German Auction ‘Disaster’ Stirs Crisis Contagion Concern; Bonds, Euro Fall

By Paul Dobson - Nov 24, 2011 12:11 AM GMT+0700

Germany failed to get bids for 35 percent of the 10-year bonds offered for sale today, propelling borrowing costs in Europe higher and the euro lower on concern the region’s debt crisis is driving away investors.

“This auction is nothing short of a disaster for Germany,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said by e-mail. “If the strongest nation in Europe has this kind of difficulty raising capital, one shudders concerning the upcoming auctions in other European nations.”

Turmoil that began more than two years ago in Greece and snared Ireland, Portugal, Italy and Spain has closed in on France and now risks engulfing Germany, the region’s biggest economy. Political leaders are struggling to find a fix for the crisis, with German Chancellor Angela Merkelrejecting proposals for common currency-area bonds, while the European Central Bank resists calls to boost sovereign-debt purchases.

The yield on Germany’s 2.25 percent securities maturing in September 2021 climbed 15 basis points to 2.06 percent at 4:46 p.m. London time. The price of the bonds slid 1.370, or 13.70 euros per 1,000-euro ($1,335) face amount, to 101.550. The cost of credit default swaps on German debt rose seven basis points to 108, according to CMA prices. The euro weakened as much as 1.3 percent to $1.3327.

Belgian 10-year yields surged 41 basis points to 5.48 percent, after reaching 5.53 percent, the highest since November 2000. French 10-year bond yields climbed 16 basis points to 3.69 percent. The yield on Greek two-year notes jumped to more than 120 percent for the first time, before slipping back to 116.59 percent.

Bids Shortfall

Total bids at the auction of securities due in January 2022 amounted to 3.889 billion euros, out of a maximum target for the sale of 6 billion euros, according to Bundesbank data.

Six of the last eight bond sales by Germany have been “technically uncovered,” with fewer bids than the maximum amount on offer, Norbert Aul, a rates strategist at RBC Capital Markets in London, said in an e-mailed note.

Under the German auction system, the central bank retains securities at sales for the secondary market. In today’s offering, the debt agency allotted 3.644 billion euros of the securities, leaving the Bundesbank to retain 2.356 billion euros, or 39 percent of the supply. That’s the highest proportion of unsold debt at a 10-year sale since 1995, according to Bloomberg data. The securities were sold at an average yield of 1.98 percent. In the secondary market, the rate rose to 2.13 percent.

‘Miserable Welcome’

The new 10-year bund received a “truly miserable welcome,” said John Davies, a fixed-income strategist at WestLB AG in London. “It may now be that Germany is seen at risk either from a general flight out of euro-assets or from extreme burden-carrying.”

Banks and investors are reducing holdings of European government bonds as the debt crisis spreads. Kokusai Asset Management Co.’s Global Sovereign Open, Japan’s biggest mutual fund, sold its entire holdings of Italian government bonds by Nov. 10, a report from the fund showed. BNP Paribas SA and Commerzbank AG said in earnings reports this month they’re unloading sovereign bonds at a loss.

“If investors do not wish to buy bunds, they do not wish to buy Europe,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London.

The 10-year bund yield climbed to 21 basis points more than similar-maturity Treasuries, the most since May 2009. The new benchmark bund yield exceeded that of the 10-year gilt for the first time since March 2009.

Bunds ‘Not Immune’

“This auction result makes it all too clear that German bonds are not immune from the crisis but are being drawn into the debt swamp,” said Frank Schaeffler, a lawmaker from the Free Democratic Party, Merkel’s coalition partner. “If this doesn’t wake up the country to the current risks then I’ll be very surprised.”

The rate on the 30-year German bond climbed as much as 14 basis points to 2.75 percent, the highest since Nov. 4. Volatility on German sovereign debt was the second-highest among developed-country markets today, according to measures of 10- year bonds, credit-default swaps, and the spread between two-and 10-year securities. The cumulative change was 7.1 times the 90- day average, the Bloomberg gauge showed. Belgian debt was the most volatile, with changes at 12.5 times the 90-day average.

German Pipe Dream

“The notion some people had that Germany could be insulated against market developments was a pipe dream,” Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said in a telephone interview. “The systemic crisis in the euro zone is eating its way into countries that are solvent and have competitive economies, like Germany. But because they are in the euro zone the crisis is spreading to them.”

Germany’s Finance Agency sees no risk in financing the government’s budget after demand was weak at the debt auction today, Joerg Mueller, a Frankfurt-based spokesman, said in an interview.

The Berlin-based Finance Ministry, of which the agency is a unit, has cut planned fourth-quarter debt sales twice this year as tax revenue surged.

‘Buyers’ Strike’

At an auction of 10-year bonds last week, Spain’s borrowing costs climbed to 6.975 percent, more than Portugal and Ireland paid at their final sales of similar-maturity debt before they sought international aid.

“What we have at the moment is strong buyer reluctance -- you could almost call it a buyers’ strike -- for sovereign bonds, for European sovereign bonds of a lot of countries,” Commerzbank Chief Executive Officer Martin Blessing said yesterday during a panel discussion in Berlin.

Belgium is due to auction securities, including 10-year debt, on Nov. 28. Italy and France will also sell bonds next week.

Italian bonds fell today, even after the ECB was said by four people with knowledge of the transactions to have bought the securities. The five-year note yield jumped 31 basis points to 7.23 percent. Rates on five-year Belgian debt increased 46 basis points to 5.04 percent.

Yields on AAA rated Austrian five-year notes jumped 34 basis points to 3.23 percent, with the rate on similar-maturity French securities climbing 19 basis points to 2.84 percent. Irish five-year yields surged 97 basis points to 9.15 percent.

Economic Shocks

France will have difficulty absorbing further large economic shocks without putting its top credit rating at risk, Fitch Ratings said today.

“Similar to the situation of other major AAA sovereigns, the increase in government debt has largely exhausted the fiscal space to absorb further adverse shocks without undermining their AAA status,” Fitch said in a report. “The principal concern with respect to France is that the intensification of the euro zone crisis will generate contingent liabilities that will be crystallized onto the sovereign balance sheet.”

German bonds have returned 8.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French bonds have gained 0.9 percent and Belgian securities have dropped 3.3 percent, the indexes show.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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

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Black Friday IPod Deals Show Stores Bowing to Buyers Amid 2% GDP: Retail

By Ashley Lutz - Nov 23, 2011 12:00 PM GMT+0700

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Nov. 23 (Bloomberg) -- Michelle Clark, retail analyst at Morgan Stanley, talks about Black Friday, the outlook for holiday retail sales and performance of Macy's Inc. Clark speaks with Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Nov. 23 (Bloomberg) -- Michael McNamara, vice president of research and analysis at MasterCard Advisors' SpendingPulse, talks about the outlook for holiday season shopping and the U.S. consumer. He speaks on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)

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Shoppers look for bargains at Toys"R"Us on Thanksgiving Day, November 25, 2010, in New York City. Photographer: Michael Nagle/Getty Images

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Shoppers Jeri Hull, left, and Karen Brashear, right, wait in line while shopping at Toys'R'Us during the Black Friday sales event in Fort Worth. Photographer: Tom Pennington/Getty Images

Every Black Friday, there’s a staring contest between retailers and shoppers over price. This year, the stores may have blinked first.

Chains such as Toys “R” Us Inc. and Gap Inc. (GPS) are opening earlier and offering more markdowns than ever on the day after Thanksgiving, said Mary Delk, a director at Deloitte Consulting. The result may be higher sales and lower profits for retailers over the holiday season.

“Consumer anxiety has resulted in a frenzy among retailers to compete for market share,” said Delk, who is based in Charlotte, North Carolina. “The inducements and deals are bigger and bolder.”

Wal-Mart Stores Inc. (WMT) is promoting a two-piece boys’ sleep set featuring Disney characters for $4.47. J.C. Penney Co. (JCP) will sell $18.88 digital music players and $30 kids’ camcorders. Black Friday shoppers who visit a Sears Holdings Corp. (SHLD) store will receive a coupon book with more than $3,000 in discounts.

