EU Said to Mull Wielding $1.3T to Break Impasse

By James G. Neuger and Tony Czuczka - Oct 21, 2011 9:16 AM GMT+0700

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Oct. 21 (Bloomberg) -- Uwe Parpart, head of research at Reorient Financial Markets Ltd., talks about Europe's sovereign debt crisis and its implications for Asian economies and financial markets. Parpart speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Oct. 21 (Bloomberg) -- Steve Brice, chief investment strategist at Standard Chartered Plc, talks about the outlook for a European rescue fund to fight the region's debt crisis, and its potential implications for financial markets. Brice speaks with Susan Li on Bloomberg Television's "First Up."(Source: Bloomberg)

European governments may unleash as much as 940 billion euros ($1.3 trillion) to fight the debt crisis, seeking to break a deadlock between Germany and France that is forcing leaders to hold two summits within four days.

Negotiations on combining the European Union’s temporary and planned permanent rescue funds as of mid-2012, while scrapping a ceiling on bailout spending, accelerated this week after efforts to leverage the temporary fund ran into European Central Bank opposition and provoked the French-German clash, two people familiar with the discussions said. They declined to be identified because political leaders will have to decide.

That option may be one way out of the impasse between Europe’s two biggest economies. Finance ministers meet in Brussels today from about 2 p.m. to lay the groundwork for an Oct. 23 meeting of government leaders that had been the deadline for a solution to the debt crisis. A summit for Oct. 26 was set yesterday after Germany and France said the EU needs more time to seal a “global and ambitious” accord.

“The market wants the euro crisis solved yesterday, and the politicians and finance ministries seem to be saying ‘yes we can, but no we won’t,’” Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd., said in an e-mail. “Europe has the wealth to deal with Greece, it is just that the process in incredibly complex.”

Disclosure of the dual-use option helped reverse declines in U.S. stocks and the euro yesterday. The Standard & Poor’s 500 Index added 0.5 percent after losing as much as 1 percent. The euro climbed to $1.3781 in New York from as low as $1.3656.

Greek Vote

In Greece, Prime Minister George Papandreou won a parliamentary vote late yesterday on further austerity measures designed to secure more aid under the 2010 bailout. As hooded protesters threw rocks and battled riot police outside the parliament building in Athens, one man died of heart failure after a rock hit him on the head, the government said.

EU officials weighing deeper losses for Greek bondholders in a revamped bailout are concerned that any investor involvement risks further roiling markets, say people familiar with the deliberations.

Five Scenarios

Greece has accumulated at least 20 billion euros in additional financing needs since a 159 billion-euro package was set in July, because of a deepening recession and delays in enacting the plan, said the people, who declined to be identified because euro-area leaders have yet to agree on their strategy. The EU is considering five scenarios, ranging from sticking with July’s voluntary swap to a so-called hard restructuring, where investors could be forced to exchange Greek bonds for new ones at 50 percent of their value, the people said.

The 440 billion-euro European Financial Stability Facility has already spent or committed about 160 billion euros, including loans to Greece that will run for up to 30 years. Instead of replacing it with the European Stability Mechanism, which will hold 500 billion euros, in mid-2013, a consensus is emerging on merging the two funds, the people said.

The 500 billion-euro total was deemed sufficient when Greece, Ireland and Portugal were the primary victims of the debt crisis. Widening bond spreads in Italy, Spain, Belgium and France upended that calculation.

Credit Lines

Standard & Poor’s said France is among euro-region sovereigns likely to be downgraded in a stressed economic scenario. The sovereign ratings of Spain, Italy, Ireland and Portugal would also be reduced by another one or two levels in either of New York-based S&P’s two stress scenarios, it said in a report.

The EFSF may be authorized to provide credit lines of as much as 10 percent of a country’s economy, according to a proposal prepared for this week’s meetings. By that measure, credit lines for Spain and Italy, countries that required European Central Bank support as their borrowing costs soared, could reach 270 billion euros ($371 billion).

“EFSF will need to be leveraged up,” Lael Brainard, the U.S. Treasury’s undersecretary for international affairs, said to a Senate subcommittee yesterday in Washington.

Germany and France, the euro region’s biggest financial backers, are at odds over how to do that. The fund’s tasks include recapitalization of banks and buying bonds in primary and secondary markets.

France favors creating a bank out of the EFSF, boosting its financial clout with backing from the ECB, a proposal that Germany rejects, Finance Minister Wolfgang Schaeuble told lawmakers in Berlin this week. French Prime Minister Francois Fillon said yesterday that the euro region should agree to use leverage to make the fund “massive.”

Europe’s Impact

German Chancellor Angela Merkel and French President Nicolas Sarkozy facing growing pressure from the U.S. and other global partners to end the wrangling. Federal Reserve Chairman Ben S. Bernanke briefed Senate Democrats yesterday about the European debt crisis and said it “could have an impact” on the U.S. economy, Senator Dick Durbin of Illinois said in Washington. Merkel and Sarkozy plan to meet one-on-one in Brussels tomorrow on the eve of the first summit.

The focus on the lending ceiling came after central bankers ruled out giving the EFSF a banking license, blocking the most potent option for scaling it up. France has pushed Germany to go beyond a less powerful, ECB-backed option of using it to insure 20 percent to 30 percent of new bond issues.

Still, the 280 billion euros left in the EFSF cannot be wholly committed to bond insurance, since that would drain the fund to zero, the people said. Instead, finance ministers are likely to decide on the use of the EFSF’s instruments on a case- by-case basis, the people said.

Meanwhile, the ECB is considering lending more money against asset-backed bonds if issuers provide additional information about the loans underpinning the securities, according to a person familiar with the matter. The proposed change is part of a broader ECB initiative to encourage banks to improve transparency in asset-backed bonds they sell to investors and boost confidence in a market blamed for worsening the credit crisis in 2007.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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Saab’s Survival Chances Drop as Chinese Investors Cut Investment Pledges

By Ola Kinnander - Oct 21, 2011 9:42 AM GMT+0700

Saab Automobile’s chances of avoiding bankruptcy dwindled after the two Chinese companies that had agreed to invest in the company instead offered to buy it for a token sum, people with knowledge of the matter said.

Pang Da Automobile Trade Co. and Zhejiang Youngman Lotus Automobile, which had planned to buy a combined 53.9 percent stake in Saab’s parent Swedish Automobile NV, made the offer after speaking to the person overseeing Saab’s court- administered reorganization, said the people, who declined to be identified discussing the private talks.

