected their traditional phone networks.

The wireless service will be China Telecom Americas’ biggest initiative next year, Tan said. As China Telecom’s largest international subsidiary, it has marketed services to U.S. corporations for more than 10 years, offering a wireline broadband link to China. Now the company is turning to consumers, particularly in cities like Los Angeles, Chicago and New York that have large Chinese communities, Tan said.

“During the past 10 years, we went after the enterprise,” Tan said. “Now we need to get more brand awareness in the retail market.” The company may advertise the new service in Chinese neighborhoods, as well as at conferences and events, he said. More than 1 percent of Chinese people live in the U.S., Tan said.

If the wireless service is successful in the U.S., China Telecom may expand it to other markets such as Canada, Tan 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

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Alibaba, Softbank Said to Seek Yahoo Partners

By Jeffrey McCracken and Brian Womack - Nov 9, 2011 9:32 AM GMT+0700

Alibaba Group Holding Ltd. and Softbank Corp. (9984) are talking with private-equity funds about making a bid for all of Yahoo! Inc. without the company’s blessing, people with knowledge of the matter said.

Alibaba and Softbank, in an effort to buy back stakes owned by Yahoo, have grown impatient with a lack of progress in direct talks with the company, said the people, who asked not to be named because the negotiations are private.

The Asian companies aim to work with partners that haven’t signed non-disclosure agreements circulated by Yahoo that can make it harder to bid for the whole company, the people said. Yahoo prefers to sell a smaller stake, rather than cede complete control, the people said. Alibaba Chairman Jack Ma has said he’s “very interested” in acquiring Yahoo.

“Alibaba Group and Softbank are willing to buy back their shares soon,” said Tomoaki Kawasaki, a Tokyo-based analyst at Cosmo Securities Co.

Representatives of Sunnyvale, California-based Yahoo, China-based Alibaba and Tokyo-based Softbank declined to comment.

Yahoo climbed to as high as $16.73 in late trading yesterday. It had risen 28 cents to $15.97 at the close in New York, giving it a market capitalization of $19.8 billion.

Private-equity firms are reluctant to sign Yahoo’s NDA because it prohibits talks with other funds or strategic partners aimed at forming a larger bid, the people said.

TPG Signs NDA

Yahoo has asked interested parties to sign the NDA to receive management presentations and more access to confidential financial information, said the people.

TPG Capital is one of the private-equity firms that has signed a non-disclosure agreement, these people said. Yahoo continues to negotiate with holdouts to encourage a change of heart, the people said. Microsoft Corp. (MSFT) and Google Inc. (GOOG), Yahoo rivals that have expressed interest in financing a possible bid for the company, have not signed the NDAs, people said.

Yahoo is exploring strategic options and seeking a new chief executive officer after the September ouster of Carol Bartz, who struggled to fend off competition from Google and Facebook Inc. Jerry Yang, a co-founder and Yahoo board member, said last month that the company isn’t necessarily for sale.

Representatives of Mountain View, California-based Google and Redmond, Washington-based Microsoft declined to comment.

Tax Liability

Under one scenario being discussed, Softbank and Alibaba would buy back the stakes that Yahoo owns in the companies, according to the people. The remaining funding needed to buy the Yahoo business would come from a private-equity firm.

In another scenario, Softbank and Alibaba would fill their own funding gaps, one of the people said.

Yahoo has a stake of about 40 percent in Alibaba, the Chinese e-commerce company, and 35 percent of Yahoo! Japan, according to filings with the U.S. Securities and Exchange Commission.

Shareholders would incur a tax liability in certain circumstances, including in the event that Yahoo sells the Asian stakes to a party other than Alibaba or Softbank, according to a person with knowledge of the matter. The Asian companies would likely avoid tax hurdles by making the purchase themselves. That would would help each company add to its stake, rather than result in a taxable investment gain, the person said.

The two stakes could equal about $15 billion, said one of these people, leaving a private-equity fund -- on its own or with other partners -- to come up with the remaining money.

The Financial Times reported last week that Alibaba and Softbank are trying to form a group of private-equity investors to back a full acquisition of Yahoo.

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

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

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With Berlusconi Gone, Will Europe’s Leaders Save the Euro?: View

By the Editors Nov 9, 2011 7:00 AM GMT+0700

For years observers have wondered what it would take to unseat Silvio Berlusconi as Italy’s prime minister. Serial scandals, prosecutions (three pending at last count), diplomatic pratfalls and a long record of economic failure did not suffice.

This week, as Berlusconi’s dazzling unfitness for office advanced the prospects of financial breakdown in Italy, across the European Union and in the wider world economy, his tenacity appeared to fail at last.

Defections among supporters denied Berlusconi a majority in a budget vote yesterday. The measure passed because of abstentions, but it was an implicit vote of no confidence and signaled the end. Berlusconi has said he will resign after an austerity package passes Parliament next week.

Why wait? The sooner Berlusconi quits, the better. What matters most is to avoid, as far as possible, any further delay and uncertainty.

