Buffett’s Defense No Match for S&P 500 in 2011

By Andrew Frye - Jan 3, 2012 12:00 PM GMT+0700

Warren Buffett, the billionaire investor who has highlighted his record of beating the market when stocks languish, oversaw a decline last year as the Standard & Poor’s 500 Index ended unchanged.

Buffett’s Berkshire Hathaway Inc. (BRK\A) slipped 4.7 percent in 2011. It was the second time since 1990 that the Omaha, Nebraska-based firm underperformed an S&P 500 that had either declined for the year or rose less than 5 percent. Berkshire gained about 17-fold in the 21-year period, while the index has nearly quadrupled.

“There’s going to be a big asterisk by this year,” said David Rolfe, chief investment officer of Berkshire investor Wedgewood Partners Inc. “In tough markets it’s a strong performer. There’s no doubt it has broken the mold this year,” he said in an interview last month.

Buffett’s personal holdings of Berkshire (BRK/A) lost about $2 billion last year. In September, the 81-year-old Buffett initiated the first share-repurchase program in four decades as Berkshire’s chief executive officer. On a quarterly average basis, the stock price slipped in the three months ended Sept. 30 to the lowest relative to book value (BRK\A) in more than 20 years.

The firm faced a surge in insurance claims tied to natural disasters and losses on a portfolio of speculative derivatives. The resignation of Berkshire manager David Sokol in March raised questions about succession for Buffett.

“Berkshire stock went to a price we never thought,” Vice Chairman Charles Munger said on July 1 after the firm slipped 3.6 percent in the first six months of the year compared with a 5 percent rise in the S&P.

Insurance Losses

Munger cited Berkshire’s insurance losses tied to the March earthquake and tsunami in Japan. Jay Gelb, an analyst with Barclays Plc, said in May that “succession risk is elevated” following Sokol’s exit. On Aug. 9, Gelb raised his rating on Berkshire stock to “overweight” from “neutral,” saying the stock slide provided a buying opportunity. The shares have gained 5.2 percent since.

Berkshire was one-thirtieth the size it is now based on book value, when in 1990 it dropped 23 percent, compared with the 6.6 percent slide in the S&P 500. Since then, the S&P 500 has posted five annual losses and three advances of less than 5 percent. Berkshire beat the index in each of those eight years, except for 2005 when the company gained less than 1 percent compared with a 3 percent rise in the S&P 500.

“Our defense has been better than our offense,” Buffett said in the letter accompanying the 2009 annual report. Buffett, who highlights book value as a measure of performance rather than stock gains, said his firm has “consistently done better than the S&P” in years when the index has fallen.

Book Value

Berkshire’s book value, a measure of assets minus liabilities, rose 1.7 percent to $160 billion in the nine months ended Sept. 30, helped by the Burlington Northern Santa Fe railroad and units like toolmaker Iscar Metalworking Cos. The price-to-book ratio was about 1.2 on Dec. 31, higher than the third-quarter average of 1.1, according to data compiled by Bloomberg. Book value was $5.3 billion at the end of 1990.

Berkshire is the biggest shareholder of Wells Fargo & Co. (WFC) and New York-based American Express Co., both of which posted fourth-quarter gains. Wells Fargo, the San Francisco-based bank that is the biggest U.S. mortgage lender, fell 22 percent in the first nine months of the year, wiping more than $2 billion off of the market value of Berkshire’s stake.

Buffett, who built Berkshire through stock picks and insurance sales, has transformed the company by buying whole companies and adding businesses with large infrastructure like the railroad and a power producer. The shift, Buffett said in 2007, has made Berkshire’s book value less sensitive to declines in equity markets.

Expect to Outperform

“We, therefore, expect to outperform the S&P in lackluster years for the stock market and underperform when the market has a strong year,” Buffett said in Berkshire’s 2006 annual report, adding an entry to his list of business principles included in every year-end edition.

The earthquake and tsunami that struck Japan on March 11 contributed to $1.3 billion of after-tax catastrophe costs in the first nine months of the year, compared with about $500 million a year earlier. Losses on derivatives, used to bet on long-term stock gains and the creditworthiness of borrowers, widened 23 percent to $2.36 billion.

Buffett, who runs Berkshire with a staff of about 20 people at the company’s headquarters, has told investors the firm has a list of candidates capable of succeeding him at CEO. Sokol, a former chairman of Berkshire’s MidAmerican Energy Holdings, was seen by some, including Buffett biographer Andrew Kilpatrick, as a possible successor before he resigned.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

Read more...

World’s Biggest Economies Face $7.6T Debt

By Keith Jenkins and Anchalee Worrachate - Jan 3, 2012 5:22 PM GMT+0700

Skyscrapers including Tower 42, the Swiss Re, center, and Canary Wharf, right, are seen on the skyline in London, U.K. Photographer: Simon Dawson/Bloomberg

Play Video

Jan. 3 (Bloomberg) -- Governments of the world's leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs. The amount needing to be refinanced increases to more than $8 trillion when interest payments are included. Linda Yueh reports on Bloomberg Television's "First Look" with Caroline Hyde. (Source: Bloomberg)

Enlarge image

St. Peter's Basilica stands on the skyline in Rome. Italy auctioned 7 billion euros ($9.1 billion) of debt on Dec. 29, less than the 8.5 billion euros targeted. Photographer: Alessia Pierdomenico/Bloomberg

Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.

Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by year-end for at least seven of the countries, forecasts show.

Investors may demand higher compensation to lend to countries that struggle to finance increasing debt burdens as the global economy slows, surveys show. The International Monetary Fund cut its forecast for growth this year to 4 percent from a prior estimate of 4.5 percent as Europe’s debt crisis spreads, the U.S. struggles to reduce a budget deficit exceeding $1 trillion and China’s property market cools.

“The weight of supply may be a concern,” Stuart Thomson, a money manager in Glasgow at Ignis Asset Management Ltd., which oversees $121 billion, said in a Dec. 28 telephone interview. “Rather than the start of the year being the problem, it’s the middle part of the year that becomes the problem. That’s when we see the slowdown in the global economy having its biggest impact.”

Competition for Buyers

The amount needing to be refinanced rises to more than $8 trillion when interest payments are included. Coming after a year in which Standard & Poor’s cut the U.S.’s rating to AA+ from AAA and put 15 European nations on notice for possible downgrades, the competition to find buyers is heating up.

“It is a big number and obviously because many governments are still in a deficit situation the debt continues to accumulate and that’s one of the biggest problems,” Elwin de Groot, an economist at Rabobank Nederland in Utrecht, Netherlands, part of the world’s biggest agricultural lender, said in an interview on Dec. 27.

While most of the world’s biggest debtors had little trouble financing their debt load in 2011, with Bank of America Merrill Lynch’s Global Sovereign Broad Market Plus Index gaining 6.1 percent, the most since 2008, that may change.

Italy auctioned 7 billion euros ($9.1 billion) of debt on Dec. 29, less than the 8.5 billion euros targeted. With an economy sinking into its fourth recession since 2001, Prime Minister Mario Monti’s government must refinance about $428 billion of securities coming due this year, the third-most, with another $70 billion in interest payments, data compiled by Bloomberg show.

Rising Costs

Borrowing costs for G-7 nations will rise as much as 39 percent in 2011, based on forecasts of 10-year government bond yields by economists and strategists surveyed by Bloomberg in separate surveys. China’s 10-year yields may remain little changed, while India’s are projected to fall to 8.02 percent from about 8.39 percent. The survey doesn’t include estimates for Russia and Brazil.

After Italy, France has the most amount of debt coming due, at $367 billion, followed by Germany at $285 billion. Canada has $221 billion, while Brazil has $169 billion, the U.K. has $165 billion, China (PRCH) has $121 billion and India $57 billion. Russia has the least maturing, or $13 billion.

Rising borrowing costs forced Greece, Portugal and Ireland to seek bailouts from the European Union and IMF. Italy’s 10- year yields exceeded 7 percent last month, a level that preceded the request for aid from those three nations.

Bad Combination

“The buyer base for peripheral Europe has obviously shrunk at the same time that the supply coming to the market is increasing, which is not a good combination,” said Michael Riddell, a London-based fund manager at M&G Investments, which oversees about $323 billion.

The two biggest debtors, Japan and the U.S., have shown little trouble attracting demand.

Japan benefits by having a surplus in its current account, which is the broadest measure of trade and means that the nation doesn’t need to rely on foreign investors to finance its budget deficits. The U.S. benefits from the dollar’s role as the world’s primary reserve currency.

Japan’s 10-year bond yields, at less than 1 percent, are the second-lowest in the world, after Switzerland, even though its debt is about twice the size of its economy.

The U.S. attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold last year, the most since the government began releasing the data in 1992. The U.S. drew an all-time high bid-to-cover ratio of 9.07 for $30 billion of four-week bills it auctioned on Dec. 20 even though they pay zero percent interest.

