Mirvac Delays Buyback Decision, Plans Queensland Housing Entry

By Nichola Saminather - Jun 25, 2012 7:25 AM GMT+0700

Mirvac Group (MGR), which recently raised more than A$300 million ($301 million) from the sale of its hotel management business, will delay any share buyback until market uncertainty stemming from Europe’s debt crisis abates.

“It doesn’t take much to put a credit freeze through the world if Europe, and particularly Greece, doesn’t sort out its issues,” Nick Collishaw, managing director of Mirvac, said in an interview in Sydney on June 22. “We’re holding more cash than we would ordinarily in more stable times. If the board and I see overall market sentiment picking up and we don’t have uses for the capital, then a buyback is on the cards.”

Mirvac in May completed the sale of its hotels unit to Accor Asia Pacific and Ascendas Real Estate Investment Trust (AREIT) for about A$322 million to simplify its business. The group is now focusing on office and retail properties in its investment unit, which makes up 80 percent of its business, while its development division is concentrating on creating condos, housing communities and commercial properties, Collishaw said.

Mirvac needs about A$200 million from asset sales to fund capital expenditure, Collishaw said at the group’s first-half earnings teleconference on Feb. 21. Above that, the group makes a “serious commitment” to a buyback, taking into account economic conditions, its share price and other opportunities, he said at the time.

As housing markets in Sydney, Brisbane and Melbourne slow, Mirvac is looking to mining areas in Queensland and Western Australia states for future growth. The company is in early stages of talks with coal and liquefied natural gas producers and government bodies in northern Queensland, Collishaw said.

Karratha Project

The talks, about housing the construction workers for plants and pipelines being built, will be followed in about three to five years by discussions about longer-term, master- planned communities, he said.

In Western Australia, Mirvac was named the preferred developer of the city center of Karratha, the biggest town in the iron-ore rich Pilbara region, in November in a joint venture with the local land authority. The A$1.5 billion project, which will create a new suburb, Mulataga, will accommodate as many as 8,000 people, Collishaw said.

“What’s been happening in the Pilbara and north of Queensland so far has been one off, ad hoc projects,” he said. “The debate going on right now in the resource centers and councils is this is no longer boom-bust style development. We’re now putting together the infrastructure, the cultural facilities, you expect to see in the suburb of a city.”

Population Growth

The population of Western Australia jumped 14.3 percent in the five years to 2011, while Queensland’s rose 11 percent, Census figures released last week showed. The median individual income surged 32.4 percent in Western Australia and 23.3 percent in Queensland, they showed.

Mirvac has also entered Perth’s office market, with the redevelopment of the Old Treasury Building, which is fully leased to the Western Australian government for 25 years, he said.

Perth had a vacancy rate of 3.3 percent at the end of December, as the city saw its third-highest absorption on record, driven by an unemployment rate of 4.3 percent, according to figures from broker Colliers International. In contrast, Sydney’s vacancy rate was 9.6 percent, and Melbourne’s 5.3 percent.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Nichola Saminather at nsaminather1@bloomberg.net

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Treasuries Rise as George Soros Warns Euro Is at Risk

By Wes Goodman - Jun 25, 2012 9:04 AM GMT+0700

Treasuries rose, snapping a decline from last week, after billionaire investor George Soros warned the euro may dissolve if European Union leaders fail to curb the region’s debt crisis at a two-day summit starting June 28.

Soros called on Europe to start a fund to buy Italian and Spanish bonds in return for budget cuts in the nations, speaking in an interview in London yesterday. Demand for the safest assets as European governments try to find ways to pay their debts has helped Treasuries beat all other U.S. fixed-income securities for the first time in three quarters.

“The ideal thing will be for EU leaders to lay out a grand plan for fiscal union, but the suspicion is that they will again fall short of that,” said Peter Jolly, the Sydney-based head of market research at National Australia Bank Ltd. (NAB), the nation’s largest lender by assets. “That’s going to keep Treasury yields low.”

The U.S. 10-year yield declined two basis points, or 0.02 percentage point, to 1.66 percent as of 11:02 a.m. in Tokyo, Bloomberg Bond Trader data show. The 1.75 percent note due in May 2022 advanced 5/32, or $1.56 per $1,000 face amount, to 100 27/32. The rate increased 10 basis points last week.

Treasury 10-year notes will yield 2 percent at year-end, Jolly said, versus the average of 3.78 percent over the past decade.

Japan’s 10-year rate was unchanged at 0.825 percent. It was as low as 0.79 percent on June 4, a level not seen since 2003.

Comparative Returns

U.S. government debt has gained 2.9 percent since March, while corporate bonds returned 1.9 percent, mortgages rose 1 percent and municipal bonds increased 1.8 percent, according to Bank of America Merrill Lynch index data.

European leaders are running out of time to show investors they will do what’s necessary to save their currency, Soros said.

“There is a disagreement on the fiscal side,” Soros said in an interview with Bloomberg Television’s Francine Lacqua. “Unless that is resolved in the next three days, then I am afraid the summit could turn out to be a fiasco. That could actually be fatal.”

Italy plans to sell inflation-linked securities maturing in 2016 and 2026 tomorrow as well as 3 billion euros ($3.76 billion) of zero-coupon bonds. Spain will auction three- and six-month bills tomorrow.

Government bonds losing their risk-free status are depriving investors of wealth-preservation opportunities as Europe’s debt crisis boosts demand for havens, according to the Bank for International Settlements.

The global pool of safer assets “has shrunk just as demand has risen due to a flight to safety, leading to a major shortage of safe assets in the global financial system,” the BIS said in its annual report in Basel, Switzerland.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net

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

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Yahoo Japan Shares Fall on E-Mail Privacy Inquiry: Tokyo Mover

By Shunichi Ozasa and Naoko Fujimura - Jun 25, 2012 9:15 AM GMT+0700

Yahoo Japan Corp. fell the most in four months in Tokyo trading as the government said it will question the company about plans to display advertisements based on the contents of users’ e-mail messages.

Yahoo Japan fell as much as 6.1 percent, the biggest intraday decline since Feb. 15, to 23,710 yen and traded at 24,740 yen as of 10:59 a.m. Japan’s benchmark Nikkei 225 Stock Average was little changed.

Japan’s largest Internet company by market value will start using a program in August that automatically detects key words in e-mails, said Asuka Isayama, a spokeswoman for the Tokyo- based web-portal operator. The Ministry of Internal Affairs and Communications plans to ask Yahoo Japan about the service, said Noriyuki Morisato, a deputy director at the telecommunications consumer policy division, confirming an earlier report by the Yomiuri newspaper.

“We’ve been notifying users of our plan to introduce the service since the end of May, and we will also offer an option to opt out,” Yahoo Japan’s Isayama said. “So we don’t think there’s a problem.”

Morisato declined to comment on whether the service violates privacy laws.

Incoming e-mails from senders not using Yahoo would also be subject to scanning, Isayama said. The company’s e-mail service has about 15 million users in Japan, she said.

“There won’t be any impact on Yahoo’s earnings” from a potential government probe, said Eiji Maeda, a senior analyst at SMBC Nikko Securities Inc. in Tokyo. “Still, the market is taking the news as negative.”

Softbank Corp. (9984), Japan’s third-biggest mobile-phone company, owns about 42 percent of Yahoo Japan, while Yahoo! Inc. (YHOO) owns about 35 percent, according to data compiled by Bloomberg.

To contact the reporters on this story: Shunichi Ozasa in Tokyo at sozasa@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

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

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Hong Kong-LME Deal Spurs Biggest Exchange Drop: Real M&A

By Jonathan Burgos and Eleni Himaras - Jun 25, 2012 8:49 AM GMT+0700

Hong Kong Exchanges & Clearing Ltd.’s pursuit of the London Metal Exchange is transforming the Asian bourse into the industry’s worst performer.

