Stocks, Commodities Drop as Euro Weakens on Greek Crisis

By Stephen Kirkland and Rita Nazareth - May 15, 2012 3:21 AM GMT+0700

Stocks fell, commodities slid to the cheapest level this year and the euro weakened to a three-month low amid growing concern Greece will exit the European currency.

The MSCI All-Country World Index (MXWD) slid 1.6 percent at 4 p.m. in New York and the Standard & Poor’s 500 Index sank 1.1 percent to 1,338.35, with both slipping to the lowest levels in more than three months. The euro slid to less than $1.29 for the first time since January. Yields on U.S. seven-year debt and 10- year U.K. and German bonds fell to records, while costs to insure against a Spanish default jumped to an all-time high. The S&P GSCI gauge of commodities dropped 1.1 percent.

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Traders work at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

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May 14 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks declined, sending the Dow Jones Industrial Average to the lowest level since January, as Greece struggled to form a new government amid growing speculation the nation may leave the European currency. (Source: Bloomberg)

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May 14 (Bloomberg) -- Bloomberg’s Alix Steel, Adam Johnson and Trish Regan report on today’s ten most important stocks including Ancestry.com, Zynga and Groupon. (Source: Bloomberg)

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May 14 (Bloomberg) -- Michael Obuchowski, chief investment officer at First Empire Asset Management, talks about the performance of U.S. stocks, the influence of the European debt crisis on U.S. markets and his equity investment strategy. He speaks with Pimm Fox and Alix Steel on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

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May 14 (Bloomberg) -- James Paulsen, chief investment strategist at Wells Capital Management, and Lincoln Ellis, managing director at Linn Group, talk about the outlook for U.S. stocks and their investment strategies. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Taking Stock." Paul Parker, co-head of global merger and acquisitions at Barclays Capital, also speaks. (Source: Bloomberg)

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May 14 (Bloomberg) -- Lena Komileva, chief economist at G+ Economics Ltd., talks about the outlook for European Central Bank policy, the region's debt crisis and its impact on global financial markets, and the likely consequences of a potential Greek exit from the euro. Komileva speaks with Tom Keene on Bloomberg Television's "Surveillance Midday.” (Source: Bloomberg)

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May 14 (Bloomberg) -- Kit Juckes, head of foreign-exchange research at Societe Generale SA, discusses the outlook for the euro, pound and Australian dollar and his recommendation of the Canadian dollar. He speaks with Caroline Hyde and Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

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May 14 (Bloomberg) -- Michael O'Sullivan, head of portfolio strategy at Credit Suisse Private Banking, discusses his investment strategy for Europe, emerging markets and banks. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

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May 14 (Bloomberg) -- Alistair Scarff, an analyst at Bank of America Merrill Lynch in Hong Kong, talks about JPMorgan Chase & Co.'s $2 billion trading loss and its implications for banking regulation and Asian banks. Scarff also discusses China's banking industry and the reserve ratio cut announced by the People's Bank of China on May 12. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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May 14 (Bloomberg) -- Erwin Sanft, chief strategist for pan-Asia equities at BNP Paribas SA, talks about the outlook for Asian stocks and his investment strategy. Sanft also discusses the economies of China, the U.S. and Japan. He speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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May 14 (Bloomberg) -- Barry Knapp, head of equity strategy at Barclays Capital, talks about the outlook for U.S. markets and economy. He speaks with Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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An employee works on a 2 euro coin mint at the Bank of Greece's Printing Works Department and Mint in Athens. The euro depreciated 0.6 percent to $1.2845, and slipped 0.7 percent versus the yen. Photographer: Simon Dawson/Bloomberg

European finance ministers grappled with the costs of keeping Greece in the euro area or letting it go, as a post- election political feud prevents the nation from forming a new government following the May 6 election. President Karolos Papoulias told Greek political leaders that banks face the threat of collapse if deposits continue to dwindle amid the instability. In the U.S., JPMorgan Chase & Co. (JPM) fell for a second day after reporting a $2 billion trading loss.

“The markets are going to play hard ball and the European governments are going to play hard ball too,” John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. His firm oversees $207 billion. “The odds of Greece leaving the euro are higher. It’s an enormous game of chicken that they are playing with each other. To the degree it does represent the democratic process in Greece, it makes it more likely they default and the Europeans have to do something.”

JPMorgan’s Loss

The S&P 500 fell for a second day as financial companies and energy producers led losses among all 10 of its main industry groups. All but three of 30 stocks in the Dow Jones Industrial Average retreated, sending the gauge down 125.25 points to 12,695.53, its lowest close since Jan. 31.

JPMorgan fell 3.2 percent and lost 12 percent since disclosing the trading loss on May 10, marking its biggest two- day slide in three years. Matt Zames, newly appointed to lead the firm’s chief investment office after it suffered a $2 billion loss on credit derivatives, shook up the unit’s leadership and announced a “renewed focus” on hedging risks. Chief Investment Officer Ina Drew will retire. Fitch Ratings on May 11 cut the bank’s credit rating by one level to A+ from AA-, saying the loss raises questions about its risk management.

Shares of Citigroup Inc. tumbled 4.1 percent and Bank of New York Mellon Corp. lost 3.1 percent to help lead declines in all 24 stocks in the KBW Bank Index (BKX), which slid to the lowest level since March 7. The S&P 500 trimmed its year-to-date gain to 6.4 percent, down from a rally of as much as 13 percent. The index has tumbled 5.7 percent from an almost four-year high on April 2.

Bearish Stock Bets Pared

As individuals bail out of U.S. stocks at the fastest rate in three decades, professional speculators have cut bearish bets by the most since 2008.

Money managers are net short 19,375 contracts on the S&P 500, down 82 percent from a four-year high in September even after the figure jumped from 3,584 last week, data compiled by Bloomberg and the Commodity Futures Trading Commission show. U.S. equity mutual funds recorded $18 billion of outflows in April, the most since at least 1984, according to preliminary data from the Investment Company Institute.

Hedge funds and other institutions are speculating the index will extend its 23 percent rally since October after 69 percent of S&P 500 companies beat first-quarter earnings estimates and economists projected accelerating U.S. growth this year. Bears say last week’s addition to bets on declines show short sellers have completed almost all of the buying they are likely to do, depleting demand for equities.

Bets Versus JPMorgan

Signs are emerging that traders are attempting to squeeze JPMorgan’s positions in credit derivatives. The 10-year Markit CDX North America Investment Grade Index Series 9 jumped the most in almost eight months on May 11. The index is an older, less-active benchmark for credit-default swaps created in 2007 in which JPMorgan trader Bruno Iksil in London was said to have amassed as much as a $100 billion position. Another index contract that takes more concentrated risks on the same companies recorded the biggest two-week surge in two years.

Bonds considered the safest investments rallied, sending yields on some debt to record lows. The rate on seven-year U.S. notes declined as much as six basis points to 1.17 percent, while 10-year German bund yields decreased to as low as 1.43 percent and the U.K. gilt yield touched 1.86 percent.

The Stoxx Europe 600 Index (SXXP) sank 1.8 percent to a four-month low as all 19 industry groups retreated. Opap SA, Europe’s biggest listed gambling company, helped lead Greek stocks lower, tumbling 12 percent for the biggest drop since October. Greece’s benchmark ASE Index traded at the lowest level since November 1992 for a second day, tumbling 4.6 percent. Spain’s IBEX 35 Index lost 2.7 percent, extending this year’s retreat to more than 20 percent.