Retailers are pouring on the deals to attract consumers grappling with 9 percent unemployment and a slower U.S. economic expansion than previously estimated. Third-quarter gross domestic product climbed at a 2 percent annual rate, down from a prior estimate of 2.5 percent growth, the Commerce Department reported yesterday in Washington.

Consumer spending, which accounts for about 70 percent of the economy, grew at a 2.3 percent annual rate, little changed from the 2.4 percent initial estimate.

On Oct. 30, the Bloomberg Consumer Comfort Index reached the second-lowest level in 26 years of data. Amid slumping confidence, customers at Best Buy Co., Gap and Toys “R” Us all said they would spend less this holiday season than last, according to a poll conducted last month by BIGresearch, a Worthington, Ohio-based researcher.

Industry Weakness

In another sign of industry weakness, October same-store sales at Limited Brands Inc. (LTD) and Target Corp. (TGT) trailed analysts’ projections for the first time this year.

Black Friday, so named because many retailers become profitable then, serves as the unofficial start to the holiday shopping season. Holiday sales may rise 2.8 percent this year, or about half of last year’s 5.2 percent gain, according to the National Retail Federation. The Washington-based NRF will release Thanksgiving weekend sales numbers on Nov. 27.

Toys “R” Us will open at 9 p.m. on Thanksgiving, an hour earlier than last year. The chain began bombarding shoppers with marketing emails and circulars a month ago -- the soonest ever, according to Chief Executive Officer Gerald Storch. Among the deals: a $50 giftcard with the purchase of a $199 Apple Inc. iPod Touch and such board games as Candy Land and Ants in My Pants for $4.99, or 50 percent off.

Shoppers who bought every item listed in a recent Toys “R” Us circular would save $12,500, compared with $11,000 last year, Storch said.

Very Aggressive

“We were very aggressive and needed to take it up a notch this year and offer products that weren’t just cheap but had value,” Storch said in a telephone interview from the chain’s Wayne, New Jersey, headquarters. “There is incredible pent-up demand from shoppers and we have to make sure that they don’t do their shopping without seizing some of our bargains.”

Mall of America, which can usually rely on its amusement park to attract shoppers, is ladling out more freebies this year. The largest U.S. mall will give away 300 prizes ranging in value from $25 to $1,000, said Julie Hansen, a spokeswoman.

The Bloomington, Minnesota-based mall, which typically attracts 300,000 people on Black Friday, is opening at midnight on Thanksgiving, the earliest in its 19-year history. Last year Mall of America waited until 4 a.m. before letting in deal- hunters.

3-D Goggles

Gap, which will have about 1,000 stores open on Black Friday, is distributing 3-D goggles at its Old Navy chain that allow shoppers to find “secret” discounts marked on certain merchandise. Some will get a free Eastman Kodak Co. (EK) digital camera with a purchase of $40 or more. Its namesake chain will offer $19 women’s jeans, while Banana Republic will offer 40 percent off all purchases.

As many as 152 million people will hit the stores on Black Friday, up 10 percent from last year, according to the NRF.

Still, retail executives are less optimistic about Black Friday sales than they were a year ago, according to a survey by BDO USA, a consulting firm based in Chicago. Sales may rise 1.6 percent, the average estimate of 100 executives in BDO’s survey conducted last month. That compares with a 3.8 percent increase in the survey last year.

The whole point of all the Black Friday discounts and door- busters is to get shoppers into the stores and entice them to buy full-price merchandise.

Making that happen is getting harder because more Americans have become mission shoppers, according to Bill Martin, the chief executive officer of the Chicago-based research firm Shoppertrak. Many consumers research what they want online, buy it and then leave, Martin said last month.

“Retailers won’t make much money” on Black Friday “if shoppers don’t pick up additional merchandise,” Delk said.

To contact the reporter on this story: Ashley Lutz in New York at alutz8@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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Orders for U.S. Durable Goods Fall

By Alex Kowalski - Nov 23, 2011 8:42 PM GMT+0700

Orders for durable goods fell in October as demand for aircraft and business equipment cooled, indicating a slowing global economy may temper purchases of U.S. manufactured goods.

Bookings for equipment meant to last at least three years declined 0.7 percent, less than forecast, after a 1.5 percent drop the prior month that was more than twice as large as originally reported, data from the Commerce Department showed today in Washington. Excluding defense and aircraft, demand for computers and other business equipment decreased by the most since January.

The risk the global economy is losing steam as Europe deals with its debt crisis may lead overseas companies, which have supported U.S. factories, to scale back. Even so, a government tax break targeted at stimulating business investment may sustain capital investment while a weaker dollar keeps American- made goods attractive to foreign buyers.

“Businesses are investing but they are still trying to stay cautious,” Omair Sharif, an economist at RBS Securities Inc. in Stamford, Connecticut, said before the report. “If things should start to turn down, they wouldn’t want to be caught with too many goods.”

Stock-index futures held earlier losses after the reports as the cost of insuring European government debt against default rose to a record on concern the region’s crisis is worsening. The contract on the Standard & Poor’s 500 Index maturing next month fell 0.7 percent to 1,174.5 at 8:36 a.m. in New York. Treasury securities were little changed.

Economists’ Forecasts

The median forecast of 79 economists surveyed by Bloomberg News projected a 1.2 percent decrease in orders following an initially reported 0.6 percent decline in September. Estimates ranged from a drop of 3.5 percent to a gain of 1.8 percent.

Consumer spending rose less than forecast in October as Americans used the biggest gain in incomes in seven months to rebuild savings, indicating the biggest part of the economy may contribute less to the recovery, another report from the Commerce Department showed today.

Purchases increased 0.1 percent, after a 0.7 percent gain the prior month. The median estimate of 82 economists surveyed by Bloomberg called for a 0.3 percent advance. Incomes rose 0.4 percent, and the savings rate climbed from a four-year low.

Orders excluding transportation equipment, like commercial aircraft, rose 0.7 percent after a 0.6 percent gain, the report on durable goods showed. Boeing Co. (BA), the largest U.S. aircraft maker, said it received 7 airplane orders in October, down from 59 the prior month and the smallest amount since April. Industry data, nonetheless, may not correlate with the government statistics on a month-to-month basis.

Business Investment

Orders for non-defense capital goods excluding aircraft, a proxy for business investment in items such as computers, engines and communications gear, dropped 1.8 percent after a 0.9 percent gain the prior month that was smaller than previously estimated.

Last month’s decrease extends a pattern of declines early in a quarter. Demand for non-military capital goods like computers, engines and communications gear, have dropped in the first month of a quarter in all but three instances since the end of 2005.

Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, decreased 1.1 percent after decreasing 1 percent.

The Federal Reserve’s gauge of factory output expanded for a fourth month in October on growing demand for automobiles and computers, according to the central bank’s figures.

Fed Minutes

Some Fed policy makers said the central bank should consider easing policy further, according to minutes of their Nov. 1-2 meeting issued yesterday.

Further support for factory production may come from businesses rushing to qualify for a government credit aimed at spurring investment. A tax break allowing companies to depreciate 100 percent of investment in capital outlays in 2011 falls to 50 percent in 2012.

“We are certainly seeing some uncertainty and some concern here and there, but on the broad nature we are not pessimistic, and that vantage point coming directly from a lot of our customers,” Oscar Munoz, chief financial officer of railroad CSX Corp. (CSX), said at a Nov. 9 investor conference. “A majority of customers are telling us sit tight, don’t pull back on resources, I’ve got enough business that I can keep working.”

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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U.S. Stock-Index Futures Decline on Germany

By Rita Nazareth - Nov 23, 2011 8:46 PM GMT+0700

U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will drop a sixth day, as the cost of insuring European government debt against default rose to a record on concern the region’s crisis is worsening.

Bank of America Corp. (BAC) and Citigroup Inc. (C) slumped at least 1.5 percent. Mosaic Co. (MOS) and Halliburton Co. (HAL) slid more than 1.1 percent, pacing losses in commodity producers. Deere & Co. (DE) rallied 6.2 percent as the world’s largest farm-equipment maker reported profit that topped analysts’ estimates.