Hong Kong Exchanges’ $2.2 billion bid for the LME this month valued the world’s largest trading venue for industrial metals at 181 times earnings, making it the most expensive bourse acquisition exceeding $1 billion on record, according to data compiled by Bloomberg. With the Asian company’s stock tumbling since the first report of its interest in the LME, it has now retreated 33 percent in the past year, the biggest decline among the world’s 20 largest exchanges, the data show.

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Charles Li, chief executive officer of Hong Kong Exchanges & Clearing Ltd. Photographer: Jerome Favre/Bloomberg

While the merger will give Hong Kong Exchanges control of about 80 percent of global trade in industrial-metal futures as it grapples with falling profits and a slump in initial public offerings, the New York Stock Exchange (NYX)’s head said the price would have been too rich for the biggest U.S. bourse operator. An increase in trading by Chinese companies on the LME is vital to justify the deal, making the takeover’s success dependent on China’s regulators, who have so far resisted granting the LME access to the mainland to protect its rival in Shanghai, according to Core Pacific-Yamaichi International (H.K.) Ltd.

“In the short-term, this acquisition will be a huge burden,” Michiya Tomita, a Hong Kong-based fund manager at Mitsubishi UFJ Asset Management Co., which oversees $65 billion, said in a phone interview. “The valuation they’re buying LME for is expensive. This investment could pay off eventually if they are able to boost China’s trading volumes on LME, but that’s not easy to achieve given current regulatory restrictions.”

Benchmark Prices

Hong Kong Exchanges, formed a decade ago through the combination of the city’s equity and derivatives markets, has focused on stocks, options and futures on equity indexes and interest rates. The 135-year-old LME, which reported record volume of $15.4 trillion last year, sets global benchmark prices for metals including copper, aluminum and nickel, of which China consumes more than any other nation.

Trading volume on the LME grew about 58 percent between 2007 and 2011, according to data from the exchange. UBS AG analyst Stephen Andrews forecasts trading will increase to 261 million lots by 2015, from about 147 million lots in 2011, according to a June 18 note.

“This deal is about growth over not just one or two years, but over the longer term,” James Fok, chief of staff to Hong Kong Exchanges’ (388) Chief Executive Officer Charles Li, said in a phone interview. “As a standalone business, LME has quite an attractive growth rate. On top of that, what we’re able to help plug it into are areas of growth that it’s not capturing today - - in particular China -- that are able to boost that growth quite substantially.”

‘Very Well’

“From our point of view we think the valuation stacks up very well,” he said.

Miriam Heywood, a spokeswoman for LME, declined to comment on the price Hong Kong Exchanges offered for the firm.

Hong Kong Exchanges said on June 15 it had agreed to pay 1.39 billion pounds ($2.2 billion) for LME, or 181 times the London-based company’s 2011 earnings of 7.68 million pounds, according to data compiled by Bloomberg. The exchange’s stocks fell as much as 0.6 percent today and was little changed at HK$108.80 as of 9:44 a.m. in Hong Kong.

The LME purchase price was almost double the prior record for an exchange deal exceeding $1 billion, the data show. The merger of Sao Paulo-based Bolsa de Mercadorias & Futuros-BM&F SA and Bovespa Holding SA to create Latin America’s biggest stock and futures exchange valued Bovespa at 107 times profit when it was announced in March 2008, data compiled by Bloomberg show.

‘Limited Relevance’

The member-owned LME’s previous profits are “of limited relevance” because the bourse kept fees low for the benefit of its shareholders, Hong Kong Exchanges said in a June 15 statement. Had a fee increase scheduled for next month taken place before 2011, profits would have tripled to 23.8 million pounds last year, it said.

With that level of earnings, the takeover would value LME at 58 times profit. That would still leave Hong Kong’s bid as the third-most expensive for a bourse on record, behind the BM&F-Bovespa merger and the Chicago Mercantile Exchange’s October 2006 offer for the Chicago Board of Trade, according to data compiled by Bloomberg. The Bloomberg World Exchanges Index (BNWEXCH) of 25 bourses traded at almost twice its current price-earnings multiple when the deal to create the current Chicago-based CME Group Inc. (CME) was announced, the data show.

“The earnings don’t justify the price,” Thomas Monaco, an analyst at Mizuho Securities Asia Ltd. in Hong Kong, said in a telephone interview. “I don’t see it being positive for earnings, which is essentially what the stock trades off of. I think they’ve bitten off much more than they can chew.”

‘Value-Destructive’

Taking into account the agreement by Hong Kong Exchanges not to raise fees on the LME until 2015, Monaco estimated in a June 18 note that the bourse will have to double the LME’s profits in order to avoid cutting its dividend or selling new shares to finance the deal.

“This was a value-destructive deal and the company should not be doing something like this,” Monaco said.

NYSE Euronext’s CEO Duncan Niederauer said on June 8 that the LME had become too expensive for the operator of the New York Stock Exchange. NYSE Euronext had said in May it was removed from the list of potential buyers.

“We weren’t going to chase it,” Niederauer said at the Sandler O’Neill Global Exchange and Brokerage Conference in New York. “The price it’ll likely trade at, frankly, it was too rich in terms of what we were able to afford to pay.”

LME Shareholders

Hong Kong Exchanges’ bid has left New York-based JPMorgan Chase & Co. poised to more than double the value of its investment in LME shares bought seven months ago from the U.K. unit of bankrupt MF Global Holdings Ltd. The New York-based bank is the biggest investor in the LME with 1.4 million shares valued at 150.6 million pounds after Hong Kong’s offer of 107.60 pounds per ordinary share.

New York-based Goldman Sachs Group Inc. (GS)’s stake of 1.23 million shares in LME is valued at 132.3 million pounds. U.K. metals trading companies Metdist Ltd. and Metdist Trading Ltd. have a combined 1.21 million LME shares, valued at about 130 million pounds after the offer.

Hong Kong Exchanges, which had $5.7 billion in cash and short-term investments at the end of March, is borrowing 1.1 billion pounds for the purchase and plans to sell stock or bonds to refinance the loans. The company is likely to issue 10 percent of its share capital to raise funds, according to Ivan Li, an analyst at Kim Eng Securities in Hong Kong.

‘Under Pressure’

“Its share price may be under pressure again at that time,” Li wrote in a June 20 note. Li cut his forecast for Hong Kong Exchange’s 2012 earnings by about 10 percent and the price estimate on the stock to HK$90 a share, or 17 percent below last week’s close.

With the announcement of the LME acquisition sending Hong Kong Exchanges to the largest drop in the city’s benchmark Hang Seng Index on June 18, the bourse has now tumbled 33 percent in the past year. That’s a bigger slump than any global exchange with a market value of more than $500 million, data compiled by Bloomberg show. Most of the decline has come since the South China Morning Post newspaper first reported the bourse’s interest in LME in February.

The deal price means that Hong Kong Exchanges will have to boost LME’s revenue to at least 400 million pounds, from 61 million pounds in 2011, if it is to meet its own goal of a 10 percent to 15 percent return on investment for the acquisition in five years, UBS’s Andrews said. The purchase is unlikely to make more than a “mid-single digit” return on investment in the next three to five years, according to a June 18 note from Andrews, who factored in the cost of financing and U.K. taxes.

‘Strategic Benefits’

“There are clearly strategic benefits for Hong Kong from owning this asset but for HKEx’s shareholders acquisitions need to generate a good return on cash invested to add value,” Andrews wrote. “LME may well come up short of expectations in this regard.”

Hong Kong plans to increase the London exchange’s revenue in part by tapping the large potential base of customers in China, which accounts for about 40 percent of consumption of commodities globally and only as much as 25 percent of trading on the LME, the company said when announcing the deal.