Berlusconi’s comments in the margins of last week’s Group of 20 meeting in Cannes, France, moved Europe’s financial emergency to its newest and most serious phase. As doubts gathered around Italy’s creditworthiness and the ability of its government to address the problem, he accepted policy monitoring by the International Monetary Fund but said Italy didn’t need the fund’s financial help. He reportedly declined a low-interest loan. “Italy does not feel the crisis,” he said. “The restaurants are full.”

That stunned financial markets, destroying what little credibility Berlusconi still enjoyed -- and, in a crisis of confidence, credibility is all. Yields on Italian bonds approached 7 percent. Their spread over German bonds rose to nearly 5 percentage points. Lenders judge Italian debt to be as risky as the debts of Greece, Ireland and Portugal were when those countries were forced to seek bailouts from the EU and IMF.

The best outcome now would be what Italians call an emergency or “technical” government -- an inauspicious term, admittedly. The president would appoint a respected nonpolitician as prime minister and tell him to push through stabilizing fiscal measures like those Berlusconi agreed to but failed to speed through.

Mario Monti, a technocrat and former EU commissioner, has been suggested for the role. He commands respect at home and abroad, and would be a good choice. His task would be far from easy: He would have to win support in Parliament for unpopular tax increases, spending cuts and reforms to pension and employment law. In Italy, that idea is not unprecedented: The country went through something similar, albeit less demanding, in the 1990s. It remains a tall order.

Italy’s public debt stands at 120 percent of gross domestic product. That’s far too high, but doesn’t make the government insolvent. Italy’s public finances are in far better shape than those of Greece, Ireland and Portugal, and with competent leadership its government can retrieve the situation. It’s vital that it does.

Italy is the euro region’s third-largest economy, after Germany and France. Financial breakdown on such a scale would be the heaviest blow yet to strike the world economy, and it would come at a time of exceptional fragility, with governments’ ability to respond severely depleted.

This underlines a crucial point. Much as Berlusconi’s exit may please his fellow European leaders, they cannot stand aside as Italy threatens to unravel. On the evidence of recent months, there is every reason to fear they will. Lately Europe’s collective failures of leadership have rivaled and even exceeded the Italian prime minister’s.

The euro area still lacks anything close to a credible response to its financial emergency. Europe’s leaders must recognize that Greece and probably Portugal need to default, and raise at least 3 trillion euros to ensure bank recapitalizations and guarantee the financing needs of solvent governments. With the recent change at the top, the European Central Bank has a competent new president in Mario Draghi -- but the ECB still refuses to do for the EU what the Federal Reserve does for the United States, and backstop public finances. To cap it all, the message went out from Nicolas Sarkozy of France and Angela Merkel of Germany last week in Cannes that countries such as Greece might, after all, one day leave the euro.

Is Europe committed to saving the euro or not? Restoring financial stability in the EU was never going to be easy. But Europe’s dithering governments, with Berlusconi far too long in the vanguard, have made that task vastly more difficult than it needed to be.

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

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Italy’s Political Crisis Ambushes Ireland After Greek Escape: Euro Credit

By Lukanyo Mnyanda and Keith Jenkins - Nov 9, 2011 7:01 AM GMT+0700

After convincing investors and the European Central Bank that it’s not Greece, Ireland may find it harder to escape the fallout from Italian turmoil.

Irish bonds have declined almost 3.6 percent since the end of September, eroding the highest returns in the world since June. Since falling to an eight-month low on Oct. 4, the yield on two-year Irish notes has jumped to about 75 basis points above its average of the past two months, according to data compiled by Bloomberg.

Borrowing costs for Ireland, which announced additional austerity measures last week, have risen as Italian Prime Minister Silvio Berlusconi struggles to cut the region’s second- biggest debt load and Greek premier George Papandreou tries to form a unity government under a new leader.

“If the disaster scenario happens, I’m sure they’ll get hit with the same kind of contagion again,” said Haig Bathgate, chief investment officer at Turcan Connell, an Edinburgh-based manager of 1 billion pounds ($1.6 billion) for mainly wealthy clients. Current levels are “probably as good as it’s going to get until the rest of periphery Europe is dealt with,” he said.

Bathgate said he bought Irish bonds in July before selling them at the end of August.

Not Mediterranean

Ireland had been distancing itself from the turmoil that ultimately cost Papandreou his job after he said he would hold a referendum on a Greek rescue package that was backed Oct. 26 by European leaders in Brussels. He later abandoned the vote plan.

The agreement “was thrown into turmoil by the decision of the Greek prime minister, and that matter appears to be clearing up now, with emphasis shifted to Italy,” Irish Prime Minister Enda Kenny said in parliament yesterday. “I expect this matter will be dealt with comprehensively.”

Yet bond yields are beginning to reflect how Ireland may struggle to stick to its budget targets as a slowing global economy threatens exports.

Two-year yields have risen 248 basis points, or 2.48 percentage points, since Oct. 4 to 9.22 percent, after declining by 600 basis points in the three months through Sept. 30. The yield on debt due in 2020 has risen 52 basis points since the end of September to 8.14 percent.

Irish bonds gained 29 percent in the three months through September, while Greek securities plummeted 25 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

Unique Greeks

“One has to keep in mind that the Greek situation is exceptional and unique,” ECB President Mario Draghi said on Nov. 3, adding that there was “no reason to doubt the commitment” of Ireland’s government to implement spending cuts.