‘Dangerous Template’

The Greek political deadlock looked set to continue for a second week as President Karolos Papoulias failed to secure agreement on a unity government. Greece faces a 436 million-euro ($561 million) note coming due for repayment tomorrow. A Greek exit from the euro “is not necessarily fatal, but it is not attractive,” European Central Bank Governing Council member Patrick Honohan said May 12.

German Finance Minister Wolfgang Schaeuble said Europe has done the “utmost” to prop up the financially stricken country, limiting any further room for leniency after about 240 billion euros ($308 billion) of aid pledges. German Chancellor Angela Merkel’s party was defeated in North Rhine-Westphalia two days before data that will show whether the nation slipped into recession.

The exit of Greece from the euro “would remain a dangerous template if other economies continued to weaken,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a report. “Investors would surely fear that a similar outcome was possible and would either shy away from investments or demand an unsustainable risk premium for holding exposure.”

Euro Weakens

The euro depreciated 0.6 percent to $1.2846, and slipped 0.7 percent versus the yen. The Dollar Index, which tracks the U.S. currency against those of six trading partners, advanced 0.4 percent to extend its longest rally since August 2008. The Australian dollar fell below parity with the greenback for the first time this year, with the Swedish krona weakening to 7 per dollar for the first time since Jan. 16.

The yield on the Spanish 10-year bond rose 22 basis points to 6.23 percent. The nation sold 2.9 billion euros of bills maturing in 364 and 518 days, compared with a maximum target of 3 billion euros. Italy’s 10-year yield increased 19 basis points to 5.70 percent as the government auctioned 5.25 billion euros of securities due in 2015, 2020, 2022 and 2025. Germany sold 3.3 billion euros of six-month bills, with Finland and France also auctioning debt today.

Credit-default swaps on Spain climbed 15 basis points to an all-time high of 534.

Commodities Slip

The S&P GSCI fell to the lowest since December. Copper futures slid 2.6 percent in New York and gold declined 1.5 percent to $1,561 an ounce, erasing its gain for the year. New York oil futures dropped 1.4 percent to $94.78 a barrel, the lowest front-month settlement since Dec. 19.

Brent crude futures declined 0.8 percent to $111.40 a barrel. Saudi Arabian Oil Minister Ali al-Naimi said yesterday in Adelaide, Australia, that Brent crude, the benchmark price for more than half the world’s oil, should trade at about $100 as crude supply outweighs demand.

Speculators cut bets on a rally in commodities by the most since November. Money managers reduced net-long positions across 18 U.S. futures and options by 19 percent to 723,239 contracts in the week ended May 8, the biggest decline since Nov. 22, Commodity Futures Trading Commission data show. The S&P GSCI Spot Index of 24 raw materials dropped 6.5 percent in eight sessions through May 11, the longest slide since December 2008.

The MSCI Emerging Markets Index (MXEF) dropped 2.1 percent to its lowest level on a closing basis since Jan. 11. The Hang Seng China Enterprises Index (HSCEI) of Chinese stocks listed in Hong Kong fell 1.5 percent, its eighth consecutive decline. The People’s Bank of China said on May 12 it’s cutting the amount of cash that banks must set aside as reserves for a third time since November. Russia’s Micex plunged 3.5 percent and benchmark gauges in Brazil and Poland fell at least 2 percent. India’s Sensex dropped 0.5 percent after inflation unexpectedly quickened in April.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; 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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JPMorgan’s New Investment Head Zames Shakes Up Office

By Dawn Kopecki, Michael J. Moore and Bradley Keoun - May 15, 2012 4:18 AM GMT+0700

JPMorgan (JPM) Chase & Co.’s Matt Zames, newly appointed to lead the bank’s chief investment office after the unit suffered a $2 billion loss, shook up leadership and announced a “renewed focus” on hedging risks.

Zames named new finance and risk chiefs and wrote in a staff memo that top London-based trading executive Achilles Macris would hand off duties. JPMorgan named Zames head of the office earlier today to succeed Ina Drew, whose retirement after the surprise loss marked the downfall of one of the highest- ranking women on Wall Street.

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The JPMorgan Chase building in New York. Photographer: Mark Lennihan/AP Photo

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May 14 (Bloomberg) -- Bloomberg Government economic analysts Nela Richardson and Chris Payne discuss JPMorgan Chase & Co.'s $2 billion trading loss and the regulatory system. (Source: Bloomberg)

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May 14 (Bloomberg) -- Simon Johnson, a professor at the Massachusetts Institute of Technology and a former economist at the International Monetary Fund, talks about the outlook for JPMorgan Chase & Co. following the disclosure the company suffered a $2 billion trading loss. Johnson, speaking with Deirdre Bolton on Bloomberg Television's "In the Loop," also discusses the prospects Greece will exit the euro. (Source: Bloomberg)

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May 14 (Bloomberg) -- Jason Rosiak, head of portfolio management at Pacific Asset Management, talks about the implications of JPMorgan Chase & Co.'s $2 billion trading loss on credit markets. Rosiak, talking with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's "InBusiness," also discusses investment strategy. (Source: Bloomberg)

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JPMorgan Chase & Co. Chief Investment Officer Ina Drew. Source: JPMorgan Chase & Co. via Bloomberg

“We will have a sharp, renewed focus on our hedging strategies, risk management and execution,” Zames, 41, wrote in the memo. “JPMorgan Chase will come out of this experience as a stronger firm.”

Chief Executive Officer Jamie Dimon, 56, announced the loss May 10, assailing his firm’s handling of trading in synthetic credit positions as “flawed, complex, poorly reviewed, poorly executed and poorly monitored.” New York-based JPMorgan is examining whether anyone in the unit, which employs a few dozen people in London, sought to hide risks, though there isn’t yet evidence that’s the case, the person said.

New London Chief

“It’s good to see there’s accountability as well as responsibility here,” said David Hendler, an analyst at CreditSights Inc., a New York-based research firm. “This person was in charge of this strategy and it appears was not aware, or giving the right signals to top management, of the risks that were building.”

Zames named Rob O’Rahilly to lead the office in Europe, the Middle East and Africa, as Christopher Chan continues overseeing Asia, according to the memo. Marie Nourie will become the global group’s finance chief, and Chetan Bhargiri will join the unit as chief risk officer, the memo shows.

Drew, 55, was one of two women on the operating committee at JPMorgan, the biggest and most profitable U.S. bank. Her office oversees about $360 billion, the difference between money from deposits and what the bank lends. Drew was named chief investment officer in 2005, reporting directly to Dimon.

Taking Risks

Dimon encouraged her unit to boost earnings by buying higher-yielding assets, including structured credit, equities and derivatives, in an expansion of risk-taking led by Macris, ex-employees said in April. That shifted the office from a role mitigating lending risks to becoming a profit center, former executives said.

Dimon said on May 10 that the unit made “egregious mistakes” by taking flawed positions on synthetic credit holdings and that JPMorgan could lose an additional $1 billion or more as it winds down the position. The U.S. Securities and Exchange Commission, the Federal Reserve and the Commodity Futures Trading Commission are investigating, according to people familiar with the probes.