To increase trading by Chinese firms, the LME will need permission to register warehouses in mainland China, according to Timothy Li, a Hong Kong-based senior analyst for Core-Pacific Yamaichi. That may not be forthcoming with Chinese regulators interested in protecting the Shanghai Futures Exchange from competition, he said.

Warehouse Ban

The China Securities Regulatory Commission, which is responsible both for regulating trading and developing China’s domestic markets, has prohibited foreign bourses from setting up warehouses for delivery of commodities. The ban is in place until the government issues rules on the opening of futures markets, the CSRC said in a July 2008 statement. The CSRC hasn’t said when that will happen and didn’t respond to a request for comment outside normal business hours.

“Whether you are a producer, user or trader, warehouse delivery is an important part of commodity trading,” Zhang Yifan, a commodity strategist at China Galaxy Securities Co., said by phone from Shanghai. “Obstacles for overseas exchanges to set up delivery warehouses in China gives domestic players less incentive to trade on the foreign exchanges.”

The CSRC also controls Chinese companies’ ability to trade commodity futures in overseas exchanges, including the LME.

“They need to boost LME trades from China,” Core Pacific- Yamaichi’s Li said in a telephone interview. “China’s interest in protecting the Shanghai Futures Exchange from overseas competition may make this difficult.”

Declining Earnings

Before Hong Kong Exchanges agreed to the deal for LME, analysts were projecting it would report earnings of about HK$5 billion ($640 million) in 2012, the fifth year of falling or unchanged profits since 2007. The average of analyst forecasts dropped to HK$4.9 billion in the past week, data compiled by Bloomberg show.

Hong Kong has accounted for about 5 percent of the global amount raised through new listings this year, compared with 13 percent in 2011 and 18 percent in 2010, according to data compiled by Bloomberg.

The acquisition of LME will have a “significant impact” on Hong Kong’s ability to boost its profits as it increases trading fees and expands its offering of products denominated in renminbi in the world’s fastest growing major economy, according to Simmy Grewal, London-based senior analyst at Aite Group LLC.

‘Very Large’

“The potential is very large and that is what Hong Kong is paying for,” Grewal said in a phone interview. “They’ve been very smart about diversifying to now look at commodities. They didn’t want more exposure to equities, so they realized they needed to diversify and get to a completely different space that also complements the exposure to China because that is something that no other exchange in the world has.”

With the takeover unlikely to boost Hong Kong’s earnings in the short-term, investors may still grow more impatient given the uncertainty about the merged entity’s ability to get the necessary access to China, according to Mizuho’s Monaco.

“This is a very, very long-term thing,” he said. “We don’t know if they’ll be able to get the warehouses in China. We have no idea.”

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Eleni Himaras in Hong Kong at ehimaras@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Nick Gentle at ngentle2@bloomberg.net.

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Islamist Mohamed Mursi Elected Egyptian President

By Mariam Fam and Tarek El-Tablawy - Jun 25, 2012 1:11 AM GMT+0700

The Muslim Brotherhood’s Mohamed Mursi was elected Egypt’s first Islamist civilian president, capping an acrimonious race that divided a nation whose economy is reeling and where the military has curbed his authority.

Mursi, 60, defeated Ahmed Shafik, who served as Hosni Mubarak’s last premier, election commission head Farouk Sultan said in a televised press conference. Mursi won 13.2 million votes or 51.7 percent, beating Shafik who garnered 12.3 million votes or almost 48.3 percent, Sultan said.

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Newly-elected President Mohamed Mursi delivers a speech in Cairo on Sunday. Source: Egypt State TV via The Associated Press

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Muslim Brotherhood candidate Mohamed Mursi waves after casting his ballot at a polling station in the city of Zagazig on June 16, 2012. Photographer: Marwan Naamani/AFP/Getty Images

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Egyptians celebrate the election of their new president the Muslim Brotherhood's Mohamed Mursi in Tahrir Square. Photographer: Daniel Berehulak/Getty Images

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Egyptians celebrate the election of their new president Mohamed Mursi in Cairo's Tahrir Square on June 24. Photographer: Daniel Berehulak/Getty Images

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Egyptians celebrate the election of their new president, the Muslim Brotherhood's Mohamed Mursi in Tahrir Square. Photographer: Daniel Berehulak/Getty Images

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The crowd carries a Muslim Brotherhood supporter overcome by emotion as Egyptians celebrate the election of their new president Mohamed Mursi in Tahrir Square on Sunday. Photographer: Daniel Berehulak/Getty Images

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Egyptians celebrate the election victory of the Muslim Brotherhood's Mohamed Mursi in Cairo's Tahrir Square. Photographer: Khaled Desouki//AFP/Getty Images

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Fireworks above Cairo's Tahrir Square as Egyptians celebrate the election victory of the Muslim Brotherhood's candidate Mohamed Mursi. Photographer: Khaled Desouki/AFP/Getty Images

The announcement drew an uproar of cheers from tens of thousands gathered in Cairo’s Tahrir Square where supporters of the Brotherhood had been rallying for the past week against the ruling military council. In the Hamas-ruled Gaza Strip, backers of that Islamist movement fired celebratory shots in the air and hundreds waved the Egyptian flag.

“The Brotherhood wants to have a stronger presidency, and they are going to use their popular mandate and their democratic legitimacy now to aggressively push against” the ruling military council, said Shadi Hamid, director of research at the Brookings Doha Center. “That’s a key struggle to watch.”

Second Choice

Mursi was only nominated by the Brotherhood after it became apparent that its first choice, chief strategist Khairat el- Shater, was going to be disqualified because of an electoral technicality. Mursi and Shafik both claimed victory immediately after the June 16 and 17 runoff vote, sparking a week of tension in a country that has seen little stability since Mubarak’s ouster in February 2011.

Before the announcement, the military council boosted its authority at the expense of the presidency after a court ordered the dissolution of the Islamist-dominated parliament. A decree granted the military legislative powers and the ability to play a role in shaping a new constitution. The military defended its moves as being in the interests of national security.

“The Egyptian people want a real president and not a figurehead,” Muslim Brotherhood spokesman Mahmoud Ghozlan said in a telephone interview after the announcement. “The Egyptian people and the Muslim Brotherhood are keen on restoring the president’s authorities and thus are out there on the streets for the decree to be canceled.”

Ahead of the release of the results, officials boosted security across the country as tens of thousands of Mursi’s supporters gathered in Tahrir Square, the epicenter of last year’s uprising. Some businesses let their employees leave early amid worries that the outcome would trigger unrest. Official results were originally due to be released on June 21 before being postponed amid fraud allegations from the two candidates.

Military Confrontation

The military’s moves raised the possibility of a power struggle between the army and the Brotherhood after Mursi’s victory. Tensions marring the country’s transition have scared away foreign investors and tourists and hampered efforts to secure a $3.2 billion loan from the International Monetary Fund.

Israel’s government said it “appreciates the democratic process in Egypt and respects the results” of the election. “Israel looks forward to continuing cooperation with the Egyptian government on the basis of the peace treaty between the two countries, which is a joint interest of both peoples,” the office of Prime Minister Benjamin Netanyahu said today in a text message to journalists.

In Gaza, Hamas leader Mahmoud Zahar said “the loser in this battle is Israel.”

Power Struggle

Mursi’s win is unlikely to settle the longer-range challenge of the Brotherhood’s power struggle with the military and how that will play out in the country’s push to stabilize its economy and its political situation.

“There are still a lot of unknowns for the market, which will be looking for direction from the street, the presidency and progress by the constitutional committee,” Wael Ziada, head of research at Cairo-based EFG-Hermes Holding SAE, said by phone. “A lot will depend on public acceptance of the dissolution of parliament and the constitutional declaration after Mursi’s win.”

Mursi, a U.S.-trained engineer, inherits an economy that has struggled to recover since the revolt last year, as tourists and investors stayed away.