S&P 500 futures expiring in December retreated 0.8 percent to 1,173.80 at 8:45 a.m. New York time. The benchmark gauge for American equities tumbled 5.6 percent over the previous five days. Dow Jones Industrial Average futures declined 77 points, or 0.7 percent, to 11,370 today.

“There’s a lot of negativity,” Uri Landesman, who helps oversee more than $1 billion as managing general partner of New York-based hedge fund Platinum Partners LLP, said in a telephone interview. The rise in bond yields in Europe shows that “everybody thinks they are going bust. I’m hoping this is a sign that everybody is so negative that the odds are the next move is going to be positive. When everybody thinks the world is coming to an end, that’s the time you buy the market.”

The debt crisis that began more than two years ago now risks engulfing Germany. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose to an all- time high as Germany failed to find buyers for 35 percent of the bonds offered at an auction. European services and manufacturing output contracted and a preliminary gauge indicated China’s manufacturing shrank by the most since March 2009.

U.S. Economy

Equity futures maintained losses after reports indicated more signs of a slowing economy. Consumer spending in the U.S. rose less than forecast in October. Orders for durable goods fell in October as demand for aircraft and business equipment cooled, while more Americans than forecast filed for unemployment benefits last week.

Stocks tumbled yesterday, driving the S&P 500 to its longest slump in almost four months, as slower-than-estimated economic growth overshadowed signs the Federal Reserve may provide more stimulus.

Concern about a global financial crisis sent financial stocks lower. Bank of America lost 1.7 percent to $5.28, while Citigroup decreased 1.5 percent to $24.09. Both are among lenders that may have to temper plans to raise dividends and buy back stock next year as the Federal Reserve toughens capital tests for the biggest U.S. banks.

‘Severe’ Recession

The Fed imposed a tougher capital test on the 31 largest U.S. banks yesterday, releasing the criteria for measuring their wherewithal if the U.S. economy sours and major trading partners default on their debt. Lenders need to prove they have the capital to withstand a “severe” U.S. recession with 13 percent unemployment and an 8 percent decline in gross domestic product before they can increase dividends or repurchase shares.

The more pessimistic scenario will damp banks’ ambitions to return more capital to shareholders, whose holdings have been decimated. The KBW Bank Index (BKX) of 24 U.S. lenders has plunged 31 percent this year and is down 70 percent from its all-time high in February 2007.

“It’s going to be very difficult for any of these companies to do any major buybacks into next year,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst at FBR Capital Markets Corp. in Arlington, Virginia. Bank of America and Citigroup’s “chances of upping a dividend or buying back any stock next year are almost zilch.”

Commodity Shares

Some energy and raw materials producers sank as the dollar rose, reducing the appeal of commodities as alternative investments. Mosaic retreated 1.1 percent to $51.30. Halliburton fell 1.3 percent to $33.25.

Deere rallied 6.2 percent to $76.35 as it also forecast 2012 earnings that topped projections. The company, led by Chief Executive Officer Sam Allen, has benefited as U.S. farmers used cash from rising corn and soybean prices to buy high-horsepower equipment. U.S. farm income will jump 31 percent this year to a record $103.6 billion, the U.S. Department of Agriculture said in August. In fiscal 2010, 65 percent of Deere’s sales came from the U.S. and Canada.

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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European Stocks, U.S. Index Futures Retreat as German Bund Auction Fails

By Adria Cimino - Nov 23, 2011 8:38 PM GMT+0700

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Nov. 23 (Bloomberg) -- Paul Robinson, global head of foreign exchange research at Barclays Capital, talks about a survey of the bank's clients on the economic outlook and asset allocation. He speaks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

European stocks declined, with the benchmark Stoxx Europe 600 Index posting its longest losing streak since August, as Germany failed to meet a bond sale target. U.S. index futures and Asian shares also retreated.

Rio Tinto Group, the world’s second-largest mining company (RIO), dropped 1.7 percent as Australia pushed a law in parliament introducing a tax on coal and iron-ore profits. Logica (LOG) Plc, an Anglo-Dutch computer services provider, slid 3.6 percent after Jefferies Group Inc. cut its recommendation on the shares. Dexia SA (DEXB) jumped 6.7 percent.

The Stoxx 600 slipped 0.3 percent to 222.72 at 1:36 p.m. in London, for a fifth day of losses. Futures on the Standard & Poor’s 500 Index expiring in December fell 0.7 percent, while the MSCI Asia Pacific Index excluding Japan lost 1.6 percent.

Germany failed to reach its maximum sales target of 6 billion euros ($8 billion) at an auction of securities due in January 2022. Total bids amounted to 3.889 billion euros, falling short by 35 percent, according to data from the Bundesbank. The securities were sold at a yield of 1.98 percent.

“This is another drip of negative news into the cup,” said David Finch, head of cross-sector research at Exane BNP Paribas in Paris. “It’s an extension of the contagion we’ve seen into more of the stable eurozone countries. It’s kind of an acceleration of risk aversion.”

In Asia, a preliminary purchasing managers’ index indicated that Chinese manufacturing will contract in November by the most since March 2009 as home sales slide, adding to evidence the world’s second-biggest economy is slowing. The reading of 48 reported by HSBC Holdings Plc and Markit Economics for November compares with a final number of 51 for October. A number below 50 indicates contraction.

Government Bonds

The European Central Bank bought Italian government bonds, according to three people with knowledge of the transactions, who declined to be identified because the trades are confidential. A spokesman for the ECB in Frankfurt declined to comment today on asset purchases.

“Volatility is something we have to live with,” said Franz Wenzel, chief investment strategist at AXA Investment Managers in Paris, which oversees $19 billion in assets. “Fears are growing that even emerging markets could face headwinds. Systemic risk still is overshadowing the eurozone. The crisis hasn’t yet been addressed properly and will continue to weigh on stocks.”

A preliminary reading of a euro-area composite index from a survey of purchasing managers in manufacturing and services rose to 47.2 in November from 46.5 in October, London-based Markit Economics said today.

U.S. Durable Goods

In the U.S., a Commerce Department report showed durable goods orders fell in 0.7 percent in October, less than forecast. Consumer spending rose less than forecast during that month as Americans used the biggest gain in incomes in seven months to rebuild savings, indicating the biggest part of the economy may contribute less to the recovery, another report from the Commerce Department showed today.

The Stoxx 600 tumbled 5.8 percent over four trading days through yesterday as Italian, Spanish and French bond yields soared, adding to concern that the debt crisis is spreading to the euro area’s larger economies.

BHP Billiton Ltd. (BHP) declined 1.1 percent to 1,746 pence. The world’s largest mining company (BLT) and other commodity producers face A$11 billion ($10.7 billion) of extra charges in the first three years of Australia’s tax on iron-ore and coal profits. Rio Tinto slipped 1.7 percent to 3,003 pence.

Logica fell 3.6 percent to 68 pence after the stock was cut to “underperform” from “hold” at Jefferies and Co.

Halfords Group Plc (HFD) dropped 3.6 percent to 319.1 pence. The shares were cut to “sell” from “neutral” at UBS, which cited the company’s limited strategic options for growth.

Dexia Shares Rally

Dexia jumped 6.7 percent to 25.5 euro cents. Luxembourg’s Finance Minister Luc Frieden said that talks about the government-backed funding of the remaining assets do not face “insurmountable difficulties.”

“I am sure that within the next days or so this deal can be concluded in a satisfactory manner,” Frieden said in an interview today in Luxembourg, referring to talks to sell Dexia Banque Internationale a Luxembourg SA to a group of investors including members of Qatar’s royal family.

Axa SA (CS) added 3.1 percent to 8.89 euros. Chief Executive Officer Henri de Castries said the company’s margins are satisfactory in most areas and it will continue to buy French government debt, in an interview on BFM Radio.