Drew’s departure leaves Mary Erdoes as the only woman on the bank’s operating committee with one dozen men. The bank said in July that Heidi Miller, president of its international business, would retire this year. Sallie L. Krawcheck, one of the few women in a senior Wall Street position, was dismissed in September as Bank of America Corp.’s wealth-management division head. Former Morgan Stanley co-president Zoe Cruz, ousted in 2007, is returning money to investors after losing 8 percent last year at her $200 million hedge fund, Voras Capital Management LP.

‘Not Be Overshadowed’

Until recently, Drew did well with her investments, with the corporate division under which she reports earning a peak of $3.7 billion in 2009. The bank doesn’t break out results for the chief investment office. JPMorgan rewarded her with a $15 million pay package for 2010 and $14 million for her performance last year, according to regulatory filings.

“Ina Drew has been a great partner over her many years with our firm,” Dimon said in the statement. “Despite our recent losses in the CIO, Ina’s vast contributions to our company should not be overshadowed by these events.”

Drew was credited with guiding the company through the Russian debt crisis and collapse of hedge fund Long-Term Capital Management in 1998; market dislocation after the World Trade Center attacks and Enron Corp. bankruptcy in 2001; and the more recent financial crisis in 2008.

Avoids Limelight

Drew had a “tremendous ability through many crises to steer the firm through what would have otherwise been very painful liquidity periods,” said Lesley Daniels Webster, who was the bank’s head of market and fiduciary risk and worked with Drew for more than a decade. “JPMorgan Chase became a safe haven during the financial crisis” due to her management.

Drew, who declined to be interviewed for this article, is a private person who avoids the limelight, according to more than a dozen people who have worked with or know her personally. She graduated in 1978 from Johns Hopkins University in Baltimore and later got a master’s degree from the School of International Affairs at Columbia University. She began her career as a foreign-exchange and fixed-income trader at the Bank of Tokyo in 1979 and was hired in 1982 by Chemical Bank, which eventually became JPMorgan through a series of mergers.

Health Leave

She rose through the ranks at Chemical and was given oversight of U.S. interest-rate risk for the broader bank as well as a some discretionary trading positions in 1991 when it merged with Manufacturers Hanover Corp., according to a press release at the time. She was eventually given oversight of interest-rate and foreign-exchange risk globally, said incoming Freddie Mac CEO Don Layton, who was Drew’s boss from 1992, when Chemical Bank and Manufacturer’s Hanover merged, until 2002 at JPMorgan.

“She had a smart group of people who managed the investment portfolio well, developed good advanced techniques for measuring and managing the risk, sought the liquidity needs of the bank so we were well positioned at all times,” Layton said in an interview.

Drew went on leave for health reasons in 2010, said two people familiar with the matter, who asked not to be identified because the information is private. While she was out, Macris and Althea Duersten, who ran North America at the time and has since left the bank, assumed her duties for about six months, reporting directly to Dimon, a senior JPMorgan executive said.

Credit Trader

Macris, 50, and another trader on his team, Javier Martin- Artajo, are leaving the New York-based firm, the Wall Street Journal reported yesterday, citing the unidentified people. Martin-Artajo was not mentioned in Zames’s memo, and he didn’t respond to messages seeking comment. Kristin Lemkau, a JPMorgan spokeswoman, didn’t have an immediate response.

JPMorgan hired Zames from Credit Suisse First Boston in 2004 to run trading in Treasuries, agencies and interest-rate swaps and options. His responsibilities increased to include currencies, securitized products and municipal bonds. In 2009, Zames and Daniel Pinto were picked to run fixed income after Jes Staley took over the firm’s investment bank from William Winters and Steven Black. Pinto will become sole head of the business, according to the statement.

Under Zames and Pinto, JPMorgan has become the top bank globally in fixed-income trading. The firm’s 17 percent market share in 2011 was a record for Wall Street, Staley told shareholders earlier this year.

Bear Stearns

Zames previously worked at Long-Term Capital Management, which collapsed in 1998. Zames, then a 27-year-old trader, was one of two people at LTCM that Bill Krasker, described as the partner who had constructed many of the firm’s models, sought out in late August 1998 when he saw that U.S. swap spreads were trading in a wider range than the fund’s models had predicted, according to “When Genius Failed,” Roger Lowenstein’s book about the collapse of Long-Term Capital Management.

A decade later, in March 2008, Zames led a JPMorgan credit team dispatched to the offices of Bear Stearns Cos. to determine the investment bank’s financial position, according to “Last Man Standing,” Duff McDonald’s book on Dimon. JPMorgan ultimately provided Bear Stearns a secured loan facility with the Federal Reserve Bank of New York before agreeing to buy the firm two days later.

Zames, as chairman of the Treasury Borrowing Advisory Committee, wrote a letter to Treasury Secretary Timothy Geithner last year that said a failure to raise the nation’s $14.3 trillion debt limit could be “catastrophic.”

Madoff Scheme

He told JPMorgan Chief Risk Officer John Hogan in June 2007 that there was speculation that Bernard L. Madoff’s investment returns were part of a Ponzi scheme, according to a complaint filed against the bank by Irving Picard, the trustee liquidating Madoff’s firm. That was a year and a half before Madoff was arrested. Madoff, 74, is serving a 150-year sentence in a North Carolina federal prison after admitting he directed the biggest Ponzi scheme in history.

Picard sued the bank for $19 billion, saying the lender turned a blind eye to the fraud and should have alerted regulators. JPMorgan, which was Madoff’s primary banker, denied the allegations and U.S. District Judge Colleen McMahon in November dismissed the lawsuit.

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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Dow Falls to Lowest Level Since January on Greece Concern

By Rita Nazareth - May 15, 2012 4:09 AM GMT+0700

U.S. stocks declined, sending the Dow Jones Industrial Average to the lowest level since January, as Greece struggled to form a new government amid growing speculation the nation may leave the European currency.

Financial and energy shares fell the most among 10 groups in the Standard & Poor’s 500 Index. JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) sank at least 2.6 percent as European lenders slumped. Alcoa Inc. (AA) and Schlumberger Ltd. (SLB) slid more than 1.5 percent to pace declines in commodity producers. Symantec Corp. (SYMC), the biggest seller of security software, retreated 1.4 percent after Goldman Sachs Group Inc. cut its recommendation.

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Specialist Peter Giacchi, center, calls out prices on the floor of the New York Stock Exchange on May 11, 2012. Photographer: Richard Drew/AP Photo

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May 14 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks declined, sending the Dow Jones Industrial Average to the lowest level since January, as Greece struggled to form a new government amid growing speculation the nation may leave the European currency. (Source: Bloomberg)

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May 14 (Bloomberg) -- Bloomberg’s Alix Steel, Adam Johnson and Trish Regan report on today’s ten most important stocks including Ancestry.com, Zynga and Groupon. (Source: Bloomberg)

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May 14 (Bloomberg) -- Michael Obuchowski, chief investment officer at First Empire Asset Management, talks about the performance of U.S. stocks, the influence of the European debt crisis on U.S. markets and his equity investment strategy. He speaks with Pimm Fox and Alix Steel on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

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May 14 (Bloomberg) -- James Paulsen, chief investment strategist at Wells Capital Management, and Lincoln Ellis, managing director at Linn Group, talk about the outlook for U.S. stocks and their investment strategies. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Taking Stock." Paul Parker, co-head of global merger and acquisitions at Barclays Capital, also speaks. (Source: Bloomberg)

The S&P 500 slid 1.1 percent to 1,338.35 at 4 p.m. New York time, the lowest since Feb. 2. The Dow fell 125.25 points, or 1 percent, to 12,695.35. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against S&P 500 losses, rose 10 percent to an almost four-month high of 21.87. About 6.6 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“The fear factor is definitely higher,” said Madelynn Matlock, who helps oversee about $14.7 billion at Huntington Asset Advisors in Cincinnati. “The whole European (SX7P) political situation is really the focus at this point. Nobody really knows what’s going to happen next and the market hates uncertainty.”