Bond Yields

The yield on Egypt’s 5.75 percent dollar bonds due in 2020 soared the most last week since they were sold in April 2010. The rate jumped 97 basis points to 7.87 percent in the week that ended June 22, according to prices compiled by Bloomberg. That included a 52 basis-point surge on the last day of the week.

The Arab country’s five-year credit default risk jumped 68 basis points last week to 723, the highest level since December 2008, according to CMA, which is owned by CME Group Inc. and compiles prices from the privately negotiated market. Egypt is among the 10 riskiest credits in the world.

“The new president arrives in a total institutional vacuum and in a seat essentially devoid of powers,” said Philippe Dauba-Pantanacce, Dubai-based senior economist at Standard Chartered Plc. “There is no constitution to define the presidential attributions, allocate and distinguish the executive from the legislative powers.”

The generals say they are committed to transferring rule to the new civilian president by the end of the month. Their critics charge they have tightened their grip in what amounts to a coup and will not cede meaningful power.

Mursi cast himself as the “revolutionary” candidate in the runoffs against Shafik, a former air force pilot and civil aviation minister, who ran on a law and order platform. He also tried to allay fears by some Christians and secular Muslims who say they were concerned that the Brotherhood may monopolize power or curb freedoms.

“The country is split into two,” said Teymour El-Derini, Cairo-based director of Middle East and North Africa sales trading at Naeem Brokerage. “The new president has to make everyone happy. There won’t be much patience.”

To contact the reporters on this story: Mariam Fam in Cairo at mfam1@bloomberg.net; Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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BRICs Biggest Currency Depreciation Since 1998 to Worsen

By Ye Xie and Michael Patterson - Jun 25, 2012 6:02 AM GMT+0700

The largest emerging markets, whose economies grew more than four-fold in the past decade, are making losers out of everyone from central bankers to Procter & Gamble Co. (PG) as their currencies post the biggest declines since at least 1998.

For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the yuan has depreciated more than in any other period since its 1994 devaluation. P&G, the world’s largest consumer-goods maker, cut its profit forecast for the second time in two months last week in part because of currency losses. Brazil’s Fibria Celulose SA (FIBR3), the biggest pulp producer, asked banks to loosen restrictions on dollar loans after the real hit a three-year low.

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BRICS' heads of state, from left, Brazil's President Dilma Rousseff, Russia's President Vladimir Putin, India's Prime Minister Manmohan Singh, China's President Hu Jintao and South Africa's President Jacob Zuma. (AP Photo/Andres Leighton)

Investors are fleeing the four biggest emerging markets, known as the BRICs, after Brazil’s consumer default rate rose to the highest level since 2009, prices for Russian oil exports fell to an 18-month low, India’s budget deficit widened and Chinese home prices slumped. Investors are bracing for more losses as economic growth slows.

“I am quite bearish,” Stephen Jen, a managing partner at hedge fund SLJ Macro Partners LLP and a former economist at the International Monetary Fund, said in a phone interview from London. “When the global economy and capital flow slow down, it’s going to expose a lot of problems in these countries and make people stop and ask questions. A run on the currency could be particularly ugly.”

Ruble’s Retreat

Currencies from Brazil, Russia and India will probably decline at least 15 percent by year-end, said Jen, the former head of global currency research at Morgan Stanley.

Brazil’s real lost 12 percent so far this quarter, the biggest drop among the 31 most-actively traded currencies tracked by Bloomberg. The 11 percent depreciation in the ruble and the rupee was twice the retreat in the euro. China’s yuan, which was kept unchanged during the global financial crisis in 2008 and 2009, fell 1 percent since March after the government widened the amount the currency is allowed to fluctuate each day.

The ruble sank 2.4 percent last week, the rupee fell 2.9 percent to a record low against the dollar and the real dropped 0.8 percent. The yuan was little changed. For the week, the euro declined 0.5 percent.

Foreign Reserves

A decade after Goldman Sachs Group Inc. (GS)’s Jim O’Neill coined the term BRIC, China has become the second-largest economy while Brazil, India and Russia are among the 11 biggest worldwide. Their combined gross domestic product rose to $13.3 trillion last year from $2.8 trillion in 2002 as their share of the global economy increased to 19 percent from 8 percent, according to IMF data. Together, they control $4.4 trillion in foreign-exchange reserves, about 40 percent of the total.

The MSCI BRIC Index (MXBRIC) of shares has surged 281 percent during the past decade, compared with 34 percent for the Standard & Poor’s 500 Index (SPX) as the real and the yuan strengthened more than 30 percent. Local-currency debt in the BRIC nations returned an average 86 percent in dollar terms since data for JPMorgan Chase & Co. indexes on all four countries began in October 2005, versus a 48 percent increase in U.S. Treasuries.

The countries are still strong enough to account for 80 percent of growth at New York-based Goldman Sachs, the fifth- biggest U.S. bank by assets, Chief Executive Officer Lloyd Blankfein said at the St. Petersburg International Economic Forum in Russia’s second-largest city on June 21.

Export Boost

Weaker currencies will stimulate economic expansion by making exports more competitive, said Warren Hyland, an emerging-market money manager at Schroder Investment Management, which oversees about $319 billion worldwide. He’s been buying ruble bonds of Russian companies.

Earnings at the nation’s commodity producers, including OAO GMK Norilsk Nickel (GMKN) and Polyus Gold International Ltd. (PGIL), will get a boost because their sales are in dollars while the bulk of their costs are in rubles, New York-based Morgan Stanley said in a report this month.

Weaker currencies are hurting U.S. companies that rely on developing-nation revenue to offset slower growth in the U.S., Europe and Japan.

Lower Forecasts

P&G, led by Chief Executive Officer Bob McDonald, said in a June 20 presentation at the Deutsche Bank Global Consumer Conference in Paris that foreign-currency fluctuations will cut 2013 earnings growth for the maker of Tide washing detergent and Bounty paper towels by about 4 percentage points. China is the Cincinnati-based company’s second-largest market and some of the firm’s biggest businesses are in Russia and Brazil, P&G said.

Philip Morris International Inc. (PM), the world’s largest listed tobacco company, reduced its 2012 earnings forecast the next day because of currency swings. The New York-based maker of Marlboro cigarettes gets more than 40 percent of its operating profit from Asia and Latin America, according to data compiled by Bloomberg.

A weaker real and lower interest rates in Brazil may reduce Coca-Cola Co. (KO)’s second-quarter profit by $30 million, according to JPMorgan. The Atlanta-based company left about $3 billion in cash in Brazil at the end of 2011 to take advantage of the country’s higher interest rates, Chief Financial Officer Gary Fayard said in a conference call in February. Half of the positions were left unhedged, he said.

Pandit’s Expansion

Brazil’s central bank President Alexandre Tombini has cut the benchmark Selic rate by 2.5 percentage points this year to 8.5 percent, while the real has depreciated 9.7 percent.

“We continue to be concerned by Coke’s reliance on this income source,” JPMorgan analysts led by John Faucher wrote in a note to clients on June 7, reducing their 2012 profit estimate to $4 a share from $4.06.

Kent Landers, a spokesman for Coca-Cola, declined to comment.

Citigroup Inc. (C), which has been expanding in Latin America and Asia under Chief Executive Officer Vikram Pandit, may take a $3 billion to $5 billion “hit” this quarter related to foreign exchange losses, Charles Peabody, a New York-based analyst at Portales Partners LLC, said in an interview with Bloomberg Television on June 20. The losses may reduce Citigroup’s book value, or assets minus liabilities, he said.

Peabody, whose recommendations on shares of New York-based Citigroup during the past year produced the highest total return among 31 forecasters tracked by Bloomberg, cut his rating on the stock to the equivalent of sell from buy in March.