Nokia Oyj (NOK1V) climbed 1.7 percent to 4.26 euros. Nokia Siemens Networks said it plans to cut 17,000 jobs worldwide by the end of 2013 as it restructures around mobile broadband.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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"Disastrous" bond sale shakes confidence in Germany

BERLIN | Wed Nov 23, 2011 8:30am EST
By Stephen Brown and Noah Barkin

(Reuters) - A "disastrous" German bond sale on Wednesday sparked fears that Europe's debt crisis was even beginning to threaten Berlin, with the leaders of the euro zone's two strongest economies still firmly at odds over a longer-term structural solution.

Financial markets were also unnerved by newspaper reports that Belgium may be pressing France for an expansion of a 90 billion euro ($120 billion) bailout of failed bank Dexia.

On top of this, a special report by Fitch Ratings suggested France had limited room left to absorb shocks to its finances like a new downturn in growth or support for banks without endangering its cherished AAA credit status.

After one of the least successful debt sales by Europe's powerhouse economy since the launch of the single currency, the euro fell and European shares sank to 7-week lows.

The Bundesbank was forced to retain almost half of a sale of 6 billion euros due to a shortage of bids by investors. The result pushed the cost of borrowing over 10 years for the bloc's paymaster above those for the United States for the first time since October.

"It is a complete and utter disaster," said Marc Ostwald, strategist at Monument Securities in London.

One senior ratings agency official said the rise in its own borrowing costs could even give Germany a pause to re-examine its refusal to embrace a broader solution to resolve the debt crisis.

"It's quite telling that there has been upward pressure on yields in Germany - it might begin to change perceptions in Germany," David Beers of Standard & Poor's told an economic conference in Dublin.

The new bond promised to pay out a 2.0 percent interest rate -- the lowest ever on an issue of German 10-year Bunds. The average yield at the auction was 1.98 percent, down from 2.09 percent at the last sale of the previous benchmark in October.

Signs that European banks are increasingly shut out of credit markets and reliant on the European Central Bank for funding have added to pressure for the bloc's leaders to find a broad and lasting solution to the crisis.

But Germany and France clashed again over whether the ECB should take bolder steps to ease the pressure on debt markets in Italy, Spain and others which is now at the heart of the crisis.

ECB MANDATE "CANNOT BE CHANGED"

In a forceful speech to the Bundestag lower house of parliament, Chancellor Angela Merkel issued one of her starkest warnings yet against fiddling with the central bank's strict inflation-fighting mandate. She also hit back at proposals from the European Commission on joint euro zone bond issuance, calling them "extraordinarily inappropriate."

"The European currency union is based, and this was a precondition for the creation of the union, on a central bank that has sole responsibility for monetary policy. This is its mandate. It is pursuing this. And we all need to be very careful about criticizing the European Central Bank," Merkel said.

"I am firmly convinced that the mandate of the European Central Bank cannot, absolutely cannot, be changed."

Shortly before she began speaking, French Finance Minister Francois Baroin offered a polar opposite view on the ECB's role, telling a conference in Paris that it was the central bank's responsibility to sustain activity in the currency bloc.

"The best response to avoid contagion in countries like Spain and Italy is, from the French viewpoint, an intervention (or) the possibility of intervention or announcement of intervention by a lender of last resort, which would be the European Central Bank," Baroin said.

"EXTRAORDINARILY INAPPROPRIATE"

The very public jousting underscores just how divided European leaders are on how to resolve the turmoil which has accelerated to engulf big countries like Italy and Spain, and pushed out leaders in Rome and Athens.

Baroin pointed to market intervention by the U.S. Federal Reserve, Swiss National Bank and Bank of England as a model for the ECB. But Merkel said it was impossible to compare the role of the ECB, which sets monetary policy for 17 countries, with those of national central banks.

With time running out for politicians to forge a crisis plan that is seen as credible by the markets, the European Commission presented a study on Wednesday of joint euro zone bonds as a way to stabilize debt markets.

Some leading European politicians, including Luxembourg Prime Minister Jean-Claude Juncker, support the bonds. But Berlin has rejected them outright as a near-term solution to the crisis, saying they would raise Germany's borrowing costs and reduce incentives for other euro zone countries to get their fiscal houses in order.

In her speech, Merkel pointed to repeated violations of the EU's Stability and Growth Pact in the currency area's first decade, saying they had damaged market faith in the bloc's ability and willingness to crack down on fiscal rule-breakers.

"And this is why I find it extraordinarily inappropriate that the European Commission is suggesting various options for euro bonds today -- as if they were saying we can overcome the shortcomings of the currency union's structure by collectivizing debt. This is precisely what will not work," Merkel said.

MERKEL WARNS GREECE

The German leader also sent a clear warning to Antonis Samaras, the leader of conservative New Democracy in Greece, who has resisted pressure to join other political parties and make a written commitment to painful austerity measures.

Merkel said Greece would not receive an 8 billion euro aid tranche it needs to avert a default next month unless Samaras signed the pledge.

Merkel raised pressure on the bloc to finalize plans for a "leveraging" of its rescue fund and a recapitalization of vulnerable banks, saying guidelines were needed by the time European finance ministers meet on November 29-30.

"The fact that we have been talking about (bank recapitalizations) for weeks but still have no clarity is not very reassuring, and yesterday we saw with the example of one German bank how fragile the banks themselves are," Merkel said.

Shares in Germany's second-biggest lender, Commerzbank, tumbled on Tuesday after people close to the bank told Reuters it needs considerably more capital than previously expected to meet the core capital targets demanded by the EU by mid-2012.

(Reporting by Stephen Brown, Noah Barkin, Natalia Drozdiak, Veronica Ek, Eva Kuehnen; editing by Patrick Graham and Peter Millership)

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Fed to test six big banks for Euro stress

Wed Nov 23, 2011 7:54am EST
By Karey Wutkowski and Dave Clarke

(Reuters) - The Federal Reserve plans to stress test six large U.S. banks against a hypothetical market shock, including a deterioration of the European debt crisis, as part of an annual review of bank health.

The Fed said it will publish next year the results of the tests for six banks that have large trading operations: Bank of America (BAC.N), Citigroup (C.N), Goldman Sachs (GS.N), JPMorgan Chase (JPM.N), Morgan Stanley (MS.N) and Wells Fargo (WFC.N).

"They are clearly worried about the issue of Europe," said Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial. "In a time of risk aversion and concern, you need transparency."

The Fed said its global market shock test for those banks will be generally based on price and rate movements that occurred in the second half of 2008, and also on "potential sharp market price movements in European sovereign and financial sectors."

In the Fed's hypothetical stress scenario, unemployment would spike as high as 13 percent while U.S. gross domestic product would fall by as much as 8 percent.

The heightened stress tests are part of a larger supervisory test the Fed will conduct on the capital plans of 31 firms with at least $50 billion in assets.

The tests will apply to 19 banks who have previously been through the process and 12 more financial firms considered less complex. The test each bank faces will be based on its size and complexity.

The banks must submit their capital plans to the Fed by January 9, 2012. The Fed said that it plans to respond to banks by March 15. It was not clear when the results would be published.

The Fed will use the stress tests to determine whether banks are robust enough to raise dividends or repurchase stock, or whether they need to obtain additional capital.

The Fed plans to release more information than it did last year about the tests' results. The regulator said it is doing so to "foster market discipline."

The Fed will disclose the estimate of revenues, losses and capital ratios of the 19 biggest banks if they were to suffer a market shock.

This type of disclosure could give investors and markets more certainty about the strength of U.S. banks at a time when there are deep concerns about their European counterparts.

"Eventually, this will be viewed as a positive, and a lot of people will focus on this as a way to verify the viability of these companies," said Matt McCormick, portfolio manager at Bahl & Gaynor investment counsel in Cincinnati.

CONTAGION FEARS

Fitch Ratings earlier this month expressed concern that U.S. banks could take a hit from the debt crisis in Europe.

Analysts at the credit rater said their concerns are based, in part, on U.S. banks having increased trading operations in Europe in the past several years.

"Our concern is with counterparty risk, the impact of Europe on global economic growth and how that weighs on the economic recovery in the U.S.," said analyst Joseph Scott in the November 16 note.

Fears over U.S. firms' European exposure grew after brokerage MF Global filed for bankruptcy on October 31. MF Global collapsed after disclosures about its massive bets on European debt spooked investors and counterparties.