Global stocks fell as Greece’s political deadlock went into a second week after President Karolos Papoulias failed to secure agreement on a unity government. Alexis Tsipras, leader of Greece’s Syriza party, said Europe must reexamine its policy of austerity and that his party wants Greece to stay in the euro.

Record High

Concern about Europe’s crisis grew as the cost of insuring against a Spanish default jumped to an all-time high. Chancellor Angela Merkel’s party was defeated in Germany’s most populous state in an election that helped the Social Democrats tighten their grip on the country’s regional governments. The result may embolden the Social Democrats as they align with French President-elect Francois Hollande in an anti-austerity front.

“We certainly have a lot to worry about,” said John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York. His firm oversees $207 billion. “The odds of Greece leaving the euro are higher. It’s an enormous game of chicken that they are playing with each other. To the degree it does represent the democratic process in Greece, it makes it more likely they default and the Europeans have to do something.”

American banks slumped as a measure of European lenders tumbled 2.8 percent. JPMorgan, which plunged 9.3 percent on May 11, lost 3.2 percent to $35.79. Bank of America fell 2.7 percent to $7.35. Citigroup Inc. (C) retreated 4.1 percent to $28.14.

‘Renewed Focus’

JPMorgan’s Matt Zames, newly appointed to lead the firm’s chief investment office after it suffered a $2 billion loss, shook up the unit’s leadership and announced a “renewed focus” on hedging risks. Achilles Macris, who was hired in 2006 to oversee trading in London where the losses occurred, will “transition” his CIO responsibilities, Zames said today in an employee memo obtained by Bloomberg News.

Energy and raw material producers sank as the S&P GSCI gauge of 24 commodities dropped 1.1 percent. Schlumberger lost 2.3 percent to 67.25. Alcoa fell 1.6 percent to $8.92.

Symantec slid 1.4 percent to $15.24. Goldman Sachs cut its rating to sell from neutral, citing worsening margins and cash flows. The share-price estimate was lowered to $14 from $16.

Best Buy Co. (BBY) rose 1.5 percent to $19.56. Founder Richard Schulze will step down as chairman after a probe found he failed to tell the board about allegations that then-Chief Executive Officer Brian Dunn was having an inappropriate relationship with a female employee.

Loan Agreement

Chesapeake Energy Corp. (CHK) surged 4.8 percent to $15.52. The company reached a $3 billion loan agreement with a unit of Goldman Sachs Group Inc. and affiliates of Jefferies Group Inc. to help ease a cash shortfall that threatens to curtail its development of oil and natural-gas wells.

Avon Products Inc. (AVP) rallied 3.8 percent to $20.96 as the company said it will respond within a week to Coty Inc., the perfume-maker that last week boosted its takeover offer for Avon to $10.7 billion.

Yahoo! Inc. (YHOO) rose 2 percent to $15.50. Chief Executive Officer Scott Thompson is stepping down after failing to correct errors in his credentials and the company is revamping its board, handing a victory to activist investor Daniel Loeb, who had pushed for the overhaul.

Ross Levinsohn, Yahoo’s head of global media, was named interim CEO, and director Fred Amoroso will become chairman.

Facebook’s IPO

Facebook Inc. (FB) plans to stop taking orders for its initial public offering tomorrow, two days ahead of schedule, according to a person with knowledge of the transaction.

Facebook will likely finish taking orders for the IPO after U.S. markets close May 15, said the person, who declined to be identified as the plans are private. The offer of 337.4 million shares at $28 to $35 each has been oversubscribed, people with knowledge of the matter said. Jonathan Thaw, a spokesman for Facebook, declined to comment.

“They’re swamped with the orders that are in,” said Jon Merriman, chief executive officer at investment firm Merriman Holdings Inc. in San Francisco. “They just need time to determine the price. They can send the message -- the books are closing, send in your orders now.”

As individuals bail out of U.S. stocks at the fastest rate in three decades, professional speculators have cut bearish bets by the most since 2008.

Money managers are net short 19,375 contracts on the S&P 500, down 82 percent from a four-year high in September even after the figure jumped from 3,584 last week, data compiled by Bloomberg and the Commodity Futures Trading Commission show.

Most Since 1984

U.S. equity mutual funds recorded $18 billion of outflows in April, the most since at least 1984, according to preliminary data from the Investment Company Institute.

Hedge funds and other institutions are speculating the index will extend its 23 percent rally since October after 69 percent of S&P 500 companies beat first-quarter earnings estimates and economists projected accelerating U.S. growth this year. Bears say last week’s addition to bets on declines show short sellers have completed almost all of the buying they are likely to do, depleting demand for equities.

“For the professional side, stocks look pretty compelling,” David Goerz, chief investment officer at Highmark Capital Management Inc., said in a telephone interview from San Francisco on May 9. His firm oversees about $17 billion. “Underlying economic strength is much more resilient than anybody expected it to be this year.”

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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Obama Pitches Equal Pay to Win Women Even as Charges Drop

By Kate Andersen Brower - May 14, 2012 7:00 AM GMT+0700

Some days, it may seem that President Barack Obama’s running mate is Lilly Ledbetter.

Ledbetter is a former Goodyear Tire & Rubber Co. manager who sued the firm after discovering near the end of a 19-year career that she was being paid more than $13,000 less than three male colleagues. Her case was thrown out after the U.S. Supreme Court ruled she missed a deadline for filing the lawsuit.

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U.S. President Barack Obama and Lilly Ledbetter before signing the Lilly Ledbetter Fair Pay Act in at the White House on Jan. 29, 2009. Photographer: Mark Wilson/Getty Images

In eight of his last 18 campaign events, Obama reminded voters that the Lilly Ledbetter Fair Pay Act, which provides employees more time to file such lawsuits, was the first piece of legislation he signed into law when he took office in 2009, and its namesake is now campaigning for his re-election.

Yet there were fewer cases charging sex-based wage discrimination last year than the year before the law was signed, and the wage gap was wider in 2010 than it was in 2007.

“The bill did not change the fact that women make 77 cents on the dollar that a man makes,” said Ledbetter, who is working with the White House to pass the Paycheck Fairness Act that would enable employees to find out what their colleagues are earning.

At a Washington hotel on April 5 Obama told 250 donors: “Change is the first legislation that I signed into law, the Lilly Ledbetter Act that has a very simple principle -- women should get paid an equal day’s pay for an equal day’s work, and our daughters should be treated just like our sons when it comes to the workplace.”

Front Row Seat

Ledbetter, 74, had a front row seat at an April 27 Obama fundraiser hosted by the Women’s Leadership Forum and Women in Washington for Obama, at which the president called her his “dear friend” and a “courageous woman.”

First Lady Michelle Obama told donors May 1 in Las Vegas that her husband “signed this bill because he knows that closing that pay gap will mean the difference between women losing $50, $100, $500 for each paycheck, or having that money in their pockets to buy gas and groceries and put clothes on the backs of their kids.”