The two Chinese companies had previously offered to invest 245 million euros ($338 million) to help Saab stave off bankruptcy. The about-face is the second blow to Saab’s efforts to turn around the carmaker after the company said yesterday the court administrator plans to terminate the reorganization, possibly forcing Saab to exit creditor protection.

“If the Chinese are not prepared to pay a reasonable value for it, the shareholders and creditors are better to let it wind up,” said Howard Wheeldon, a senior strategist at Bgc Partners LP in London. “So much damage has been made to the brand anyway these last six months, and it wasn’t doing well before it imploded. The end is now definitely nigh.”

Saab, which has produced few cars since it first halted production in March because of a lack of money, avoided bankruptcy last month after a Swedish court granted the voluntary reorganization.

New Proposals

Saab has turned down the offer from Pang Da and Youngman and insisted that the two stick to the original agreement, the people said. Eric Geers, a Saab spokesman, declined to comment.

“Any plan is possible during the process of reorganization,” Pang Qinghua, chairman of Pang Da, said in a telephone interview today. “It’s possible for new proposals popping up during the process.”

Hu Ming, a spokesman for Youngman, declined to comment.

Attorney Guy Lofalk has told Saab he will apply with the Vaenersborg District Court in Sweden to terminate the restructuring, according to the company. The carmaker will contest the decision and ask for a new administrator.

For the reorganization to continue, the court must see that Saab has cash to pay for immediate expenses. Trollhaettan, Sweden-based Saab said yesterday it received a $70 million funding pledge from North Street Capital LP, a Greenwich, Connecticut-based private equity firm.

Those funds, which consist of a loan and share sale, were aimed at ensuring the continuity of the reorganization. North Street Capital on Sept. 29 agreed to buy Swedish Automobile’s Spyker sports-car unit for 32 million euros.

The court had been scheduled to meet Oct. 31 to decide whether Saab’s reorganization can carry on. Lofalk didn’t return a message left at his Stockholm office outside regular business hours yesterday.

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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France Likely to Lose Top Rating: S&P

By John Glover - Oct 21, 2011 5:46 AM GMT+0700

France is among euro-region sovereigns likely to be downgraded in a stressed economic scenario, according to Standard & Poor’s.

The sovereign ratings of Spain, Italy, Ireland and Portugal would also be reduced by another one or two levels in either of New York-based S&P’s two stress scenarios, the ratings firm said in a report dated today. These assume low economic growth and a double-dip recession in the first set of circumstances, and add an interest-rate shock to the recession in the second.

“Ballooning budget deficits and bank recapitalization costs would likely send government borrowings significantly higher under both scenarios,” S&P analysts led by Chief Credit Officer Blaise Ganguin in Paris wrote in the report. “Credit metrics would deteriorate sharply as a result.”

S&P is seeking to take account of the economic slowdown that hit Europe in the second quarter and which has led the ratings company to trim 2012 growth forecasts to an average of between 1 percent and 1.5 percent. France would follow the so- called peripheral euro-region nations that have already been downgraded, with Moody’s Investors Service saying earlier this week that its top rating was under threat.

A double-dip recession would result from falling industrial investment and declining consumer confidence in the first scenario, according to S&P. Under these cirscumstances, the Tier 1 ratios of 20 banks in S&P’s 47-strong sample may fall below 6 percent, forcing governments put in about 80 billion euros ($109 billion) of new capital to return them to at least 7 percent, according to S&P. A lender’s Tier 1 ratio is a gauge of its financial strength.

Recapitalizing Banks

The bill to recapitalize the banking system across the euro region would amount to about 115 billion euros in the less- stressed scenario and about 130 billion euros in the more- stressed situation, S&P found.

The analysts assume that the European Central Bank and governments would support the banks because failure to do so “could yield even more dire consequences,” according to the report.

Speculative-grade corporate defaults would probably rise to 9 percent to 13 percent under the scenarios, S&P said.

Spain, which was AAA between December 2004 and January 2009, was reduced one step to AA- by S&P on Oct. 13. Moody’s stripped it of its Aa2 rating on Oct. 18 and now grades the nation two steps lower at A1.

S&P cut Italy a step to A on Sept. 19, while Moody’s slashed its rating three levels to A2 on Oct. 4. Ireland, which received an international bailout last year, is graded BBB+ by S&P, while Portugal, which also received a bailout, has a BBB- rating.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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EU Said to Weigh Combined $1.3 Trillion Fund

By James G. Neuger - Oct 21, 2011 3:15 AM GMT+0700

European governments may unleash as much as 940 billion euros ($1.3 trillion) to fight the debt crisis by combining the temporary and planned permanent rescue funds, two people familiar with the discussions said.

Negotiations over pairing the two funds as of mid-2012 accelerated this week after efforts to leverage the temporary fund ran into European Central Bank opposition and provoked a clash between Germany and France, said the people, who declined to be identified because a decision rests with political leaders.

Disclosure of the dual-use option helped reverse declines in U.S. stocks and the euro on speculation it could help break the deadlock among European leaders. Their wrangling led to the scheduling of a summit three days after an Oct. 23 gathering.

“Incrementalism is better than holding pat,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co., in a telephone interview from London. “This is incrementalism.”

The 440 billion-euro European Financial Stability Facility has already spent or committed about 160 billion euros, including loans to Greece that will run for up to 30 years. It is slated to be replaced by the European Stability Mechanism, which will hold 500 billion euros, in mid-2013.

Permanent Fund

A consensus is emerging to start the permanent fund in mid-2012, the people said. During the transition between the two funds, euro-area governments originally agreed to cap overall lending at 500 billion euros, a figure deemed sufficient when Greece, Ireland and Portugal were the primary victims of the debt crisis.

Widening bond spreads in Italy, Spain, Belgium and France have thrown off those calculations, with multiple uses --primary and secondary market bond purchases, credit lines and bank aid in addition to loans to governments -- now planned for the rescue instruments.

Officials have discussed scrapping Article 34 of the ESM treaty, which sets the combined lending cap, the people said. A revised treaty is due to be signed by the end of November and requires approval by the 17 euro-area governments, usually in parliamentary votes.

Parliamentary ratification has snagged Europe’s crisis response so far. Germany’s parliament attached conditions to its approval of the EFSF’s latest upgrade and the ratification fight in Slovakia cost the prime minister her job.