Fibria Debt

“Citi’s unique global footprint and exposure to the higher economic growth regions of the world will drive above-average book value growth over time,” Jon Diat, a Citigroup spokesman, said in an e-mail. “The suggestion that having non-U.S. exposure is somehow detrimental to Citi’s ability to continue to grow value over time is simply wrong.”

Local companies in the BRIC countries are also being hurt. Sao Paulo-based Fibria said on June 11 that it renegotiated loan covenants after the real’s decline increased the cost of servicing foreign obligations. About 90 percent of the company’s net debt is in dollars, according to company filings.

The rupee’s drop has hurt Indian companies by fueling inflation and reducing the scope for lower borrowing costs, said V. Ashok, the chief financial officer of Essar Group, the utility and shipping company owned by billionaire brothers Shashi and Ravi Ruia. India’s central bank unexpectedly left interest rates unchanged on June 18.

Yuan Debt

“One has no clue where it is going to end,” Ashok said in a June 22 phone interview from Mumbai. “The uncertainty and the volatility is the biggest concern.”

A weaker yuan is sapping demand for local-currency debt sold in Hong Kong, where international investors speculate on China’s foreign exchange rate. The average yield rose to a four- month high of 5.35 percent on June 5 from 4.82 percent at the end of March, according to data compiled by Bank of America Corp. Wang Changshun, chairman of Air China Ltd. (601111), told reporters this month that the company’s income from foreign-currency transactions will drop about 80 percent.

“All the BRIC looked ugly,” John Taylor, who oversees $3.5 billion as founder of currency hedge fund FX Concepts LLC in New York, said in an phone interview on June 19. The real and ruble will suffer “fairly decent” declines later this year as a global recession spurs investors to buy dollars as a haven, Taylor said.

Bearish Bets

After spending most of last year introducing policies to weaken their currencies, emerging-market governments are now working to limit the slide amid capital outflows.

Brazil’s government pared a tax on overseas loans on June 14 and has used swaps to add dollars to the market. Russia’s central bank sold U.S. currency this month to slow the ruble’s retreat, according to Chairman Sergey Ignatiev. India cut the amount of overseas income companies can hold in foreign exchange last month, spurring them to repatriate earnings. The government and central bank plan to unveil steps today to support the rupee, Finance Minister Pranab Mukherjee told reporters in Kolkata on June 23.

Investors withdrew $6.3 billion from Brazil’s stocks and bonds in May, the most since at least 2010, central bank data show. Russian capital outflows reached a net $46.5 billion in the first five months of the year, including $5.8 billion in May, which is “a lot” for the country, Ignatiev told reporters in St. Petersburg on June 6.

Derivatives traders see no sign of a turnaround.

Wagers on a weaker real on Sao Paulo-based BM&FBovespa’s futures exchange rose to $4.7 billion on June 12, the most since February 2010, according to data compiled by Bloomberg.

Bad Loans

Option traders are the most bearish on the ruble since October and they expect price swings in the rupee to be the biggest in Asia, the data show. Twelve-month forward contracts on the yuan are pricing in a further decline of 0.7 percent in 12 months.

A surge in bad loans in Brazil will weaken the real further, said Amit Rajpal, who manages global financial funds for London-based Marshall Wace LLP. The default rate on consumer debt rose to 7.6 percent in April, matching the highest level since December 2009, as lending growth slowed to 18 percent from a record 34 percent in September 2008, according to the central bank.

“What we’ll see now is basically a full-blown credit problem,” said Rajpal, who predicts rising defaults in Brazil will resemble the collapse of the U.S. subprime mortgage market five years ago.

India Deficit

In India, Prime Minister Manmohan Singh is grappling with trade and budget deficits, corruption scandals and fighting in the ruling coalition. The country may become the first among the BRIC nations to lose its investment-grade rating, Standard & Poor’s and Fitch Ratings said this month. India’s budget gap amounted to 5.8 percent of gross domestic product, compared with 4.2 percent in Portugal and 3.9 percent in Italy, according to data compiled by Bloomberg.

China has cut its growth target this year to 7.5 percent, from the 8 percent goal that had been in place since 2005. Home values fell in a record 54 of 70 cities tracked by the government in May, while industrial production growth slowed to a three-year low in April.

In Russia, the price of Urals crude, the country’s main export blend, sank 26 percent this quarter. Russia relies on oil and gas for about 50 percent of its budget revenue.

Investors are still too bullish on assets in the BRIC nations as Europe’s debt crisis weighs on emerging economies, said Eric Fine, a money manager at Van Eck Global.

“They will do poorly when the world is doing poorly,” Fine, whose firm oversees about $35 billion, said in a phone interview from New York. “I don’t believe in decoupling.”

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net;

To contact the editors responsible for this story: Laura Zelenko at lzelenko@bloomberg.net; Dave Liedtka at dliedtka@bloomberg.net

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College Football’s BCS Reaches Consensus on 4-Team Playoff

By Nancy Kercheval - Jun 21, 2012 8:17 AM GMT+0700

College football’s Bowl Championship Series commissioners reached a consensus on a four-team seeded playoff structure for the 2014 season.

The proposal will be presented to the Presidential Oversight Committee, which has the final say, the BCS said on its website. The university presidents meet June 26 in Washington.

“We are excited to be on the threshold of creating a new postseason structure for college football,” the statement, attributed to BCS commissioners and Notre Dame Athletic Director Jack Swarbrick, said. “We are getting very close and we look forward to next week’s meeting.”

The BCS commissioners have met five times to discuss a playoff model since the championship game on Jan. 9, when the University of Alabama won its second national title in three years with a 21-0 victory over Louisiana State at the Superdome in New Orleans.

Big Ten Commissioner Jim Delany told ESPN that the group is “unified” although there are some issues that have not been finalized.

“There’s always devil in the detail, from the model to the selection process, but clearly we’ve made a lot of progress,” Delany said.

The commissioners divulged few details on their website ahead of the meeting with the university presidents.

The semifinals under the proposed championship would rotate among the major bowls, the Associated Press reported, citing people familiar with the BCS decision. A selection committee would help pick the schools competing in the four-team playoff.

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

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

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Japanese Stocks Advance as Fed Expands Operation Twist

By Yoshiaki Nohara - Jun 21, 2012 9:47 AM GMT+0700

June 21 (Bloomberg) --　Japan stocks rose a second day on speculation the yen’s advance will be halted after the U.S. Federal Reserve refrained from adding stimulus. Shares also advanced after lawmakers approved two economists seen to support loose monetary policy to sit on the Bank of Japan’s board.

Honda Motor Co. (7267), a carmaker that gets 44 percent of its sales in North America, rose 3 percent after the yen fell against the dollar yesterday in response to the Fed announcement. Renesas Electronics Corp. (6723) gained 4.3 percent on a report KKR & Co. and Silver Lake are in talks to invest in the chipmaker. Stocks also rose on a report foreign investors were net buyers of Japanese stocks last week for the first time in nine weeks, according to the Finance Ministry.

The Nikkei 225 Stock Average (NKY) gained 1 percent to 8,839.99 as of 11:13 a.m. in Tokyo. The broader Topix Index advanced 1 percent to 754.83, with about three stocks rising for each that fell.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

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Europe Companies in Crisis Snapped Up by Overseas Buyers

By Matthew Campbell and Jonathan Browning - Jun 21, 2012 6:01 AM GMT+0700

The fourth Friday of every month at a pub in San Francisco’s Ghirardelli Square, British expatriates living in the technology capital of the world meet to eat, drink, and reminisce about home. The group includes staffers at West Coast tech giants Google Inc. (GOOG), Apple Inc. (AAPL) and Amazon.com Inc. (AMZN) and lists more than 1,000 registered members on its Meetup page. That number is about to get larger.