Tougher Year

With yields on 10-year Treasuries (USGG10YR) below 2 percent, an increasing number of investors see little chance for U.S. bonds to repeat last year’s gains of 9.79 percent. The U.S pays an average interest rate of about 2.18 percent on its outstanding debt, down from 2.51 percent in 2009, Bloomberg data show.

‘Given how well they have done, we don’t think they’re any longer a very good hedge,” Eric Pellicciaro, head of global rates investment at New York-based BlackRock Inc., which manages $1.14 trillion in fixed-income assets, said in a Dec. 16 telephone interview.

The median estimate of 70 economists and strategists is for Treasury 10-year note yields to rise to 2.60 percent by year-end from 1.94 percent at 10:03 a.m. London time. In Japan, the forecast for the nation’s benchmark note yield is 1.35 percent, while it’s expected to rise to 2.50 percent in Germany, from 1.93 percent today.

Central Banks

Central banks are bolstering demand by either keeping interest rates at record lows or reducing them, and by purchasing bonds through a policy know as quantitative easing.

The Federal Reserve has said it will keep its target rate for overnight loans between banks between zero and 0.25 percent through mid-2013, and is now selling $400 billion of its short- term Treasuries and reinvesting the proceeds into longer-term government debt in a program traders dubbed Operation Twist.

The Bank of Japan has kept its key rate at or below 0.5 percent since 1995, and expanded the asset-purchase program last year to 20 trillion yen ($260 billion). The Bank of England kept its main rate at a record low 0.5 percent last month, and left its asset-buying target at 275 billion pounds ($426 billion).

The European Central Bank reduced its main refinancing rate twice last quarter, to 1 percent from 1.5 percent. It followed those moves by allotting 489 billion euros of three-year loans to euro-region lenders. That exceeded the median estimate of 293 billion euros in a Bloomberg News survey of economists. The central bank will offer a second three-year loan on Feb. 28.

‘Flush With Liquidity’

The money from the ECB may be used by banks to buy government bonds, according to Fabrizio Fiorini, the chief investment officer at Aletti Gestielle SGR SpA in Milan.

“The market is now flush with liquidity after measures taken by central banks, particularly the ECB, and that’s great news for risky assets,” Fiorini said in a telephone interview on Dec. 20. “The market will have no problem taking down supply from countries like Spain and Italy in the first quarter. In fact, they should be able to raise money at lower borrowing costs than what we saw in recent months.”

Italy’s sale last week included 2.5 billion euros of 5 percent bond due in March 2022, which yielded 6.98 percent. That was down from 7.56 percent at an auction Nov. 29. It also sold 9 billion euros of bills on Dec. 28 at a rate of 3.251 percent, compared with 6.504 percent at the previous auction on Nov. 25.

‘Phony War’

Investors should be most worried about the period after the ECB’s second three-year longer-term refinancing operation scheduled in February, according to Ignis’s Thomson.

“The amount of liquidity that has been supplied by central banks, with more to come from the ECB in February, suggests the first couple of months will be a sort of phony war as far as the supply is concerned,” Thomson said.

The ECB has bought about 212 billion euros of government bonds since starting a program in May 2010 to contain borrowing costs for Greece, Portugal and Ireland. It began buying Spanish and Italian debt in August, according to people familiar with the trades, who declined to be identified because they weren’t authorized to speak publicly about the transactions.

“There’s a lot of talk that the ECB might have to give more direct support to the governments,” Frances Hudson, who helps manage about $242 billion as a global strategist at Standard Life Investments in Edinburgh, said in a Dec. 22 telephone interview.

Following is a table of bond and bill redemptions and interest payments in 2012 for the Group of Seven countries, Brazil, China, India and Russia, in dollars, using data calculated by Bloomberg as of Dec. 29:

Country    2012 Bond, Bill Redemptions ($)      Coupon Payments
Japan             3,000 billion                   117 billion
U.S.              2,783 billion                   212 billion
Italy               428 billion                    72 billion
France              367 billion                    54 billion
Germany             285 billion                    45 billion
Canada              221 billion                    14 billion
Brazil              169 billion                    31 billion
U.K.                165 billion                    67 billion
China               121 billion                    41 billion
India                57 billion                    39 billion
Russia               13 billion                     9 billion

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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

Read more...

Hu Tells Magazine West Is Trying to Divide China by Using Cultural Weapons

By Bloomberg News - Jan 3, 2012 10:32 AM GMT+0700

The West is using cultural means to divide China (PRCH), which needs to be alert to this threat, President Hu Jintao said in a Communist Party magazine.

“International forces are trying to Westernize and divide us by using ideology and culture,” Hu wrote in an article in Qiushi. “We need to realize this and be alert to this danger.”

Many countries, especially Western powers, are attempting to expand their influence through cultural hegemony, and China must deepen and promote its own values of “socialism with Chinese characteristics,” Hu wrote in the article, which was published on the government’s website on Jan 1. China needs to strengthen its cultural values as it faces possible challenges from the West, he said.

Hu’s comments are part of a wider push by the party to reassert its influence over Chinese culture and society, including in television and the arts. China’s leaders are grappling with the best way to manage Twitter-like social-media sites such as Sina Corp (SINA).’s Weibo service that are hard for government censors to control.

The Communist Party’s Central Committee said it will supervise the world’s biggest online community more closely, promote “constructive” websites and punish the spread of “harmful information,” according to a communique from its Oct. 15-18 meeting released by the official Xinhua News Agency.

Members of the party’s Politburo visited web companies after a deadly train crash in July. Internet users criticized the government’s handling of the crash and spread commentary and photos of the accident at odds with the official line.

Competitive Edge

The Central Committee’s communique also focused on television, with the Communist Party vowing to “promote more fine literary and artistic works” in fields such as television, movies and photography.

That coincided with an announcement that new limits would be imposed on the number of “overly entertaining and vulgar” reality and talent shows aired on television. Starting this year, the nation’s 34 satellite channels must limit themselves to two such programs every week, according to an Oct. 25 statement on China’s State Administration of Radio, Film and Television’s website.

In a globalized world in which people are exposed to many ideologies and values, the country with the most cultural influence will gain a competitive advantage, Hu wrote.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

Read more...

Dollar Demise Refuted With 13% Gain Since 2008

By Liz Capo McCormick - Jan 3, 2012 4:46 PM GMT+0700

Moves by the Federal Reserve to flood the world with dollars are doing little to dent the currency’s value, bolstering the appeal of U.S. assets at a time when the government needs the support of foreign investors the most.

The U.S. Dollar Index (DXY) has appreciated 13 percent from a record low in March 2008 even as the Fed kept interest rates at about zero and printed cash to buy $2.3 trillion (FARBAST) of Treasury and mortgage-related bonds, and is little changed since 1991. The International Monetary Fund said Dec. 30 that the greenback’s share of global foreign-exchange reserves rose in the third quarter by the most since 2008.

That long-term stability shows America’s currency is a store of value and may help explain why the U.S. is attracting record demand for the unprecedented amount of bonds (DEBPMARK) the Treasury Department is selling to finance a budget deficit exceeding $1 trillion. Even though Standard & Poor’s stripped the U.S. of its AAA rating in August, investors see the nation as a refuge from slower global economic growth and Europe’s sovereign-debt crisis.

“The safe-haven function of the dollar is still alive,” said Achim Walde, head of global fixed income and currencies at Deutsche Bank AG’s Cologne, Germany-based Sal. Oppenheim private-wealth manager, which oversees 3 billion euros ($3.9 billion). “The dollar will be strong in 2012,” he said in a telephone interview on Dec. 29.

Currency Correlation

IntercontinentalExchange Inc.’s Dollar Index, which tracks the currency against the euro, yen, pound, Swiss franc, Canada dollar and Swedish krona, rose 1.46 percent last year. That followed a gain of 1.5 percent in 2010, marking the first time it advanced two years in a row since 2000-2001.

The Dollar Index weakened 0.5 percent to 79.916 at 9:43 a.m. London time. The gauge is up from 70.698 in March 2008 and compares with 1991’s low of 80.34. The dollar appreciated 1.11 percent last year, the most after the yen’s 5.5 percent climb among 10 developed-nation peers as measured by Bloomberg Correlation-Weighted Indexes. The indexes show that since 1975, only the yen and Swiss franc have done better than the dollar.

The performance counters officials in China, Germany and Brazil who said that the Fed’s policies were weakening the dollar. House Speaker John Boehner of Ohio and three other Republicans sent Fed Chairman Ben S. Bernanke a letter in 2010 expressing “deep concerns” about the central bank’s plan to print money to buy bonds, saying it risked weakening the dollar and fueling asset bubbles.

Europe Crisis

That was before Europe debt crisis spread, sparking demand for the safest of assets.