Irish Finance Minister Michael Noonan spoke in Dublin on Oct. 27 about how the country was “breaking the perception” that it was anything other than northern European. Ireland became the second euro member after Greece to need a bailout last November when costs to rescue the nation’s lenders, including Anglo Irish Bank Corp., ballooned.

Ireland’s outperformance is being derailed as Greece struggles to implement its aid agreement, forcing Papandreou to form a unity government with Antonis Samaras, leader of the opposition New Democracy party. Papandreou also has agreed to relinquish his post as prime minister.

Berlusconi Departure?

Bond yields also surged across the euro area as Berlusconi tried to keep his government intact. The Italian leader yesterday offered to resign as soon as parliament approves austerity measures after he lost his governing majority.

The Italian 10-year yield climbed to 6.75 percent yesterday, the most since the euro’s creation and approaching levels that prompted Greece, Portugal and Ireland to seek help from the European Union and International Monetary Fund.

“The analogy I’ve used is the old-fashioned rock climbers, all chained together,” said Neil Mellor, a strategist at Bank of New York Mellon Corp. in London. “One man can be springing ahead, but still be pulled back if another one falls.”

The yield spread between Irish 2020 bonds and benchmark German debt with a similar maturity was at 636 basis points yesterday, up from 552 basis points on Sept. 30. The yield has narrowed from a euro-era high of 1,154 basis points on July 15. The Greek 10-year spread over bunds widened yesterday to a record 2,596 basis points, while Italy’s was at 495 basis points, also the most since the euro’s debut.

Efforts by Ireland to cut its deficit may also be hindered as a global economic slowdown cuts exports and tax receipts.

Budget Cuts

The country is planning an additional 12.4 billion euros ($17.1 billion) of austerity measures over the next four years, the government said on Nov. 4. Noonan is aiming to reduce the budget deficit to below 3 percent of gross domestic product, the original target to qualify for euro membership, in 2015 from a projected 8.6 percent in 2012.

The government reduced its 2013 economic growth forecast to 2.4 percent, adding that the economy will likely expand by an average of 2.8 percent between 2013 and 2015, down from an earlier forecast of 3 percent.

The Organization for Economic Cooperation and Development cut its 2011 and 2012 growth prediction for the U.S. and the euro area last month, projecting that the latter may expand by 0.3 percent next year.

“The external risks have probably gone up a bit with Ireland being a very open economy,” said Michiel de Bruin, who oversees about 25 billion euros as head of European government debt at F&C Netherlands in Amsterdam. “With the economic outlook deteriorating and people lowering growth expectations for Europe, that has been visible in the developments of Irish bonds in the last few weeks.”

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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Papademos to Be Named Greek PM: Reports

By Marcus Bensasson, Maria Petrakis and Natalie Weeks - Nov 9, 2011 1:57 AM GMT+0700

Greece prepared for a new prime minister to lead an interim government of national unity as state-run NET TV and To Vima newspaper reported that former central banker Lucas Papademos will accept the post.

Prime Minister George Papandreou said a Greek national unity government will be named “soon” and told his ministers to get ready to resign, spokesman Elias Mosialos said today in Athens.

Both NET TV and To Vima named former European Central Bank Vice President Papademos as the next prime minister, without saying how they got the information. Papandreou and his rival, Antonis Samaras, leader of the opposition New Democracy party, agreed on the Greek unity government to win resumption of international aid.

The government’s mission will be implementing a European Union summit decision on austerity measures from Oct. 26 in order to get a second Greek financing package of 130 billion euros ($179 billion) before leading the country to elections.

Papademos “certainly speaks the language and shares the philosophy of Greece’s EU and ECB counterparties,” said Riccardo Barbieri, chief European economist at Mizuho International Plc in London. “He is someone who comes in without officially representing a party and can set out the issues and help the population understand better what needs to be done.”

European Stock Rebound

European stocks rose, with the benchmark Stoxx Europe 600 Index rebounding from a two-day decline. Prime Minister Silvio Berlusconi lost his absolute majority in the Italian parliament in a vote today on last year’s budget, further eroding his authority. Ten-year Italian bond yields rose 11 basis points to 6.77 percent, signaling Europe’s debt crisis was intensifying.

The euro rose 0.1 percent to $1.3793 at 7:28 p.m. in Athens, while the MSCI Asia Pacific Index dipped 0.7 percent. Standard & Poor’s 500 Index was little changed after closing up 0.6 percent yesterday.

The yield on the 10-year Greek bond climbed 10 basis points to 27.76 percent, rising for the seventh straight day, while the two-year note yield touched a euro-era record above 108 percent. Greece’s benchmark general index closed 2.4 percent higher at 779.63, the second straight advance since the country’s political leaders agreed to cooperate on a new government.

Letter of Commitment

Papandreou and Samaras will be required to sign a letter of commitment to the Oct. 26 plan, a Greek government official said. The letter to the EU will also need to be signed by the new prime minister and finance minister as well as the head of the Greek central bank, George Provopoulos, said the official, who declined to be named.