U.S. bank stocks in general have taken a beating over the last year with investors concerned about the sluggish economy, European debt, and the impact of more intense regulation.

The KBW Bank Index .BKX of stocks has fallen more than 30 percent this year.

DIVIDENDS

Banks have been eager to boost dividends and buy back stock, but the Fed has indicated it will take a tough stance, particularly if a bank is not far along in meeting new international Basel capital standards.

In a November 9 speech, Fed Governor Daniel Tarullo said the central bank would be "comfortable with proposed capital distributions" only when it is "convinced" a bank is on a path to easily meet the new standards.

"I don't think anyone could say that this is anything but an extremely stringent stress test," said Karen Petrou, managing partner of Federal Financial Analytics. "It will really put the burden on the affected bank holding companies to prove they can make a capital distribution, not on the Fed to block it."

The Fed is putting in place a broad stress testing regime in the wake of the 2007-2009 financial crisis when taxpayers were forced to extend a $700 billion bailout to the financial system.

This will be the second round of Fed tests of banks' capital plans.

Earlier this year, the Fed rejected Bank of America's plan to boost its dividend in the second half of 2011, while allowing other big banks to move ahead with dividend hikes.

Under the 2010 Dodd-Frank financial oversight law, the Fed is required to conduct stress tests on banks with more than $50 billion in assets.

The latest capital tests are separate from this requirement but the Fed said on Tuesday it would try to harmonize the different testing regimes facing banks.

The expansion of the capital tests beyond the 19 who have been scrutinized in the past will likely not be welcomed by those being added to the list.

"It's another layer of Fed oversight on their capital, and they've fought tooth and nail not to be included in this," said Paul Miller, analyst at FBR Capital Markets. "So I don't think any of those banks are particularly happy right now."

(Reporting by Karey Wutkowski, Dave Clarke and Alexandra Alper in Washington, Joe Rauch and Rick Rothacker in Charlotte, and Lauren Tara LaCapra and David Henry in New York; Editing by Bernard Orr and Tim Dobbyn)

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US Mortgage Purchase Demand Rises; Refies Sag

Published: Wednesday, 23 Nov 2011 | 7:04 AM ET
By: Reuters

Purchase applications for U.S. home mortgages rebounded last week, but demand for refinancing sagged for a second week in a row, an industry group said on Wednesday.

Eric Audras | Photoalto | Getty Images Couple looking at properties in window of real estate agency.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, slipped 1.2 percent in the week ended November 18, after a 10 percent drop the week before.

The gauge of loan requests for home purchases provided a bright spot, rising 8.2 percent.

Even so, purchase activity remains almost 5 percent below last year's level, Michael Fratantoni, MBA's vice president of research and economics, said in a statement.

The index of refinancing applications fell 4.0 percent and the refinance share of total mortgage activity dropped to 75.9 percent of applications from 77.3 percent. It was the lowest level since September. Fixed 30-year mortgage rates were unchanged at an average 4.23 percent.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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Citi, JPMorgan May Face Highest Basel Capital Surcharges

By Jim Brunsden and Rebecca Christie - Nov 8, 2011 4:47 PM GMT+0700

Citigroup Inc. (C), JPMorgan Chase & Co., BNP Paribas SA, Royal Bank of Scotland Group Plc, and HSBC Holdings Plc (HSBA) may face top capital surcharges of 2.5 percentage points, according to a provisional list prepared by global regulators and obtained by Bloomberg News.

The list was drawn up as part of plans by the Group of 20 nations to force banks whose failure could damage the global economy to boost their reserves by 1 to 2.5 percentage points above minimum levels agreed on by international regulators. Bank of America Corp. (BAC), Barclays Plc (BARC) and Germany’s biggest bank Deutsche Bank AG (DBK) may face surcharges of 2 percentage points, according to the list.

“You’re saying by virtue of being a bigger bank, you’re going to have to pay for that,” Joseph R. Mason, a finance professor at Louisiana State University in Baton Rouge, said in a telephone interview. “You’re creating an incentive for big banks to hide even more risk to get the surcharge reduced.”

A simplified version of the 29-bank list, which didn’t set out the surcharges individual banks would face, was published by the Financial Stability Board on Nov. 4. Lenders including HSBC and BNP Paribas (BNP) have warned regulators the plans could cause them to cut lending and support to international trade. Plans for the surcharges were published after approval by G-20 leaders in France last week.

Provisional List

Regulators have emphasized the current list is provisional and will be repeatedly revised before the surcharges are applied starting in 2016. The list is based on data from the end of 2009 that “may not be sufficiently reliable or complete,” the Basel Committee on Banking Supervision, which drafted the measures, has said. Lenders have already been asked to submit end-of-2010 data for an updated list to be published next year.

Larry DiRita, a Bank of America spokesman, and Deutsche Bank spokesman Ronald Weichert declined to comment. BNP Paribas, Citi, RBS, Barclays, HSBC and JPMorgan also declined to comment.

Some of the surcharges “will be less meaningful as they will be trumped by local regulation in Europe, especially in countries with supersized banking systems,” Morgan Stanley (MS) analysts said in a note published Nov. 6.

The extra requirements are calculated against banks’ interconnectedness, size, complexity, global reach, and the ability of other firms to take over their functions if they fail.

Deutsche Bank Ranking

Under the surcharge plans, national regulators have the power to seek to move banks under their jurisdiction up or down the list if they can show that the Basel committee’s calculations should be overridden.

Placing Deutsche Bank outside the top tier is likely to “reflect the supervisory judgment” of German authorities, Richard Reid, research director for the International Centre for Financial Regulation, said in an e-mail.

“Of course there’s always the suspicion that there’s a political element to the process of drawing up the lists,” Reid said. “Rankings are likely to change as more up to date information is incorporated and supervisors amend their recommendations in the light of changing economic and financial conditions.”

Goldman Sachs Group Inc., Morgan Stanley, Bank of New York Mellon Corp., Groupe Credit Agricole, Credit Suisse Group AG (CSGN) and UBS AG (UBSN) may face surcharges of 1.5 percentage points, according to the list.

Lowest Tier

The remaining 15 banks on the list, including Wells Fargo & Co., Societe Generale (GLE) SA, and Dexia SA (DEXB), the French-Belgian lender being broken up after losing access to short-term funding, may all face surcharges of 1 percentage point.

Jeanmarie McFadden, a Morgan Stanley spokeswoman, declined to comment. Goldman Sachs, Bank of New York Mellon, Credit Agricole, UBS, Wells Fargo, Societe Generale and Dexia all declined to comment. Credit Suisse declined to immediately comment.

The surcharges will be applied on top of an overhaul of bank-capital requirements that international regulators agreed on last year. Those changes, known as Basel III, will more than triple the core reserves that lenders must hold. The additional buffers mean lenders may face core capital requirements of as much as 9.5 percent of assets, weighted on risk.

‘Question Mark’

“While banks technically won’t need to be fully compliant” with the rules until 2019, their “ability to deploy capital in the near term will likely remain somewhat of a question mark until local regulators provide clarity on expectations,” analysts from Goldman Sachs said in a note published Nov. 4.

Some banks in the European Union already face requirements to hold 9 percent in core reserves, after sovereign-debt writedowns, under plans adopted by EU regulators in response to the Greek financial crisis. Banks will need to raise 106 billion euros ($146.1 billion) in fresh capital to meet the rules, the European Banking Authority estimated.

The definition of what banks can count as capital to meet the Basel surcharges is stricter than that used by the EU, which allows lenders to use some contingent convertible instruments to meet the 9 percent threshold.

To contact the reporters on this story: Jim Brunsden in Basel at jbrunsden@bloomberg.net; Rebecca Christie in Cannes at rchristie4@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

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Euro Weakens as Reports Signal Region’s Debt Crisis Is Weighing on Growth

By Lukanyo Mnyanda and Kristine Aquino - Nov 23, 2011 6:46 PM GMT+0700

The euro fell to a six-week low against the dollar as reports added to signs that Europe’s failure to resolve its debt crisis is weighing on economic growth and Germany received insufficient bids at a debt auction.