Russia is now unlikely to reduce the share of U.S. assets in its international reserves, President Dmitry Medvedev’s chief economy aide, Arkady Dvorkovich, said in an interview outside Moscow on Dec. 27. The nation boosted dollars to 45.4 percent of its reserves as of June 30 from 45.3 percent three months earlier, its central bank said in a report published on Dec. 27.

For the first half of 2012, “the dollar continues to look appealing,” said Manoj Ladwa, a London-based senior trader at ETX Capital, which provides services including currency trade execution, in a Dec. 29 telephone interview. “In the second half we could have something resembling a global recovery, with potentially a bottom to this euro-zone crisis and further clarification from China on how hard or soft the landing will be. Money could then shift back away from the dollar and into riskier assets.”

Global Reserves

The U.S. dollar’s share of global foreign-exchange reserves climbed in the third quarter to 61.7 percent, the highest (CCFRUSD%) since late 2010, while holdings of euros (CCFREUR%) fell to a three-year low of 25.7 percent, according to figures from the Washington-based IMF quarterly data.

While the dollar is up since 2008, it’s down 34 percent from its highs a decade ago, IntercontinentalExchange’s index shows. The Fed’s Trade-Weighted Real Broad Dollar Index (USTRBROA) that tracks it against those of 38 countries shows the dollar has depreciated 15 percent from its average in 1973, the year global currencies began freely floating.

The dollar has been the world’s reserve currency since the U.S. and allies agreed at the 1944 Bretton Woods conference to peg it to a rate of $35 per ounce of gold. It remained the most- traded legal tender after global currencies began freely floating in 1973, accounting for 85 percent of the $4 trillion per day foreign-exchange market, according to the Basel, Switzerland-based Bank for International Settlements.

Japan-China Accord

The currency’s value peaked in 1985 before finance ministers from the world’s largest economies forged the Plaza Accord, agreeing to weaken the dollar to reduce a record U.S. current-account deficit, the broadest measure of trade because it includes investment.

While the dollar’s shares of the more than $10 trillion in global reserves has increased, it has tumbled from a peak of 72.7 percent in 2001.

Some nations are seeking ways to reduce dollar dependence. Japan and China said last month they will promote direct trading of the yen and yuan and will encourage the development of a market for companies involved in the exchange rates.

The appeal of U.S. financial assets can be seen in the market for Treasuries, which gained 9.8 percent, the most since 2008 at the height of the financial crisis. Treasuries due in 10 years or more soared 29 percent.

Foreign Holdings

The Treasury Department attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold last year, the highest bid-to-cover ratio since the government began releasing the data in 1992 during the George H. W. Bush administration, according to data compiled by Bloomberg. The U.S. drew an all- time high ratio (USB4WBC) of 9.07 for $30 billion of four-week bills it auctioned on Dec. 20 even though they paid zero interest.

The amount of Treasuries held by foreigners has surged, with holdings (HOLDTOT) rising to a record $4.66 trillion in September from $4.44 trillion at the end of 2010 and $3.69 trillion in December 2009, the latest government data show.

“The U.S. dollar was recognized as really the ultimate source of liquidity in terms of the very uncertain conditions in the euro-zone,” said Stewart Hall, senior currency strategist at Royal Bank of Canada in Toronto in a telephone interview on Dec. 28. “You’ve also got a U.S. economic growth dynamic that is throwing off a little bit of a feel good story that is not the case in Europe and in Asia.”

Economies Decouple

The value of the dollar will hold steady over the next year versus peers including the euro, yen, and U.K. pound, according to strategists and economists surveyed by Bloomberg.

Demand for American assets is increasing as consumer confidence, manufacturing and employment show the U.S. is strengthening as Europe struggles to save its currency union and the developed world weakens. U.S. gross domestic product will expand 2.1 percent next year, compared with 1.25 percent for all Group of 10 nations, Bloomberg surveys of economists show.

“In 2012, I believe the stronger U.S. data -- a relatively better performing U.S. economy -- will be a dollar positive,” Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley, said in a Dec. 23 interview with Owen Thomas on Bloomberg Television’s “The Pulse.”

Balance Sheets

A stronger U.S. economy is boosting speculation that the Fed won’t need to undertake a third round of bond purchases, or quantitative easing, as central banks elsewhere expand their balance sheets to counter slowing economies.

The ECB’s balance sheet expanded to a record 2.73 trillion euros, and its lending to euro-area banks jumped 214 billion euros to 879 billion euros in the week ended Dec. 23, the Frankfurt-based central bank said in a statement on Dec. 28. Its holdings were 553 billion euros more than three months ago.

The Bank of Japan expanded its asset-purchase program three times last year, to 20 trillion yen ($260 billion). The Bank of England has left its asset-buying target at 275 billion pounds ($429 billion).

“We have favored stronger dollar positions given our Fed is essentially on hold and the U.K., Euro-zone and Japanese central banks are in expansive phases,” David Kotok, the chief investment officer of Sarasota, Florida-based Cumberland Advisors, which manages about $1.8 billion, said in a telephone interview on Dec. 28. “The U.S. economy seems to be growing at a slow but steady pace and improving, while inflation is not a threat.”

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

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

Read more...

Asia Stocks Advance on Regional Optimism

By Jonathan Burgos - Jan 3, 2012 8:45 AM GMT+0700

Play Video

Jan. 3 (Bloomberg) -- Sean Fenton, a portfolio manager at Tribeca Investment Partners in Sydney, talks about Australia's economy, stock market, and central bank monetary policy. Australian manufacturing expanded for the first time in six months in December, driven by gains in basic metals, transport and publishing, a private survey showed. Fenton speaks with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)

Asian stocks (MXAPJ) rose as manufacturing growth from Australia, China and India added to optimism the region’s economies will withstand Europe’s unresolved sovereign- debt crisis.

Samsung Electronics Co., a South Korean exporter of consumer electronics that counts China as its biggest market, climbed 1.8 percent in Seoul. BHP Billiton Ltd. (BHP), the world’s largest mining company that receives 28 percent of sales from China, increased 1.7 percent in Sydney. Industrial & Commercial Bank of China Ltd., the world’s NO. 1 lender by market value, advanced 1.5 percent as trading in Hong Kong resumed.

“Positive economic data provide a catalyst for a small new-year rally,” said Pauline Dan, Hong Kong-based chief investment officer at Samsung Asset Management, which oversees about $72 billion. “We’ll probably see more headwinds from Europe as large amounts of debt from countries such as Italy are due for refinancing.”

The MSCI Asia Pacific Excluding Japan Index (MXAPJ) gained 1.3 percent to 397.22 as of 9:43 a.m. in Hong Kong, poised for its biggest advance since Dec. 21. About seven stocks rose for each that fell in the gauge. The measure posted its first annual decline in three years in 2011 as China took steps to cool its property market and Europe struggled to resolve its debt crisis.

Australia’s S&P/ASX 200 Index (AS51) rose 1.1 percent, while South Korea’s Kospi Index climbed 2 percent. Singapore’s Straits Times Index rose 0.6 percent even as the city-state’s economy shrank for the second time in three quarters.

Hong Kong’s Hang Seng Index advanced 1.6 percent. Japanese and Chinese markets are closed today for a holiday.

U.S. Hiring

The Standard & Poor’s 500 Index (SPX) slipped 0.4 percent on Dec. 30 as concern over Europe’s debt crisis overshadowed optimism that the U.S. economy will expand in 2012. Hiring probably accelerated in December for a second month, a sign an improving U.S. labor market will bolster consumer spending in early 2012, economists said before a report on Jan. 6.

Manufacturing in India and China improved in December, while Australian output expanded for the first time in six months, separate surveys showed. Data due out today may show production in American factories climbed to a six-month high in December, according to economists surveyed by Bloomberg News.

The MSCI Asia Pacific Index (MXAP), which includes Japan, lost about $1.5 trillion in 2011 amid concern Europe’s debt crisis will drag the global economy into recession. Stocks on Asia’s benchmark index were valued at 12.6 times estimated earnings on average, compared with 12.7 times for Standard & Poor’s 500 Index and 9.9 times for the Stoxx Europe 600 Index.

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

Read more...

BP Seeks Recovery of Spill Damages From Halliburton

By Laurel Brubaker Calkins - Jan 3, 2012 8:45 AM GMT+0700

BP Plc (BP/) seeks to have Halliburton Co. (HAL), its cement contractor for the Macondo well project whose blowout set off the 2010 Gulf of Mexico oil spill, pay all of the oil company’s related costs and damages.

BP had paid more than $21 billion in cleanup costs and economic damages to individuals, businesses and governments harmed by the spill as of Dec. 1, the company said on its website. BP reserved more than $40 billion to cover costs related to the sinking of the Deepwater Horizon drilling rig (RIG).

