Germany Votes on Euro Rescue Fund to Set Stage for More Anti-Crisis Steps

By Tony Czuczka and Brian Parkin - Sep 29, 2011 2:22 PM GMT+0700

German lawmakers are set to back an expansion of the euro-area rescue fund’s firepower as European officials turn to look at what next steps may be needed to stem the debt crisis.

The plan before the lower house in Berlin today would allow the fund to buy bonds of distressed states and offer emergency loans to governments, raising Germany’s guarantees to 211 billion euros ($287 billion) from 123 billion euros. The main opposition Social Democrats and Greens have said they will vote with Chancellor Angela Merkel’s government, assuring passage.

Lawmakers are debating the measures and will vote from about 11 a.m. Berlin time as government officials weigh further measures to bolster Greece and stem investor concern that helped end the biggest three-day rally in 16 months for European stocks. Options include seeking further writedowns on Greek sovereign bonds, adding yet more firepower to the rescue fund and a “plan B” for banks.

“The German parliament is voting for too little, too late,” Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said by phone. “Merkel can’t possibly believe this is the final point in a rescue package that will calm global markets and lead us out of the crisis.”

Recession Risk

Faced with German voter dismay at bailouts, coalition members wary of granting more aid threatened to rebel against the government line. The risk of defeat receded as international concern grew that default by Greece would harm the euro region’s core countries and tip the global economy back into recession.

Additional measures now in play include further leveraging the rescue fund, known as the European Financial Stability Facility; bringing forward the start of its permanent successor by a year or more; reopening the second Greek rescue agreed in July to increase the financial industry’s contribution; and a safety net for Europe’s banks if default becomes inevitable.

“Europeans finally get it,” Mohamed El-Erian, chief executive and co-chief investment officer of Pacific Investment Management Co., said in a Bloomberg radio interview on Sept. 27. “They recognize they have deep problems, and they recognize they need to do something about it.” Even so, “let’s not underestimate both the political challenges and the engineering challenges.”

Merkel, head of Europe’s largest economy and the biggest country contributor to bailouts for Greece, Ireland and Portugal, spent weeks cajoling dissenters in her coalition to back the July 21 accord by euro-area leaders to expand the fund.

Coalition Dissenters

Provisions inserted into the bill to satisfy Germany’s constitutional court and potential rebels will allow lawmakers to vote on all new aid requests from the 440 billion-euro fund. Leaders of the Free Democratic Party, Merkel’s junior coalition ally that has flirted with an anti-bailout stance, say the bill will now pass on the strength of the coalition’s majority.

“Anyone who wants the stability of the euro countries has to support the expanded rescue fund,” Economy Minister Philipp Roesler, who chairs the FDP, was quoted as saying in the Bild newspaper on Sept. 26.

Merkel’s coalition has 330 seats in the 620-member lower house. With a simple majority of 311 required to pass the bill, she can afford 19 dissenters before depending on opposition votes to win approval.

Ratification Process

Expanding the fund requires approval in all 17 euro countries. Nine have authorized the changes, including France, Italy, Spain and Finland, where parliament voted yesterday. Estonia also votes today and Austria holds its ballot tomorrow, when Germany’s upper house of parliament will debate the fund.

Nearly two years into the debt crisis centered on Greece, the U.S. is urging European governments to go further and show more urgency. Europeans haven’t responded “as effectively as they needed to,” President Barack Obama said during a roundtable discussion at the White House yesterday.

Europeans “are aware of our responsibility,” German Finance Minister Wolfgang Schaeuble said on Deutschlandfunk radio today. “We have to take as many precautions as we can. We must ensure that Europe doesn’t become the starting point of a new, big financial and economic crisis in the world.”

‘Backstop Plans’

If the rescue fund must be enhanced further, it will be done in the “most efficient way,” Schaeuble said on Sept. 27. He said that he had also asked all 17 euro states to come up with “backstop plans” to shield banks if the crisis worsens. The plans are to be outlined at the next euro-area finance ministers’ meeting on Oct. 3, when they are due to decide whether to release the next aid payment for Greece.

Frank Schaeffler, an FDP lawmaker who says he will vote against the bill, called for Greece to leave the euro region because rescue packages “won’t work.”

Greece’s lack of competitiveness also means “insolvency on its own won’t solve the root problem,” he said in an interview yesterday. “I don’t believe the domino effect we hear about will happen,” he said. “Investors will learn the bitter lesson that their losses can’t be socialized by the taxpayer.”

To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Brian Parkin at bparkin@bloomberg.net

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

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Europe Meltdown, Global Slump Seen Next Year: Poll

By Simon Kennedy - Sep 29, 2011 11:00 AM GMT+0700
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A Greek national flag, left, flies beside a European Union (EU) flag in Athens, Greece. Photographer: Kostas Tsironis/Bloomberg

Global investors anticipate Europe’s debt crisis leading to an economic slump, a financial meltdown and social unrest in the next year with 72 percent predicting a country abandoning the euro as a shared currency within five years, a Bloomberg survey found.

About three-quarters of those questioned this week said the euro-area economy will fall into recession during the next 12 months and 53 percent said turmoil will worsen in a banking sector laden with government bonds, according to the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. Forty percent see the 17-nation currency bloc losing at least one member in the next year.

More than a third of participants say deteriorating European debt will derail the world economy over the next year, with the pessimism highlighting the pressure European policy makers face as they try again to fix their 18-month sovereign crisis. Stocks last week tumbled into their first bear market in two years and international finance chiefs, including U.S. Treasury Secretary Timothy F. Geithner, urged European leaders to intensify their rescue efforts.

“It’s a bad crisis,” said Jean-Yves Chereau, a poll respondent and chief investment officer at Halkin Investments LLP in London. “Since the resurgence of troubles in Greece, you suddenly have a crisis of confidence and trust and that’s impacting markets and could hurt economies. Politicians need to move ahead pretty quickly.”

Cut Investment

Europe’s woes have reignited as Greece attempts to stave off default and spars with its European Union partners over whether it deserves the next tranche of aid next month. Euro- area lawmakers are also taking their time implementing a July overhaul of their rescue fund to give it more crisis-fighting tools, while investors question the ability of banks to withstand further market unrest as signs also mount that the economy is losing momentum.

Investors signaled the stresses are prompting them to shift money out of the euro area. Fewer than one-fifth of those polled said the EU’s market offers the best investment opportunity over the next year, about half the number that cited the U.S. Fifty- three percent identified the EU as offering investors the worst opportunities during the next year.

Fifty-six percent said they will reduce their exposure to the euro in the next six months and even one in three inside the region plan to. Half of all investors said they expect the Euro Stoxx 50 index to fall.

Economy Deteriorating

Economists at Pacific Investment Management Co., JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc all said in the past week that the euro-area is entering recession.

Eighty-eight percent of those surveyed by Bloomberg said the region’s economy is deteriorating. Almost half of Asian respondents said they expected Europe’s pain to spark a worldwide economic meltdown within the next year, compared with 34 percent in the U.S. and Europe.

“If the euro crisis continues to fester or become more dangerous, the cumulative effect of declining economic confidence and harsh austerity measures will tip the peripherals into certain recession,” said Akber Naqvi, a poll respondent and executive director at Al Masah Capital Ltd. in Dubai. “The ensuing chaos and banking crisis will almost certainly tip the whole region into a recession.”

Eventual Default

As Greece struggles to impose the austerity needed to tap more international aid next month, 93 percent said the country will eventually default, up 8 percentage points from May. Fifty- six percent said Portugal faces the same fate, down 3 points. Sentiment toward Ireland also improved as 58 percent said bankruptcy would be avoided, four months after the majority bet otherwise.

Sixty-four percent said Spain will keep paying its bills and a similar number of respondents said the same of Italy. More than 90 percent said the U.K. and France won’t go insolvent.

Almost every respondent described Greece’s creditworthiness as poor, with more than half saying the same of Italy and Spain. By contrast, 38 percent said Germany’s was excellent and 45 percent said it was good. Fifty-three percent described their faith in Japan as “just fair” or “poor” and 59 percent gave the same rating to France.

Banks have also been hit. Eighty percent said the reputation of Paris-based Societe Generale (GLE) SA worsened over the last six months and 71 percent said the same of compatriot BNP Paribas (BNP) SA. Both vowed this month to trim their balance sheets after concerns about their sovereign-debt holdings made U.S. money-market funds reluctant to lend to them, crimping liquidity options.