Obama is using the Ledbetter law to shore up his lead among women -- an advantage crucial to his re-election prospects. Female voters made up 53 percent of the electorate in 2008 and Obama carried their vote by 13 points. Obama led presumptive Republican nominee Mitt Romney 49 to 39 percent among women, according to an April 11 - 17 Quinnipiac University survey of 2,577 registered voters.

Gender Gap

Among all those polled, 52 percent said Obama would do a better job handling women’s issues, compared with 32 percent who picked Romney. The poll had an error margin of plus or minus 1.9 percentage points for its overall sample.

Romney’s campaign is seeking to shift the focus from Ledbetter to economic troubles women are experiencing under Obama. While women lost fewer jobs during the recession that ended in June 2009, the jobless rate for males 16 years old or older improved by 2.3 percentage points since then and barely budged for women during the same period.

In an April 16 interview with ABC News, Romney said he has no “intention of changing” Ledbetter if elected.

The law reversed the 2007 Supreme Court decision in Ledbetter v. Goodyear Tire & Rubber Co. (GT) to extend the time a worker can sue an employer for sex-based wage discrimination to as many as 180 days from the last discriminatory paycheck, instead of 180 days since the first paycheck reflecting unequal wages.

Cases Decline

In 2009, when Obama signed the legislation, there were 2,268 sex-based wage discrimination complaints filed with the Equal Employment Opportunity Commission either under the Equal Pay Act, Title VII of the Civil Rights Act of 1964, which was amended by the Ledbetter Act, or both. Because the law was retroactive, the EEOC reviewed pending cases at the time of the Supreme Court decision and reinstated claims for more than 1,100 people. In 2011, the number of complaints went down to 2,191.

Meanwhile, the pay gap in 2010 showed that women earned 77.4 percent of men’s salaries, down from 77.8 percent in 2007 before the recession hit.

“The White House is not disingenuous about their equal pay bona fides but I think sometimes Ledbetter is overstated,” said Lisa Maatz, the director of Public Policy and Government Relations at Washington-based American Association of University Women. Maatz said that while Obama is “right to claim this as part of his legacy,” whenever “anyone says the Ledbetter bill ensures that women get equal pay for equal work, that’s not accurate.”

Narrow Interpretations

Judges who are narrowly interpreting the Ledbetter law, the lack of transparency about pay, and a sluggish economy are reasons why Ledbetter hasn’t had more of an impact, said lawyers and advocates.

Women are afraid of losing their jobs if they complain, especially as the economy recovers from the worst economic downturn since the Great Depression, said Charles A. Sullivan, a professor at Seton Hall Law School who has represented employees in pay discrimination suits.

“If you’ve got a job and things are going pretty well except you think you may be the victim of pay discrimination, maybe this is not the best time in the world to rattle that cage,” Sullivan said.

Despite the White House pitches, the law does little to put money back in women’s pockets, said advocates of the measure.

Income Privacy

“Even with the Ledbetter Act, I’ve found many employees lack information with which to compare their compensation,” said Joseph Sellers, who served as co-lead counsel for the plaintiffs in Beck v. Boeing Co. (BA), which included more than 28,000 women employees at Boeing facilities in Washington charging sex discrimination.

To fill that information void, the administration is seeking passage of the Paycheck Fairness Act, created the National Equal Pay Enforcement Task Force to coordinate the federal government’s efforts to enforce existing protections, and developed a Labor Department contest for a computer application to provide workers with more information about equal pay and negotiating their salaries.

Tina Tchen, executive director of the White House Council on Women and Girls and the first lady’s chief of staff, said the administration has successfully delivered a “nuanced” message when talking about Ledbetter.

“A lot of times you hear the president and the first lady talking about the Lilly Ledbetter Act helping women get equal pay and people sometimes skip over the fact that he said ‘help,’ versus saying it ‘gets equal pay,’” she said.

To contact the reporter on this story: Kate Andersen Brower in Washington at kandersen7@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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Asian Stocks Rise as China Easing Outweighs Europe Debt

By Kana Nishizawa - May 14, 2012 9:02 AM GMT+0700

Asian stocks swung between gains and losses after China cut the amount of cash banks must set aside as reserves to boost economic growth, and as speculation heightened Greece may exit from the single European currency.

China Overseas Land and Investment Ltd., the mainland’s biggest developer by market value, rose 1.4 percent in Hong Kong. Nippon Sheet Glass Co. (6954), a glassmaker that counts Europe as its No. 1 market, slid 1 percent in Tokyo. NGK Insulators Ltd. jumped 11 percent after a report the company plans to resume sodium battery production. Celltrion Inc. (068270), a biopharmaceutical company, surged for a second day in Seoul, climbing 9.2 percent after saying it plans to issue bonus shares to shareholders.

China’s reserve ratio rate cut is “an efficient means of them pushing liquidity into the market,” Timothy Riddell, head of global markets research in Singapore at Australia & New Zealand Banking Group Ltd., said on Bloomberg television. “We will be looking for more cuts through the reserve ratio rate through the rest of this year.”

The MSCI Asia Pacific Index (MXAP) slid 0.3 percent to 118.28 as of 10:55 a.m. in Tokyo, after rising as much as 0.2 percent. About four stocks fell for every three that rose. The measure posted its worst week in five months last week, falling 4.4 percent, amid concern Greece will be forced out of the euro and that austerity plans needed to contain the Europe’s debt crisis will be derailed.

Japan’s Nikkei 225 Stock Average (NKY) increased 0.2 percent, while Australia’s S&P/ASX 200 Index gained 0.1 percent. South Korea’s Kospi Index (KOSPI) slid 0.7 percent. Hong Kong’s Hang Seng Index lost 0.4 percent, while China’s Shanghai Composite Index slid 0.4 percent.

Annual Gain

The Asian regional index rose 4.2 percent this year through May 11, compared with a 7.6 percent gain by the S&P 500 and a 3 percent advance by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.2 times estimated earnings on average, compared with a multiple of 12.9 for the S&P 500 and 10.5 times for the Stoxx 600.

The People’s Bank of China said May 12 that it is cutting the amount of cash that banks must set aside as reserves for the third time in six months, pumping money into the financial system to support lending after data showed a slowdown in economic growth is deepening. Reserve ratios will fall 50 basis points, effective May 18.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

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

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Apple Founder Wozniak to Buy Facebook Regardless of Price

By David Fickling and Shraysi Tandon - May 14, 2012 8:45 AM GMT+0700

Apple Inc. (AAPL) co-founder Steve Wozniak said he will buy shares in Facebook Inc. (FB) when the social networking company sells stock to the public in what may be a record initial public offering for an Internet business.

Wozniak, who built the first Apple computer with Steve Jobs and co-founded the company with him in 1976, said he would buy Facebook’s stock regardless of its valuation.

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Stephen "Steve" Wozniak, co-founder of Apple Inc., speaks on "Innovation and Creativity in the 21st Century," in Singapore. Photographer: Norman Ng/Bloomberg

Facebook plans to raise as much as $11.8 billion in an IPO scheduled for May 17 in what would be the biggest in history for an Internet company. The company is offering 337.4 million shares to the public at $28 to $35, giving it a market value at the top of the range of $96 billion.

“I would invest in Facebook,” Wozniak said in an interview with Bloomberg Television in Sydney yesterday. “I don’t care what the opening price is.”

Wozniak is chief scientist at Fusion-io Inc. (FIO), a maker of flash-memory technology. The Salt Lake City-based company counts Facebook as its biggest customer.