The oil company seeks “the amount of costs and expenses incurred by BP to clean up and remediate the oil spill, the lost profits from and/or diminution in value of the Macondo prospect, and all other costs and damages incurred by BP related to the Deepwater Horizon incident and resulting oil spill,” Don Haycraft, BP’s lead trial attorney, said in a filing yesterday in federal court in New Orleans.

BP and Halliburton accuse each other’s employees of making critical mistakes that caused the blowout of the London-based oil company’s well off the Louisiana coast in 2010. The explosion aboard the Deepwater Horizon killed 11 workers and caused the worst offshore spill in U.S. history.

500 Lawsuits

BP, which owned the Macondo lease, and Halliburton, which provided well-completion services for the project, jointly face more than 500 lawsuits by coastal property owners, businesses and governments claiming billions of dollars in damages from the drifting oil. The lawsuits have been combined for pretrial processing in federal court in New Orleans, where a judge is scheduled to begin a trial in February to determine liability for the spill.

Halliburton, based in Houston, has said in court papers that its cementing-services contract requires BP to indemnify it from all damage claims, even if its employees were found to have shared blame for the disaster.

BP, rejecting that argument, accused Halliburton in yesterday’s filing of gross negligence. That level of misconduct “will suffice to eliminate any indemnity obligation for damages of any kind,” Haycraft said in the filing.

Halliburton has said in court filings that the actions of BP’s employees caused the explosion on the rig.

“Halliburton believes it is fully indemnified by BP against any loss resulting from the Macondo incident and any penalties arising from the violations,” Beverly Stafford, a spokeswoman for the company, said yesterday in an e-mail.

Transocean, Mitsui (8031)

The defendants in the lawsuits over the spill also include Switzerland-based Transocean Ltd. (RIG), the owner of the Deepwater Horizon; Cameron International Corp. (CAM), the maker of the blow-out prevention equipment used on the well; Anadarko Petroleum Corp. (APC), which owned 25 percent of the Macondo prospect; and Mitsui & Co.’s Moex Offshore LLC unit, which owned a 10 percent stake in the well.

Cameron, Anadarko and Mitsui have reached settlements with BP. Transocean, along with Halliburton, hasn’t.

The case is In Re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com

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

Read more...

Singapore Economy Shrinks as Manufacturing Eases

By Shamim Adam - Jan 3, 2012 7:33 AM GMT+0700

Singapore’s economy shrank for the second time in three quarters as manufacturing eased, increasing pressure on policy makers to spur growth as they forecast slower expansion this year.

Gross domestic product (SGDYTY) fell an annualized 4.9 percent in the fourth quarter of 2011 from the previous three months, when it climbed a revised 1.5 percent, the trade ministry said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 5 percent contraction. The economy grew 4.8 percent in 2011 and may expand 1 percent to 3 percent this year, Prime Minister Lee Hsien Loong said Dec. 31.

A faltering global economy has eroded demand for goods made on the island, forcing policy makers to juggle protecting growth with containing inflation in the city of 5.2 million people. The nation’s currency fell 3.2 percent in the past two months after the Monetary Authority of Singapore, which uses the exchange rate to manage inflation, eased its policy stance last quarter while the government took steps to cool the property market.

“Manufacturing and services will continue to be quite weak, and won’t prove supportive of the economy,” said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore. “We may see a technical recession later this year. There is a possibility of more easing in April” when the central bank next reviews its monetary policy stance, she said.

The Singapore dollar, the fourth-worst performer in the past six months among 10 Asian currencies tracked by Bloomberg, rose 0.3 percent to S$1.2936 against its U.S. counterpart at 8:32 a.m. local time today. It weakened about 5.3 percent in the second half of 2011.

Rate Cuts

Asian nations from Thailand to Indonesia have reduced interest rates to shield their economies from the protracted European sovereign-debt crisis. Taiwan’s central bank left borrowing costs unchanged for a second straight quarter last week, while the People’s Bank of China said it will maintain a “prudent” monetary stance and “ensure the continuity and stability” of policy in 2012.

Singapore’s growth will “inevitably be affected” this year in a “difficult” global economy, Prime Minister Lee said in a New Year message.

“The external environment is uncertain,” Lee said Dec. 31. “Debt problems in Europe are far from solved.”

The MSCI Asia Pacific Index (MXAP) of stocks slumped about 17 percent last year, halting a two-year rally in equities. Singapore’s benchmark Straits Times Index (FSSTI) dropped by a similar amount in the same period, led by Neptune Orient Lines (NOL) Ltd., Southeast Asia’s biggest container carrier, commodity-trading company Noble Group Ltd. and CapitaMalls Asia Ltd. (CMA), an owner of shopping malls across the region.

Inflation Forecast

GDP increased 3.6 percent from a year earlier last quarter, after rising a revised 5.9 percent the previous three months. The expansion was slower than the median forecast of 4.3 percent in a Bloomberg survey.

The island’s inflation was 5.7 percent in November, matching the fastest pace since 2008. Consumer-price gains (SICPIYOY) are forecast by the monetary authority to average 2.5 percent to 3.5 percent in 2012 from about 5 percent last year.

The central bank had tightened monetary policy at each of the three half-yearly reviews before its October decision to slow gains in the currency while continuing with a modest and gradual appreciation. It guides the local dollar against a basket of currencies within an undisclosed band, and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

Container Port

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait and home to the world’s second- busiest container port, has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts the financial services and tourism industries to cut its reliance on exports.

Manufacturing rose 6.5 percent from a year earlier in the three months ended Dec. 31, after climbing a revised 13.4 percent in the third quarter, the trade ministry said today.

The services industry grew 3.2 percent last quarter from a year earlier, after gaining 3.7 percent in the previous three months. The construction industry expanded 1.7 percent, compared with a revised 0.5 percent increase in the quarter through September.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Read more...

Teva’s New Chief Levin May Bolster Branded Drugs as Copaxone Threat Looms

By Naomi Kresge - Jan 3, 2012 12:19 AM GMT+0700

After helping Bristol-Myers Squibb Co. (BMY) acquire new drugs in a bid to offset the expected loss of revenue from its top-selling blood thinner Plavix, Teva Pharmaceutical Industries Ltd. (TEVA)’s chief executive officer- designate Jeremy Levin faces the same task at the Israeli drugmaker.

Levin, 58, will replace retiring Teva CEO Shlomo Yanai, 59, in May, the Petach Tikva-based company said yesterday. Teva, the world’s biggest maker of generic drugs, needs new sources of sales as its No. 1 drug, a branded multiple sclerosis medicine called Copaxone, faces competition from newer treatments.

Yanai is stepping down after Teva’s shares (TEVA) last year plunged the most since 2006. A former Israeli army general with no previous pharmaceutical experience, he sought to broaden Teva’s portfolio of innovative medicines with the $6.5 billion acquisition of U.S. biotechnology company Cephalon Inc. last year, then told investors in December that Teva may not meet its long-term target of $31 billion in sales by 2015.

“He’s the perfect guy for this,” Ori Hershkovitz, a Tel Aviv-based partner at Sphera Funds Management Ltd., said of Levin in a phone interview yesterday. “If Jeremy can do one or two good product selections as he has done in the past for Bristol-Myers, that will be very, very good for Teva.” Sphera owns Teva shares.

Teva rose 3.3 percent to 160.60 shekels at the close in Tel Aviv yesterday, the stock’s biggest increase in two months. The more actively traded American depositary receipts lost 21 percent in 2011 including reinvested dividends, compared with (TEVA) an 11 percent return for the Bloomberg EMEA Pharmaceuticals Index.

‘Orderly Transition’

Levin, a Cambridge University-educated physician who worked at New York-based Bristol-Myers as senior vice president for strategy, said in a press conference in Tel Aviv yesterday that he will work closely with Yanai to achieve an “orderly transition.”

“There are some parallels between Bristol-Myers from a few years ago and Teva,” Les Funtleyder, a New York-based portfolio manager for Miller Tabak & Co., said in an e-mail yesterday. “BMY had to come up with a new strategy to deal with slow sales and looming patents.”

At Bristol-Myers, Levin helped oversee the so-called “string of pearls” policy of partnerships and smaller acquisitions to replace revenue that will be lost when Plavix, a blood thinner, faces generic competition in the U.S. this year. Analysts predict the drug had $7.2 billion of sales in 2011, based on the average of three estimates (BMY) compiled by Bloomberg.

Potential Targets

Fruits of the policy include Yervoy, a skin cancer drug gained in the 2009 acquisition of Medarex Inc (MEDX)., Hershkovitz said. The strategy has generated 17 acquisitions and agreements with smaller companies so far.

Levin also handed off drugs Bristol-Myers didn’t plan to develop itself to partner companies in emerging markets, in what he described as an “oyster plan” to build its partners into potential acquisition targets.