The demand drew the ire of Samaras, who said his word should be enough.

“There is an issue of national dignity,” Samaras said in an e-mailed statement. “I have repeatedly explained that, in order to protect the Greek economy and the euro, implementing the Oct. 26 decisions has become unavoidable. I don’t allow anyone to doubt my statements on this.”

Confidence Breached

EU finance ministers expect a written commitment from a “broad-based government of national unity” in Greece after Papandreou’s proposal to hold a referendum on the measures, since withdrawn, was a “breach of confidence” vis-a-vis the EU, the bloc’s Economic and Monetary Affairs Commissioner Olli Rehn said today.

“Now this confidence needs to be mended,” he said.

European finance ministers, meeting in Brussels, pledged to roll out a bulked-up rescue fund next month, leaving Greece and Italy on the side lines until then in the fight against the debt crisis.

Greece needs to provide the written acceptance of bailout terms in order to win an 8 billion-euro loan installment by the end of November, while Italy was pressed to turn budget-cut promises into reality. Greece’s sixth tranche of loans under a 110 billion-euro May 2010 EU-led bailout is needed before the middle of December to prevent a collapse of the country’s financial system.

Deposits Decline

Greek bank deposits in September fell 2.9 percent from the previous month to 183.2 billion euros, according to Bank of Greece data released today. The 5.4 billion-euro drop is the biggest one-month decline since data started being recorded after the country’s entrance to the euro region in Jan. 2001.

George Karatzaferis, leader of opposition LAOS party, who has been one of the most vocal supporters of a national unity government, said yesterday he hoped a new government would be in place “soon before the situation gets out of control and makes its formation impossible.”

The unity government has also received indications of support from former foreign minister Dora Bakoyannis, who has the backing of another three lawmakers in parliament.

The Communist Party of Greece and the Syriza party are opposed to creation of a unity government. About 50 members of the Syriza party’s youth movement hung two banners from the Acropolis today, one in Greek and the other in English, that read “End the governments of banks: austerity is not a solution of resistance,” 24h.gr news site reported.

Trying to preserve international aid before the nation runs out of money next month, Papandreou raced over the weekend to clinch an agreement with the opposition before markets opened.

Bailout Plan

Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of the bailout plan agreed at the Oct. 26 summit of European leaders and bankers. Its 4 percent notes due in August 2013 now trade at about 35 cents. Fitch Ratings says the agreement with creditors would amount to a “default event” if implemented, while the International Swaps and Derivatives Association says it won’t trigger credit- default swaps.

Papandreou’s surrender caps a tumultuous fortnight that started with him securing a second bailout from the EU, then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote, a plan he then dropped. Bowing to pressure from his party and the opposition, Papandreou pledged to stand aside for a government with wider support.

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

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

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Peterffy Bought 8M Shares as MF Collapsed

By Matthew Leising and Nina Mehta - Nov 9, 2011 7:37 AM GMT+0700

Thomas Peterffy, whose Interactive Brokers Group Inc. (IBKR) declined to buy assets from MF Global Holdings Ltd., said he purchased 8 million shares in the futures broker as its stock plunged.

Interactive Brokers said in an e-mailed statement that the company, not Peterffy, purchased the stock. MF Global shares have fallen 98 percent from their peak this year. The week before it filed for bankruptcy on Oct. 31, the New York-based company’s shares fell 67 percent to $1.20. They have since dropped to 14 cents.

“I started to buy the stock as it went down,” Peterffy, chairman and chief executive officer of Greenwich, Connecticut- based Interactive Brokers, said today in a phone interview. He was worth $1.5 billion in 2009, according to Forbes, and he has the power to elect all board members at Interactive Brokers. “You win a few, you lose a few,” he said.

The firm, which Peterffy founded, said in its quarterly filing today that it owned MF Global shares valued at $16.7 million as of Sept. 30. Following the bankruptcy filing, Interactive Brokers reduced the value of those shares plus subsequent investments in the stock to zero, recognizing a $28.8 million loss, today’s filing with the Securities and Exchange Commission shows.

‘Huge Tragedy’

Customers of MF Global, the holding company for the broker- dealer that was run by ex-Goldman Sachs Group Inc. co-chairman Jon Corzine, have been able to transfer only a portion of their accounts to new brokers. The broker-dealer unit, MF Global Inc., faces liquidation. The lack of access to customer cash at MF Global is a “huge tragedy,” Peterffy said.

“It’s a horrible black spot on the futures industry,” he said. “The next time something like this happens, the positions should be immediately liquidated and the money distributed.”

Peterffy said an investment banker at Evercore Partners Inc. called him before MF Global collapsed to find out if he was interested in taking over any of the firm’s customer accounts. He said in the interview that he couldn’t talk about discussions he had with MF Global from the morning of Oct. 28 until the morning of Oct. 31 because he signed a non-disclosure agreement.

Interactive Brokers is no longer interested in taking over any of MF Global’s accounts, Peterffy said.

‘Not Infected’

“We would like to be a broker that is not infected by any of this event,” he said.