UBS Reputation

UBS AG (UBSN)’s Sept. 15 announcement that unauthorized trading had cost it $2.3 billion left Switzerland’s biggest bank with a poorer reputation than six months ago, according to 90 percent of those surveyed. A majority said the incident was probably a single event rather than proof of a dangerous lack of regulation.

Seventy-four percent of poll participants said Bank of America Corp. (BAC)’s credibility has diminished after it posted a record $8.8 billion quarterly loss and shook up management. About half said the standing of Goldman Sachs Group Inc. (GS) had lessened.

There was little change in the reputations of Barclays Plc, Deutsche Bank AG, Wells Fargo & Co., JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland, Citigroup Inc. and HSBC Holdings Plc, the poll found.

Policy Criticized

The debt crisis is raising questions about whether the 12- year old currency bloc can maintain its current form. While 4 in 10 respondents said they expected a nation to leave within a year, a further 32 percent said a member would leave in two to five years. Fifty-one percent said the euro zone would collapse at some point although only 8 percent expected that to occur in the next year.

Still, 51 percent of investors said the euro zone’s likely future would feature a move toward adopting a common fiscal policy.

Policy makers were criticized for their performance and more than half of those polled said they anticipated civil instability including riots in the next 12 months. Only 11 percent said European authorities had handled their economic challenges the best, compared with 67 percent who cited U.S. officials.

Asked how they viewed certain leaders from an investment perspective, 59 percent said they viewed German Chancellor Angela Merkel pessimistically -- a reversal from the 55 percent who said they were optimistic about her policies in May. Seventy-one percent criticized French President Nicolas Sarkozy.

Cameron

Outside the euro-area, U.K. Prime Minister David Cameron split respondents, with 44 percent saying they were optimistic about the impact of his policies on the investment climate and 42 percent responding negatively. Sixty-three percent viewed him favorably. Australian Prime Minister Julia Gillard was regarded favorably by 36 percent of those surveyed.

Just over a month before Jean-Claude Trichet retires as president of the European Central Bank, poll participants were divided over whether they viewed him favorably or unfavorably, while 45 percent said the ECB’s policies had made little difference to the crisis. About a quarter said the central bank had played a constructive role in addressing the crisis; the same proportion said the bank’s actions had exacerbated the turmoil.

Trichet will be replaced on Nov. 1 by Bank of Italy Governor Mario Draghi, viewed favorably by 36 percent, about the same amount who said they didn’t know enough to give an assessment. International Monetary Fund Managing Director Christine Lagarde was praised by 58 percent of respondents. Seventy-three percent had an unfavorable view of News Corp. Chief Executive Officer Rupert Murdoch.

The quarterly Bloomberg Global Poll was conducted Sept. 26 by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 3.1 percentage points.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Andrew Davis at abdavis@bloomberg.net

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Euro, U.S. Stock Futures Gain Before Bailout Vote

By Shiyin Chen and Saeromi Shin - Sep 29, 2011 2:26 PM GMT+0700
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The euro strengthened against most of its major peers. Photographer: Chris Ratcliffe/Bloomberg

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Sept. 29 (Bloomberg) -- Brian Barish, the Denver-based president of Cambiar Investors LLC, talks about global financial markets, Europe's sovereign debt crisis, and his investment strategy. Barish speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

The euro strengthened against most of its major peers and U.S. stock-index futures rose before German lawmakers vote on changes to a European bailout fund. Metals dropped and the cost of insuring Chinese government debt from default climbed to the highest since 2009.

Europe’s shared currency advanced 0.5 percent to $1.3616 and gained 0.4 percent to 104.16 yen as of 8:22 a.m. in London. Standard & Poor’s 500 Index futures jumped 0.9 percent, signaling a rally from yesterday’s 2.1 percent drop. The Stoxx Europe 600 Index slid 0.1 percent, paring earlier losses of as much as 0.7 percent, and the MSCI Asia Pacific Index added 0.4 percent. Copper slumped 2.1 percent and zinc fell 1.5 percent.

German Chancellor Angela Merkel is seeking support from lawmakers for the vote today to expand the European Financial Stability Facility’s firepower. Concern Greece will default is dragging global equities and commodities toward their biggest quarterly losses since 2008. About three-quarters of global investors surveyed by Bloomberg say the euro-area economy will fall into recession in the next year and more than half predict Chinese growth will slow to less than 5 percent annually by 2016.

“Investors appear to be pinning their hopes on the German vote on the euro-area rescue fund,” said Im Jeong Jae, a Seoul- based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion. “They seem to be betting that the region’s debt troubles, though there will be sporadic bumps, will eventually be resolved.”

Euro Rebounds

The 17-nation euro strengthened against 12 of its 16 major peers and rebounded from declines against the dollar and yen yesterday, when a European official said the European Commission is resisting a push to impose bigger writedowns on bank holdings of Greek debt than those previously agreed on.

The plan before the lower house in Berlin would allow the EFSF to buy bonds of distressed states and offer emergency loans to governments. Slovakia’s ruling coalition is close to approving the overhaul of the fund, Jozef Kollar, a lawmaker for the governing Freedom and Solidarity party told TV Markiza yesterday. Italy will auction as much as 9 billion euros ($12.2 billion) of bonds today.

Futures on the S&P 500 reversed an earlier drop of 0.7 percent. The gauge yesterday sank 2.1 percent, the first decline in four days. Advanced Micro Devices Inc. (AMD) fell in extended trading after the second-largest maker of processors for personal computers cut its forecasts for third-quarter sales and profits.

Treasuries headed for their biggest quarterly gain since the end of 2008 before an industry report today that economists said will show U.S. pending home sales fell for a second month. Ten-year yields were little changed at 1.98 percent.

Asian Stocks

About five shares gained for every two that fell on MSCI’s Asia Pacific Index, which rallied 4.4 in the past two days. The gauge has dropped 15 percent this quarter, on course for its largest quarterly loss since the three months ended December 2008. Japan’s Nikkei 225 Stock Average rose 1 percent, South Korea’s Kospi Index jumped 2.7 percent and Australia’s S&P/ASX 200 Index declined 0.8 percent.

Hong Kong shut financial markets after the city raised its highest storm signal this year. The Hong Kong Observatory said the No. 8 gale signal will remain for most of the day, according to its latest statement on its website.

“The market is priced for some kind of Lehman-like event,” Brian Barish, the Denver-based president of Cambiar Investors LLC, which oversees about $8 billion, said in a Bloomberg Television interview. “If for some reason, Greece goes into an uncontrolled default and it spreads to Italy, which is a $3 trillion bond market, I don’t know how you’re going to put Humpty Dumpty back together again in terms of the world economy.”

Metal Prices

A measure of mining companies on the MSCI regional index dropped 0.7 percent, the most among 10 industry groups. Rio Tinto Group declined 2.5 percent in Sydney and Korea Zinc Co. sank 2.8 percent in Seoul.

Three-month copper sank 2.3 percent to $7,081.75 a metric ton on the London Metal Exchange. A close at that level will be the lowest since July 2010. Zinc fell 1.9 percent and aluminum declined 0.8 percent. The S&P’s GSCI Index of 24 raw materials rose 0.2 percent, after yesterday dropping 2.7 percent. The gauge has declined 9.5 percent since June, headed for its largest quarterly loss since the final three months of 2008.

China’s stocks fell, sending the benchmark Shanghai Composite Index down 1.1 percent to a 14-month low. Fifty-nine percent of respondents to a quarterly Bloomberg Global Poll of investors, analysts and traders said China’s gross domestic product, which rose 9.5 percent last quarter, will gain less than 5 percent annually by 2016. Twelve percent see such a slowdown within a year, and 47 percent said it will occur in two to five years.

Bond Risk

The cost of insuring China’s debt against default jumped 14 basis points to 179.5 basis points, according to Royal Bank of Scotland Group Plc prices. That’s set for the highest close since March 20, 2009, according to data provider CMA.

The Markit iTraxx Australia index jumped 11 basis points to 219 basis points, Westpac Banking Corp. prices show, and the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 13 basis points to 239, according to Royal Bank of Scotland Group Plc prices. Both gauges are on track for the highest level in at least a year, according to CMA.