“The oysters are being seeded to help create innovation,” Levin said in an interview last month, comparing the Bristol- Myers strategy to the process used to create pearls. “What you’re hoping is that they’ll create an engine of innovation, and then we can do a transaction. Over the years to come, we’ll position ourselves as partners of choice.”

Bristol-Myers won’t change its string-of-pearls strategy, Jennifer Mauer, a spokeswoman for the New York-based drugmaker, said in a phone interview. “We have a very strong and experienced team in that role,” she said. “Business development remains a priority.” Levin left the company Jan. 1, she said.

‘His Decision’

Teva started looking for Yanai’s replacement during the course of last year, Chairman Phillip Frost said at a news conference in Tel Aviv today. He declined to be more specific.

Yanai wasn’t asked to retire, said Denise Bradley, a Teva spokeswoman. “Shlomo came to the board with his decision, and the board accepted it, appreciating his considerable contributions to Teva but recognizing his desire to move on,” Bradley said by e-mail.

“The time has come to start a new path,” Yanai said at the news conference. “I intend to use all my knowledge, ability and experience for the good of Israel’s industry, economy and society.”

Yanai is considering both public and private possibilities, Frost said. The executive may be weighing an entry into politics, Gilad Alper, a Tel Aviv-based analyst for Excellence Nessuah Brokerage, said in an e-mail yesterday.

Conference Call

Teva plans a conference call for analysts at 8:30 a.m. New York time today.

Teva announced Dec. 21 it would buy back as much as $3 billion of its shares to return money to investors. The $31 billion sales goal for 2015 is “aspirational,” Yanai said then.

Analysts suggested the share buyback might herald a pullback from a streak of acquisitions that in recent years included Germany’s Ratiopharm GmbH and Barr Pharmaceuticals Inc. of the U.S.

Teva said last month sales of Copaxone probably will peak this year at $3.8 billion. The injected MS drug accounted for 24 percent of Teva’s $4.34 billion of revenue in the third quarter.

Copaxone contributes as much as 40 percent of Teva’s earnings, Alper said by phone. “The company will need to do something dramatic relatively quickly.”

Novartis Competition

The medicine is already facing competition from Novartis AG’s Gilenya, the first oral drug for MS. Biogen Idec Inc. (BIIB) reported that its own experimental MS pill, BG-12, is safe and reduces the risk of relapses in a late-stage trial in October. BG-12 may generate as much as $3 billion in annual sales, according to analysts with RBC Capital Markets in San Francisco.

Meanwhile, Teva’s own experimental MS pill, laquinimod, disappointed in two trials last year.

The South African-born Levin was global head of business development and strategic alliances at Novartis from 2003 to 2007. He has worked as a practicing physician and has a medical degree from Cambridge and a doctorate from Oxford University in molecular biology, according to the statement. Levin is a citizen of both the U.S. and the U.K.

To contact the reporter on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

Read more...

Cablevision Entices Buyers With Low Value

By Alex Sherman and Rita Nazareth - Jan 3, 2012 5:00 AM GMT+0700

Cablevision Systems Corp. (CVC) is now the cheapest U.S. cable or satellite-television provider for potential acquirers from Time Warner Cable Inc. to Comcast Corp. (CMCSA) following the resignation of its chief operating officer.

After COO Tom Rutledge stepped down last month, Cablevision shares tumbled to the lowest level relative to free cash flow since April 2009, making it less expensive than any rival with a market value greater than $1 billion, according to data compiled by Bloomberg. The Bethpage, New York-based company and its controlling shareholder, the Dolan family, would demand more than $23 a share in an acquisition, said Albert Fried & Co., or a 62 percent premium to last week’s closing stock price (CVC).

Even at $23 a share, Cablevision would be valued at 7 times earnings before interest, taxes, depreciation and amortization in the past 12 months, the industry’s lowest takeover multiple for a publicly traded target on record, data compiled by Bloomberg show. While ISI Group says the Dolans may try again to take the company private after failed attempts over the last six years, Cablevision’s 3.63 million customers may also attract Time Warner Cable (TWC), Comcast or Charter Communications Inc., said Solaris Group LLC and Gamco Investors Inc.

“At this valuation level, it becomes something that investment banks will look at and try to encourage a bid,” Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York, said in a telephone interview. “It’s very attractive. There are advantages to combining with other systems that would benefit margins at this company, make it more profitable.”

Rutledge’s Resignation

Kim Kerns, a spokeswoman for Cablevision, Alex Dudley, a spokesman for New York-based Time Warner Cable, Jennifer Khoury, of Philadelphia-based Comcast, and Anita Lamont, for Charter of St. Louis, declined to comment on market speculation.

Rutledge, 58, who had worked at Cablevision since 2002, announced his resignation on Dec. 15 for undisclosed reasons, pushing the shares down 8.5 percent the next day. He had transformed Cablevision into a company focused on cable infrastructure after the spinoffs of Madison Square Garden Co. and AMC Networks Inc. (AMCX) in the past two years.

Charter (CHTR), the fourth-largest U.S. cable provider by subscribers, named Rutledge chief executive officer less than a week later. Cablevision is the fifth-biggest cable operator.

‘In Play’

The day after Rutledge’s exit was announced Cablevision shares fell to 4.7 times free cash flow, the lowest since reaching 4.6 times in April 2009 during the longest U.S. recession since the Great Depression. The stock closed last week at $14.22, or 5.21 times free cash flow (CHTR), making it the cheapest U.S. cable or satellite-TV provider with a market value greater than $1 billion, data compiled by Bloomberg show. The industry trades at a median multiple of 8.63.

“The recent COO departure could put this company in play given the substantial drop in the share price that occurred,” Todd Lowenstein, a portfolio manager who helps oversee about $16 billion for Highmark Capital Management Inc., said in a phone interview from Los Angeles. “The COO was considered one of the best executives in the cable industry. What that means for the company’s future? That’s what the market’s asking.”

Cablevision, led by CEO Jim Dolan, 56, has dropped 44 percent (CVC) since spinning off AMC on June 30, compared with a 4.8 percent decline for the Standard & Poor’s 500 Index. (SPX)

A buyer would have to offer more than $23 a share to avoid pushback from shareholders, said Richard Tullo, an analyst at Albert Fried in New York. A deal at that price would value Cablevision’s equity at $6.55 billion, plus the assumption of $10.2 billion in net debt (CVC).

‘Vast Gulf’

At 7 times Cablevision’s Ebitda of $2.4 billion in the past 12 months, it would be the cheapest takeover on record of a publicly traded U.S. cable or satellite-TV company, data compiled by Bloomberg show. Deals in the industry have been completed at a median of 18.5 times, the data show.

“Cablevision has to consider strategic alternatives,” Tullo said in a phone interview. “Going private or selling the company are both viable scenarios. As far as price, there’s a balance that needs to be struck with the reality of the situation and what shareholders will accept.”

David Joyce, an analyst at Miller Tabak & Co. in New York, said the hurdle to gain support from the Dolans may be closer to $30 a share. That would be more than double the current stock price and value the company at 7.8 times Ebitda, the data show.

“They can be patient, and they won’t be selling it for $15 a share,” Joyce said in a phone interview. “The Dolans aren’t going to leave a whole lot of value on the table. There’s a vast gulf between what they feel the company is worth and what the market is saying.”

‘Crown Jewel Asset’

Buying Cablevision makes the most sense for Time Warner Cable because of overlapping sales forces and technicians in the region, Vijay Jayant, an analyst at ISI Group in New York, said in a phone interview. Time Warner Cable could lower costs by cutting jobs, consolidating the companies’ master facilities for receiving TV signals and reducing programming fees, Jayant said.

“Time Warner is probably the natural player and could probably bid the highest,” said Highmark’s Lowenstein. “It’s a crown jewel asset. You’re not buying a rough-cut diamond.”

Comcast and Charter may also be interested buyers, Chris Marangi, a fund manager at Gamco in Rye, New York, said in a phone interview. A deal would increase scale, giving them more leverage in future programming negotiations with cable and broadcast networks. Gamco oversees about $35 billion, including about 15 million shares (CVC) of Cablevision.

Limited Growth

The question is timing, Marangi said, as Time Warner Cable’s $3 billion acquisition of Insight Communications Co. is pending, Comcast is still focused on integrating NBC Universal and Charter just introduced Rutledge as CEO.

Limited growth prospects may hamper the multiple Cablevision can fetch in an acquisition, said Jayant. The company added almost 300,000 subscribers when it acquired Bresnan Communications Co. in 2010. Without Bresnan, Cablevision’s video customers have fallen 2 percent since 2005.

While Cablevision has gained market share in New York, northern New Jersey and Connecticut, there’s little more the company can do to expand its customer base, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York.