As growth in the global technology industry slows, European companies have been hobbled by weak valuations. As a result, cash-rich U.S. acquirers are swallowing up their European counterparts, outspending European acquirers by almost two-to- one in the region. That means more of Europe’s tech whizzes are moving to Silicon Valley, even as the continent’s recession- wracked governments push attempts to spur innovation.

Overseas buyers, especially from the U.S.,“are doing the math and valuing European public companies more highly than the European markets,” said Simon Pearson, an M&A partner at Ernst & Young LLP in London. “The number of substantial European tech companies is going to continue to dwindle.”

U.S. buyers have spent $42 billion on acquisitions of Europe’s technology companies since 2009, led by Hewlett-Packard Co. (HPQ)’s $10.3 billion takeover of U.K. data-analysis firm Autonomy Corp. last year, compared with $27 billion in deals by European buyers.

No Ecosystem

The gulf may grow even wider as two one-time European technology giants that have struggled against U.S. and Asian competition, smartphone maker Nokia Oyj (NOK1V) and phone-equipment vendor Alcatel-Lucent, are expected to shed assets. Bankers are also predicting consolidation in the computer-services space, in which European leaders Cap Gemini SA (CAP) and Atos SA trail U.S.- and India-based competitors in a market that’s barely growing.

Unlike the technology giants in the U.S., large European companies lack “an ecosystem of mid-sized businesses around them,” which in turn drives even more innovation, said Errol Damelin, the founder of Wonga, the London-based online loan provider. Europe does have a new wave of startups, though it may take until 2020 before they reach maturity, he said.

Bargain prices for European companies are luring buyers. Listed European technology firms valued at more than $100 million are on average 32 percent cheaper than their North American peers, trading at an average ratio of 15 times earnings compared with 22 times earnings in the U.S. and Canada, according to Bloomberg data.

Nokia’s Plunge

The result is a dearth of mid-sized to large technology companies in Europe. In the U.S., 234 technology companies have a market capitalization of more than $500 million, while in Western Europe just 65 companies meet that criteria, with only six exceeding $10 billion in value. Silicon Valley’s dominance has only become more complete over time: in 2007, there were 100 European companies valued above $500 million, compared with 267 in the U.S.

Nokia’s decline has been the region’s most dramatic. Its market value slumped below $10 billion last week, down from more than $100 billion in 2007. The company this month said it would cut an additional 10,000 jobs as its profitability erodes. The handset maker has been hammered by competition from phones running software from Apple and Google -- two companies that weren’t even in the mobile business six years ago.

Moving Staff

The Finnish company is looking to exit from its Nokia Siemens Networks network-gear unit, according to people familiar with its plans, and attracts frequent speculation about an outright takeover by Microsoft Corp. (MSFT), with which it has an alliance. Among the top 10 global technology companies by market value, none is European. German business-software maker SAP AG (SAP) is 11th with a market capitalization of about $74 billion.

Acquirers routinely promise to preserve jobs and research activities when buying technology businesses. Hewlett-Packard, for example, pledged to maintain Autonomy as an independent unit and avoid any job cuts when it bought the Cambridge, England- based business last year. Yet CEO Mike Lynch transferred to the U.S. following the takeover, before he was ousted last month.

Lynch, who founded Autonomy as a spinoff from the University of Cambridge in 1996, said European companies are losing out due to a lack of early-stage financing, with entrepreneurs selling out earlier than their U.S. counterparts.

Autonomy was different because it sought a public listing early to gain access to additional funds without the need for venture capital, Lynch said.

“If Autonomy had got to a $300 to $400 million valuation and it had still been private, I think you’d have had a hard time” convincing venture-capital backers to say no to an offer from a strategic buyer, he said.

‘Angry Birds’

Today’s startups are the bright spot for the European technology scene. Drawn by the success of young companies including Finland’s Rovio Entertainment Oy, the maker of “Angry Birds” mobile games, and London-based online jukebox Spotify Ltd., venture-capital firms are raising their exposure to Europe, betting that nascent innovation hubs in London and Berlin can deliver the next big thing.

Even the hottest startups, however, face challenges particular to Europe and its topsy-turvy stock markets, which have hosted just 14 initial public offerings of technology companies in the past two years, while U.S. markets have welcomed 21. And Europe’s venture-capital scene remains small compared to that in the U.S.

Europe’s Crisis

“When the private and public capital markets are dislocated, access to equity for earlier-stage companies is more difficult, leaving selling as the only real option to staying the course,” said George Patterson, the head of technology investment banking for Europe, Middle East and Africa at Barclays Capital in London.

Difficulty turning small startups into large, independent engines of employment and growth comes at an inopportune time for European governments slammed by the region’s debt and economic crises. In the U.K., Prime Minister David Cameron has backed plans to build in London a high-tech answer to Northern California. In France, a country with zero economic growth, the government has supported an academy for aspiring entrepreneurs.

That strategy, though, isn’t about to challenge Silicon Valley. Marten Mickos would know. The founder of Swedish database-software maker MySQL AB, which was bought for $1 billion by Sun Microsystems Inc. in 2008, moved to California nine years ago after promising U.S.-based venture-capital investors he would relocate as part of a financing round. He hasn’t looked back.

“It’s such a unique place even for Americans,” Mickos said. “I don’t think it’s a damning indictment especially of Europe. There are many companies in the U.S. that feel they need to move here. Everybody has lost against Silicon Valley, not just Europe.”

To contact the reporters on this story: Matthew Campbell in London at mcampbell39@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net

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Obama Spends More Than He Raises as Aides See Romney Edge

By Julie Bykowicz and Jonathan D. Salant - Jun 21, 2012 7:44 AM GMT+0700

President Barack Obama spent more on his re-election effort last month than he raised, ending May with $109.7 million cash on hand, according to U.S. Federal Election Commission reports filed today.

The $39.1 million his campaign took in was outpaced by $44.6 million it paid for television advertisements, employees, offices and other expenses, the reports show. The spending rate is a reversal from the past three months, when the campaign was taking in millions of dollars more than it was spending.

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June 20 (Bloomberg) -- Paul Levy, co-founder and managing director at JLL Partners Inc., talks about President Barack Obama's handling of the economy and attitude toward private equity. Levy speaks with Stephanie Ruhle and Matthew Dowd on Bloomberg Television's "Market Makers." (Source: Bloomberg)

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June 18 (Bloomberg) -- Ann Romney, wife of Republican presidential candidate Mitt Romney, introduces her husband during a campaign stop aboard a Mississippi River boat today near Dubuque, Iowa. (Source: Bloomberg)

Republican challenger Mitt Romney reported raising $23.4 million last month, bringing his total to almost $124 million, less than half of Obama’s $261 million haul. Romney had $17 million in the bank, one-sixth of the incumbent’s total. The former Massachusetts governor spent $15.6 million, less than he took in during May.

The money is just part of the cash being poured into the campaign. Both candidates are raising funds jointly with national and state political parties, allowing donors to give larger contributions. In addition, nonprofit groups and super- political action committees are taking in unlimited corporate, union and individual donations and spending millions.

Obama’s political advisers told reporters they expect Romney to wind up with a money advantage as the outside groups supporting the presumptive Republican presidential nominee spend as much as $1 billion. The advisers, who asked for anonymity to discuss tactics, said today they are braced for a close election and are counting on their political organization to turn out voters in critical states.

Gay Marriage

Obama’s comments on May 9 that gay couples should be able to marry may have boosted his fundraising, the FEC reports suggest. He raised more than six times as much money on the day of his announcement as he did the day before, $1.8 million compared with $282,404.

“It is important for me to go ahead and affirm that I think same-sex couples should be able to get married,” Obama said in an ABC News interview. That day, his campaign started an e-mail fundraising blitz tied to gay marriage. The money bump continued the next day, with the campaign raking in another $1.6 million.