The South Korean won slid 0.3 percent to 1,173.70 per dollar after the Bank of Korea said the current-account surplus narrowed to $401.3 million in August from a revised $3.77 billion in July. The Taiwan dollar weakened 0.1 percent to NT$30.449. The island’s central bank may keep interest rates unchanged at a policy meeting today, according to 14 of 17 economists surveyed by Bloomberg. The ringgit dropped 1 percent to 3.1875.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net

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

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Hong Kong Shuts Markets, Schools as Nesat Brings Gale-Force Winds to City

By Stephanie Tong and Michelle Yun - Sep 29, 2011 2:02 PM GMT+0700
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Victoria Harbour is seen during a Typhoon 8 Signal Warning as Typhoon Nesat passes close to Hong Kong. Photographer: Ed Jones/AFP/Getty Images

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Sept. 29 (Bloomberg) -- Central Hong Kong's streets were emptied as Typhoon Nesat swept gale-force winds and rain into the city. Banks including HSBC Holdings Plc and Standard Chartered Plc closed branches, and Hong Kong Exchanges & Clearing Ltd. canceled equities and futures trading for the day. The storm felled trees and ripped bamboo scaffolding from buildings, while bus, tram and ferry services were suspended and at least 38 flights were delayed at the airport. (Source: Bloomberg)

Hong Kong shut financial markets, schools, courts and government offices after raising its highest storm signal in two years as Typhoon Nesat swept gale-force winds and rain into the city.

The typhoon, which killed at least 35 people in the Philippines, was centered about 390 kilometers (242 miles) southwest of Hong Kong, and heading toward China’s Hainan Island, the city’s observatory said. The No. 8 storm warning will probably be downgraded in the next couple of hours, it said at 1:45 p.m.

Gusting winds and rain emptied the streets in the city’s financial district as HSBC Holdings Plc, Coach Inc., and Folli Follie closed branches and shops, and Hong Kong Exchanges & Clearing Ltd. canceled equities and futures trading for the day. The storm felled trees and ripped bamboo scaffolding from buildings, while bus, tram and ferry services were suspended and at least 182 flights were delayed, canceled or diverted.

“You would see lots of bags in my hands right now if shops were open,” said Letty Li, a 30-year-old fashion designer from Shanghai who is here on a four-day trip with friends. “I’m very disappointed since we had planned to do lots of shopping.”

Hong Kong, teetering on the edge of recession after the economy suffered its first quarterly contraction since 2009, is relying on tourist spending to bolster growth. Retail sales exceeded 20 percent for a fifth straight month in July.

Few Customers

“We’ve only got 5 percent of the customers that we used to have,” said Stephen Chui, a manager at the Chuen Cheung Kui restaurant at Causeway Bay on Hong Kong Island. Even should customers return, it “it won’t be enough to make up for the losses in the morning session.”

About 30 tropical cyclones will develop over the western North Pacific and the South China Sea yearly, according to the Hong Kong Observatory. Still, only seven tropical storms swept Hong Kong this year, compared with 11 for the previous year, and 28 in 2009.

The typhoon may reach the coast between China’s Guangdong province and Hainan Island later today, bringing in as much as 400 millimeters of rain, the nation’s National Meteorological Center said. More than 4,800 ferries in Hainan have returned to port, and all flights and rail services in Sanya city on the island were canceled, Xinhua News Agency reported.

Typhoon Roke this month crossed Japan, causing widespread flooding and power cuts. Typhoon Muifa, the strongest storm to hit China this year, caused almost 3 billion yuan ($469 million) of direct economic losses in August.

‘Deadly Quiet’

“It’s deadly quiet outside, like a dark, wet, ghost town,” said Gavin Parry, managing director of brokerage Parry International Trading Ltd., who walked to work today. “There are few mini buses, no public buses and taxis are trawling for passengers to pay an extra HK$100 fare, given the typhoon.”

HSBC closed at least 100 branches, Laine Santana, a Kong- based spokeswoman for the bank, said. Standard Chartered Plc shuttered at least 75 branches, said spokeswoman Gabriel Kwan.

“There were a lot fewer customers today,” said Cora Rasco, the Citibank Plaza shop manager at Pacific Coffee Co. “I think only 5 percent of them came to work.” The office complex also houses Bank of America Corp.’s Merrill Lynch unit and fund manager Invesco Hong Kong Ltd.

Asian Stocks

Not everybody was off work, as Asian stocks pared losses on speculation German lawmakers will approve a measure to expand a bailout fund for Europe’s debt-stricken nations and as orders for U.S. capital goods unexpectedly climbed. The MSCI Asia Pacific Index was 0.3 percent lower as of 2:27 p.m. in Tokyo, trimming losses of as much as 1.3 percent.

“I got in by a cab today, and it took me about 10 minutes to get one,” Frank Huang, head of trading for fixed income at Sinopac Securities Asia Ltd. in Hong Kong, said by phone. “Traffic was smooth as there aren’t many cars on the roads. I have to come back to work as trading is still going on in other markets.”

Winds with an average speed of 63 kilometers an hour were blowing from the southeast direction, and the typhoon is moving away from Hong Kong, the city’s observatory said.

The government received six reports of fallen scaffolding and concrete. A taxi was damaged, the driver hurt and a male passenger sent to hospital after scaffolding fell on to the vehicle, according to the government. There were 31 reports of trees collapsing, the fire services department said.

Police Evacuation

The police evacuated 57 people when the anchor chain of a vessel floating at Sinopec Hong Kong oil terminal on the eastern part of Hong Kong island came loose and struck the facility. No oil leakage was reported, it said.

A total of 169 flights were delayed, with 10 canceled, a spokesman for the Hong Kong Airport Authority said, declining to be identified. Three Hong Kong-bound flights were diverted to Guangzhou and Xiamen in southern China.

The government’s marine department said the Hong Kong-Macau ferry terminal in Sheung Wan was closed.

Law student Justin Heifetz, from the U.S., woke up to find the electricity cut off in his apartment on Caine Road.

“I feel isolated,” said Heifetz. “I’m really glad we live in an age of smart phones, otherwise I wouldn’t even have known that school was canceled.”

To contact the reporters on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net; Michelle Yun in Hong Kong at myun11@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

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Alwaleed-Backed Kingdom, Batelco Abandon Plan to Acquire 25% of Saudi Zain

By Fiona MacDonald and Tamara Walid - Sep 29, 2011 1:53 PM GMT+0700
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Kingdom and Bahrain Telecom, known as Batelco, had agreed in principle to pay $950 million in cash for the stake in Zain Saudi, controlled by Mobile Telecommunications Co., known as Zain Group. Photographer: Phil Weymouth/Bloomberg

Kingdom Holding Co. (KINGDOM) and Bahrain Telecom Co. (BATELCO) abandoned a plan to buy 25 percent in Zain Saudi Arabia, the kingdom’s third-largest mobile-phone company by market value, for $950 million from Kuwait’s Zain Group.

Kingdom, controlled by Saudi billionaire Prince Alwaleed bin Talal, and Bahrain Telecom “concluded that the terms and conditions as set out in its non-binding offer could not be met to its satisfaction,” they said in separate statements today. “This follows a period of due diligence and discussions with Zain Group and other stakeholders.”

Kingdom and Bahrain Telecom, known as Batelco, had agreed in principle to pay $950 million in cash for the stake in Zain Saudi, controlled by Mobile Telecommunications Co., known as Zain Group. In addition, Zain Saudi would have paid $250 million of debt to Zain Group after the transfer of ownership, Zain Group said on March 16.

“This comes as a surprise as we were waiting for the final agreement,” Amr El-Alfi, deputy director of research at CI Capital, said in a phone interview today from Egypt. “It’s not the first deal that falls through for the Kuwaiti company.”

Emirates Telecommunications Corp., the United Arab Emirates operator knowns as Etisalat, in March abandoned plans to buy a majority stake in Zain Group for about $12 billion. Zain sold most of its African assets last year to Indian billionaire Sunil Mittal’s Bharti Airtel Ltd. for $9 billion.

Shares Fall

Zain Group shares fell 3.1 percent, poised for the biggest decline since May 15, to 940 fils at 9:35 a.m. in Kuwait City. The stock has tumbled 38 percent this year compared with a 16 percent drop in Kuwait’s benchmark stock index.

A Kuwaiti lower court on Sept. 25 annulled all decisions taken by the board of Zain Group, a lawyer for a former board member said. The ruling followed a lawsuit filed by former board member Sheikh Khalifa Ali Al-Sabah based on a report by the commerce ministry, which cited “violations” that took place during a general assembly meeting, the lawyer, Rashed al-Radaan, said.