U.S. stocks gained today, with the Standard & Poor’s 500 Index adding 0.5 percent after losing as much as 1 percent. The euro climbed to $1.3781 in New York from as low as $1.3656.

ECB Opposition

The focus on the lending ceiling came after central bankers ruled out giving the EFSF a banking license, blocking the most potent option for scaling it up. France has pushed Germany to go beyond a less powerful, ECB-backed option of using it to insure 20 percent to 30 percent of new bond issues.

Still, the 280 billion euros left in the EFSF cannot be wholly committed to bond insurance, since that would drain the fund to zero, the people said. Instead, finance ministers are likely to decide on the use of the EFSF’s instruments on a case- by-case basis, the people said.

Faster startup of the ESM would widen Europe’s options and save money, the people said. The ESM will operate with paid-in capital, moving away from the guarantee-based system that complicated the EFSF’s use.

While speedier enactment would require donor countries to pay in as of 2012, those costs would be more than offset by switching from the guarantee system, the people said. Donor countries would save 38.5 billion euros, with Germany saving 11.5 billion euros and France 8.6 billion euros, according to staff estimates reported by Bloomberg News on Sept. 24.

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

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

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French Air Power Begins, Ends NATO Campaign Over Libya With Sarkozy’s Help

By Gregory Viscusi and David Lerman - Oct 21, 2011 6:46 AM GMT+0700

The NATO air campaign to oust Muammar Qaddafi began with French Mirage jets destroying a column of his tanks on the outskirts of Benghazi seven months ago.

Yesterday, it was a French Mirage jet that fired to block Qaddafi’s escape from Sirte in a four-wheel drive vehicle. Libyan fighters then moved in and killed the man who had ruled their country for 42 years.

The French involvement in the war’s denouement was symbolic of the leading role President Nicolas Sarkozy has played since Libyan rebels first sought outside help for their revolution.

While U.S. military involvement was “quite considerable,” said Andrew Pierre, a former senior fellow at the U.S. Institute of Peace in Washington, “the intervention in Libya will be perceived by the French public as French-led. That will be a strong card for a man who’s facing a very tough” re-election bid next year.

Sarkozy was the first Western leader to recognize the National Transitional Council as the representatives of the Libyan people, and French planes carried out the largest number of ground attacks. Sarkozy and British Prime Minister David Cameron took the lead in a public campaign to impose a no-fly zone over Libya which led to NATO effectively providing air cover to otherwise out-gunned Libyan rebels.

“The end of Qaddafi was the work of Libyans in Libya,” French Defense Minister Gerard Longuet said at a press conference yesterday in Paris. “But French aviation was present from the start.”

Qaddafi Convoy

Longuet said coalition planes yesterday noticed “a convoy of several dozen four-by-four vehicles trying to force their way out of Sirte.” A Dassault Aviation SA (AM) Mirage 2000 jet fired its cannon ahead of the convoy “to block it, not to destroy it,” Longuet said. NTC forces then closed in on the blocked convoy and Qaddafi was killed in the fighting, Longuet said.

NATO now “will terminate our mission in coordination with the United Nations and the National Transitional Council,” NATO Secretary General Anders Fogh Rasmussen said in a statement.

On March 10, after a meeting at Sarkozy’s Elysee presidential palace with leaders of the TNC, organized by French philosopher Bernard-Henri Levy, France became the first Western government to recognize the council as the representatives of the Libyan people. On March 19, hours after the UN voted to impose an air-exclusion zone over Libya, French planes flew from mainland France with aerial refueling to destroy a tank column at the gates of Benghazi, the hometown of the NTC.

France First

Sarkozy has repeatedly said that the attack, carried out before U.S. cruise missiles knocked out Libya’s air defenses, prevented a bloodbath in Benghazi.

In June, the French again went ahead of their NATO allies in air-dropping weapons to rebels in the Western mountains of Libya. Those rebels then went on the offensive, opening up a third front in the war after those of Benghazi and Misrata.

At a briefing in early September, French officials claimed their planes carried out 25 percent of all ground attacks, the most of any country, and 85 percent of helicopter attacks. French planes were based in Corsica, Crete, and on the Charles de Gaulle aircraft carrier and Mistral helicopter carrier.

The Libya campaign cost the French state 350 million euros ($480 million) beyond what was already budgeted for overseas military operations, the defense ministry said in presentation of its 2012 budget in late September.

Sarkozy presents a vision of France as “a great power that can take action and be effective because of his leadership,” said Pierre, a former director-general of the Atlantic Institute for International Affairs in Paris.

Military Engagements

Sarkozy, who was elected in 2007 and faces re-election next year, boosted France’s military engagements in Afghanistan in 2008 and returned France to NATO’s unified military command in 2009. At one point this year, French military forces were engaged on four fronts: Libya, Afghanistan, enforcing a UN demand that Ivory Coast strongman Laurent Gbagbo step down, and in a European anti-piracy fleet off the coast of Somalia.

For Sarkozy, success in Libya won’t necessarily help his re-election next year.

“Libya is popular on the whole with the French because it plays to their sense of France standing up for human rights,” said Laurent Dubois, a professor at the Paris Political Studies Institute. “But that’s not what’s going to decide the election. It’s not as important as the economy.”

Francois Hollande, who won the Socialist Party’s nomination last weekend, would defeat Sarkozy 62 percent to 38 percent if elections were held now, a poll released Oct. 19 said. Hollande has supported the military operations in Libya.

To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net David Lerman in Washington at dlerman1@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Andrew J. Barden at barden@bloomberg.net

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Most Asian Stocks Rise as Europe Considers $1.3 Trillion Bailout Package

By Yoshiaki Nohara and Masaaki Iwamoto - Oct 21, 2011 9:39 AM GMT+0700

Most Asian stocks rose, narrowing weekly losses on the region’s benchmark index, as European policy makers consider deploying $1.3 trillion to fight the region’s debt crisis.

Fanuc Corp. (6954), a Japanese manufacturer of industrial robots that gets 75 percent of its sales abroad, rose 1.9 percent. Samsung Electronics Co., South Korea’s biggest exporter of consumer electronics, gained 1.4 percent. LG Display Co., the world’s second-largest maker of liquid-crystal displays, jumped 7 percent after analysts said losses will narrow in the current quarter.