On May 10, Obama dined at actor George Clooney’s Los Angeles house -- an event that campaign officials said raised a total of $15 million for the president, the Democratic National Committee and state parties.

Intensifying Campaign

In another sign the campaign is intensifying, the $44.6 million that Obama’s re-election campaign spent in May was more than the $42.9 million he spent in the previous three months combined.

Obama received $8.7 million from joint fundraisers with the Democratic National Committee and state parties. The DNC took in $20 million last month, including $13.3 million from the joint fundraising committee.

Romney, in his first full month since being assured of winning the Republican nomination, raised $7.1 million from his joint fundraising committee with the Republican National Committee. The RNC brought in $25.9 million from the joint fundraising committee in May and reported raising $34.3 million in total. The Republican committee also more than doubled the Democrats’ cash on hand, $60.8 million to $29.7 million.

Priorities USA Action, a super-PAC founded by former Obama aides, reported raising $4 million last month. Super-PACs aren’t supposed to coordinate with the campaigns.

One pro-Romney super-PAC, Restore Our Future, reported to the FEC today that it raised almost $5 million in May and had $8.4 million cash on hand as of the end of the month.

Anti-Obama Ads

Restore Our Future has raised a total of $61.5 million since January 2011. During the Republican nomination battle, the group placed television ads attacking Romney’s opponents and it’s now airing anti-Obama ads.

American Crossroads, a Republican super-PAC founded with the help of political strategist Karl Rove, also is set to report on its fundraising today.

Restore Our Future’s largest May contribution of a combined $1 million arrived May 22 from three companies registered to the same post-office box in Dayton, Ohio.

Auto Supplier

Auto supplier executive Robert Brockman is the common denominator of those companies, according to corporate filings. Brockman is chairman and chief executive officer of Reynolds & Reynolds, a Dayton-based company that provides office supplies and professional services to car dealers and automakers.

CRC Information Systems Inc. and Fairbanks Properties LLC each gave $333,333 to the super-PAC, while Waterbury Properties LLC contributed $333,334. Brockman is listed as manager of Fairbanks in filings with the Florida Division of Corporations. He is the registered director of Waterbury, according to Texas tax records. CRC is a Reynolds company.

A spokesman for Reynolds said Brockman wasn’t immediately available to comment. Brockman has given the maximum $5,000 to Romney’s campaign, according to the Center for Responsive Politics, a Washington-based group that tracks political donations.

Restore Our Future also collected $428,400 from the family that owns a 33-square-mile retirement community near Ocala, Florida. Billionaire developer H. Gary Morse, chief executive officer of The Villages of Lake Sumter, and his wife, Renee Morse, contributed $200,000, while three of his children gave the rest, FEC reports showed.

Morse Family

The Morse family made its contributions on May 1, according to the FEC reports. Sumter County, home of The Villages, has almost twice as many registered Republicans as Democrats and is a regular fundraising stop for Republican candidates. Developer Morse is part of Romney’s Florida finance team.

Representative Ron Paul of Texas raised $1.8 million in May, more than half of it in contributions of $200 or less, bringing his total to $40.8 million. He had $3.3 million in the bank.

Paul announced May 14 that he would no longer spend money to compete in the Republican presidential primaries. He reported $969,622 in expenditures for the month.

Former U.S. House Speaker Newt Gingrich of Georgia and former U.S. Senator Rick Santorum of Pennsylvania made little dent in retiring their Republican presidential campaign debts. Gingrich raised $495,233 last month and still owed $4.7 million. Santorum took in $454,328 and reported debts of $1.9 million.

The pro-Gingrich super-PAC, Winning Our Future, refunded $5 million to Miriam Adelson, wife of casino executive Sheldon Adelson. The Adelson family had given $21.5 million to the PAC.

To contact the reporters on this story: Julie Bykowicz in Washington at jbykowicz@bloomberg.net; Jonathan D. Salant in Washington at jsalant@bloomberg.net

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

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U.S. Stocks Decline as Fed Reduces Growth Estimates

By Rita Nazareth - Jun 21, 2012 4:10 AM GMT+0700

U.S. stocks dropped, following a four-day gain in the Standard & Poor’s 500 Index, as the Federal Reserve cut its estimates for growth amid a slowdown in hiring.

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A trader works on the floor of the New York Stock Exchange. Photographer: Jin Lee/Bloomberg

Adobe Systems Inc. (ADBE), the largest maker of graphic-design software, declined 2.7 percent after forecasting sales and profit that trailed estimates. Procter & Gamble Co. (PG) tumbled 2.9 percent as the world’s biggest consumer-goods company reduced its earnings and revenue forecasts for the second time in less than two months. JPMorgan Chase & Co. (JPM) rallied 3 percent.

The S&P 500 retreated 0.2 percent to 1,355.69 at 4 p.m. New York time. The Dow Jones Industrial Average decreased 12.94 points, or 0.1 percent, to 12,824.39. Trading volume for exchange-listed stocks in the U.S. was about 6.6 billion shares, or almost in line with the three-month average.

“It’s not all bad news, but caution is warranted,” said Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4.5 billion in Raleigh, North Carolina. He spoke in a telephone interview. “If the Fed saw significant deterioration, the policy response would have been on a larger scale. Yet there’s increased risk to the economic outlook.”

Stocks fell as the central bank cut its estimates for growth and said it sees little progress on unemployment during the rest of the year. The Fed lowered its central tendency estimate for U.S. 2012 gross domestic product growth to 1.9 percent to 2.4 percent from 2.4 percent to 2.9 percent in April.

The Fed will expand its program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012. That “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee said.

‘Additional Steps’

“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Fed Chairman Ben S. Bernanke said at a news conference after the FOMC’s two-day meeting. He said those steps might include additional asset purchases.

Expectations for further policy action gave stocks their first back-to-back weekly gain since April on June 15. The S&P 500 earlier this month was on the brink of a so-called correction, or a 10 percent drop from a recent peak, on concern about a global slowdown and a worsening of Europe’s crisis.

Investors also watched Europe’s latest attempts to tame its debt crisis today. Antonis Samaras, head of Greece’s New Democracy party, was sworn in as prime minister after Greek political leaders agreed on a coalition that will seek relief from austerity measures tied to international loans.

Lehman-Like

European policy makers are unlikely to solve the region’s problem unless they have a crisis “moment” like Lehman Brothers Holdings Inc.’s bankruptcy, said Gary D. Cohn, Goldman Sachs Group Inc.’s president and chief operating officer.

“My personal view is we’re going to need a moment” because the issues are political, Cohn, said in an interview with Erik Schatzker on Bloomberg Television’s “Market Makers.”

Eight out of 10 groups in the S&P 500 fell today as utility and consumer staples companies had the biggest losses. Technology and financial shares advanced.

Adobe slumped 2.7 percent to $31.99. It reduced the high end of its annual sales growth forecast range to 7 percent from 8 percent, which is “anemic” for a technology company, said Barbara Coffey, an analyst with National Securities.

P&G lost 2.9 percent to $60.39. The reduced forecasts illustrate the difficulties faced by consumer-products makers as rising unemployment in Europe and North America restricts spending. Danone, the world’s biggest yogurt maker, cut its profitability forecast yesterday. Europe is “difficult for everybody,” Jean-Marc Huet, chief financial officer of Unilever, said at the Paris conference yesterday.

Walgreen Slumps

Walgreen Co. (WAG) retreated 2.9 percent to $29.21. The biggest U.S. drugstore chain was downgraded to neutral from outperform at Macquarie Group Ltd. by equity analyst Dane Leone. The 12- month share-price estimate is $34.

JPMorgan gained 3 percent to $36.45. Trading in the credit derivatives index that contributed to the bank’s losses in its London chief investment office soared to a record yesterday in a sign that the biggest U.S. bank may be unwinding its position, according to data cited by Credit Suisse Group AG.