The Interactive Brokers executive had courted a business arrangement with MF Global for years, starting when the company’s customer assets were still part of Refco Inc. Refco went bankrupt two months after its August 2005 initial public offering that raised $670 million. CEO Phillip Bennett was later convicted of hiding hundreds of millions of dollars in bad debt. Man Group Plc outbid Interactive Brokers and bought Refco for $323 million. MF Global became a public company when it was spun off of Man Group in 2007.

An agreement between MF Global and Interactive Brokers would have given the owner of the futures broker use of Interactive Broker’s trading and risk-management systems, while Peterffy’s company would have used MF Global’s sales force.

“They were strong in sales and they had no technology,” Peterffy said. “Interactive Brokers is weak in sales and has the best technology.”

Technology Talks

Peterffy said he held discussions with CEOs Kevin Davis and Bernard Dan and global head of retail operations J. Randy MacDonald about MF Global using his company’s technology. The firms were close to finalizing a deal before Dan left MF Global and again in October, he said. The agreement would have led to MF Global running its equities and foreign exchange business on Interactive Brokers’ technology platform, with futures added later, Peterffy said.

“It’s been a many-years-long project for me that never came to fruition,” he said.

Corzine, 64, increased risk-taking at MF Global as part of his strategy to re-make the owner of the futures broker into an investment bank. The company suffered a ratings downgrade and loss of customers’ trust in late October related to its largest- ever quarterly loss and $6.3 billion in investments in European sovereign debt.

Discrepancies over missing customer funds used to back futures trades doomed a potential acquisition by Interactive Brokers, said Hans Stoll, an Interactive Brokers director and a professor of finance at Vanderbilt University in Nashville, Tennessee. The deal could have averted the bankruptcy filing.

‘Lots of Uncertainties’

“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,” Stoll said in a Nov. 1 interview.

Customers of MF Global whose money is trapped at the broker say the safeguards meant to protect them failed. The company filed for bankruptcy on Oct. 31, listing debt of $39.7 billion and assets of $41 billion after failing to find a buyer in the days leading to its collapse.

“It’s a huge tragedy,” Peterffy said. “I simply can’t understand why it is being dealt with the way it is. I agree that some of the money should be given to the clients as soon as possible.”

CME Group Inc., which has audit power over MF Global as part of its self-regulatory authorization, and James Giddens, the trustee overseeing the liquidation of MF Global, are working to locate money that is missing from client accounts. The U.S. Commodity Futures Trading Commission is investigating a $593 million-shortfall in those accounts, a person with knowledge of the regulatory probes said on Nov. 4.

“Never bend the rules,” Peterffy said about what he learned from the MF Global implosion. “You bend the rules a little bit and then it’s a slippery slope.”

To contact the reporters on this story: Matthew Leising in New York at mleising@bloomberg.net; Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net

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Euro Pares Advance as Italian Budget Vote Fails to Quell European Turmoil

By Allison Bennett - Nov 9, 2011 5:16 AM GMT+0700

The euro rose versus the dollar for the first time in three days after Italian Prime Minister Silvio Berlusconi offered to quit once Parliament approves austerity plans, boosting optimism the nation will get a new leader who can tame the debt crisis.

The 17-nation currency earlier traded little changed after Berlusconi won a vote in parliament without an absolute majority, fueling calls for him to resign. The yen gained to its strongest against the dollar since Japan intervened Oct. 31 to stem its rise. South Africa’s rand rose versus all of its 16 most-traded peers as gold futures topped $1,800 an ounce for the first time in seven weeks. Stocks climbed.

“We already know that we could have a technocrat government in Italy, and that’s better than Berlusconi,” said Greg Anderson, a senior currency strategist in New York at Citigroup Inc. “There is still a lot of pain coming down the pike, and the high $1.30’s is where you want to sell the euro for it to be below $1.30 within the month.”

The euro appreciated 0.4 percent to $1.3834 at 5 p.m. New York time, after falling earlier to as low as $1.3725. It was little changed at 107.52 yen after paring losses of as much as 0.4 percent. The Japanese currency rose 0.4 percent to 77.73 per dollar and touched 77.60, the strongest since Oct. 31. The yen reached a post-World War II high of 75.35 to the greenback that day, and the Bank of Japan sold the currency to weaken it.

The franc rose versus the euro as Swiss National Bank Vice President Thomas Jordan said the SNB is not weakening it to gain export advantage.

The Standard & Poor’s 500 Index climbed 1.2 percent.

Austerity Measures

Italian President Giorgio Napolitano said in an e-mailed statement after talks with the prime minister that he’d received Berlusconi’s offer to resign once Parliament passes austerity measures in a vote next week.

The measures stem from a 45.5 billion-euro ($63 billion) austerity package initially passed by Parliament in September that helped convince the European Central Bank to buy Italian bonds to try to contain surging borrowing costs.

In a bid to shore up confidence in Italy, Berlusconi presented a timetable for implementing some of them to European Union leaders at a summit this month and is now converting that plan into law. The EU stepped up pressure on Italy today to implement it.

‘Deficit of Trust’

“There is a deficit of trust toward the current policy makers in Italy on behalf of the markets,” said Vassili Serebriakov, a currency strategist in New York at Wells Fargo & Co.. “There is the view that the optimal way right now is a technocrat-led government that’s not sensitive to electorate pressures.”