The MSCI Asia Pacific Index rose 0.2 percent to 115.45 at 11:37 a.m. in Tokyo. More than half of the stocks on the benchmark gauge rose ahead of a European debt summit this weekend. The measure has dropped 1.2 percent this week.

“It looks like European leaders are making progress, but there’s still a long way to go,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The market remains very vulnerable.”

Futures on the Standard & Poor’s 500 Index gained 0.4 percent today. The index rose 0.5 percent yesterday in New York after a report that Europe may combine temporary and permanent rescue funds to make as much as 940 billion euros ($1.3 trillion) available to fight the crisis, according to two people familiar with the matter.

Second Summit

Gains were limited on concern European policymakers will struggle to reach a resolution at the Oct. 23 summit. German Chancellor Angela Merkel and French President Nicolas Sarkozy said in a joint statement they want agreement on a “comprehensive and ambitious” plan as the European Union prepares for a second summit within three days of this weekend’s meeting.

“There’s a lot of information and a lot of uncertainty whether this weekend’s meeting will come out with a definitive plan or there’s more to come after that,” Colonial’s Halmarick said.

Japan’s Nikkei 225 Stock Average was little changed today. South Korea’s Kospi Index rose 1.3 percent, while Australia’s S&P/ASX 200 added 0.5 percent. Hong Kong’s Hang Seng Index rose 0.3 percent.

Shares of Asian exporters were mixed. Fanuc advanced 1.9 percent to 12,120 yen in Tokyo. Samsung Electronics gained 1.4 percent to 920,000 won in Seoul. Honda Motor Co., Japan’s second-largest carmaker by market value, fell 0.5 percent to 2,293 yen. Li & Fung Ltd., the biggest supplier of clothes and toys to retailers including Wal-Mart Stores Inc., fell 2.9 percent to HK$12.24.

Financial Shares

Financial shares were little changed even after U.S. banks gained the most among 10 industries in the S&P 500 Index yesterday, adding 1.8 percent as a group. National Australia Bank Ltd. (NAB), Australia’s fourth-biggest lender by market value, rose 1.4 percent to A$24.62, while Mizuho Financial Group Inc., Japan’s third-largest lender by market value, fell 0.9 percent to 110 yen.

The MSCI Asia Pacific Index declined 16 percent this year through yesterday amid concern Europe’s debt crisis will damage the banking system and U.S. growth is sputtering. That compares with slides of 3.4 percent by the S&P 500 and 16 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 11.7 times estimated earnings on average, compared with 12.2 times for the S&P 500 and 10 times for the Stoxx 600.

LG Display jumped 7.1 percent to 24,100 won after analysts from LIG Investment & Securities Co. and Hyundai Securities Co. said losses will narrow in the current quarter.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Masaaki Iwamoto in Tokyo at miwamoto4@bloomberg.net

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

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Mark Madoff’s Widow Blames His Suicide on Bernard Madoff

By Bob Van Voris - Oct 21, 2011 5:22 AM GMT+0700

Stephanie Madoff Mack, the widow of Mark Madoff, defends her husband’s innocence and blames his 2010 suicide on her former father-in-law, convicted confidence man Bernard Madoff, in a memoir published today.

“I never doubted Mark’s innocence for a single second,” Mack says in “The End of Normal: A Wife’s Anguish, a Widow’s New Life,” written with Tamara Jones. “He was a hero. But Mark was too engulfed in his own pain to feel any of that pride himself.”

Mack, who says she changed her last name to try to avoid the intense scrutiny that went with the Madoff name, describes her marriage, her relationship with Bernard and his wife, Ruth Madoff, and her struggle to come to terms with Mark’s death.

Bernard Madoff, 73, was arrested and his firm forced into bankruptcy in December 2008. He pleaded guilty to running the biggest Ponzi scheme in history and is serving a 150-year sentence in a federal prison in North Carolina.

Mark Madoff hanged himself in the Manhattan apartment he shared with his wife and their children on Dec. 11, 2010, two years to the day after his father’s arrest. He was 46.

Mark Madoff, divorced with two children from his first marriage, married Mack in 2004. They had two children, a boy and a girl.

‘Clueless, Not Corrupt’

In the book, Mack says she believes Bernard Madoff’s family had no connection to the fraud. Her mother-in-law, Ruth Madoff, was “clueless, not corrupt,” she writes.

Mark Madoff and his brother Andrew Madoff both worked for the legitimate, market-making side of their father’s business. After his arrest, both said they had no knowledge of the fraud he ran for decades until he confessed it to them.

“That my husband might somehow have been involved in Bernie’s criminal operation never once crossed my mind,” Mack writes. “He and Andy ran a completely separate business.”

In the weeks leading up to Madoff’s arrest, Mack says, Mark told her that he and Andrew were worried about their father and had seen him sitting in his Manhattan office, staring at the ceiling for long periods of time. Mark thought his father was ill or dying, she said.

‘One Big Lie’

Mack tells of her husband’s shock and anger after his father told him and Andrew on Dec. 10, 2008, “It’s all one big lie.” She tells of meeting a friend in the apartment that day to discuss plans for a nursery for the son she and Mark would soon have. Mark interrupted the meeting with a phone call.

“It’s my father. My father has done something very bad, and is probably going to jail for the rest of his life,” he told her, according to Mack.

Mark and Andrew Madoff immediately turned their father in to U.S. authorities and he was arrested the next day, Mack writes.

After he was sent to prison, Bernard Madoff compared the facility to a college campus, with “lovely lawns and trees,” she writes. “I am quite the celebrity and treated like a Mafia Don,” she says he told her in a letter.

Mack was in Florida, at Disney World with their daughter, when Mark Madoff died. He had hung himself from a steel beam in their apartment, using their dog’s leash as a noose. Their 2- year-old son was asleep in the nursery.

‘Help’

Mack writes that when she woke up that morning, she found two messages Mark had sent to her. The first, with a subject line that read “Help,” said, “Please send someone to take care of Nick,” their son. The second said, “I Love You.”

Her husband earlier tried to commit suicide by taking an overdose of prescription drugs. He had written a note to his father, Mack says.

“Bernie: Now you know how you have destroyed the lives of your sons by your life of deceit. F___ you,” the note said, according to Mack.

One night at 4 a.m., about a month after Mark’s suicide, Mack wrote what she called “a bitter letter” to “Bernie.”

“I understand that you stole money from thousands of innocent people -- your children, your grandchildren, your entire family and even my parents,” Mack writes.“However, what you must know is that you stole the love of my life and four of your grandchildren’s father.”