The 17-nation euro slid versus 13 of its 16 major peers as London-based Markit Economics said a gauge of European services and manufacturing output shrank for a third month. The pound fell for a third day against the dollar after the Bank of England’s minutes showed some policy makers said more stimulus “might well become warranted.” Sweden’s krona declined as central bank Deputy Governor Barbro Wickman-Parak said policy makers may cut interest rates if Europe’s debt crisis persists.

“There are a lot of reasons to be negative about the euro,” said Ankita Dudani, a currency strategist at Royal Bank of Scotland Group Plc in London. “The whole of the euro zone is getting entrapped in the lack of growth, and the cost of financing is so high. They are being hit from both sides.”

Europe’s shared currency slipped 0.9 percent to $1.3389 at 11:17 a.m. London time, after sliding to $1.3374, the least since Oct. 10. The euro fell 0.6 percent to 103.31 yen. The dollar was 0.3 percent higher at 77.16 yen.

The Stoxx Europe 600 Index of shares declined for a fourth day, losing as much as 1 percent. Futures on the Standard and Poor’s 500 Index were 0.7 percent lower.

Manufacturing, Services

A composite index based on a survey of purchasing managers in manufacturing and services rose to 47.2 from 46.5 in October, Markit said in an initial estimate today, suggesting the sovereign-debt crisis is starting to affect economic growth in the region’s core nations. Economists forecast a drop to 46.1, according to the median of 17 estimates in a Bloomberg News survey.

European industrial orders declined the most in almost three years in September, led by Germany and France, data from the European Union’s statistics office in Luxembourg showed.

The pound weakened 0.4 percent to $1.5577, after being as low as $1.5554, the least since Oct. 12.

Bank of England policy makers were unanimous in their decision at this month’s rate-setting meeting to maintain the target for asset purchases at 275 billion pounds, after increasing it by 75 billion pounds in October, the minutes showed today.

“Some members noted that the balance of risks to inflation” in the bank’s new forecasts “meant that a further expansion of the asset-purchase program might well become warranted in due course,” the central bank said.

German Auction

Investors bid 3.889 billion euros at Germany’s offering of 6 billion euros of 10-year bunds, according to data from the Bundesbank, prompting investors to question the status of the securities as a haven from the euro area’s debt crisis. The securities were sold at a yield of 1.98 percent.

“I cannot recall a worse auction,” Marc Ostwald, a fixed- income strategist at Monument Securities Ltd. in London, wrote in an e-mail. “If Germany can only manage this sort of participation, what hope for the rest?”

Sweden’s krona fell for a third consecutive day, losing 0.8 percent to 6.8836 against the dollar and was little changed at 9.2191 per euro.

“What would prompt us to adjust rates down? That would be if we get a prolonged financial crisis,” Wickman-Parak said yesterday at a seminar in Stockholm. Riksbank Governor Stefan Ingves said Nov. 10 the bank is ready to do what’s necessary to ensure stability as the largest Nordic economy is “highly affected” by the turmoil in Europe.

Australia’s dollar declined against all of its 16 major peers as a report signaled China’s manufacturing will shrink amid a faltering global economy.

The HSBC Flash Manufacturing PMI for China, Australia’s biggest trading partner, fell to 48 this month, predicting the biggest contraction since March 2009. That compares with a final reading of 51 in October.

The so-called Aussie dropped 1 percent to 97.38 U.S. cents and was 0.7 percent weaker at 75.17 yen. New Zealand’s dollar slid to 74.23 cents against its U.S. counterpart and was 0.4 percent lower at 57.29 yen.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

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

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SEC Examines Internal Watchdog’s Interview With Paid Radio Show

By Robert Schmidt and Joshua Gallu - Nov 23, 2011 12:00 PM GMT+0700

The U.S. Securities and Exchange Commission’s internal watchdog has come under scrutiny for comments he made in a 75-minute videotaped interview about the agency and the stock market to a man who markets a “crash-proof retirement” plan through the Internet and a paid radio program.

SEC Inspector General H. David Kotz has been contacted about the matter by the agency’s general counsel’s office, which also has briefed the SEC’s commissioners over concerns the interview could be construed as investment advice or an endorsement of financial services.

Phillip Cannella III, chief executive officer of First Senior Financial Group in King of Prussia, Pennsylvania, edited the interview he conducted at SEC headquarters in late July into more than a dozen video segments. He posted them on YouTube and his website, http://www.crashproofretirement.com, and plays them on the radio as well as during his seminars about insurance products for retirees.

The SEC doesn’t ban its employees from interviews with people connected to commercial ventures. Kotz said he cleared the matter in advance with the SEC’s internal ethics counsel. He told SEC officials he would ask an outside group, the Council of Inspectors General on Integrity and Efficiency, to look into whether he said or did anything improper in the interview, according to two people briefed on the situation.

The Federal Bureau of Investigation, which oversees the panel within the inspector general’s group that deals with integrity matters, doesn’t comment on its inquiries, said William Carter, an FBI spokesman.

‘Appropriate Caveats’

Kotz said in an e-mailed statement to Bloomberg News that he provided “all the appropriate caveats and disclaimers” to Cannella and “specifically stated in the radio interview that I was not in a position to, nor was I, providing investment advice.”

SEC Chairman Mary Schapiro said in a statement that she appreciated that Kotz requested an independent review.

“David Kotz is an experienced professional with expertise in the ethics rules who I believe would not intentionally create an appearance issue,” Schapiro said.

The SEC didn’t say if it was taking further action on the matter. The agency’s ethics counsel, Shira Pavis Minton, didn’t respond to a request for comment.

In the interview segments posted on the website, Kotz discusses issues ranging from the Bernard Madoff fraud to the difficulties the SEC faces policing Wall Street. A press release issued by Cannella’s company headlined Kotz’s suggestion that retirees consider cutting their investments in stocks.

‘Turbulent Times’

“So much money is in the stock market where people’s lives are so affected by it, that sometimes it may make sense to take things out in turbulent times to ensure that you’re not living and dying, so to speak, by the Dow Jones going up and down,” Kotz told Cannella as the two sat in the agency’s Washington offices in front of the SEC seal. “Particularly with what’s occurred over the last several years.”

Kotz also discusses the SEC’s past shortcomings and says the agency has improved, being a “fundamentally different place now than when I first started at the SEC and before we issued our Madoff report.”

Cannella said in a phone interview that he was contacted by an SEC attorney several weeks ago asking that he put a disclaimer on the videos to make clear that neither the agency nor Kotz endorse, sponsor or promote his firm. Cannella said he quickly complied. Kotz said he supported efforts by the SEC’s general counsel’s office “to ensure that my interview is not being used to endorse any product.”

‘Not a Journalist’

Cannella said he was pleased to be able to interview a high- level government official like Kotz -- a man he said he greatly respects. While it costs him $12,000 a week to air the radio show on two Philadelphia area stations, Cannella said he treats it like a consumer advocacy program, not an infomercial.

“I can’t believe myself,” Cannella said. “I’m not a journalist, and I got over a 75-minute interview with Kotz inside the SEC building.”

Besides the radio program, Cannella said, he holds “educational events” in restaurants where he teaches people in their 50s and older about “safe investment alternatives in the insurance industry.” His website has clips of prospective clients being asked about their reaction to watching the Kotz interview.

One woman, who wasn’t identified in the video, said that Cannella’s interview with the inspector general shows that the host is “standing up for the little people, and very admirable, and that’s one of the reasons that I’m very anxious to proceed with Phil.”

Probes

In another clip, an unidentified man said, “It was incredible to find out that the SEC feels like it can’t police the securities industry because it doesn’t have the funding or the manpower.”

The fracas adds a new chapter to Kotz’s contentious four- year tenure at the SEC. In recent months, current and former officials have spoken out about what they say are his overly aggressive probes and their negative impact on the agency’s ability to police the markets. Earlier this month, the Justice Department declined to open an investigation into Kotz’s allegations that former SEC General Counsel David Becker violated ethics laws.