Zain said the ruling will have no impact on its commitments and the company will appeal against it.

Zain Saudi said its second-quarter loss narrowed as the company added customers. It concluded refinancing 2.25 billion riyals ($600 million) of debt in April.

To contact the reporters on this story: Fiona MacDonald in Kuwait at fmacdonald4@bloomberg.net; Tamara Walid in Abu Dhabi at twalid@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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Nokia to Cut 3,500 More Jobs, Close Factory

By Diana ben-Aaron - Sep 29, 2011 2:30 PM GMT+0700
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Nokia Oyj Chief Executive Officer Stephen Elop said, “With these planned changes, we will emerge as a more dynamic, nimble and efficient challenger.” Photographer: Simon Dawson/Bloomberg

Nokia Oyj (NOK1V), the world’s biggest maker of mobile phones by volume, said it will cut 3,500 jobs as it closes a factory in Romania and reorganizes its maps business.

The company is also reviewing plants in Finland, Hungary and Mexico and expects more job eliminations next year, it said in a statement today. The reductions come on top of 4,000 job cuts announced in April.

Chief Executive Officer Stephen Elop is slimming the Espoo, Finland-based company to catch up with faster-moving competitors. He’s also shifted 3,000 employees to Accenture Plc (ACN) along with the Symbian operating software to make way for the adoption of Microsoft Corp.’s Windows Phone 7 and other platforms. The company has established a new location and commerce business that will result in the closure of units in Bonn and Malvern, Pennsylvania.

“With these planned changes, we will emerge as a more dynamic, nimble and efficient challenger,” Elop said in the statement. The company is committed to keeping research and development facilities in Europe, he said.

In a separate statement, Nokia said its joint venture with Siemens AG, Nokia Siemens Networks, will get a capital infusion of 1 billion euros ($1.4 billion) from the parent companies to further strengthen its financial position.

Nokia fell as much as 2.3 percent in Helsinki and was down 1.1 percent to 4.14 euros as of 10:25 a.m. local time. Siemens lost 0.5 percent to 68.53 euros in Frankfurt trading.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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AMD, Atmos Energy, AutoZone, Discover Financial, Thor: U.S. Equity Preview

By Joanna Ossinger - Sep 29, 2011 11:00 AM GMT+0700

Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Advanced Micro Devices Inc. (AMD) : The second-largest maker of processors for personal computers reduced its forecasts for third-quarter sales and profitability, citing manufacturing glitches.

Atmos Energy Corp. (ATO) : The natural-gas distributor said in a statement that its board has approved a stock buyback of up to 5 million shares.

AutoZone Inc. (AZO) : The auto-parts retailer said in a statement that its board authorized the repurchase of an additional $750 million of shares for a total of $11.2 billion since the inception of the program in 1998.

Discover Financial Services (DFS) : The Riverwoods, Illinois-based credit-card lender said U.S. regulators plan to bring an enforcement case over how it marketed fee-based products.

Thor Industries Inc. (THO) : The recreational-vehicle maker said it earned 65 cents a share excluding some items in the fourth quarter, beating the average analyst estimate of 61 cents in a Bloomberg survey.

To contact the reporter on this story: Joanna Ossinger in New York at jossinger@bloomberg.net

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

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Gold Tumbles as Rout in Stocks, Commodities Forces Some Investors to Sell

By Glenys Sim - Sep 29, 2011 7:46 AM GMT+0700

Gold fell for a second day, paring a 12th quarterly gain, as concern European leaders may not stem the region’s debt crisis hurt stocks and commodities, forcing some investors to sell the metal to cover losses elsewhere.

Immediate-delivery gold lost as much as 1.5 percent to $1,584.38 an ounce, and traded at $1,593.35 at 8:27 a.m. in Singapore. December-delivery bullion lost as much as 2 percent to $1,586.20 an ounce in New York.

Gold has fallen on “traders needing cash for margin calls on weak equity prices and newfound strength in the U.S. dollar,” Jonathan Barratt, managing director at Commodity Broking Services Pty., wrote in a report. “The turmoil in Europe only seems to be getting worse.”

Lawmakers in Germany, Europe’s largest economy, are set to vote today on boosting the region’s rescue fund amid resistance by the European Commission to impose bigger writedowns on bank holdings of Greek government debt than those previously agreed.

U.S. stocks ended a three-day rally yesterday and commodities are headed for the biggest quarterly slump since 2008 as European and International Monetary Fund officials return to Greece today to try put in place a package that will help the country stave off default. The dollar was little changed against a six-currency basket after rising yesterday.

Gold is still up 12 percent this year on concern that there may be another global recession as the debt crisis, which has Greece on the brink of default, worsens. The precious metal, which reached an all-time high of $1,921.15 on Sept. 6, has risen 6.2 percent since the end of June.

Cash silver lost as much as 2.5 percent to $29.105 an ounce, while December-delivery futures shed as much as 3.5 percent to $29.095 an ounce. Spot platinum dropped as much as 1.4 percent to $1,505.32 an ounce, while palladium was little changed at $620.75 an ounce.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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

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Oracle Counters Autonomy’s Lynch by Saying He Met With Hurd to Pitch Sale

By Aaron Ricadela and Vivek Shankar - Sep 29, 2011 9:27 AM GMT+0700

Oracle Corp. (ORCL) said Autonomy Corp. Chief Executive Officer Michael Lynch and banker Frank Quattrone pitched their company to Oracle executives before selling it to Hewlett-Packard Co. (HPQ), countering Lynch’s retelling of events.

Lynch had said in a Wall Street Journal article that Autonomy didn’t directly present the company to Oracle as a possible buyout target. Autonomy, a software maker based in Cambridge, England, agreed to be acquired by Hewlett-Packard for $10.3 billion on Aug. 18.

“The Lynch shopping visit to Oracle is easy to verify,” Redwood City, California-based Oracle said yesterday in a statement. “We still have his PowerPoint slides.”

Oracle’s statement escalates tensions between the company and Hewlett-Packard, onetime allies that increasingly compete in computer servers and software. The feud intensified in 2010 when Hewlett-Packard ousted CEO Mark Hurd, a friend of Oracle CEO Larry Ellison. A month later, Hurd went to work for Oracle as president.

Hewlett-Packard’s next CEO, Leo Apotheker, faced criticism for the 64 percent premium paid for Autonomy, a maker of software for searching corporate data. The deal contributed to the board’s decision to replace Apotheker with Meg Whitman last week, people familiar with the matter have said.

‘Absurdly High’

During a Sept. 20 conference call with analysts, Ellison said Autonomy had solicited interest from Oracle before the Hewlett-Packard deal.

“Autonomy was shopped to us,” he said. “We looked at the price and thought it was absurdly high.”

In the Wall Street Journal article published this week, Lynch called Ellison’s remarks “inaccurate,” setting off a volley of statements and counterstatements.

“Either Mr. Lynch has a very poor memory or he’s lying,” Oracle said yesterday. “The truth is that Mr. Lynch came to Oracle, along with his investment banker, Frank Quattrone.”

In a January e-mail sent from Quattrone to Hurd, obtained by Bloomberg News, the banker touted the value of Autonomy as an acquisition.

“It’s a very strategic asset that could alter the balance of power in the industry for whoever might acquire it,” he said. Quattrone didn’t immediately respond to a request for comment.

Pitch Meeting

About two months later, at a meeting attended by Hurd and Senior Vice President Douglas Kehring, Lynch and Quattrone made their pitch, Oracle said. The men were told that with a current market value of $6 billion, Autonomy was already “extremely overpriced,” Oracle said.

Lynch responded to that depiction of the meeting by saying it was held because Oracle is an Autonomy customer.

“In April there was a 30-40 minute meeting between Autonomy and Mark Hurd, which was set up by Frank Quattrone as an introduction to Mark Hurd,” Lynch said in an e-mailed statement. “In the meeting, in response to a joke about Mr. Quattrone’s presence, it was made clear Autonomy was not for sale and there was no process under way. Mr. Quattrone’s company was not engaged by Autonomy at that time. There has been no other contact with Oracle since then.”