She ended the letter: “I pray that your days in jail are as dark as they can be, because let me tell you, it’s much harder to survive on the outside -- and I refuse to let you ruin my life.”

A few days later, Madoff wrote back, Mack says.

“I pray that you never have to experience the pain and torment I live with every day. I would gladly give my own life if I thought it would bring Mark back,” Madoff wrote, according to Mack. “I blame myself for everything that has happened and nothing will ever change this.”

“You ask how I can live with myself. I can’t, and I don’t know how much longer I can go on.”

To contact the reporter on this story: Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net.

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

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Stocks Fall as Merkel Cancels Bailout Speech

By Rita Nazareth - Oct 21, 2011 3:34 AM GMT+0700

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Oct. 20 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks rose, recovering from earlier losses, as European governments considered deploying $1.3 trillion in funds to tame the sovereign debt crisis. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

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Oct. 20 (Bloomberg) -- Tom DeMark, founder of Market Studies LLC and creator of indicators for identifying turning points in stocks, talks about the outlook for U.S. stock markets. DeMark says the failure of the Standard & Poor's 500 Index to keep rising after gaining 2 percent on Oct. 18 may mean it's poised to fall. He speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

U.S. stocks rose, recovering from earlier losses, as European governments considered deploying $1.3 trillion in funds to tame the sovereign debt crisis.

Financial shares gained the most among 10 industries in the Standard & Poor’s 500 Index, adding 1.8 percent as a group. Fifth Third Bancorp (FITB) and KeyCorp (KEY) rose at least 6.9 percent as earnings topped projections. Philip Morris International Inc. (PM) rallied 3.3 percent as higher shipments and increased cigarette prices in Asia helped the company beat profit estimates. EBay Inc. declined 3.1 percent after the online marketplace forecast sales and income that missed some forecasts.

The S&P 500 rose 0.5 percent to 1,215.39 at 4 p.m. New York time, after falling as much as 1 percent and rallying 0.8 percent earlier today. The Dow Jones Industrial Average climbed 37.16 points, or 0.3 percent, to 11,541.78.

“This whole situation makes doing my job, as a guy who’s trying to buy stocks based on a long-term view, almost laughably difficult,” Brian Barish, who helps oversee about $8 billion as Denver-based president of Cambiar Investors LLC, said in a telephone interview. “The market is hypersensitive as to whether or not a plan will emerge that will stabilize Europe.”

The S&P 500 rose from the threshold of a bear market early this month amid optimism over earnings and steps by European leaders to support banks. The rebound brought the gauge close to the top of a price range between 1,074.77 and 1,230.71, where it’s traded for more than two months. The S&P 500 briefly climbed above that range on Oct. 18, reaching 1,233.10.

Rescue Fund

Stocks rebounded today as two people familiar with the matter said Europe may combine the temporary and permanent rescue funds to unleash as much as 940 billion euros to fight the crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy said in a joint statement they want euro-region leaders to agree on a “comprehensive and ambitious” plan as the EU plans another debt summit on Oct. 26.

“Europe needs some sort of TARP-like facility to backstop the banks to prevent contagion,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. Smith’s firm manages about $6.1 billion. “It was difficult to do in the United States and it’s 17 times more difficult to do it in Europe,” he said. “In the meantime, the market will seesaw back and forth.”

In the U.S., better-than-expected corporate earnings and a report showing that manufacturing in the Philadelphia area unexpectedly expanded also helped lift stocks.

Earnings Season

Profit for S&P 500 companies will climb 17 percent in the third quarter and rise 18 percent to a record $99.27 for all of 2011, according to analyst estimates compiled by Bloomberg yesterday. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ estimates.

“Our forecast is that we avoid an economic recession,” Stephen Wood, who helps oversee about $163 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. “The earnings season looks to be a strong one. As the exogenous risks, including Europe, begin to abate, the market is going to discriminate between stronger earnings and better-run companies.”

The KBW Bank Index of 24 stocks rose 1.9 percent, after falling as much as 1.3 percent. JPMorgan Chase & Co. (JPM) added 2.7 percent to $33.13. Citigroup Inc. (C) gained 2.4 percent to $30.08.

Fifth Third climbed 9.1 percent, the most in the S&P 500, to $11.63. Quarterly net income at Ohio’s biggest lender more than doubled and the profitability of loans improved. KeyCorp, Ohio’s second-biggest bank, added 6.9 percent to $6.81, after profit beat estimates as bad loans declined.

Philip Morris Jumps

Philip Morris jumped 3.3 percent to $68.19. Chief Executive Officer Louis Camilleri raised prices in Japan, Australia and Indonesia, where demand pushed total shipments higher by 4.4 percent. Excluding excise taxes, total sales at Philip Morris, which generates all of its revenue outside the U.S., advanced 26 percent to $8.36 billion.

EBay Inc. (EBAY) lost 3.1 percent to $32.15. The company is spending to roll out new platforms and products and integrating acquisitions made in the past year to increase the use of its services across the Web, moves that may weigh on earnings in coming quarters.

Dell Inc. (DELL) sank 5.4 percent to $15.05 amid concerns raised by one of its suppliers, Western Digital Corp. (WDC), that the worst flooding in Thailand in five decades may hamper production for months. Dell, based in Round Rock, Texas, is one of Western Digital’s biggest customers, according to supply-chain data compiled by Bloomberg.

Momentum and Breadth

Investors should start buying stocks because indicators of momentum and breadth suggest the S&P 500’s rally from an October low will last, said Tom McClellan, editor of the McClellan Market Report.

The benchmark for U.S. equities formed an outside day reversal on Oct. 18, when its intraday high and low exceeded those of the previous day. That pattern, along with charts including the McClellan advance-decline summation index, showed the rally that lifted the S&P 500 as much as 15 percent from its 2011 intraday low will extend until February, McClellan said in a telephone interview yesterday.

“The way that the market had an outside day reversal showing strength was very impressive,” said McClellan, who started publishing the newsletter in 1995 with his father Sherman, creator of the McClellan Oscillator. “You can get into a condition where there is just so much money trying to charge through the door to get into the market that you don’t ever get a pullback you’d like to get, to get on board. And I saw a lot of signs that we’re in that condition.”