Kotz and his supporters have dismissed the complaints, saying his oversight has done much to help the SEC burnish its image after it was widely attacked for missing massive frauds like Madoff’s and the alleged Ponzi scheme run by R. Allen Stanford.

Commissions

In his interview with Cannella, Kotz said victims of investment schemes “deserve a strong, vibrant, effective, aggressive SEC that goes after those people, gets their money back as possible and puts them in jail.”

Because he doesn’t sell securities, Cannella isn’t regulated by the SEC. He said he is licensed to sell insurance in over 40 states. His company puts together individual plans for clients and then earns commission on products they buy from an insurance company. He described the investments as “guaranteed, tax-deferred contractual agreements with income options from a statutory corporation.”

The investments are “outside of the securities industry” and “many of them have outperformed the markets since their inception with no market risk, no market fees, no upfront commissions or sales costs,” he added.

The trade magazine Senior Market Advisor in January 2008 reported that Cannella said he wrote about $25 million in premiums in 2007 for fixed index annuities. Cannella said he didn’t want to put a specific name on the investments he sells because he thinks the media has misreported on the products.

“I’m not well-liked among securities guys because I am speaking truth and logic to a deceptive industry,” Cannella said. “You can’t beat the sword of truth.”

For Related News and Information:

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.

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

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Golden Agri Forecasts Increased Palm-Oil Output on Expansion in Indonesia

By Ranjeetha Pakiam - Nov 23, 2011 4:17 PM GMT+0700

Golden Agri-Resources Ltd. (GGR), the world’s second-largest oil-palm planter, said that output will increase as plantations are expanded in Indonesia and new trees mature, bolstering profitability.

“We do expect to plant more areas and therefore have additional production in the coming years,” Executive Director Rafael Buhay Concepcion Jr. said in an interview, without giving a forecast for volumes. “That, complemented by fairly strong prices, should continuously provide us pretty good results.”

Rising harvests from Singapore-based Golden Agri may contribute to increased output from Indonesia, the world’s largest producer. The company, which has 17 “buy” calls from analysts among the 21 recommendations tracked by Bloomberg, was looking at acquisitions, Concepcion said, without giving details.

“Definitely there will be growth,” said Concepcion, speaking by phone from Jakarta yesterday. The company produced 1.58 million tons of crude palm oil in the first nine months of 2011, 24 percent more than a year earlier. Production in 2010, totaled 1.85 million tons, down from 1.91 million in 2009.

Shares in Golden Agri fell 1.5 percent to 66 Singapore cents in Singapore, valuing the company at S$8.01 billion ($6.14 billion). The stock has lost 17.5 percent this year as the benchmark Straits Times Index (FSSTI) declined 16 percent.

‘Good Improvement’

“Last year, the growth was poor, so this year they see quite a good improvement in production, but we shouldn’t expect that to happen every year,” Ivy Ng, an analyst at CIMB Group Holdings Bhd., said today. “The more-normal growth, excluding abnormality in weather, should be around 5 to 10 percent roughly. This is better than the Malaysian players -- those who have not expanded into Indonesia are doing less than 5 percent growth.”

About 33 percent of Golden Agri’s estates are less than six years old, which is considered as young to immature, said Ng, who has a “trading buy” on the stock. As these areas mature, that will be “the key driver for their growth,” she said.

Palm-oil demand is rising in India and China, the two largest importers, as economic growth boosts incomes. Demand growth for food remains strong, with no sign of a slowdown in gains in emerging-market consumption, the International Monetary Fund said in its World Economic Outlook on Sept. 20.

Futures on the Malaysia Derivatives Exchange, the global benchmark, traded at 3,135 ringgit ($986) per ton at 5:13 p.m. in Kuala Lumpur, on course for the first quarterly gain since the final three months of 2010. So far this year, prices have averaged 3,267 ringgit per ton, set for a record.

‘Planting Aggressively’

Total output in Indonesia may climb to as much as 25 million tons in 2012, from 23.5 million tons this year, as area and yields climb, the Indonesian Palm Oil Association said Nov. 16. Newly planted areas in the country may reach 350,000 hectares (864,868 acres) in 2011, surpassing expectations as smallholders are “still planting aggressively,” UOB Kay-Hian Holdings Ltd. wrote in a report yesterday.

Golden Agri will add at least a further 20,000 hectares of plantations this year, and expects to plant as much as 30,000 hectares in 2012, Concepcion said. The company has a total planted area of 448,900 hectares, which includes smallholders, according to a Nov. 11 earnings statement.

Third-quarter profit rose 10.5 percent to $109.6 million, the company said on Nov. 11. Revenue climbed 62 percent to $1.56 billion, according to a stock-exchange filing.

Adverse weather can affect Golden Agri’s production by about 10 percent, the impact of which is usually offset by higher prices, said Concepcion. “Prices usually adjust up larger than the real reduction in production,” he said.

Palm oil has climbed 6.7 percent since Oct. 31 on concern that a La Nina weather event and seasonal monsoon rains will hurt harvesting. La Nina, caused by a cooling of the Pacific Ocean, can increase rainfall in Malaysia and Indonesia.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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Asian Stocks Fall as Data Signal Slowing in China, U.S.; BHP Slides on Tax

By Jonathan Burgos - Nov 23, 2011 3:42 PM GMT+0700

Asian stocks fell, with a regional gauge heading for its lowest close in a month, as a mining tax was approved in Australia and reports showed the U.S. economy grew slower than expected and China’s manufacturing may have contracted.

Samsung Electronics Co. (005930), South Korea’s biggest exporter of consumer electronics, slid 2.9 percent in Seoul on speculation exports will drop as growth in the world’s biggest economy slows. BHP Billiton Ltd. (BHP), the world’s No. 1 mining company, declined 3.1 percent in Sydney after Australia’s House of Representatives passed a law taxing mining profits. Industrial & Commercial Bank of China (601398) Ltd., the nation’s largest lender, fell 2.8 percent after the report showing China’s manufacturing may have shrunk.

“Companies in the U.S. are quite cautious given the European situation,” said Ng Soo Nam, the Singapore-based chief investment officer at Nikko Asset Management Asia Ltd., which oversees about $165 billion. “Some countries in Europe will probably go into recession. Europe cannot drag its feet anymore. Chinese data suggest small and medium-sized manufacturers are already feeling the effects of the liquidity crunch.”

The MSCI Asia Pacific excluding Japan Index fell 2.4 percent to 379.20 as of 4:49 p.m. in Hong Kong, poised for its lowest close since Oct. 6. Stocks (MXAPJ) retreated this month as surging bond yields in Italy and Spain added to evidence Europe’s sovereign-debt crisis is spreading to major economies.

Australia’s S&P/ASX 200 sank 2 percent, while South Korea’s Kospi Index declined 2.4 percent. Hong Kong’s Hang Seng Index dropped 2.1 percent and China’s Shanghai Composite Index fell 0.7 percent, erasing gains of as much as 0.3 percent. Japanese markets are closed today for a holiday.

U.S. Futures

Futures on the Standard & Poor’s 500 Index (SPX) dropped 0.8 percent today. The measure fell 0.4 percent in New York yesterday, extending its longest slump in almost four months, as slower-than-estimated economic growth overshadowed signs the Federal Reserve may provide more stimulus.

Exporters fell after a revised Commerce Department report showed that U.S. gross domestic product climbed at a 2 percent annual rate from July through September, less than a 2.5 percent prior estimate. Some Fed officials said the central bank should consider easing monetary policy further, according to minutes of their Nov. 1-2 meeting.

“Europe is probably already in recession and that’s going to hurt demand for U.S. exports and put downward pressure on U.S. growth,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $44 billion, said in a Bloomberg Television interview.

Mining Tax

Samsung Electronics fell 2.9 percent to 935,000 won in Seoul. Li & Fung Ltd. (494), a toy and clothing supplier that counts the U.S. as its largest market, slid 2.9 percent to HK$14.30 in Hong Kong. James Hardie Industries SE (JHX), a building materials supplier that gets about 68 percent of sales from the U.S., slipped 1.9 percent to A$6.38 in Sydney.