Verizon Communications Inc. (VZ) has built out its FiOS TV network to overlap with more than 40 percent of households in Cablevision’s New York metropolitan area, according to Cablevision’s regulatory filings. Verizon has also run promotions to recruit Cablevision’s customers in recent years.

Waiting to Sell

The Dolans, who own about 21 percent of the shares outstanding and control more than 70 percent of the voting power through a dual-class stock structure (CVC), may prefer to take the company private, Jayant said. Maintaining control of the company founded by 85-year-old Chairman Charles Dolan may still be a top priority for the family, he said.

“One theory is that first Cablevision goes private and it waits to sell itself,” Marangi said. “If you take it private, you stabilize the situation with management, you wait until you’ve got three good strategic buyers, and then you run an auction.”

It wouldn’t be the family’s first buyout attempt. In 2005, the board rejected the Dolans’ offer to buy the company for about $7.9 billion, or $33.50 a share. The family tried again in October 2006 and increased the bid twice before reaching a deal in May 2007 for $10.6 billion, or $36.26 a share. Investors Gamco, Clearbridge Advisors and T. Rowe Price Group Inc. then joined together to defeat the proposal.

“In hindsight, those prices the Dolans offered a few years back look like great prices,” Tullo said. Now, “Charles Dolan is very old. I’d say they’d be more likely to sell than go private.”

‘Solid Company’

The family’s prior takeover attempts valued the company at as much as 15 times Ebitda, data compiled by Bloomberg show. Now, a rival cable operator could offer a 100 percent premium and pay only half that multiple.

“It’s a solid company,” said Ghriskey of Solaris Group. “It’s generating a really good dividend for shareholders, including the Dolans. They don’t necessarily have to do anything here. If somebody steps up and offers them a huge amount of money, great. It could be that a competitive company like Time Warner, Comcast or Charter might step in at this valuation level.”

To contact the reporters on this story: Alex Sherman in New York at asherman6@bloomberg.net; Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net.

Read more...

German President Comes Under Scrutiny as Newspaper Phone Call Is Disclosed

By Patrick Donahue - Jan 3, 2012 12:06 AM GMT+0700

German President Christian Wulff came under increased scrutiny after reports that he telephoned a newspaper editor in an effort to block a story revealing a private home loan he received in 2008.

Bild, Germany’s most-read newspaper, said the president called its editor, Kai Diekmann, on Dec. 12 and left a voice- mail message expressing anger at the forthcoming story and threatening legal action. Wulff called Diekmann back two days later and apologized for the tone and substance of the previous call, Bild said in an e-mailed statement today.

The president’s office in Berlin didn’t respond to three phone calls seeking comment. Wulff declined to comment on individual discussions or telephone conversations, saying that media freedom is a “great value,” Deutsche Presse-Agentur reported.

Bild reported Dec. 13 that Wulff negotiated a 500,000 euro ($646,000) loan from the wife of a businessman friend to pay for a new home when he was Lower Saxony state premier. Wulff apologized for not revealing the loan last month in a bid to calm criticism that risks becoming a distraction to Chancellor Angela Merkel. Both Merkel and Wulff are from the Christian Democratic Union party.

Wulff was elected to the largely ceremonial office in 2010 with the backing of Merkel’s coalition after his predecessor, Horst Koehler, unexpectedly quit. The leader of the opposition Social Democrats, Sigmar Gabriel, said last week that two presidential resignations in as many years would lead to a “state crisis.”

‘Critical Reporting’

“Christian Wulff needs to clarify things as quickly as possible without raising new questions again and again,” Hubertus Heil, the SPD’s deputy chairman, said in a statement today. He also said Wulff shouldn’t try to block critical reporting.

Bild said the phone call to its editor occurred after Wulff had prepared a statement regarding the credit for Bild to publish, only to retract it before the newspaper’s deadline. The newspaper said it decided not to report on the call after a “broad newsroom debate.”

Lower Saxony Green Party legislators in 2008 questioned Wulff’s ties to the lender’s husband, Egon Geerkens, and a company in which he had a stake. Wulff initially said he had answered properly in saying that he had no business deal with Geerkens. In a Dec. 22 press conference in Berlin, Wulff said that while his response to the inquiry adhered to the law, “not everything that is legally correct is right.”

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

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

Read more...

Ex-Lawyer Rothstein Testifies Fund Executives Aided Ponzi Scheme

By Susannah Nesmith - Jan 3, 2012 2:42 AM GMT+0700

Scott Rothstein, the Florida lawyer sentenced to 50 years in prison for running a $1.2 billion Ponzi scheme, said officials at three Manhattan hedge funds helped him prop up the fraud in its final months, according to transcripts of a court deposition.

Rothstein, 49, said his scheme began to collapse early in 2009, when he could no longer pay customers. Officials at Platinum Partners Value Arbitrage, Centurion Structured Growth LLC, and Level 3 Capital Fund agreed not to tell potential new investors he failed to make payments to them, he testified.

“The funds were going to give us a positive credit rating,” he said in testimony released Dec. 28. “We were going to use as much of the new money coming in to pay them off, and in fact that’s what we did.” Rothstein was later asked about “false exculpatory e-mails” he had sent to co-conspirators. Eliot Lauer, a lawyer for Platinum and Centurion, asked Rothstein if he was correct in saying no such e-mails were sent to the hedge funds. Rothstein told Lauer he “did not consider your clients to be co-conspirators.”

Rothstein, who has been disbarred, was questioned with the approval of U.S. Bankruptcy Judge Raymond B. Ray in Fort Lauderdale, Florida, on how the scheme worked and who knew about it, as victims seek money from those with knowledge of the fraud.

Behind Closed Doors

The questioning took place behind closed doors in a Miami courtroom. Transcripts are being released on the website of the plaintiffs’ law firm Conrad & Scherer.

Rothstein said that, in hopes of a reduced sentence, he was telling prosecutors about everyone involved in his scheme and about police officers and others whom he bribed with cash or encounters with prostitutes.

A recommendation from Centurion, Platinum and Level 3 would have been a lie because he had stopped paying them, Rothstein said. He said Meir Nordlicht, Platinum’s chief investment officer, and Jack Simony, a portfolio manager, agreed to help.

“My only concern was that, at the end of the day, they would lie for us,” Rothstein said. “That was my concern. They didn’t want this to blow. I didn’t want it to blow up. I had been assured by Mr. Simony and Mr. Nordlicht that they would not let it blow up.” Ray Casas, a spokesman for the funds, said Rothstein gave inconsistent accounts and the executives didn’t lie about the fraud.

‘Absolutely False’

“Mr. Rothstein’s claims that the funds or their managers would lie for him are absolutely false and are flatly inconsistent with his unequivocal statement that the funds were not his co-conspirators,” Casas said Dec. 29 by e-mail. “He admits he has no knowledge that anyone at the funds lied for him, and not a single one of the dozens of investors in Rothstein’s scheme has said that the funds recommended the investment to them.”

Rothstein, Casas said, “also complained to one of his alleged co-conspirators -- but not the funds -- that the funds were refusing to talk to new investors. This is not the conduct of a hedge fund looking to lure in new investors.”

Casas cited an exchange in which Lauer, the fund lawyer, questioned Rothstein about a conversation with Nordlicht.

“Your best recollection is that if prospective investors or new investors would contact him, he would not give it a bad rating?” Lauer asked.

‘The Right Thing’

“No, he said he would do the right thing,” Rothstein replied.

Rothstein acknowledged that he wasn’t present when anyone from the hedge funds spoke to new investors. He said the investors told him they had received positive reviews from the funds.

Simony and Nordlicht haven’t been charged with any crime.

Victims believed they were buying stakes in settlements of sexual and employment discrimination claims that Rothstein’s firm, Rothstein Rosenfeldt Adler PA, had investigated for possible lawsuits. The cases and settlements were fictional.

The scheme collapsed at the end of October 2009 and Rothstein briefly fled to Morocco. He returned and surrendered to federal authorities. After pleading guilty in January 2010 to five counts of wire fraud, conspiracy and racketeering, he was sentenced to 50 years in prison.

He is in the federal witness-protection program because of assistance he provided to prosecutors investigating organized- crime figures, according to court papers.

‘Die in Prison’

“If I lie and get caught lying, even a little bit, I will die in prison,” he said when attorney Sam Rabin questioned his credibility. Rabin represents a former T.D. Bank regional vice president who Rothstein said helped him pull off the fraud.

Rothstein’s firm was forced into bankruptcy by his investors. More than 30 lawsuits were filed by the bankruptcy trustee and groups of investors.

The confidence man was questioned by William Scherer, an attorney for a group of investors that sued Centurion, Platinum and Level 3 claiming they knew of the scheme and should disgorge money they took before the law firm’s bankruptcy.

The three funds invested a total of $180 million and had about $100 million at stake when the scheme almost collapsed in the spring of 2009, Scherer said.