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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France and Germany Split on Crisis Solution

By Mark Deen - Oct 20, 2011 5:45 PM GMT+0700
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Germany's chancellor Angela Merkel, left, speaks with France's president Nicolas Sarkozy. Photographer: Fabrice Dimier/Bloomberg

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Oct. 20 (Bloomberg) -- A French-German split over Europe's rescue strategy emerged as finance ministers prepare to meet in Brussels tomorrow under pressure to craft a solution to the region's debt crisis. Owen Thomas and David Tweed report on Bloomberg Television's "Countdown." (Source: Bloomberg)

France and Germany wrangled over how to tackle Europe’s debt crisis a day before a finance ministers’ meeting in Brussels intended to set a common strategy on dealing with the turmoil.

With a summit of European leaders scheduled for two days later, a disagreement over the European Central Bank’s role in the rescue plan threatens to stymie progress on the banking and economic questions needed to deliver the comprehensive strategy demanded by global policy makers. Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt last night failed to resolve differences. “We are still meeting,” he said as he departed.

French President Nicolas Sarkozy, whose wife was reportedly giving birth to his first daughter, jetted into Frankfurt to meet with officials as they attended an event to honor outgoing ECB President Jean-Claude Trichet. Sarkozy, German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde left the event at the Frankfurt Opera House without commenting.

“Even with the current problems in the negotiations, we expect that there will be at the end a compromise,” economists including Juergen Michels at Citigroup Inc. in London said in an e-mailed note. “However, with the participants having still very divergent views, the outcome probably will not be a credible, comprehensive package.”

Euro Weakens

Stocks fell and Spanish and French bond yields rose on the split over Europe’s rescue strategy. The Stoxx Europe 600 Index fell 0.6 percent as of 12:14 p.m. in Paris, while the CAC 40 dropped 1 percent. The Spanish two-year note yield jumped six basis points, while the extra yield investors demand to hold French 10-year bonds instead of benchmark German bunds rose to a euro-era record.

French Prime Minister Francois Fillon stepped up calls for the 440 billion-euro ($608 billion) European Financial Stability Facility to be turned into a bank and given leverage by the ECB which, along with Germany, has rejected using its balance sheet to bolster the fund. Germany has endorsed enabling the EFSF to insure a portion of cash-strapped nations’ bond sales.

The EFSF “needs to be massive,” Fillon said in Paris.“The 440 billion euros need to be used with a leverage effect, a bit like a bank.”

French Finance Minister Francois Baroin also said the EFSF should be turned into a bank, though he noted the “reticence” of the ECB and the “German position.”

“For us it is and will remain the most effective position. The Americans do it, the British do it,” he said.

Primary-Market Purchases

Trichet has been a key part of Europe’s crisis-fighting effort, reluctantly pushing the ECB to buy bonds in the secondary market, a role it may be forced to keep under a revamped strategy.

Primary-market purchases by the enhanced EFSF generally should be limited to no more than 50 percent of the final issued amount, according to draft guidelines for the backstop from the European Commission, the European Central Bank and senior officials from the 17 euro-region nations, obtained by Bloomberg News. The EFSF should participate at the weighted average price of the auction, it said.

“That means that EFSF’s share is no larger than the share bought by the market,” the draft says. “It gives an incentive to the issuer to accept market bids, because for each million of accepted market bids the member state will receive an additional million from EFSF.”

‘Disconcerting’ Pace

Canadian Finance Minister Jim Flaherty said that European leaders’ slow pace toward a solution is “disconcerting,” while adding they have the “sense of urgency required.” The rescue fund isn’t sufficient to deal with the crisis and will need to be leveraged, he told reporters in Ottawa yesterday.

The disagreements among policy makers came as banks lobbied against forced recapitalization and deeper writedowns on Greek debt.

While Merkel this week sought to lower expectations that the crisis-fighting effort would climax at the Sunday summit in Brussels, Group of 20 finance chiefs last week set the meeting as a deadline. Failure risks a global economic slump, they said.

“Many expect to be underwhelmed at the weekend,” David Mackie, chief European economist at JPMorgan Chase & Co. (JPM), said in an interview. “If they haven’t settled the leverage issue, then the sense of being underwhelmed will be overwhelming.”

Protests

Policy makers are struggling to end a crisis that began in Greece two years ago this week. In Athens yesterday, protesters clashed with police outside Parliament before Prime Minister George Papandreou won a preliminary vote on a new austerity package. The final vote is scheduled for today.

The issues frustrating European authorities include how to write down of as much as 50 percent on Greek bonds, setting up a backstop for banks and finding a continued central bank role.

The world economy is facing the “threat of profound and traumatic disruption,” Norman Chan, chief executive of the Hong Kong Monetary Authority, said in a speech published on the de facto central bank’s website.

Also attending the event in Frankfurt last night were Mario Draghi, who replaces the retiring Trichet on Nov. 1, European Union President Herman van Rompuy and European Commission President Jose Barroso. Baroin and German finance minister Wolfgang Schaeuble were there as well. No statement was issued.

Van Rompuy praised Trichet for taking “unconventional” steps and not being beholden to dogma, while Barroso told reporters in Brussels that he was optimistic that an accord will be reached.

“Independence doesn’t mean detachment from political decision-making,” Van Rompuy said at the Trichet farewell ceremony. “Monetary policy cannot be conducted in a social and political void. The central bank’s independence is a right, but also entails duties.”

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

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

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Technical Signs Say Gold’s Fall May Continue

By Debarati Roy - Oct 20, 2011 6:00 AM GMT+0700
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Gold futures have more than doubled in the past three years. Photographer: Paul Taggart/Bloomberg

Gold prices, down 14 percent since touching a record in September, are poised for more losses, according to technical analysis by Steel Vine Investments LLC.

Bullion’s advance from the Sept. 26 low of $1,535 an ounce to a high of $1,696.80 on Oct. 17 created a so-called bear flag pattern where price movements resemble an inverted flag, according to Spencer Patton, the Chicago-based chief investment officer for Steel Vine.

The metal’s plunge from a record $1,923.70 on Sept. 6 to the low on Sept. 26 created the so-called flag pole. Losses in the past three sessions signal the completion of the pattern, and that prices will resume their decline, Patton said. Gold may drop to $1,550 by the first week of November, he said.

“The market has decisively broken out of this pattern,” Patton said in a telephone interview yesterday. “Gold looks weak in the near term.”

Yesterday, gold futures for December delivery fell 0.4 percent to settle at $1,647 on the Comex in New York. The precious metal has slumped 2.1 percent this week after retreating 11 percent last month, the most since October 2008.