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net; Vivek Shankar in San Francisco at vshankar3@bloomberg.net

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

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Sony Expects ‘Huge Impact’ on Earnings From Euro Slump

By Mariko Yasu and Takashi Amano - Sep 29, 2011 8:50 AM GMT+0700
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Sony loses about 6 billion yen of annual operating profit, or sales minus the cost of goods sold and administrative expenses, for every 1 yen decline against the euro. Photographer: Tomohiro Ohsumi/Bloomberg

Sony Corp. (6758), Japan’s largest exporter of consumer electronics, said it expects a “huge impact” on earnings from the weaker euro, underscoring the company’s vulnerability to the European debt crisis.

While the company hedged risks against the U.S. currency by hiring Asian contract manufacturers that settle orders in dollars, Sony can’t use that tactic with the euro, Hiroshi Kurihara, corporate treasurer at Sony, said in an interview in Tokyo yesterday. The electronics maker also doesn’t purchase many components from the region, limiting its ability to benefit from a weaker European currency, he said.

“There is a huge impact on our earnings,” he said. “There are no countermeasures that we can take for the moment.”

The comments highlight the difficulties Japanese exporters face as concerns over Greece’s debt push the yen close to 10- year highs against the euro, presenting an opportunity for South Korean exporters including Samsung Electronics Co. who are benefiting from a weaker domestic currency. Europe was Tokyo- based Sony’s largest export market last fiscal year, accounting for 21 percent of the company’s overall sales.

The 17-nation euro, which tumbled to a decade-low of 101.94 yen this month, has fallen 11 percent against the Japanese currency in the past three months and traded at 103.67 at 10:38 a.m. in Tokyo. The yen has appreciated 4.7 percent against the euro in 2011, the biggest gainer among 16 major peers to the shared currency.

Missing Forecast

In July, when the maker of Bravia televisions forecast full-year operating profit of 200 billion yen ($2.6 billion), Sony assumed the euro would trade at about 115 yen from July to March. The company loses about 6 billion yen of annual operating profit, or sales minus the cost of goods sold and administrative expenses, for every 1 yen decline against the euro, according to Mami Imada, a Sony spokeswoman.

The company will likely miss the full-year earnings forecast by about 7 percent, according to the average of 21 analyst estimates compiled by Bloomberg.

“It’s difficult to raise prices in Europe due to the competition with Korean makers,” said Kurihara. “We can’t run away from currency risk as long as we sell overseas.”

The Japanese company’s relocation of some manufacturing operations to China and other Asian sites, combined with an increase in outsourcing, helped Sony balance its revenue and costs in U.S. dollar terms, reducing the risk of losing money from the currency’s moves, Kurihara said.

In the past two years, Sony has sold three TV factories, including one in Barcelona and another in Slovakia as part of its streamlining efforts.

Shares of Sony have declined 49 percent this year, compared with the 17 percent drop in the benchmark Nikkei 225 Stock Average.

Sony made 30 percent of its revenue in Japan, 20 percent in the U.S. and 18 percent in Asia excluding Japan, in the year ended March 31, according to data compiled by Bloomberg.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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HP Concerned Over Oracle When Switching CEOs

By Jeffrey McCracken, Carol Hymowitz and Aaron Ricadela - Sep 29, 2011 7:46 AM GMT+0700

Hewlett-Packard Co. (HPQ) directors were concerned that plummeting shares would make the company vulnerable to a bid from Oracle Corp. (ORCL) when they replaced Leo Apotheker with Meg Whitman, two people close to the board said.

While Oracle has considered informally whether to approach Hewlett-Packard, it’s unlikely to make a bid any time soon, three people close to the software company said. After speaking with several financial advisers, Hewlett-Packard has hired Goldman Sachs Group Inc. (GS) to help it prepare for any possible moves by activist investors, one person said.

Whitman took over as chief executive officer on Sept. 22, succeeding Apotheker, who presided over a 47 percent drop in Hewlett-Packard stock and sliced sales forecasts three times in less than a year. As the board deliberated changing CEOs, one consideration was whether share-price weakness would invite an unwelcome overture, the people close to the board said.

“We were very explicit about why we named a new CEO,” said Mylene Mangalindan, a spokeswoman for Palo Alto, California-based Hewlett-Packard. “The board believes that the job of the HP CEO now requires additional attributes to successfully execute on the company’s strategy.”

Michael Duvally, a spokesman for New York-based Goldman Sachs, and Deborah Hellinger, a spokeswoman for Redwood City, California-based Oracle, declined to comment.

Hewlett-Packard Stock Plunge

Share declines accelerated after the Aug. 18 announcement that Hewlett-Packard would consider spinning off its $41 billion personal computer division, and would buy Cambridge, England- based software maker Autonomy Corp. for $10.3 billion, a price investors regarded as too high. Apotheker also was unable to get top executives to work together, executive chairman Ray Lane told investors on a Sept. 22 conference call.

Oracle is not interested in Hewlett-Packard’s PC, printer or information-technology services divisions, nor does it want to sell server computers running Windows, the software made by Oracle rival Microsoft Corp., one person said. The company may also be inhibited by terms of an agreement, announced in September, over the appointment of Mark Hurd as a co-president of Oracle, other people said.

That’s when the companies resolved the lawsuit by Hewlett- Packard, which sued on Sept. 7 to block Hurd -- former CEO of Hewlett-Packard -- from moving to Oracle.

Hurd’s Hands Tied

The agreement included stipulations that Hurd protect Hewlett-Packard’s confidential information while fulfilling his obligations to Oracle, the companies said at the time. It also ties Oracle’s hands from attempting to acquire Hewlett-Packard until some time early next year, people familiar with the agreement said.

Oracle, which has $31.7 billion in cash, is also not interested in using its shares to try to buy Hewlett-Packard, which has a market value of $46.1 billion, one person said. However, Oracle could be interested in buying Hewlett-Packard’s $18.7 billion server, storage and networking division if it were available on a stand-alone basis, this person said.

Hewlett-Packard’s decision to work with Goldman Sachs in relation to activist shareholders was previously reported by the Wall Street Journal.

“HP has long-term relationships with a large number of investment banks,” Mangalindan said.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Carol Hymowitz in New York at chymowitz1@bloomberg.net; Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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

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JPMorgan’s Dimon Met With Romney: Official

By Jonathan D. Salant - Sep 29, 2011 3:52 AM GMT+0700
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James "Jamie" Dimon, chief executive officer of JPMorgan Chase & Co., speaks at a conference on global capital markets competitiveness hosted by the U.S. Chamber of Commerce in Washington. Photographer: Andrew Harrer/Bloomberg

Jamie Dimon, JPMorgan Chase & Co. (JPM)’s chief executive officer who has been critical of new banking rules, met yesterday with Republican presidential candidate Mitt Romney who has called for their repeal.

Dimon, who was once dubbed President Barack Obama’s “favorite banker” by The New York Times, publicly questioned Federal Reserve Chairman Ben S. Bernanke in June on financial regulatory costs. He also called and e-mailed lawmakers as House and Senate negotiators wrote the final banking bill.

He met with Romney, a former Massachusetts governor and co- founder of the Boston-based private equity firm Bain Capital LLC, in New York yesterday morning, according to a JPMorgan official speaking on condition of anonymity because he wasn’t authorized to comment on the meeting.

Andrea Saul, a Romney spokeswoman, did not respond to requests for comment.

Dimon, a board member of the New York Fed, has been among the business executives who met with Obama at the White House. He was once considered a candidate to become treasury secretary before the president tapped Timothy Geithner.

He has not donated to any presidential candidates this year, according to the Center for Responsive Politics, a Washington-based research group that tracks political giving.

Employees of New York-based JPMorgan gave $808,799 to Obama for his 2008 campaign, second only to Goldman Sachs Group Inc. among financial companies. Dimon was not among the Obama donors.

In his jobs plan, Romney called for repeal of the new financial law. He said it “sends a flood of new regulations washing over the financial sector and anyone seeking to borrow money to buy a home or build a business.”

Romney’s stance has strong appeal on Wall Street, where he has raised more money than Obama so far this year, and more than 100 people -- mostly investors -- who gave to the president during his 2008 race have now contributed to Romney’s presidential bid.

To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net.