Menlo Park, California-based Facebook makes up 36 percent of Fusion-io’s revenue, according to data compiled by Bloomberg, followed by 24 percent coming from Apple and 14 percent from Hewlett-Packard Co. (HPQ)

Facebook’s founder Mark Zuckerberg is a “real acute” businessman who mixes technical ability with the vision and corporate acumen of Steve Jobs, Wozniak said.

“I was thankful to have a partnership with Steve Jobs and I see Mark Zuckerberg closer to the combination of us,” he said. “When he speaks he speaks with a lot of idealism for the users and a lot of good ideas for the product overall.”

Holding Out

Wozniak said Zuckerberg’s decision to hold out as long as possible before selling shares to the public was the right strategy for the social networking company.

“I’m glad they held out so long,” he said. “You don’t have to think that your only goal can be an IPO.”

Facebook announced last January that it would start filing public financial reports this year because it expected to breach a regulatory threshold on the number of its shareholders.

U.S. companies with more than 500 shareholders have historically had to publish their financial data under investor- protection laws, removing many of the attractions of being structured as a closely-held company. The 500-shareholder limit was raised to 2,000 under an act which passed the U.S. Senate March 22.

‘Laboratory Scientist’

Describing himself as a “laboratory scientist” more than a businessman, Wozniak said he had mixed feelings about a potential takeover of Fusion-io amid speculation the company may become a target.

Rajesh Ghai, a San Francisco-based analyst for ThinkEquity, describes the company as a “strong acquisition candidate” and estimates its shares could fetch as much as $40 in a takeover.

Fusion-io shares closed May 11 at $21.41 and have risen 13 percent since the company first sold shares to the public in June. The stock has declined 47 percent from its Nov. 17 peak of $40.34.

“Once you have an IPO like Fusion-io did, oh my gosh you’ve now got to look at targets that you can add to your base,” he said. “You’ve also got to worry about who might acquire you. And is that good or bad? It’s sort of a sell-out in my mind.”

After the IPO, Facebook shares will trade on the Nasdaq Stock Market under the symbol FB.

To contact the reporter on this story: Shraysi Tandon in Sydney at standon14@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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JPMorgan Unit's London Staff May Go as Loss Prompts Exits

By Dawn Kopecki - May 14, 2012 7:45 AM GMT+0700

The entire London staff of JPMorgan Chase & Co. (JPM)’s chief investment office is at risk of dismissal as a $2 billion trading loss prompts the first executive departures as soon as this week, a person familiar with the situation said.

The firm is examining whether anyone in the unit, which employs a few dozen people in London, sought to hide risks, said the person, who requested anonymity because the deliberations are private. Ina Drew, who oversees the unit, is among three people set to leave, the Wall Street Journal reported yesterday, citing unidentified people familiar with the situation. Joseph Evangelisti, a bank spokesman, said Drew would have no comment.

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The offices of JPMorgan Chase & Co. are seen in the business and financial district of Canary Wharf in London. Photographer: Simon Dawson/Bloomberg

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May 14 (Bloomberg) -- The entire London staff of JPMorgan Chase & Co.’s chief investment office is at risk of dismissal as a $2 billion trading loss prompts the first executive departures as soon as this week, a person familiar with the situation said. Ina Drew, who oversees the unit, is among three people set to leave, the Wall Street Journal reported yesterday, citing unidentified people familiar with the situation. John Dawson reports on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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May 10 (Bloomberg) -- Thursday's "Bloomberg Rewind" includes a discussion of the biggest news of the day and wrap-up of the markets. (Source: Bloomberg)

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Signage stands outside JP Morgan Chase & Co. headquarters in New York. Photographer: Peter Foley/Bloomberg

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JPMorgan Chase & Co. Chief Investment Officer Ina Drew. Source: JPMorgan Chase & Co. via Bloomberg

Chief Executive Jamie Dimon, 56, announced the loss May 10, assailing his firm’s handling of trading in synthetic credit securities as “flawed, complex, poorly reviewed, poorly executed and poorly monitored.” Initially, he resisted accepting Drew’s resignation, the person said. The incident has given ammunition to proponents of stricter bank regulations.

Drew, 55, is one of two women on the operating committee at JPMorgan, the biggest and most profitable U.S. bank. Her office oversees about $360 billion, the difference between money from deposits and what the bank lends. Dimon had encouraged her unit to boost earnings by buying higher-yielding assets, including structured credit, equities and derivatives, in an expansion of risk-taking led by Achilles Macris, ex-employees said in April.

Macris, 50, and a trader on his team, Javier Martin-Artajo, also are leaving the New York-based firm, the Wall Street Journal reported, citing the unidentified people. Macris and Martin-Artajo didn’t respond to messages left outside of regular business hours.

To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editor responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net

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Euro Officials Begin to Weigh Greek Exit

By Patrick Donahue - May 14, 2012 5:01 AM GMT+0700

Greece’s possible exit from the euro area moved to the center of Europe’s debt-crisis debate, with officials beginning to weigh the fallout of a withdrawal even as authorities in Athens struggled to form a government.

Meetings brokered by Greek President Karolos Papoulias are set to continue today after Syriza, the largest anti-bailout party, rejected a unity government following last week’s inconclusive elections. The country where the 2 1/2-year-old crisis began moved closer to a new vote, and to the possibility of a euro-area exit that was once a taboo among policy makers.

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Graffiti, depicting the Euro symbol as a grenade about to be thrown by a soldier, sits on a wall in Athens, Greece. Photographer: Simon Dawson/Bloomberg

Greek withdrawal “is not necessarily fatal, but it is not attractive,” European Central Bank Governing Council member Patrick Honohan said in Tallinn on May 12. An exit was “technically” possible yet would damage the euro, he said. German Finance Minister Wolfgang Schaeuble reiterated in an interview in Sueddeutsche Zeitung that member states seeking to hold the line on austerity for Greece could not force the country to stay.

The debate between growth and austerity will form the centerpiece of talks tomorrow between the newly installed French President Francois Hollande and German Chancellor Angela Merkel, who has championed an agenda of spending cuts. Euro finance ministers meet today and may discuss the international bailout for Greece, as well as the situation in Spain, where the government last week made a fourth attempt to clean up the country’s banks.

The euro-area finance ministers will convene in Brussels at 5 p.m. local time.

Euro Dip

The euro dipped below $1.30 last week for the first time since January and bond yields of indebted states rose to new highs, with Spain’s 10-year yield climbing 27 basis points to 6.01 percent.

“Syriza won’t betray the Greek people,” party leader Alexis Tsipras said in a statement yesterday as Papoulias began a final bid to coax parties into a coalition. The failure to form a government has prompted concern that Greece may backtrack on pledges to cut spending as part of the bailout requirements negotiated since May 2010, so foreshadowing a euro withdrawal.

The European Commission isn’t considering easing the terms of the joint bailout for Greece from the EU and the International Monetary Fund, EU spokesman Amadeu Altafajsaid, denying a report by Athens-based Real News.

“I’m not aware of any discussions within the commission to grant new provisions, new concessions in the program” for Greece, Altafaj said by phone yesterday.

‘More Resilient’

Europe’s central bankers are discussing the possibility of a Greek departure and how to handle the fallout, Swedish Riksbank Deputy Governor Per Jansson said in an interview on May 11.