The bear flag pattern is signaled after a break occurs below a rising trading range.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter for this story: Debarati Roy in New York at droy5@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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European Stocks Drop as Leaders Split

By Corinne Gretler - Oct 20, 2011 6:00 PM GMT+0700

European stocks declined for the third time in four days as splits emerged among the region’s leaders on a plan to end the debt crisis. Asian shares fell while U.S. index futures advanced.

Actelion Ltd. (ATLN) sank the most in more than 18 months as Europe’s largest biotechnology company said it expects drug sales to decrease next year. Schneider Electric SA (SU), the world’s biggest maker of low- and medium-voltage equipment, slid 7.4 percent after trimming its 2011 profit target. Ericsson AB, the world’s largest maker of wireless network equipment, led technology shares higher as profit increased.

The benchmark Stoxx Europe 600 Index slid 0.3 percent to 235.98 at 11:59 a.m. in London. The measure has still rallied 9.8 percent from this year’s low on Sept. 22 amid speculation policy makers will find a resolution to Europe’s fiscal woes. The MSCI Asia Pacific Index tumbled 1.7 percent today, while Standard & Poor’s 500 Index futures climbed 0.6 percent.

“The markets demand a solution now,” said Ben Hauzenberger, a Zurich-based fund manager at Swisscanto Asset Management AG, which oversees $53 billion. “The current flight- to-quality behavior of investors shows just how little confidence they have.”

Crisis-Fighting Effort

Euro-area leaders are due to meet on Oct. 23, with disagreement over the European Central Bank’s role threatening to hinder progress on the banking and economic questions needed to deliver the comprehensive strategy demanded by policy makers. While German Chancellor Angela Merkel this week sought to lower expectations that the crisis-fighting effort would climax at the summit in Brussels, Group of 20 finance chiefs last week set the meeting as a deadline for action.

“Sunday will be a day of suspense,” Hauzenberger said. “Whether success will replace failure is unclear.”

French President Nicolas Sarkozy flew to Frankfurt for an impromptu meeting last night with Merkel, the ECB’s President Jean-Claude Trichet and International Monetary Fund Director Christine Lagarde. Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated the gathering failed to resolve differences. “We are still meeting,” he said as he departed.

“It appears that we might still be some miles away from a general agreement on that plan,” said Jean-Paul Jeckelmann, chief investment officer at Banque Bonhote & Cie. in Neuchatel, Switzerland, who helps manage $1.4 billion in equities. “It seems that going into the weekend, the odds are investors are placed for disappointment.”

EFSF Changes

Changes to the euro region’s revamped bailout fund may open the door to “massive” credit lines for countries like Italy and Spain, draft guidelines show. The European Financial Stability Facility may be able to offer loans worth up to 10 percent of a member states’ gross domestic product in precautionary aid “before they face difficulties raising funds” in bond markets, the draft shows.

The Federal Reserve’s Beige Book survey released late yesterday showed companies reported more doubt about the recovery even as the economy maintained its expansion last month. Many Fed districts described the pace of growth as “modest” or “slight” in September.

U.S. Labor Department figures today may show initial jobless claims decreased to 400,000 in the week ended Oct. 15 from 404,000 the previous week, according to the median estimate of 46 economists surveyed by Bloomberg News. A separate report will probably show sales of existing U.S. homes declined 2.5 percent to a 4.91 million annual rate, according to the median of 77 economists in a Bloomberg survey.

Actelion, Schneider

Actelion plunged 12 percent to 30 Swiss francs, the biggest slump since March 2010, after it said product sales will fall in the low- to mid-single digit range next year in local currencies. The company cited increased pricing pressure and competition in the U.S.

Schneider Electric tumbled 7.4 percent to 41.33 euros. The company trimmed its 2011 profit target for the second time in four months on rising labor costs in emerging economies and said it may cut job. Earnings before interest, taxes and amortization will probably account for about 14 percent of revenue this year, down from a July forecast of about 15 percent, it said.

Rio Tinto Group, the world’s second-largest mining company, slipped 2.1 percent to 3,073 pence as copper dropped for a fourth day in London trading. Kenmare Resources Plc (KMR) fell 2.7 percent to 43.4 euro cents while Kazakhmys Plc (KAZ) lost 1.8 percent to 859 pence.

Nexans Downgrade

Nexans SA (NEX), the second-biggest maker of cables, sank 3.3 percent to 44.97 euros after Goldman Sachs Group Inc. cut the stock to “sell” from “neutral.”

Ericsson pushed a gauge of technology shares higher, rising 7.3 percent to 70.25 kronor. The company said third-quarter net income climbed to 3.82 billion kronor ($573 million) from 3.68 billion kronor a year earlier. That topped the 3.66 billion- krona estimate of 21 analysts in a Bloomberg survey.

Logitech International SA (LOGN), the world’s biggest maker of computer mice, rallied 6.7 percent to 7.59 Swiss francs and Alcatel-Lucent rose 3 percent to 2.02 euros.

Nokia Oyj (NOK1V) soared 9.6 percent to 4.91 euros, the biggest gain in two months. The Finnish maker of mobile phones reported a smaller-than-estimated loss and forecast a profitable quarter for the handset business.

Akzo Advances

Akzo Nobel NV (AKZA) gained 3.1 percent to 35.98 euros. The world’s largest paintmaker said it plans an overhaul of household coatings businesses in the U.S. and Europe and other units to help cut costs and boost earnings by 500 million euros by 2014. The maker of Dulux and Glidden paints also said it will reorganize wood finishes and adhesive operations to strengthen its competitiveness.

Petropavlovsk Plc (POG), a Russian gold mining company, rallied 6.7 percent to 720 pence, the highest price in almost a month, after it said third-quarter output rose 65 percent after production increased at its Pioneer site. So-called attributable gold output climbed 228,100 ounces from 138,300 ounces a year earlier, the London-based company said. Petropavlovsk also reaffirmed its 600,000-ounce full-year forecast.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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

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Merkel Risks Own Downfall to Save Greece

By Leon Mangasarian - Oct 20, 2011 5:00 AM GMT+0700

German Chancellor Angela Merkel may be risking her 2013 bid for a third term with a bet on expanding the effort to save the euro.

Merkel may endorse policies unpopular with her Christian Democratic voters at an Oct. 23 European summit, bowing to world leaders including President Barack Obama to do more to stem the debt crisis that began in Greece and is now rattling core economies such as Italy and France.