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

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Asia Stocks, Commodities Drop on Europe Crisis

By Shiyin Chen - Sep 29, 2011 7:44 AM GMT+0700

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Sept. 28 (Bloomberg) - Rob Arnott, founder and chairman of Research Affiliates LLC, talks about his investment strategy for global stocks and bonds. Arnott also discusses the stocks of Bank of America Corp. and Apple Inc., and Greece's sovereign debt crisis. He speaks with Lisa Murphy on Bloomberg Television's "Fast Forward." (Source: Bloomberg)

Asian stocks fell for the first time in three days, the dollar and yen strengthened, and commodities extended yesterday’s declines amid concern European policy makers will struggle to stem the region’s debt crisis.

The MSCI Asia Pacific Index lost 1.1 percent as of 9:44 a.m. in Tokyo. Standard & Poor’s 500 Index futures slid 0.6 percent. The dollar climbed against 12 of its 16 major peers. The yen gained 0.2 percent to 103.52 per euro. Oil dropped 1.5 percent to $79.98 a barrel in New York, copper sank 5.5 percent to $6,855 a metric ton in London, and immediate-delivery gold decreased 1.1 percent to $1,590.60 an ounce.

Concern Greece will default on its debt is dragging global equities and commodities toward their biggest quarterly losses since 2008, when Lehman Brothers Holdings Inc.’s bankruptcy froze credit markets. The European Commission is resisting a push to impose bigger writedowns on bank holdings of Greek sovereign debt than those previously agreed on, a European official said.

“The market is priced for some kind of Lehman-like event,” Brian Barish, the Denver-based president of Cambiar Investors LLC, which oversees about $8 billion, said in a Bloomberg Television interview. “It’s clear that this is coming to a head. If for some reason, Greece goes into an uncontrolled default and it spreads to Italy, which is a $3 trillion bond market, I don’t know how you’re going to put Humpty Dumpty back together again in terms of the world economy.”

Stocks Slide

About two shares fell for every one that gained on MSCI’s Asia Pacific Index, which snapped a two-day, 4.4 percent rally. The gauge has dropped 17 percent this quarter, on course for its largest quarterly loss since the three months ended September 2008. Japan’s Nikkei 225 Stock Average slid 0.9 percent, Australia’s S&P/ASX 200 Index declined 1.7 percent and South Korea’s Kospi Index dropped 0.7 percent.

Futures expiring in December indicate the S&P 500 may extend yesterday’s 2.1 percent drop. Advanced Micro Devices Inc. (AMD) fell in extended trading after the second-largest maker of processors for personal computers cut its forecasts for third- quarter sales and profits, citing glitches.

German lawmakers will vote today on changes to the European Financial Stability Facility. The plan before the lower house in Berlin would allow the fund to buy bonds of distressed states and offer emergency loans to governments. and offer emergency loans to governments.

Italy will auction as much as 9 billion euros ($12.2 billion) of bonds today. Italy’s five-year credit-default swaps were at 462.5 basis points yesterday, showing traders see a 34 percent chance for the nation’s nonpayment, compared with 4.8 percent for the U.S.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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

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Crude Oil Set for Second Straight Quarterly Decline on Europe Debt Crisis

By Mark Shenk - Sep 29, 2011 2:47 AM GMT+0700

Crude oil fell in New York, heading for the biggest quarterly drop since 2008, on concern that Europe’s debt crisis will linger and on rising U.S. stockpiles.

Futures dropped 3.8 percent as German Chancellor Angela Merkel signaled policy makers may review Greece’s second bailout after inspectors rule on whether the country is meeting the terms of its current package. Supplies rose 1.92 million barrels to 341 million last week, the U.S. Energy Department said today. Prices rose 5.3 percent yesterday, the biggest gain since May 9.

“The markets are questioning the details of the European bailout,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The market surged yesterday and we’re now seeing it give back most of those gains. The move higher was overdone.”

Crude oil for November delivery declined $3.24 to settle at $81.21 a barrel on the New York Mercantile Exchange. Futures are down 8.6 percent this month and 11 percent this year. Prices have dropped 15 percent since the end of June, the biggest quarterly loss since the last three months of 2008.

Brent oil for November settlement fell $3.33, or 3.1 percent, to end the session at $103.81 a barrel on the London- based ICE Futures Europe exchange. It traded at a premium of $22.60 to New York crude, down from a record $26.87 on Sept. 6.

Greece’s “numbers in September, as it now seems, were again different from what we expected under the program,” Merkel told Greek broadcaster NET when asked whether the second bailout agreed by European leaders on July 21 will be revised.

Return to Athens

Experts from the European Commission, European Central Bank and International Monetary Fund will return to Athens tomorrow as officials race to put in place a package of measures that will contain Greece. Euro-area finance ministers will hold a meeting on Greece in October amid concerns that a default could plunge the global economy into recession.

“Market sentiment changes from one day to the next based on optimism or despair about the Greek situation,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Prices are hemmed in, moving in either direction on the most recent headlines about the European debt crisis and the U.S. economy.”

Merkel’s remarks came as a person familiar with the matter said German banks are resisting pressure to accept larger writedowns on their Greek holdings. Lawmakers have called on lenders to accept a larger writedown than the 21 percent proposed by the Institute of International Finance, an industry group, said a person briefed on the talks.

Rescue Package

Earlier, the Financial Times Deutschland reported euro members have started talks on renegotiating the second bailout. Banks and insurance companies might have to increase their contribution to the rescue package, the German newspaper said, citing unidentified people familiar with the situation.

The Standard & Poor’s 500 Index dropped 1.4 percent to 1,159.01 and the Dow Jones Industrial Average fell 1 percent to 11,079.24.

The dollar rose 0.1 percent to $1.357 against the euro, the first gain in four days. A stronger U.S. currency curbs the appeal of dollar-denominated commodities as an investment. The S&P GSCI Index of 24 raw materials fell 2.7 percent to 603.55. Yesterday, the index climbed 3.3 percent, the most since May 9.

“Almost all of the commodities are getting whipped today,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “They overshot to the upside and the move higher has run out of steam.”

Imports and Refining

Crude stockpiles advanced as imports rose and refineries reduced operating rates. Imports surged 16 percent to 9.7 million barrels a day. It was the biggest gain since September 2008. Refineries operated at 87.8 percent of capacity, down 0.5 percentage points from the prior week.

Supplies of crude were forecast to increase 2.05 million barrels, according to the median of 14 analyst responses in a Bloomberg News survey.

Gasoline stockpiles rose 791,000 barrels to 214.9 million in the week ended Sept. 23, the report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, increased 72,000 barrels to 157.7 million.

Speculation that refineries on the U.S. East Coast will shut may send oil lower. ConocoPhillips (COP) said yesterday that it had begun to idle its refinery in Trainer, Pennsylvania. The plant will shut permanently in six months if Conoco can’t find a buyer. Sunoco Inc. (SUN) said Sept. 6 that it will sell or shut its Philadelphia and Marcus Hook, Pennsylvania, refineries.

East Coast Refineries

“The crude market is also under pressure because of the announcement of yet another possible shutdown of an East Coast refinery,” said Carl Larry, director of energy derivatives and research at Blue Ocean Brokerage LLC in New York. “At some point we’ll be able to count on both hands the number of operable refineries on the East Coast.”

Oil volume in electronic trading on the Nymex was 441,052 contracts as of 3:20 p.m. in New York. Volume totaled 541,721 contracts yesterday, 18 percent below the average of the past three months. Open interest was 1.38 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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Obama: Europe’s Debt Response Not Enough

By Roger Runningen - Sep 29, 2011 3:24 AM GMT+0700

President Barack Obama said Europe’s debt crisis continues to be a drag on the U.S. economy and the response of governments there hasn’t been as robust as needed.

The Obama administration has been stepping up its criticism of European actions in the 18-month crisis amid concern that a default by Greece could plunge the global economy into a recession.

“Some of the challenges that we’ve had over the last several months actually have to do with the fact that, in Europe, we haven’t seen them deal with their banking system and their financial system as effectively as they needed to,” Obama said in response to a question about U.S. economic growth during a roundtable discussion on Hispanic issues at the White House.

Obama didn’t specify what steps should be taken. It was the second time this week he has addressed the situation in Europe after saying on Sept. 26 that it’s “scaring the world.”

“It would be safe to say they’ve ratcheted it up,” Pierre Ellis, senior global economist at the research firm Decision Economics in New York, said of recent comments by Obama and Treasury Secretary Timothy F. Geithner.