The euro gained 0.8 percent in the past month against nine developed nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar fell 3.3 percent and the yen tumbled 6.3 percent.

The shared currency is poised to depreciate further, according to Royal Bank of Scotland Group Plc’s Robert Sinche.

“There is a persistent pessimism, and the market is very convinced that this will eventually lead to a much weaker euro,” Sinche, global head of currency strategy at RBS Securities in Stamford, Connecticut, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “If it goes to a full-fledged bailout and run on Italy, the resources aren’t there.”

Japan’s U.S. Holdings

Japan, America’s second-largest foreign lender, may boost its Treasuries holdings to an all-time high after selling yen and buying dollars Oct. 31. The U.S. auctioned $32 billion of three-year debt today, attracting the biggest bid-to-cover ratio since 1993, 3.41. The measure gauges demand by comparing total bids with the amount of securities offered. The government will sell another $40 billion of notes and bonds later this week.

Japanese holdings of U.S. government securities surged after the previous three interventions starting in September 2010. After its record 4.51 trillion in yen sales Aug. 4, the holdings rose 2.4 percent to $936.6 billion in August, according to Treasury Department data.

The Swiss franc appreciated 0.2 percent to 1.2379 per euro and gained 0.7 percent to 89.49 centimes per dollar. The currency had fallen earlier after the SNB’sJordan said it “must” weaken further. It reversed declines after he said the central bank will not pursue a competitive devaluation policy.

The central bank imposed a ceiling of 1.20 francs per euro in September amid signs that the currency’s gains had started to damp economic growth.

Maintaining Floor

“The SNB has been credible in maintaining the euro-franc floor,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “The SNB’s Thomas Jordan reiterated that the floor-setting was not a move to competitively devalue their currency, but rather to stem market dislocations and extreme currency overvaluation.”

South Africa’s rand was the best performer against the greenback, climbing 1.3 percent to 7.8313 per dollar. Gold futures for December delivery reached $1,804.40, the highest level since Sept. 21.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Berlusconi to Resign After Austerity Passes

By Lorenzo Totaro and Chiara Vasarri - Nov 9, 2011 4:02 AM GMT+0700

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Nov. 8 (Bloomberg) -- Italian Prime Minister Silvio Berlusconi offered to resign as soon as Parliament approves austerity measures in a vote next week, President Giorgio Napolitano said in an e-mailed statement after meeting Berlusconi in Rome. The resignation offer came after Berlusconi failed to muster an absolute majority on a routine parliamentary ballot. Bloomberg's Dan Liefgreen reports on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Prime Minister Silvio Berlusconi offered to resign as soon as Parliament approves austerity measures pledged to European partners, after defections from his ruling party left him without a majority and bond yields surged to euro-era records.

“Once that task has been achieved, the prime minister will tender his resignation to the president,” who will then begin consultations with all political parties, President Giorgio Napolitano said tonight in an e-mailed statement after meeting Berlusconi in Rome.

The government has yet to present the final text of the amendment to the budget law with the austerity measures. The Senate was set to vote on the law next week, Senator Massimo Garavaglia told Ansa newswire tonight. The Chamber of Deputies would begin debate after the Senate’s approval. Napolitano gave no indication if the timing of the votes would be moved up.

Berlusconi’s resignation came after he failed to muster an absolute majority on a routine parliamentary ballot, obtaining only 308 votes in the 630-seat Chamber of Deputies today. U.S. stocks rose for a second day and the euro strengthened after Napolitano’s announcement, bolstering optimism a new leader will better be able to tame the euro-region’s second-biggest debt.

Market Reaction

The Standard & Poor’s 500 Index climbed 1 percent in New York after slipping as much as 0.5 percent earlier. The euro appreciated 0.5 percent to $1.3838 as the shared currency climbed against 10 of 16 major peers. The S&P GSCI Index of commodities rose 0.8 percent to a two-month high as oil traded at the highest price since August.

The yield on Italy’s benchmark 10-year bond jumped 11 basis points today to 6.77 percent today before the announcement, the most since the euro’s introduction in 1999 and near the 7 percent level that drove Greece, Ireland and Portugal to seek international bailouts. The extra premium investors demand to hold the debt instead of German bunds widened to a record 497 basis points, the highest close in the euro ear.

Berlusconi ‘Premium’

The premier resigning will probably bring “a short rally in stock markets and the ‘Berlusconi political-risk premium’ embedded in Italian yields, which we calculate at 1 percent, will likely disappear,” Jan Randolph, head of sovereign risk at HIS Global Insight in London, said in a note. “But Italy won’t be out of the heat of bond markets until a solid and stable government actually implements austerity measures and undertakes reforms with credible leadership.”

Berlusconi, speaking to state-run RAI television after his talks with the president, said he expects Napolitano to call early elections after consulting party leaders, “I don’t think there are other feasible solutions,” he said. “It’s unfathomable that those who lost the elections can govern.”