The lender is seeking to stem at least $2 billion in trading losses from the U.K. operation, where Bruno Iksil, known as the London Whale, managed a portfolio of credit derivatives so large it distorted the market.

A strategy by the unit to reduce risks from hedges backfired and left the bank with even bigger and harder-to- manage exposures, Chief Executive Officer Jamie Dimon said last week. JPMorgan has sold 65 to 70 percent of its losing position and is still selling the rest, CNBC reported.

Airlines Rally

The Bloomberg U.S. Airlines Index advanced 2.3 percent as oil dropped to an eight-month low after the Energy Department reported that U.S. crude inventories climbed to the highest level in 22 years.

Cisco Systems Inc. (CSCO) rallied 1.9 percent to $17.51. The biggest maker of computer-networking equipment was raised to outperform from market perform at BMO Capital Markets.

Applied Materials Inc. (AMAT) gained 3.4 percent to $11.55. The largest producer of chipmaking equipment was raised to overweight at Barclays Plc.

Tesla Motors Inc. (TSLA) jumped 5.3 percent to $33.78 as the electric-car maker prepares to begin deliveries of Model S sedans and Goldman Sachs raised its price target for the shares.

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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Fed Expands Operation Twist by $267 Billion Through 2012

By Jeff Kearns and Joshua Zumbrun - Jun 21, 2012 3:46 AM GMT+0700

The Federal Reserve will expand its Operation Twist program to extend the maturities of assets on its balance sheet and said it stands ready to take further action to put unemployed Americans back to work.

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Policy makers led by Chairman Ben S. Bernanke are taking steps to shore up the world’s largest economy as faltering growth leaves it vulnerable to fallout from the European debt crisis and looming fiscal tightening in the U.S. Photographer: Andrew Harrer/Bloomberg

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Ben S. Bernanke, chairman of the Federal Reserve, at a Joint Economic Committee hearing in Washington. Photographer: Andrew Harrer/Bloomberg

The central bank will prolong the program through the end of the year, selling $267 billion of shorter-term securities and buying the same amount of longer-term debt in a bid to reduce borrowing costs and spur the economy.

“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Fed Chairman Ben S. Bernanke said at a news conference in Washington following a two-day meeting of the Federal Open Market Committee. “Additional asset purchases would be among the things that we would certainly consider.”

Policy makers moved to shore up the world’s largest economy as faltering growth leaves it vulnerable to fallout from the European debt crisis and looming fiscal tightening in the U.S. Fed officials today lowered their outlook for growth and employment, foreseeing a jobless rate of at least 7.5 percent at the end of 2013.

The yield on the 10-year Treasury note rose to 1.65 percent at 4:35 p.m. in New York from 1.62 percent late yesterday. The Standard & Poor’s 500 Index fell 0.2 percent to 1,355.69 after declining as much as 0.9 percent.

Easing Bias

“Clearly, the bias is still towards even more easing,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “Our base case would still be that we’ll probably see some more easing before year end,” said Coronado, a former Fed economist.

The continuation of Operation Twist “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the FOMC said.

Policy makers repeated their view that economic conditions will probably warrant keeping interest rates “exceptionally low” at least through late 2014. The FOMC has kept the main interest rate in a range of zero to 0.25 percent since December 2008.

“Growth in employment has slowed in recent months, and the unemployment rate remains elevated,” the FOMC said. “The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually.”

Fed officials lowered their forecasts for growth and raised their predictions for unemployment in each of the next three years.

Growth Outlook

Policy makers now see 1.9 percent to 2.4 percent growth in 2012, down from their April forecast of 2.4 percent to 2.9 percent. The unemployment rate will end the year at 8 percent to 8.2 percent, up from 7.8 percent to 8 percent in April.

Unemployment will end 2014 at 7 percent to 7.7 percent, up from a 6.7 percent to 7.4 percent in April, according to their so-called central tendency estimates, which exclude the three highest and three lowest forecasts.

The Fed said today it will sell Treasury securities with remaining maturities of about three years or less. It will purchase securities with six years to 30 years remaining.

The existing maturity-extension program was announced Sept. 21 and expires this month. Under that program, the Fed is selling $400 billion of short-term government debt and replacing it with the same amount of longer-term Treasuries.

Borrowing costs have fallen since the Fed announced Operation Twist. The yield on the 10-year Treasury note fell to a record low 1.4387 on June 1.

Little Concern

Today’s Fed statement and policy makers’ projections show that there is little concern over inflation.

Inflation “has declined, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable,” the Fed said. Oil prices have slumped 23 percent to $84.03 a barrel yesterday since reaching a high of $109.77 a barrel in February.

Central banks across the world are considering steps to stimulate their economies.

Bank of England Governor Mervyn King and three other policy makers were overruled this month as they pushed to expand their bank’s bond-purchase program, meeting minutes showed today. European Central Bank President Mario Draghi left the door open for a rate cut at a June 6 press conference.

Bank of Japan

The Bank of Japan should be ready to “take appropriate actions without ruling out any options in advance” if the European crisis worsens, some of its board members said in May, according to minutes released today. The People’s Bank of China cut borrowing costs for the first time since 2008 earlier this month and loosened controls on banks’ lending and deposit rates.

Europe’s debt crisis has intensified since the FOMC’s meeting in April, roiling financial markets. The Standard & Poor’s 500 Index was down by 4.3 percent as of yesterday from its 2012 peak on April 2.

“The Federal Reserve is very much involved with talking with European leaders,” Bernanke said today. “We are prepared to work together if that can be done constructively, but at this point we’re mostly in consultation mode.”

The Fed’s two rounds of asset purchases totaling $2.3 trillion and record-low interest rates since December 2008 have left the central bank short of its full-employment goal.

The economy added 69,000 jobs in May, the fewest in a year, and the unemployment rate unexpectedly climbed to 8.2 percent from 8.1 percent, its first increase in almost a year.

Companies are cutting back as the economy shows signs of slowing. FedEx Corp., operator of the world’s largest cargo airline, is restructuring its express business and retiring 24 jet freighters.

Slowing Growth

“We believe U.S. domestic and global economic conditions will be impacted by the European debt crisis, slowing growth in Asia and the uncertainty these issues create on the global economy and the demand for our services,” FedEx Chief Financial Officer Alan Graf said yesterday on an earnings call.

Also taking a toll on the economy: concern that Congress will fail to reach a compromise in time to avoid $600 billion in tax increases and budget cuts next year.

Among government contractors coping with delayed procurements and agency cost-cutting is Preferred Systems Solutions, a Vienna, Virginia-based engineering and information technology provider.

“I’m feeling more of a pinch and squeeze than I ever have before,” said Scott Goss, president and chief executive officer. “As soon as they start these massive cuts, they’re going to impact the economy.”

Economic data in recent weeks have pointed to slowing growth.

Sales Fell

Retail sales fell 0.2 percent for a second month in May, according to a June 13 report from the Commerce Department, as elevated unemployment and the smallest wage gains in a year prompted consumers to curtail their spending.

Industrial production unexpectedly fell in May for the second time in three months as factories turned out fewer vehicles and consumer goods, data from the Fed showed last week.

Fifty-eight percent of economists in a June 18 Bloomberg News survey said the FOMC would prolong Operation Twist, with an additional 8 percent predicting the Fed would announce the move at its meeting on July 31-Aug. 1.

Richmond Fed President Jeffrey Lacker dissented for the fourth meeting in a row, saying he doesn’t support extending Operation Twist. He said last month he believes the central bank will probably need to raise the main interest rate next year.

It was the first meeting for Governors Jeremy Stein and Jerome Powell, who joined the Fed last month, raising the Washington-based board to its full, seven-member strength for the first time since 2006.

To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net

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

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