“And at the end of the crash, they got it all back except about $18 million?” the lawyer asked.

“Yes,” Rothstein replied. He recalled that “they were just $18 million shy,” he said.

Client Losses

Scherer said his clients lost $180 million.

The three funds sued TD Bank, a U.S. unit of Canada-based Toronto-Dominion Bank, where Rothstein claimed to have settlement funds in escrow accounts. The funds claimed bank employees gave false statements saying the accounts contained “hundreds of millions of dollars.”

The bank asked for dismissal of the case, saying the claims are “factually vacant and legally insufficient.”

Seven of Rothstein’s employees and associates have been charged to date in the scheme. Five pleaded guilty and were sentenced. A federal prosecutor attended the deposition and kept Rothstein from answering some questions because of the investigation.

Investors with claims against the law firm are trying to find out where Rothstein spent sizable amounts of cash he kept in the office, with an eye to claiming that some was paid to abettors of the fraud and should be returned.

‘Money Laundering’

A lawyer asked Rothstein what he spent money on.

“Money laundering, extortion, physical violence,” he said. “Influencing law enforcement, influencing bankers, influencing businessmen, influencing business owners, a whole myriad of things.”

Rothstein said he bribed law officers and judges and that he laundered money for organized-crime figures. The prosecutor didn’t allow him to name anyone.

Rothstein said he paid for female “escorts” for police officers and didn’t worry about being caught.

He said he tried to stop his employees’ dealing in marijuana, which he said was common at the firm.

“In the office, in the garage, outside the office, I had some partners that couldn’t come to work without smoking pot,” he said. “I also found out they were actually dealing drugs in the office. I actually tried to put a stop to that.”

Rothstein said he worried the drug dealing might get someone’s attention. He didn’t worry about the prostitutes in the office.

Police Department

“The police also were sleeping with my escorts,” Rothstein said. “Broward sheriff’s office, Fort Lauderdale Police Department weren’t going to bother me.”

Representatives of the departments yesterday didn’t immediately reply to messages requesting comment.

Rothstein went on: “Pot, not a great idea in the office. It troubled me, probably because they were actually dealing the pot out of the office while I was in the middle of running a several-hundred-million-dollar Ponzi scheme.”

The bankruptcy case is In re Rothstein Rosenfeldt Adler PA, 09-34791, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale). The investors’ suit is Razorback Funding LLC v. Rothstein, 09062943, Circuit Court, 17th Judicial Circuit, Broward County, Florida (Fort Lauderdale). The hedge funds’ suit against TD Bank is Platinum Partners Value Arbitrage Fund LP v. TD Bank NA, 0:11-cv-61835, U.S. District Court, Southern District of Florida (Fort Lauderdale).

To contact the reporter on this story: Susannah Nesmith in Miami at susannahnesmith@yahoo.com.

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

Read more...

European, Brazilian Stocks Advance in First Session of 2012; Euro Weakens

By Stephen Kirkland and Will Hadfield - Jan 3, 2012 4:03 AM GMT+0700

European (SXXP) stocks rallied, following the Stoxx Europe 600 Index’s first annual loss since 2008, after manufacturing in Germany and China beat forecasts. French bonds fell before debt sales this week and the euro weakened.

The Stoxx 600 closed up 1.1 percent as Germany’s DAX Index (DAX) surged 3 percent, the biggest gains since Dec. 20 for each. Brazil’s Bovespa (IBOV) index increased 1.9 percent as of 4 p.m. New York time. U.S., U.K. and other markets were closed today for the New Year’s holiday. French 10-year bonds fell for a fourth day, pushing yields nine basis points higher to 3.24 percent. The euro weakened against 13 of 16 major peers. Gold rose.

Germany’s purchasing managers index climbed to 48.4 last month and a manufacturing gauge for China increased to 50.3, according to reports by Markit Economics and the Beijing-based logistics federation. Data later this week may indicate U.S. factory output and growth in payrolls improved, Bloomberg surveys showed. France plans to sell 16.9 billion euros ($21.9 billion) of debt this week.

“On the first day of the year, a lot of investors, having cleaned their portfolios, have liquidity to invest,” said Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris, which oversees about $84 million. “Germany can be seen as a safe haven because it has stronger growth than other countries. People are investing in industries with a lot of visibility, such as utilities.”

European (SXXP) Markets

Almost 15 shares rose for every one that fell in the Stoxx 600, with 230 of the index’s stocks unchanged. RWE AG, Germany’s second-largest utility (RWE), jumped 5.3 percent after Cheuvreux included it in its selected list of stocks for 2012. Veolia Environnement SA, the world’s biggest water utility, climbed 5.5 percent after the Sunday Times reported that Allianz SE and Canada’s Borealis pension fund were interested in bidding for its U.K. water business. The newspaper didn’t cite anyone.

France’s CAC-40 Index climbed 2 percent and benchmark indexes in Portugal and Italy increased at least 1.8 percent.

Equities and commodities last week capped their worst annual returns since the U.S. financial crisis in 2008 amid concern Europe’s government debt crisis will weigh on global growth. The Stoxx 600 lost 11 percent in 2011, the MSCI Asia- Pacific Index slid 17 percent last year and the MSCI All-Country World Index fell 9.4 percent.

Unchanged Close to 2011

The Standard & Poor’s 500 Index closed virtually unchanged, ending 2011 at 1,257.60 compared with its 2010 close of 1,257.64. The benchmark gauge of U.S. equities had the second- best return of 24 developed markets, trailing only a 0.6 percent gain in Ireland’s gauge.

The direction of the S&P 500 in January has correctly foreshadowed whether stocks end the year higher or lower in 60 of the last 83 years, or about 72 percent of the time, according to an e-mail yesterday from Howard Silverblatt, senior index analyst at S&P. Direction on the first day matched the year-end 49 percent of the time, Silverblatt said, “so there is no help there.”

The yield on two-year French notes rose four basis points to 0.85 percent as the nation prepares to sell as much as 8.9 billion euros of bills tomorrow and 8 billion euros of bonds maturing in 2021, 2023, 2035 and 2041 on Jan. 5.

German, Italian Bonds

German bonds declined for the first time in five days, pushing 10-year yields up eight basis points to 1.91 percent. The country will auction 5 billion euros of bonds due in 2022 on Jan. 4. Italian 10-year bond yields fell 19 basis points to 6.92 percent, narrowing their spread with the benchmark German bunds to 501 basis points from 528 basis points last week.

The euro fell the most against the New Zealand, Australian and Canadian dollars, losing at least 0.4 percent. It declined 0.2 percent to 99.42 yen, after earlier falling to 98.66 yen, the lowest since December 2000.

Some 157 billion euros in debt will mature in the 17-member euro area in the first three months of 2012, according to UBS AG. By the end of that period, leaders have pledged to draft a stricter rulebook for controlling government spending. German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet in Berlin Jan. 9 to work out details.

“The road to overcoming this won’t be without setbacks, but at the end of this path, Europe will emerge stronger from the crisis than before,” Merkel said in a New Year’s speech broadcast Dec. 31. She said that her government will do “everything” to bring the euro out of the slump.

The Bovespa stock index advanced after sliding 18 percent in 2011. Homebuilder Gafisa SA climbed 8.7 percent to help lead gains by companies that depend on domestic demand.

Chile, Mexico

Chile’s IPSA stock index slipped 0.5 percent today after a 15 percent tumble in 2011. Empresas Copec SA, the nation’s biggest publicly traded company by sales, fell 1.8 percent after a wildfire destroyed one of its plywood plants and halted operations at pulp-producing and milling operations.

Mexican stocks advanced, sending the benchmark Bolsa index up 0.7 percent. Equity markets in China, Russia, Malaysia, South Africa and Thailand were also closed for holidays.

The dollar climbed at least 0.3 percent against the euro, Danish krone, British pound and Swedish krona, and was little changed versus the yen. The Institute for Supply Management’s factory index probably climbed to a six-month high of 53.4 in December, economists projected ahead of a Jan. 3 report. Readings above 50 indicate expansion. Payrolls climbed by 150,000 workers after rising 120,000 in November, according to the median forecast of 62 economists before the Labor Department release on Jan. 6.

Gold Climbs

Gold touched the highest level in a week on reports that Iran produced its first nuclear fuel rod, spurring investors to buy the precious metal as a haven. Bullion for immediate delivery gained as much as 3.2 percent to $1,613.40 an ounce in London, the highest level since Dec. 26, before trimming its gain to 0.2 percent and trading at $1,566.27.

Milling wheat futures rose for a 12th day in Paris, the longest rally for the most-active contract since the grain started trading in the French capital in 1999, amid concern dry weather will hurt grain crops in South America.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Will Hadfield in London at whadfield@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

Read more...