Elections may take two months to organize and could further delay implementation of the measures that aim to balance the budget in 2013 and cut a debt of 1.9 trillion euros ($2.6 trillion), bigger than that of Greece, Spain, Portugal and Ireland combined. The EU stepped up pressure on Italy to implement the plan today even as Berlusconi’s government was unraveling.

EU Pressure

“The economic and financial situation in Italy is very worrying,” EU Economic and Monetary Commissioner Olli Rehn told reporters after a meeting of euro-area finance ministers today in Brussels. Rehn said he sent Finance Minister Giulio Tremonti about 40 “very specific questions” on Italy’s economic pledges and expects answers by the end of the week.

The EU said Italy will probably need to carry out additional austerity to meet the balanced budget goal given the “current economic context,” la Repubblica newspaper said, citing a copy of the letter. The EU also called on Italy to provide more details about the timing and implementation of the measures Parliament is set to pass.

The measures stem from a 45.5 billion-euro austerity package initially passed by Parliament in September that helped convince the European Central Bank to buy Italian bonds to try to contain surging borrowing costs as the failure to shore up Greece led the debt crisis to spread.

Asset Sales

In a bid to shore up confidence in Italy, Berlusconi presented a timetable for implementing some of the measures to EU leaders at a summit this month and is now converting that plan into law. The amendment including the measures will be included a plan to accelerate asset sales of as much as 60 billion euros, liberalize closed professions and local services and boost infrastructure investment, newspapers including Il Sole 24 Ore newspaper reported on Nov. 3.

Napolitano will now seek to determine whether there’s support in the legislature to form another government with a broad enough majority to govern. Napolitano could also try to build support for a so-called technical government led by a prominent figure charged with implementing the economic overhaul and eventually preparing the country for new elections.

Former EU Competition Commissioner Mario Monti would be a candidate to lead such a government with backing from the main opposition parties as well as many members of the premier’s party, “who would support him only once” the government falls, Nomura International economist Lavinia Santovetti wrote in a note yesterday.

Election Law

If Napolitano can’t forge a new government, elections would be called. By law, elections can be held between 45 days and 75 days after the president has dissolved Parliament and the act has been published in the government’s Official Gazette.

Most of the opposition parties have signaled they would support a broader coalition or a technical government in a country where elections often lead to unstable regimes that rarely endure a full five-year term. The country has averaged about one government a year since World War II.

“The key political point for Italy is now answering the following question: which government, with what wide majority, will be able to implement in a few days the structural reforms that we haven’t been able to implement in the last 10 years?” Mario Baldassarri, chairman of the Senate Finance Committee, said in an interview tonight. “We need to give the ECB a reason to continue to buy, which is to prepare the needed reforms and then, if it’s useful, the ECB can help.” Umberto Bossi, the leader of the Northern League party that had sustained Berlusconi in power, said today that Angelino Alfano, the leader of Berlusconi’s People of Liberty party, should take over as premier, Ansa said. Senator Giuseppe Pisanu, a PDL member, said Undersecretary Gianni Letta, a top Berlusconi aide, should succeed him as prime minister.

“Berlusconi’s strategy will be to try to pave the way for one of his closest associates to be appointed prime minister,” Riccardo Barbieri, chief European economist at Mizuho International Plc, told Maryam Nemazee on Bloomberg Television’s “The Pulse” today. “I don’t think he will find the necessary support in the Parliament at which point the only viable solution would be a technocratic government.”

To contact the reporters on this story: Chiara Vasarri in Milan at cvasarri@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net,

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net.

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U.S. Stocks Rise on Berlusconi Plans

By Rita Nazareth - Nov 9, 2011 4:42 AM GMT+0700

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Nov. 8 (Bloomberg) -- David Donabedian, chief investment officer at Atlantic Trust Group Inc., and Thomas Perkins, portfolio manager at Perkins Investment Management LLC, talk about investment strategy, the outlook for large-capitalization stocks and emerging markets. They speak with Adam Johnson and Lisa Murphy on Bloomberg Television's "Street Smart." Bloomberg's Matt Miller also speaks. (Source: Bloomberg)

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Nov. 8 (Bloomberg) -- John Mauldin, president of Millennium Wave Investments LLC, talks about the outlook for equities and his investment strategy. He speaks with Bloomberg's Deirdre Bolton on Bloomberg Television's "Money Moves." (Source: Bloomberg)

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Nov. 8 (Bloomberg) -- Neel Kashkari, head of global equities at Pacific Investment Management Co., talks about the outlook for global financial markets. Kashkari speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Nov. 8 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. Stocks rose, sending the Standard & Poor’s 500 Index higher a second day, as Prime Minister Silvio Berlusconi’s offer to resign boosted optimism Italy will appoint a new leader who can tame the debt crisis. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

U.S. stocks rose, sending the Standard & Poor’s 500 Index higher a second day, as Prime Minister Silvio Berlusconi’s offer to resign boosted optimism Italy will appoint a new leader who can tame the debt crisis.

All 10 groups in the S&P 500 advanced as financial, energy and technology companies rallied at least 1.1 percent. JPMorgan Chase & Co. (JPM), Occidental Petroleum Corp. (OXY) and Intel Corp. (INTC) added more than 1.9 percent. A gauge of homebuilders in S&P indexes jumped 3.8 percent as Toll Brothers Inc. (TOL) gained 7.4 percent after the luxury-home builder said revenue increased.