Geithner called on governments to unite with the European Central Bank to beef-up the capacity of their 440 billion euro ($594 billion) bailout fund. At the annual meeting of the International Monetary Fund and World Bank on Sept. 24 in Washington, he warned that failure to combat the Greek-led turmoil could lead to “cascading default, bank runs and catastrophic risk.”

Bank Concerns

“What everybody fears is a sort of Round II of a credit crunch,” Ellis said. Europe may be “very vulnerable to problems with debt over there and that, in turn, causing problems for our banks. And, of course, the White House is certainly not averse to finding reasons for problems in our economy.”

As investors watched for signs of progress in Europe’s efforts to stem the government debt crisis U.S. stocks halted a three-day rally and the euro reversed an early gain versus the dollar. Treasuries trimmed losses as the 10-year note’s yield headed for its biggest increase over four days since January 2009.

The Standard & Poor’s 500 Index lost 2.1 percent to 1,151.26 at 4 p.m. New York time after climbing 0.8 percent earlier and rallying 4.1 percent over the previous three sessions. The euro weakened 0.3 percent to $1.3548, erasing a 0.8 percent advance. Ten-year yields rose two basis points to 2.01 percent and have climbed 27 points in four days.

Government Contacts

The administration has been in contact with European governments, urging officials “at the presidential level, at the ministerial level” to “take forceful and direct action” to deal with the crisis, White House press secretary Jay Carney said at a briefing after Obama spoke.

While the debt situation in Europe is “certainly a matter of concern,” Obama administration officials continue to believe that governments there have the “financial wherewithal” to deal with the crisis, Carney said.

Experts from the European Commission, the European Central Bank and the International Monetary Fund will return to Athens tomorrow as officials race to put in place measures that cordon off Greece. They will resume a review of whether Greece has met the conditions for the next slice of the initial, 110 billion euro ($150 billion) bailout package engineered last year.

Political Concern

Obama is facing re-election next year and the economy will be the top issue in the presidential contest and campaigns for Congress.

The Office of Management and Budget, in an August update of economic administration forecasts, projected the U.S. economy will grow at a sluggish 1.7 percent rate this year and the jobless rate will average 9.1 percent. At the start of the year, the White House forecast a growth rate of 2.7 percent.

Growth will pick up in 2012, with the economy expanding 2.6 percent on a year-over-year basis, the OMB said.

The International Monetary Fund cut its forecast for global growth and predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal plan.

Pressure from the U.S. has caused friction with Europe. Austrian Finance Minister Maria Fekter said earlier this month that she found it “peculiar” to be lectured by the U.S., a country with higher aggregate debt than the euro area.

The OMB forecasts the federal budget deficit will be $1.3 trillion for the fiscal year that ends Sept. 30 -- 8.8 percent of gross domestic product -- and $956 billion in fiscal 2012. The budget office’s estimates total deficits over the next decade at $5.75 trillion from 2012-2021.

Obama’s proposals for cutting the long-term U.S. debt have run into resistance from Republicans, who control the House of Representatives and oppose raising taxes to narrow the deficit.

To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net

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

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Ford Is Said to Discuss Adding 10,000 U.S. Jobs in Negotiations With UAW

By Keith Naughton, John Lippert and Tim Higgins - Sep 29, 2011 3:15 AM GMT+0700
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A Ford Focus is assembled during the launch of the small car at the Ford Motor Co. Michigan Assembly Plant in Wayne, Michigan, on March 17, 2011. Photographer: Jeff Kowalsky/Bloomberg

Ford Motor Co. (F) is discussing adding as many as 10,000 jobs in the U.S. in negotiations with the United Auto Workers union on a new four-year contract, according to three people familiar with the talks.

The job-creation discussion is part of high-level negotiations between Ford and UAW President Bob King over wages, benefits, and employment gains in the new contract and is still subject to change, said the people, who asked not to be identified revealing internal deliberations. As many as 4,000 of those jobs may come from Ford shifting production of the Fusion midsize sedan to the U.S. from Mexico, one of the people said.

The UAW may reach an agreement this week on a contract covering Ford’s 41,000 workers, Joel Goddard, co-chairman of the union’s bargaining committee said in a recorded message Sept. 26. Ford, which earned $4.95 billion in the first half of the year, is seeking to lower labor costs in the new contract. New hires are paid about half as much as senior workers.

“Jobs have been a central goal of the union in this round of negotiations,” said Harley Shaiken, a labor professor at the University of California at Berkeley. “Ford, which is the most advanced in its recovery, is a natural for this kind of job creation.”

General Motors Co. (GM) agreed to add or retain 6,400 jobs in a tentative agreement it reached with the UAW on Sept. 16. GM’s 48,500 hourly workers ratified that contract with 65 percent of production workers and 63 percent of skilled-trades workers voting for it, the union said today.

“Two years ago, GM and Chrysler were hanging by a thread when President Obama stepped in and invested federal funds to help turn the companies and the U.S. auto industry around, protecting the auto supplier base and keeping good-paying jobs in America,” King said today in a statement. Ford avoided the bankruptcies and bailouts that befell GM and Chrysler Group LLC.

Fusion Production

Ford now produces the Fusion at a factory in Hermosillo, Mexico, which employs 3,335 workers, according to the automaker’s website.

Sales of the Fusion in the U.S., where it is Ford’s top- selling car, rose 16 percent this year to 168,929 models through August. Last year, Ford sold 219,219 Fusions in the U.S., according to researcher Autodata of Woodcliff Lake, New Jersey.

King met yesterday with John Fleming, Ford’s chief of manufacturing and labor affairs, to discuss new work the automaker may be willing to put into U.S. plants, one of the people said. King shifted to Dearborn, Michigan-based Ford last week after talks faltered with Fiat SpA-controlled Chrysler, which said it extended its contract to Oct. 19.

“We have accelerated our talks,” Goddard, the union’s Ford bargaining committee co-chairman, said in a telephone recording late Sept. 26. “We are optimistically hopeful we will have good news for our membership by the end of the week.”

UAW Chief ‘Confident’

Marcey Evans, a Ford spokeswoman, declined to comment.

“We’re not commenting on the details of talks,” said Michele Martin, a UAW spokeswoman.

King is “confident that we are on track to secure an economic package that our membership deserves,” Anderson Robinson, recording secretary of the union’s Ford bargaining committee, said in a recorded message yesterday. He added that King and UAW Vice President Jimmy Settles met “for several hours” with Ford bargainers yesterday.

Hiring entry-level workers would help Ford lower its labor costs because they start at about $14 an hour, half what senior employees make, Shaiken said. Ford has said it has fewer than 100 entry-level workers among its hourly workforce, the fewest of the U.S. automakers.

“There’s little question that the entry-level workers are accelerating the hiring process,” Shaiken said. “That’s a key part of the UAW strategy. It creates more jobs.”

GM Agreement

The GM agreement calls for boosting starting pay of entry- level workers to at least $14.78 an hour from $14. That wage rises to as much as $19.28 an hour by 2015 from a previous maximum of $16.23.

GM may reduce labor costs by as much as $350 million annually through a combination of lower starting wages and buyouts of higher-paid skilled-trades workers, Morgan Stanley analyst Adam Jonas wrote in a Sept. 26 note.

“With buyouts and natural attrition of its most expensive workers substituted by higher levels of tier 2 workers, the contract not only offers greater flexibility, it offers the potential of greater profitability for GM,” Jonas wrote.

Ford has said it has the highest labor costs of the three U.S. automakers, at $58 an hour including benefits. GM’s labor costs are $56 an hour, according to the Center for Automotive Research in Ann Arbor, Michigan. Chrysler has said its labor costs are about $50 an hour.

Signing Bonus

Beyond commitments for new jobs, workers at Ford are looking for a contract signing bonus that is larger than the $5,000 GM agreed to, as well as more generous profit sharing, Shaiken said. They are expecting more for their role in helping Ford recover without government assistance.

“It would not be surprising to see something more at Ford for the workers,” Shaiken said. “There’s an expectation there.”

Workers at Ford also have filed an “equality of sacrifice” grievance against the automaker after salaried workers received raises, tuition assistance and 401(k) matches last year. The two sides met with an arbitrator Sept. 15.

Ford’s Turnaround

Ford earned $9.28 billion in the past two years after $30.1 billion in losses from 2006 through 2008. The automaker borrowed $23.4 billion in late 2006, putting up all major assets including its blue oval logo as collateral. That helped Ford avoid bankruptcy and boost U.S. market share the last two years.