Australian raw material producers dropped as BHP Billiton, Rio Tinto (RIO) Group and other iron-ore and coal suppliers face paying about A$11 billion ($10.8 billion) in extra charges in the first three years of the mining tax passed by the lower house of Australia’s parliament yesterday.

BHP Billiton dropped 3.1 percent to A$34.51. Rio Tinto, the world’s second-largest mining company by sales, fell 3.4 percent to A$62.30. OneSteel Ltd. (OST), Australia’s second-biggest producer of the metal, sank 7.2 percent to 77 Australian cents.

The MSCI Asia Pacific excluding Japan Index declined 18 percent this year through yesterday, compared with a 5.5 percent loss by the S&P 500 and a 19 percent drop by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 11.2 times estimated earnings on average, compared with 12 times for the S&P 500 and 9.8 times for the Stoxx 600.

Chinese Manufacturing

Chinese lenders declined after HSBC Holdings Plc and Markit Economics said a preliminary survey showed a Chinese manufacturing index may fall to 48 in November from 51 last month. A reading below 50 indicates a contraction.

ICBC dropped 2.8 percent to HK$4.19 in Hong Kong. China Construction Bank Corp. (939), the country’s second-largest lender, lost 1.7 percent to HK$5.20.

AirAsia Bhd. (AIRA) slipped 4.1 percent to 3.52 ringgit in Kuala Lumpur after the budget carrier posted a 53 percent drop in third-quarter profit on higher fuels costs.

Of the 312 companies on the MSCI Asia Pacific Excluding Japan Index that reported results since Oct. 11, 154 missed analysts’ estimates, while 114 exceeded expectations, according to data compiled by Bloomberg.

Huabao International Holdings Ltd. (336) slumped 10 percent to HK$4.19 after the supplier of flavors and fragrances said food safety issues and the ongoing consolidation in the tobacco industry in China will have an adverse impact on the company’s earnings.

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

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

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European Stocks, U.S. Index Futures Fall

By Adria Cimino - Nov 23, 2011 4:09 PM GMT+0700
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The DAX Index curve is displayed on an electronic board at the Frankfurt Stock Exchange in Frankfurt. Photographer: Ralph Orlowski/Bloomberg

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Nov. 23 (Bloomberg) -- Paul Robinson, global head of foreign exchange research at Barclays Capital, talks about a survey of the bank's clients on the economic outlook and asset allocation. He speaks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

European stocks declined, for the benchmark Stoxx Europe 600 Index’s longest losing streak since August, after a report showing manufacturing in China may contract this month. U.S. index futures and Asian shares also slid.

The Stoxx 600 dropped 0.6 percent to 221.96 at 9:05 a.m. in London, for a fifth day of declines. Futures on the Standard & Poor’s 500 Index expiring in December fell 0.9 percent, while the MSCI Asia Pacific Index excluding Japan decreased 1.5 percent.

China’s manufacturing may contract in November by the most since March 2009 as home sales slide, adding to evidence the world’s second-biggest economy is slowing, a preliminary purchasing managers’ index showed today. The reading of 48 reported by HSBC Holdings Plc and Markit Economics for November compares with a final number of 51 for October. A number below 50 indicates contraction.

A preliminary reading of a euro-area composite index from a survey of purchasing managers in manufacturing and services industries fell to 46.1 in November from 46.5 in October, according to the median estimate of economists surveyed by Bloomberg News. That’s the least since June 2009. Markit Economics releases the report at 10 a.m. Paris time today.

In the U.S., a Commerce Department report due at 8:30 a.m. in Washington may show durable goods orders dropped 1.2 percent in October, economists said. A separate release at the same time will probably show personal spending increased 0.3 percent last month, slowing from a 0.6 percent gain in September, according to economists surveyed by Bloomberg.

Spain’s bonds declined yesterday, pushing two-year yields toward the highest level since 2000, as financing costs surged at bill auctions amid concern the new government will struggle to rein in the nation’s debt levels. Belgium’s 10-year bond yields rose to their highest in nine years.

The Stoxx 600 tumbled 5.8 percent over the past four trading days as Italian, Spanish and French bond yields soared, adding to concern that the sovereign-debt crisis is spreading to the euro area’s larger economies.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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U.K. Stocks Post Longest Losing Streak Since 2003; Xstrata Falls

By Sarah Jones - Nov 23, 2011 3:55 PM GMT+0700

U.K. stocks (UKX) dropped for an eighth day, the longest stretch of losses since 2003, led by a selloff metal producers as a report showed Chinese manufacturing may contract this month and Australia passed a mining tax.

Xstrata Plc (XTA) and Vedanta Resources Plc (VED) both lost more than 1.5 percent as base metals declined in London.

The benchmark FTSE 100 Index lost 11.94, or 0.2 percent, to 5,194.88 at 8:54 a.m. in London, extending the gauge (F3MNG)’s loss since Nov. 11 to 6.3 percent. The FTSE All-Share Index dropped 0.2 percent, while Ireland’s ISEQ Index was little changed.

A gauge of mining companies declined 1.1 percent after a preliminary purchasing managers’ index showed manufacturing in China may contract this month by the most since March 2009 as home sales slide, adding to evidence the world’s second-biggest economy is slowing.

The reading of 48 reported by HSBC Holdings Plc and Markit Economics for November compares with a final number of 51 for October. A number below 50 indicates contraction.

Separately, Australia’s lower house of parliament passed legislation for a 30 percent tax on coal and iron-ore profits as independent lawmakers and the Greens Party backed Prime Minister Julia Gillard’s plan.

The Minerals Resource Rent Tax Bill will probably be passed and become law early next year after a vote in the upper-house Senate, where the Greens hold the balance of power. BHP Billiton Ltd. (BHP), Rio Tinto Group and other iron-ore and coal producers face paying about A$11 billion ($10.8 billion) in extra charges in the first three years of the tax.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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Hewlett-Packard Offers Up an Alternative to Oracle-Shunned Chips

By Aaron Ricadela - Nov 23, 2011 12:01 PM GMT+0700

Hewlett-Packard Co. is giving customers an alternative to machines that use Intel Corp.’s Itanium chips, a family of products that’s losing popularity after Oracle Corp. stopped developing related software.

Customers that use Hewlett-Packard software with Itanium- based servers will get to run their programs on Intel’s more popular Xeon chips in coming years, Palo Alto, California-based Hewlett-Packard said in a statement. Customers will also be able to move those applications to Microsoft Corp.’s Windows and Red Hat Inc.’s Linux operating systems.

Businesses are seeking alternatives after Oracle, the largest maker of database software, said in March it would stop developing software for Itanium chips, which are used in some Hewlett-Packard servers. Hewlett-Packard sued Oracle over the decision on June 15, alleging breach of contract, escalating tensions that flared after Oracle hired former Hewlett-Packard Chief Executive Officer Mark Hurd as a co-president.

Oracle’s move helped slice revenue at Hewlett-Packard’s “business critical systems,” which includes high-end servers, by 23 percent to $535 million in the quarter that ended Oct. 31, the company reported yesterday.

Users of Hewlett-Packard’s Integrity and certain other machines -- the ones that use Itanium -- will be able to run Itanium and Xeon blade servers side by side in the same computer chassis in about two years, said Martin Fink, a senior vice president for business critical systems at Hewlett-Packard.

No ‘Forced Migrations’

The systems, used to power ATM and telephone networks, include features that let them recover from system failures and run for long periods without downtime.

Hewlett-Packard is also working with Microsoft and an industry group responsible for developing the open-source Linux software to make those operating systems work better with Integrity, Fink said. Over time, customers could choose to move applications and databases, including ones made by Oracle, to the Xeon blades, he said. Hewlett-Packard will continue to support and develop new features for Itanium-based computers.

“This is not about forced migrations or forced transitions,” Fink said. “The beauty of this is one infrastructure that runs all of your hardware and system needs.”

Deborah Hellinger, a spokeswoman for Redwood City, California-based Oracle, declined to comment.

Hewlett-Packard fell less than 1 percent to $26.65 at the close in New York yesterday. The stock has tumbled 37 percent this year.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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

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