European Union Economic and Monetary Commissioner Olli Rehn said in Tallinn that the region is “certainly more resilient” to a possible Greek exit than it was two years ago, when the bloc would have been “massively underprepared.”

“I still believe that Greece can stay in the euro and find the way to make sure that it respects its commitments,” Rehn said. “It would be much worse for Greece and Greek citizens, especially for the less well-off Greek citizens, if Greece did leave the euro than for Europe as such. Europe also would suffer, but Greece would suffer more.”

Under a story headlined “Akropolis Adieu, Why Greece Must Leave the Euro”, Germany’s Der Spiegel magazine today reported that the EU may provide funding for Greece even after a euro departure.

‘Open Arms’

After elections in Greece and France signaled a backlash against the German-led agenda of scaling back spending to battle the debt crisis, officials across the region have re-tuned their rhetoric to emphasize growth and employment.

Hollande, who defeated single-term President Nicolas Sarkozy on May 6 to become the first Socialist president of the Fifth Republic in almost two decades, will tomorrow begin his campaign to shift the focus of crisis-fighting away from austerity.

Confronted with electoral defeat yesterday in Germany’s largest state, Merkel said last week that she’ll welcome Hollande for talks “with open arms.”

“I expect both of them to give a clear signal of commitment to stability of the euro zone of overcoming the sovereign debt crisis,” Peter Altmaier, the deputy floor leader of Merkel’s party, said yesterday on Sky News.

Aid Payment

With Hollande among leaders calling for a “growth pact” alongside the German-championed fiscal treaty, euro leaders will look toward a summit dinner in Brussels on May 23.

Investors will also be watching tomorrow when the Greek government is scheduled to repay 436 million euros ($563 million) on a floating-rate note held by investors who shunned its bond-loss accord. An EU official said May 10 that the payment decision is up to the government in Athens.

The government in Athens would run out of cash by early July if creditors decided to withhold their next aid payment in reaction to stalling progress in Greece, according to a report last week by Bank of America Merrill Lynch.

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

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Fitch Cuts JPMorgan Rating as S&P Calls Outlook Negative

By Michael J. Moore - May 12, 2012 11:00 AM GMT+0700

JPMorgan Chase & Co. (JPM), the largest and most profitable U.S. bank, had its credit grade lowered one level by Fitch Ratings and Standard & Poor’s said it may follow after the bank revealed a $2 billion trading loss.

The lender’s long-term issuer default rating was cut to A+ from AA-, and the short-term grade was lowered to F1 from F1+, Fitch said yesterday in a statement. Fitch placed all parent and subsidiary long-term ratings on rating watch negative.

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Signage stands outside JP Morgan Chase & Co. headquarters in New York. Photographer: Peter Foley/Bloomberg

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May 11 (Bloomberg) -- Jamie Dimon, chief executive officer of JPMorgan Chase & Co., and Bloomberg's Dawn Kopecki and Christine Harper talk about JPMorgan's $2 billion trading loss after what Dimon said was an "egregious" failure in the firm's chief investment office. This report also includes comments from Bloomberg Television contributing editors William Cohan, Thomas Brown and Neil Barofsky, Portales Partners' Charles Peabody, Aegis Capital's Stanley Crouch, Fifth Third Asset Management's Keith Wirtz and Rochdale Securities' Richard Bove. (Source: Bloomberg)

Standard & Poor’s cited the possibility of broader problems with JPMorgan’s hedging strategies, which the credit rater said isn’t “consistent with what we have viewed as the company’s sound risk-management practices.” A downgrade might result if the missteps prove to be wider, or if management “is pursuing a more aggressive investment strategy than we originally believed” and misses financial targets, according to an S&P statement. S&P affirmed JPMorgan’s A rating.

JPMorgan announced the loss linked to synthetic credit securities on May 10. Chief Executive Officer Jamie Dimon told analysts that the New York-based firm’s chief investment office took flawed positions tied to the investments that may cost an additional $1 billion this quarter or next.

“The magnitude of the loss and ongoing nature of these positions implies a lack of liquidity,” Fitch said. “It also raises questions regarding JPM’s risk appetite, risk management framework, practices and oversight.”

JPMorgan is under review by Moody’s Investors Service for a possible two-level downgrade. The credit rater said in February it was examining 17 lenders and securities firms with global capital-market operations.

Downgrade’s Consequences

A downgrade could raise borrowing costs and oblige the firms to put up more cash for collateral calls and termination payments tied to derivatives contracts. Collateral calls were blamed in the 2008 credit crisis for draining cash and driving firms toward failure.

Morgan Stanley, Credit Suisse Group AG and UBS AG may be reduced three levels, Moody’s said. Analysts said before Dimon spoke that the industry-wide cuts could push more business to JPMorgan, Credit Suisse, Goldman Sachs Group Inc. and Deutsche Bank AG because they’d be left with some of the highest grades if Moody’s goes through with all its maximum reductions.

Joe Evangelisti, a spokesman for JPMorgan, didn’t immediately return a message requesting comment.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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Fed Officials Seek More Information on JPMorgan Trade

By Craig Torres and Caroline Salas Gage - May 12, 2012 7:54 AM GMT+0700

Federal Reserve officials are gathering more information about the trading position that led to a $2 billion loss at JPMorgan Chase & Co. (JPM), which they have known about for several weeks, according to a person familiar with the matter.

Fed officials don’t view it as their role to approve or reject individual trades at banks, the person said. Rather, their job is to ensure the firms have sufficient capital to withstand losses, said the person, who wasn’t authorized to discuss the matter and asked not to be identified.

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JPMorgan Chase & Co. chairman and CEO Jamie Dimon. Photographer: Mario Tama/Getty Images

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May 11 (Bloomberg) -- Federal Reserve officials are gathering more information about the trading position that led to a $2 billion loss at JPMorgan Chase & Co., which they have known about for several weeks, according to a person familiar with the matter. (Source: Bloomberg)

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JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon. Photographer: Scott Eells/Bloomberg

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Bloomberg News first reported April 5 that London-based JPMorgan trader Bruno Iksil had amassed positions linked to the financial health of corporations that were so large he was driving price moves in the $10 trillion market. Photographer: Peter Foley/Bloomberg

JPMorgan Chief Executive Officer Jamie Dimon announced the “egregious” trading loss yesterday, two months after the biggest U.S. bank by assets passed a Fed stress test that put its loans and securities through a scenario of deep recession and a simulated global financial market shock.

“This is the way the system should work,” said Mark Calabria, a former Senate Banking Committee staff member and now director of financial regulation studies at the Cato Institute in Washington. “The capital should be there to actually absorb losses.”

The U.S. Securities and Exchange Commission opened a preliminary investigation into JPMorgan’s disclosures related to the trades, according to a person briefed on the probe who spoke on condition of anonymity because the matter isn’t public.

JPMorgan’s announcement points to gaps in the Fed’s enforcement of governance and risk management, said Robert Eisenbeis, a former research director at the Atlanta Fed.

‘Watching the Store’

“The fact that Jamie Dimon could come out and make some of those statements” raises “lots of questions about who was watching the store,” said Eisenbeis, who is now chief monetary economist at Sarasota, Florida-based Cumberland Advisors. The Fed “ought to be going in and looking at the internal controls and monitoring procedures that the institution is taking, and stress those.”

Krishna Guha, a spokesman for Federal Reserve Bank of New York, JPMorgan’s regulator, declined to comment. JPMorgan spokesman Joseph Evangelisti also declined to comment.