Sears Turnaround Means Combining Tech With Store Upgrades, D’Ambrosio Says

By Carol Hymowitz - Jan 3, 2012 12:20 AM GMT+0700

Lou D’Ambrosio, chief executive officer of Sears Holdings Corp. (SHLD), said creatively combining more technology with increased spending on stores is the strategy to turn around the largest U.S. department store chain.

On Dec. 27, Sears announced it was closing as many as 120 locations after same-store sales slipped 5.2 percent in the eight weeks ended Dec. 25. The shares plunged 27 percent on the news, the biggest drop since April 29, 2003. Sears fell 3.4 percent in New York on Dec. 30 to $31.78.

A former Avaya Inc. and International Business Machines Corp. (IBM) executive who joined the Hoffman Estates, Illinois-based company in February, D’Ambrosio is drawing on his tech background and telling managers to gather more information about customers’ buying patterns and product preferences and to ramp up Web operations.

“Everything starts with knowing what our customers want to buy and how and then delivering that across platforms,” he said in a telephone interview.

Sears technicians each year make 17 million visits to customers’ homes and communicate even more frequently with shoppers online and on the phone, according to D’Ambrosio.

As part of that effort, Sears has given store salespeople more than 5,000 Apple Inc. (AAPL) iPads and 11,000 iPod touches to track inventory and customer orders, he said.

Sears Chairman Edward Lampert, who along with his hedge funds owns 60 percent of Sears, has attempted multiple turnaround strategies that have failed to reverse a slide in sales. D’Ambrosio is the fourth CEO since Lampert merged Sears with Kmart in 2005.

Capital Starved

The company’s larger stores have been starved of capital investment and customers have defected, according to Gary Balter, an analyst with Credit Suisse Group AG in New York.

Sears is spending less than a quarter of the $8 a square foot that retailers typically invest to maintain stores, according to International Strategy & Investment Group. In an August report, the New York-based company put Sears and Kmart at the bottom of the list of a dozen retailers ranked by sales per square foot and operating profitability.

“Sure we want to have stores that look nice so we’re investing in fixtures, paint and new designs but store appearance in itself isn’t enough,” D’Ambrosio said. “Borders had great bathrooms but that didn’t help them because they missed the e-book revolution in their industry.”

While Lampert sticks mostly to his base in Greenwich, Connecticut, D’Ambrosio is in close touch with managers down the ranks and visited several Sears stores last month, he said.

“Eddie and I have aligned views about what it takes to make this company great,” D’Ambrosio said. “We’re in touch regularly.”

The retailer’s (SHLD) “assets are undervalued, which creates an opportunity,” said D’Ambrosio, who recalls visiting Sears auto centers with his father as a child. “Sears is an iconic brand. It’s important to revitalize this company.”

To contact the reporter on this story: Carol Hymowitz in New York at chymowitz1@bloomberg.net

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

Read more...

Emerging-Market Stocks Advance as China, India Manufacturing Increases

By Ye Xie and Andras Gergely - Jan 3, 2012 5:45 AM GMT+0700

Emerging-market stocks gained for a third day as reports showed growth in manufacturing in countries from China to India, while a factory output gauge in Germany beat forecasts.

The MSCI Emerging Markets Index (MXEF) advanced 0.1 percent to 917.08. India’s Sensex gained 0.4 percent and Brazil’s Bovespa added 1.9 percent. KGHM Polska Miedz SA led Polish stocks to their biggest rally in a month, and Mexican stocks rose 0.7 percent. Equity markets in China, Russia, Malaysia, South Africa and Thailand were closed for holidays.

Manufacturing gauges for China and India increased, while Germany’s factory output beat estimates in December, boosting the prospects of its central European trading partners.

“The figures from today show we’re absolutely not seeing a hard landing,” said Andreas Rees, an economist at UniCredit Markets & Investment Banking in Munich. “There’s no massive uncertainty shock around the globe that’s weighing heavily on investment activity.”

The MSCI’s emerging-markets index slipped 20 percent last year, while the index for stocks in developed countries lost 7.6 percent. The decline in the developing nations’ gauge (MXEF) was the most since a 54 percent slump in 2008, which saw the collapse of Lehman Brothers Holdings Inc.

The MSCI Emerging Markets index trades at 10 times estimated profit, down from 13.3 times at the end of 2010, and compares with a multiple of 12.2 for the MSCI World Index.

Indian shares rose for the first time in five days. Manufacturing grew at the fastest pace in six months, with the PMI increasing to 54.2 in December from 51 in November, HSBC Holdings Plc and Markit Economics said in an e-mailed statement today.

Brookfield, Gafisa

Brazilian shares advanced after economists cut their estimates for inflation in 2012 for a fifth straight week to 5.32 percent from 5.33 percent. Real estate developers Brookfield Incorporacoes SA (BISA3), MRV Engenharia e Participacoes SA (MRVE3) and Gafisa SA (GFSA3) led gains among members of the index.

Embraer SA (EMBR3) gained as the world’s fourth-largest plane builder and U.S.-based Sierra Nevada Corp. were awarded a $355 million contract to provide 20 aircraft to the U.S. Air Force.

Poland’s benchmark WIG20 Index climbed 2.3 percent. Copper and silver producer KGHM jumped 6.6 percent after the Treasury Ministry proposed to lower a new tax on the extraction of the metals.

Mexico, Hungary

Mexico’s IPC index advanced after the country’s central bank said that remittances rose 8.9 percent in November from a year earlier to $1.77 billion. Grupo Financiero Banorte gained 1.5 percent.

Hungary’s BUX stock index (BUX) rose 1 percent. The country’s purchasing managers’ index rose to 48.5 points in December from 47.8 points the previous month, the Hungarian company MLBKT said in a report today.

The Kospi Index of South Korean stocks rose less than 0.1 percent. South Korea’s export growth will probably slow to 6.7 percent this year from 19.6 percent in 2011, the Ministry of Knowledge Economy said in a statement. Finance Minister Bahk Jae Wan said the economic outlook will be more uncertain and difficult in 2012 and called for a strengthening of contingency plans to prevent contagion from Europe’s debt crisis.

Hyundai Mipo Dockyard Co. (010620), a unit of the world’s biggest shipbuilder, retreated 2.2 percent in Seoul after a customer in Liberia asked for a delay in the delivery of vessels by a year. Posco (005490), South Korea’s largest steelmaker, retreated 1.1 percent.

Indonesia said exports (IDEXPY) rose 8.3 percent in November from a year earlier, compared with the 16.7 percent pace reported for October. The Jakarta Composite index slid 0.3 percent.

Germany’s manufacturing gauge based on a survey of purchasing managers to 48.4 in December, beating the initial estimate of 48.1 published on Dec. 15. A reading below 50 indicates contraction. The Czech PX Index jumped 1.4 percent.

To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net; Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

Read more...

Gold, Silver Advance After Iran’s First Nuclear Rod Spurs Haven Demand

By Swansy Afonso - Jan 3, 2012 6:19 AM GMT+0700

Gold and silver gained after reports that Iran produced its first nuclear fuel rod, spurring investors to buy the precious metal as a haven.

Gold futures for February delivery advanced 0.2 percent to $1,569.70 an ounce at 6:18 p.m. in New York. Silver futures for March delivery rose 0.5 percent to $28.005 an ounce on the Comex. Gold rose 10 percent last year, the 11th straight annual gain, and silver dropped 9.8 percent.

A domestically made rod was inserted into the core of Tehran’s atomic research reactor after performance tests, the Iranian Students News Agency reported today, citing the country’s atomic energy agency. The Tehran reactor produces radioisotopes for cancer treatment, according to Mehr news agency. Nuclear fuel rods contain pellets of enriched uranium that provide fuel for nuclear power plants.

“Iran’s nuclear plans have raised fears that it is getting desperate and will take some drastic step,” Gnanasekar Thiagarajan, a director at Commtrendz Risk Management Services Pvt., said by telephone from Mumbai. “More sanctions are expected from the U.S. and other nations. This will have a positive impact on gold prices as ideally people would try to buy gold.”

The U.S. and allies are increasing pressure on Iran to halt what they say may be a covert nuclear weapons program. Sanctions signed into law by President Barack Obama on Dec. 31 aim to deter dealings with the Iranian central bank, and the European Union is considering a ban on imports of oil from Iran, the world’s third-largest oil exporter. Iran denies seeking to develop atomic weapons.

Reserves Climb

Gold reserves increased in November in Belarus, Turkey, Tajikistan, Macedonia, Mauritius and Morocco, and declined in Mexico, according to data on the International Monetary Fund’s website. Turkey’s holdings increased to 5.758 million ounces from 4.429 million in October, and Mexico’s declined to 3.413 million ounces from 3.417 million, the data showed. Morocco’s holdings were 710,000 ounces in November compared with 708,800 in October, according to the data.

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

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

Read more...