Ford fell 19 cents, or 1.9 percent, to $9.93 at 4 p.m. in composite trading on the New York Stock Exchange. The shares have fallen 41 percent this year after rising 68 percent in 2010.

“Ford has shown a tendency in recent years of being innovative at the bargaining table,” Shaiken said. “If there’s one thing that’s going to be dramatic, it’s job creation.”

To contact the reporters on this story: Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net; John Lippert in Chicago at jlippert@bloomberg.net; Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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Hong Kong Closes Stock Market as Typhoon Passes

By Fion Li and Stephanie Tong - Sep 29, 2011 9:24 AM GMT+0700
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Victoria Harbour is seen during a Typhoon 8 Signal Warning as Typhoon Nesat passes close to Hong Kong. Photographer: Ed Jones/AFP/Getty Images

Hong Kong shut financial markets, schools, courts and government offices, raising its highest storm signal in two years as Typhoon Nesat brought gale-force winds and rain into the city.

The typhoon, which killed at least 20 people in the Philippines, was centered about 350 kilometers (217 miles) south-southwest of Hong Kong, and is heading toward China’s Hainan Island, the city’s observatory said. The No. 8 gale signal will remain for most of the day, it said.

“It’s deadly quiet outside, like a dark, wet, ghost town,” said Gavin Parry, managing director of Parry International Trading Ltd., an equity trader, in Hong Kong. “There are few mini buses, no public buses and taxis are trawling for passengers to pay an extra HK$100 fare given the typhoon.”

Gale winds swept the city, home to the world’s fifth- biggest equity market, with trees collapsing, scaffolding falling off buildings and a vessel crashing against a pier. All bus, ferry and trams services are suspended, and the Hong Kong Exchanges & Clearing Ltd. canceled the morning trading session.

“Nesat is closest to Hong Kong now,” the observatory said in its statement at 9:45 a.m. local time. “Gale winds are expected to persist over Hong Kong.”

The typhoon is forecast to move west-northwest at about 22 kilometers an hour, the observatory said. Winds with average speed of 63 kilometers an hour are blowing from the southeast direction, it said. The city raised the typhoon signal 8 and above about 1.4 times on average a year between 1971 to 2000, according to data from the observatory.

Asian Stocks Fall

“I got in by a cab today, and it took me about 10 minutes to get one,” Frank Huang, head of trading for fixed income at Sinopac Securities Asia Ltd. in Hong Kong, said by telephone. “Traffic was smooth as there aren’t many cars on the roads. I have to come back to work as trading is still going on in other markets.”

Trading in Hong Kong is suspended as stocks in Asia fell for the first time in three days. The MSCI Asia Pacific Index lost 1.1 percent as of 9:44 a.m. in Tokyo. The dollar and yen strengthened, and commodities extended yesterday’s declines amid concern European policy makers will struggle to stem the region’s debt crisis.

Bourses Suspend Trading

The afternoon trading session will start at 2:00 p.m. if the observatory lowers the signal at or before noon, the bourse said in a statement issued at 9:28 a.m. today. The Hong Kong Mercantile Exchange said trading is suspended.

The government has received three reports of fallen scaffolding, with one incident damaging a taxi and hurting the driver and passenger. The police also evacuated 57 people when a vessel hit a coastal facility at Heng Fa Chuen, on the eastern part of Hong Kong island. There are 30 reports of trees collapsing, the fire services department said.

About 38 flights have been delayed, a spokesman for the Hong Kong Airport Authority said, declining to be identified.

The government’s marine department said the Hong Kong-Macau ferry terminal in Sheung Wan has been closed. A vessel was pushed by waves and crashed into a pier at Chai Wan, Cable Television reported, citing a firefighter.

In the Philippines, the number of “affected” people reached 171,570 in 22 provinces, the disaster risk agency said.

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net; Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

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U.S. Stocks Retreat as Concern Grows Over Europe’s Handling of Debt Crisis

By Whitney Kisling and Inyoung Hwang - Sep 29, 2011 3:35 AM GMT+0700

U.S. stocks declined, halting a three-day rally for the Standard & Poor’s 500 Index, amid growing concern that European leaders are divided over how to handle Greece’s debt crisis.

All 10 industry groups in the S&P 500 fell at least 0.6 percent, with companies most-tied to economic growth dropping the most. Dow Chemical Co. (DOW) and Alcoa Inc. (AA) slid at least 4.9 percent as commodities tumbled. Morgan Stanley and Bank of America Corp. (BAC) lost more than 4.9 percent, pacing declines among financial shares. Amazon.com Inc. (AMZN) rose 2.5 percent after the company launched its Kindle Fire tablet computer, taking aim at Apple Inc.’s bestselling iPad.

The S&P 500 lost 2.1 percent to 1,151.06 at 4 p.m. New York time, after rising as much as 0.8 percent earlier and rallying 4.1 over the previous three days. The Dow Jones Industrial Average fell 179.79 points, or 1.6 percent, to 11,010.90 today, with all 30 stocks retreating.

“Europe is the issue that is first and foremost in everyone’s mind, so any news that comes out on that does have a strong impact on the market,” Peter Jankovskis, who helps manage about $2.6 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “Any weakness there is going to be a drag worldwide.”

A four-day rout last week erased $1 trillion from U.S. equities amid concern Greek insolvency is inevitable and Europe can’t contain the damage. The decline left the S&P 500 trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets, Bloomberg data shows.

Bigger Writedowns

Stocks fell today as an official said the European Commission is resisting a push to impose bigger writedowns on banks’ holdings of Greek government debt than those agreed at a July 21 summit. The commission opposes ideas that are being floated by some government officials to get banks to accept bigger so-called haircuts and doesn’t want to have talks about any such attempt, the official said on condition of anonymity because the deliberations are private.

Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility, the European Securities and Markets Authority said.

The S&P 500 had climbed over the past three days amid optimism that euro-area nations were making progress on plans to tame the region’s government debt crisis.

‘Pins and Needles’

“The market is on pins and needles over the whole European debt problem,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees about $75 billion, said in an e-mail. “Every new rumor or little piece of news moves the market in one direction or the other a percent or two. It’s frustrating!”

Stocks rose earlier today as a Commerce Department report showed orders for U.S. capital goods climbed in August by the most in three months, a sign business investment continues to support the recovery. Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 1.1 percent, the most since May. Demand for total durable goods dropped 0.1 percent, less than forecast.

The S&P 500 has been trading between about 1,100 and 1,300 since the beginning of August. The benchmark gauge for U.S. equities climbed as high as 1,363.61 on April 29, before starting a decline of as much as 18 percent through August. The index is down 8.5 percent for the year. Strategists estimate it will climb to 1,305 by year-end, representing a 13 percent advance, according to the average in a Bloomberg survey.

Commodity Companies

Raw-material companies fell the most among 10 groups in the S&P 500 today, tumbling 4.5 percent. Energy shares lost 3 percent as a group, as the Thomson Reuters/Jefferies CRB Index of 19 commodities fell 2.5 percent. The Morgan Stanley (MS) Cyclical Index of companies most-tied to the economy lost 3.3 percent. The Dow Jones Transportation Average, a proxy for the economy, lost 2.9 percent.

Alcoa fell 4.9 percent to $9.97. Dow Chemical, the largest U.S. chemical maker, slid 6.2 percent to $23.76.

The KBW Bank Index lost 3.5 percent, with Morgan Stanley falling 5.4 percent to $14.16. Bank of America slid 4.9 percent to $6.16, for the largest decline today for the Dow. A group of S&P 500 financial shares have plunged 27 percent since the April high, the biggest drop among the 10 industry groups. Utilities companies have been the only group to gain, adding 1.2 percent in the same period.

Amazon.com shares rose 2.5 percent, the second-most in the S&P 500, to $229.71. The world’s largest online retailer introduced its Kindle Fire, a device that’s smaller and less than half the price of Apple’s iPad. Chief Executive Officer Jeff Bezos is betting he can leverage Amazon’s dominance in e- commerce to pose a challenge to the iPad, after tablets from rivals such as Hewlett-Packard Co. and Research In Motion Ltd. have fallen short.

Jabil Circuit Inc., gained the most in the benchmark index, adding 8.4 percent to $18.84. The U.S. contract electronics manufacturer forecast first-quarter earnings will be at least 62 cents a share, exceeding the average analyst projection, data compiled by Bloomberg show.

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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