The Financial Stability Oversight Council, a group of regulators charged with preventing a financial crisis, wasn’t convened to discuss the JPMorgan loss and had no plans to meet, said a Treasury Department official who declined to be identified. The council is chaired by Treasury Secretary Timothy F. Geithner and includes Fed Chairman Ben S. Bernanke.

Capital Ratio

JPMorgan’s tier 1 common capital ratio, a measure of capital strength tracked by the Fed, never dipped below 5 percent in the 2012 stress scenario despite a hypothetical $28 billion in trading and counterparty losses and $56 billion in loan losses, according to results of the stress tests released on March 13.

“I don’t think this particular number is big enough to get in the way of the capital buffers that JPMorgan has,” Robert Engle, winner of the Nobel Prize in economics, said of the $2 billion loss.

“We think of JPMorgan as being one of the more systemic institutions because it is so big,” said Engle, a professor at New York University’s Stern School of Business, who helped develop a model of systemic risk at the school’s Volatility Lab. “But because it is big, a loss like this is not going to bring it to its knees.”

JPMorgan shares fell 9.3 percent to $36.96 at the close of trading today in New York. The KBW Bank Index of 24 financial stocks was down 1.2 percent to 46.40.

Separately, the Commodity Futures Trading Commission, the main U.S. derivatives regulator, has been reviewing JPMorgan’s derivatives trading activities since last month, according to another person who was briefed on the matter.

The CFTC hasn’t opened an enforcement action against the bank, according to the person, who spoke on condition of anonymity because the review is private.

To contact the reporters on this story: Craig Torres at ctorres3@bloomberg.net; Caroline Salas Gage at Csalas1@bloomberg.net

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

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Facebook Co-Founder May Gain Choosing Singapore Over U.S.

By Danielle Kucera, Christine Harper and Jesse Drucker - May 12, 2012 8:57 AM GMT+0700

Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.

Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin’s stake is about 4 percent, according to the website whoownsfacebook.com. At the high end of the proposed IPO market capitalization, that would be worth about $3.84 billion. His holdings aren’t listed in Facebook’s regulatory filings.

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Eduardo Saverin, co-founder of Facebook, in New York City. Photographer: Jason Kempin/Getty Images for Common Sense Media

Saverin, 30, joins a growing number of people giving up U.S. citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the world’s largest social network holds its IPO.

“It’s plainly lawful and at the same time profoundly ungrateful to the country that provided these opportunities for him,” said Edward Kleinbard, a tax law professor at the University of Southern California in Los Angeles. “He benefited from his U.S. education, the contacts he made at Harvard, and most important the extraordinary openness and flexibility of our economy that encourages startup ventures to flourish.”

Saverin’s name is on a list of people who chose to renounce citizenship as of April 30, published by the Internal Revenue Service. Saverin made the move “around September” of 2011, Tom Goodman, a spokesman for Saverin, said in an e-mailed statement.

‘Practical’ Residence

“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” Goodman said. Saverin still does hold Brazilian citizenship, Goodman said.

Americans who give up their citizenship owe what is effectively an exit tax on the estimated capital gains from their stock holdings at the time of the renunciation, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. In other words, for tax purposes, the IRS treats the stock as if it has been sold.

In Saverin’s case, the gain and subsequent tax bill would be based on the estimated fair market value as calculated by his tax advisers, not an actual open market sale. They could value his Facebook stake at less than it will be worth once shares trade publicly.

Saverin and his advisers could say that the value of his stake should be reduced for tax purposes because of the potential difficulty of selling the shares while the company was private.

‘Smart Idea’

Renouncing citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, Avi-Yonah said. “Once it’s public you can’t fool around with the value.”

And even the tax bill triggered by Saverin dropping his U.S. citizenship can be deferred indefinitely until he actually sells the shares. In that case, Saverin would have to pay interest during the deferral period -- currently at an annual rate of 3.28 percent per year, Kleinbard said.

Gains from any future appreciation of the stock will be earned free of any capital gains tax both in the U.S. and in Singapore. Singapore does not impose a capital gains tax.

While Saverin helped start Facebook, he hasn’t always had a harmonious relationship with Zuckerberg. He scuffled with his Harvard University classmate over his ownership in Facebook. Saverin sued him and settled for an undisclosed amount.

Brazilian Investment

The 2010 movie “The Social Network” portrayed Saverin as a scorned friend who provided the company’s early financing and then got squeezed out. In the film, written by Aaron Sorkin, Saverin was portrayed by Andrew Garfield, who will play Spider- Man in “The Amazing Spider-Man,” due to be released in July.

Saverin moved to the U.S. in 1992, and became a citizen in 1998, his spokesman said. He has invested in Asian, U.S. and European companies.

He plans to invest in Brazilian and in other global companies that have strong interests in entering the Asian markets, Goodman said.

Saverin’s U.S. holdings include Jumio Inc., an online payments company, and ShopSavvy Inc., a price-comparison service.

Renouncing citizenship is an option chosen by increasing numbers of Americans. A record 1,780 gave up their U.S. passports last year compared with 235 in 2008, according to government records.

Income-tax rates for top U.S. earners will rise to 39.6 percent from 35 percent next year and rates on capital gains and dividends also are due to rise, unless Congress intervenes.

U.S. Loss

“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Richard Weisman, head of the global tax practice at Baker & McKenzie LLP in Hong Kong. “The tax cost, complexity and the traps for the unwary are among the considerations.”

Some of the world’s largest wealth-management firms have ramped up efforts to fight tax evasion ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc (HSBA), Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. (DBS) all say they have turned away business.

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. That means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which may depress banks’ returns.

Facebook plans to price its IPO on May 17, offering 337.4 million shares at $28 to $35 each. The shares will be listed on the Nasdaq Stock Market under the symbol FB. Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. are leading the sale.

To contact the reporters on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net Sanat Vallikappen in Singapore at vallikappen@bloomberg.net Christine Harper in New York at charper@bloomberg.net

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

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California Deficit Swells to $16 Billion, Governor Says

By Michael B. Marois - May 13, 2012 2:49 AM GMT+0700

California’s budget deficit has swelled to $16 billion after tax collections trailed projections amid the tepid economic recovery, Governor Jerry Brown said in a comment on his Twitter post.

The shortfall has widened from the $9.2 billion Brown estimated in January, after lawmakers resisted the Democrat’s call for cost cuts, the federal government blocked other reductions and April income-tax revenue missed budget forecasts by $2 billion. On May 14, he’s set to unveil a revised spending plan and to say how he would erase the gap.

Brown, 74, set out an initial budget in January with $92.6 billion in spending for fiscal 2013, which begins in July. That plan stripped more than $4 billion from health and welfare programs while relying on higher income and sales taxes. The levy increases will go before voters in November. If rejected, schools will lose $4.8 billion midway through the year.

“We are still recovering from the worst recession since the 1930s,” Brown said in a YouTube video cited on his Twitter post. “Tax receipts are coming lower than expected and the federal government and the courts have blocked us from making billions of necessary budget reductions. The result is that we are now facing a $16 billion deficit.”

Brown this week submitted more than 1.5 million signatures to place the tax measure on the ballot. It would temporarily raise the state sales tax, already the highest in the U.S., to 7.5 percent from 7.25 percent. It would also boost rates on income starting at $250,000. The 10.3 percent levy on those making $1 million or more would rise to 13.3 percent, the most of any state.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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