The S&P 500 climbed 1.2 percent to 1,275.92 as of 4 p.m. New York time, after falling as much as 0.5 percent earlier today. The benchmark gauge of American equities has increased 1.8 percent in two days. The Dow Jones Industrial Average advanced 101.79 points, or 0.8 percent, to 12,170.18 today.

“Berlusconi is a bit of a cartoon character with respect to world leaders,” Michael Holland, chairman and founder of New York-based Holland & Co., said in a telephone interview. His firm oversees more than $4 billion. “There’s a handful of adults in Europe who are working very hard. The market has a clear view that Berlusconi is not helpful with what Europe needs moving into the future. He is part of the problem, not the solution.”

President Giorgio Napolitano said Berlusconi has agreed to quit after the parliament approves the country’s austerity plans next week. The government has yet to present the final text of the amendment to the budget law with the austerity measures. Berlusconi’s resignation came after he failed to muster an absolute majority on a routine parliamentary ballot, obtaining only 308 votes in the 630-seat Chamber of Deputies today.

‘Not Effective’

“The reality is Berlusconi is not effective and he needs to go,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “It seems to me that any rational prime minister would realize that he shouldn’t be prime minister of Italy anymore.”

Greece prepared for a new prime minister to lead an interim government of national unity as state-run NET TV and To Vima newspaper reported that former central banker Lucas Papademos will accept the post. Prime Minister George Papandreou said a Greek national unity government will be named “soon” and told his ministers to get ready to resign, spokesman Elias Mosialos said today in Athens.

Stocks rose yesterday as the European Central Bank’s Juergen Stark said the region’s debt crisis will be under control in two years. Benchmark gauges dropped last week amid concern Europe’s crisis was worsening as the Group of 20 nations failed to agree on increasing the International Monetary Fund’s resources to fight the crisis.

Banks Rally

The KBW Bank Index (BKX) rose 2.4 percent, reversing an earlier loss of as much as 0.1 percent. The Morgan Stanley Cyclical Index added 1.2 percent on speculation that steps taken by European leaders to solve their debt crisis will avert a global recession. The Dow Jones Transportation Average of 20 stocks gained 1.2 percent. JPMorgan advanced 2.3 percent to $35.02. Occidental Petroleum climbed 2.8 percent to $101.29. Intel rose 1.9 percent to $24.75.

Toll Brothers gained 7.4 percent to $19.43, the highest level since August. Homebuilding revenue for the three months ended Oct. 31 rose to $427.7 million from $402.6 million a year earlier, the Horsham, Pennsylvania-based company said today in a statement. Analysts expected Toll to have revenue of $414.2 million, the average of 15 estimates in a Bloomberg survey.

Priceline.com Jumps

Priceline.com Inc. (PCLN) surged 8.6 percent, the most in the S&P 500, to $552.85. The biggest U.S. online travel agency reported third-quarter profit and sales topped analyst estimates. Excluding some costs, profit was $9.95 a share, compared with the $9.30 average of 20 analyst estimates compiled by Bloomberg.

Rockwell Automation Inc. (ROK) jumped 6.5 percent to $74.33 after the maker of factory-automation software projected 2012 sales growth that may exceed analysts’ estimates on demand from automobile, food and beverage producers.

DryShips Inc. advanced 9.9 percent to $2.99. The Greek owner of deep-water drilling rigs and vessels that haul iron ore and coal reported third-quarter earnings excluding some items of 16 cents a share, beating the average analyst estimate by 13 percent.

Activision Blizzard Inc. (ATVI) added 1.4 percent to $13.93. The world’s largest video-game maker released its eighth “Call of Duty” game, “Modern Warfare 3.” The game may sell as many as 6 million copies in the first day, according to Arvind Bhatia, an analyst at Sterne Agee & Leach Inc.

New Titles

After the close of regular trading, the company reported profit that beat analysts’ estimates and raised its full-year forecast, citing new titles including the new “Call of Duty.”

The S&P 500’s failure to keep pace with record corporate earnings may signal the benchmark equity gauge will surge if it returns to its historical relationship with profits.

Four years ago, when the S&P 500 lagged behind trailing 12- month corporate profits, the measure went on to reach an all- time high of 1,565.15. While combined earnings by companies in the index have exceeded the previous peak reached in 2007, the measure itself is 19 percent below that October 2007 record.

Companies have “increased efficiency, productivity and profit margins,” said David Goerz, the chief investment officer at Highmark Capital Management Inc., in a telephone interview yesterday. “That’s resulted in strong performances at a time when investors are very skeptical about the future. It’s not surprising that the market would be trading at a significant discount.” He said, “There’s a lot of upside for the U.S. equity market.”

Russell indexes started updating following an hour-and-a- half outage after Nasdaq OMX Group Inc. resolved a problem. Measures such as the Russell 2000 Index (RTY) and Russell 1000 Index resumed updating at 11:04 a.m. New York time, according to data compiled by Bloomberg and a notice on Nasdaq OMX’s website.

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

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

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