“Merkel’s next step is to convince voters,” Giles Merritt, head of the Friends of Europe research group in Brussels, said in a telephone interview. “The German media have been hammering away in a tabloid manner on the idle Greeks and this has gone deep into the German psyche.”

Failure to make her case to the electorate means Merkel may face the political hara-kiri of her predecessor, Gerhard Schroeder. The Social Democrat alienated core supporters with his “Agenda 2010” package of tax and benefits cuts that subsequently fueled the German economy and still led to his downfall. Germany’s next election will probably be held in September 2013.

“This is very much an Agenda 2010 moment for Merkel, but it’s much bigger than what Schroeder faced,” Jan Techau, director of the Brussels-based European center of the Carnegie Endowment for International Peace, said in an interview.

Techau said that while the sluggish economy Schroeder confronted was easier to explain to voters, “it’s far harder for Merkel” to demystify the Greek and European banking crises.

“Merkel’s the target of public anger about Greece and the bailouts even though all other major German parties, including the opposition, back her on this,” Techau said.

German ‘Nein’

A total of 80 percent of Germans oppose making a personal financial contribution to help Greece, according to a Sept. 21 Forsa poll for Stern magazine. An Allensbach survey for the Frankfurter Allgemeine newspaper on Oct. 19 showed only 17 percent of Germans saying they trust the euro with 75 percent saying they don’t trust it.

The popularity of Merkel’s Christian Democratic Union bloc is suffering with the Allensbach poll putting it at 31 percent, almost neck-and-neck with the opposition Social Democrats at 30.5 percent. Merkel’s party won almost 34 percent in the 2009 election, compared with 23 percent for the defeated SPD. The poll, which didn’t give a margin of error, surveyed 1,869 people Oct. 4-16.

“The crisis in the euro zone is increasingly determining the fate” of Merkel’s government, said Renate Koecher, head of the Allensbach polling company.

“The CDU stands for European integration in the eyes of citizens,” Koecher wrote in the Frankfurter Allgemeine. “This makes European developments into a question of fate for the CDU/CSU more so than for any other party.” The CSU is the CDU’s Bavarian sister party.

East German Bailout

Germans have been bailing out failed states for two decades. The so-called Solidarity Surcharge, imposed in 1991 as a temporary tax to cover costs of rebuilding the failed East German communist economy after reunification, is still being collected. Last year it brought in 11.7 billion euros ($16 billion) and there are no plans to abolish it.

Germany’s share of European bailouts so far totals 211 billion euros in guarantees.

That may help explain Merkel’s go-slow approach to bailouts, says Carl Graf von Hohenthal, a management adviser at the Brunswick Group in Berlin.

State Election Defeat

Last year, she held out for weeks before bending to fellow European leaders to back the first Europe-led Greek aid package. She blamed her party’s May 2010 defeat in North Rhine- Westphalia, the country’s most populous state, on voter anger over the first Greek bailout.

Merkel, 57, dragged her feet again this year in the runup to a second Greek aid package, saying on May 10 that “first we need to hear what the status is; only then can I decide what, if anything, needs to be done.”

Her message has only changed in recent months after Italy and Spain, the third- and fourth-biggest euro economies, succumbed to the turmoil and required European Central Bank support through bond purchases.

“Schroeder lost his own parliamentary faction but Merkel has so far managed to keep hers,” Hohenthal said in an interview. “Merkel’s trying to buy time,” he said, adding that if her base abandons her, “a Merkel defeat in 2013 could happen.”

In 2003, Schroeder lowered taxes, reduced unemployment benefits and cut health-care services after two years of stagnation. German growth, however, remained sluggish at 0.7 percent in 2004 and 0.9 percent in 2005. It sped up to 3.6 percent in 2006, the year after his defeat.

Revolt Against Schroeder

Schroeder’s policies enraged some members of his own Social Democrats and led to a parliamentary revolt, Schroeder, 67, wrote in his memoirs. A wave of SPD members quit the party, including 80,000 who left in 2003 and 2004 before Schroeder’s defeat by Merkel in September 2005, according to Handelsblatt newspaper. The SPD had 498,616 members at the end of April, the most recent date for which party figures are available.

Merkel’s Christian Democratic bloc and Free Democratic coalition partner in parliament passed her bill on Sept. 29 expanding the euro-area rescue fund’s firepower. Her party enforcers are brutal with those who deviate. Chancellery chief of staff Ronald Pofalla was quoted by Der Spiegel magazine on Oct. 10 as publicly telling a CDU bailout opponent, Wolfgang Bosbach, “Every night I see your mug on television. I’m fed up with your mug. You’re making everybody crazy.”

Angry Voters

Yet Merkel’s ultimate problem may not be in parliament; it’s with voters who have punished her CDU and the FDP over their handling of the debt crisis.

Merkel’s party was either defeated or saw its share of the vote decline in elections held in seven of Germany’s 16 states this year. Voters ejected the FDP from five state parliaments. The SPD, the opposition in Berlin, is now in government in each of the seven states it contested. Merkel’s FDP ally is polling as low as 3 percent nationally, down from the 14.6 percent it won in the 2009 federal elections when it played a crucial role in her victory.

Merkel’s bloc has seen its share of the vote erode in German elections over the past three decades. CDU Chancellor Helmut Kohl won his first election in 1983 with almost 49 percent and three subsequent elections with as much as 44 percent before he was defeated in 1998 by Schroeder after getting 35 percent. Merkel won 33.8 percent in 2009.

CDU Membership Falls

The number of members in her CDU fell to 495,192 in September, down from almost 617,000 in 2000, party spokesman Jochen Blind said in an interview.

National polls over the past year have shown Merkel’s coalition would fail to win a majority and is trailing the SPD and Greens, which governed Germany under Schroeder from 1998 to 2005.

Techau said that Merkel is desperate to avoid “Schroeder’s all-or-nothing bid with his reforms” and that her “cautious, step-by-step approach and declarations that the euro sovereign debt crisis won’t be solved with a big bang” are aimed at being an “anti-Schroeder” to ensure survival.

Gary Smith, director of the American Academy in Berlin, a trans-Atlantic research institute, said that Merkel’s cautious approach to dealing with the crisis is “because she saw what happened to Schroeder.”

Merkel is holding back and “building majorities for things she knows are inevitable and unpopular, namely that Germany will have to pay more and give more sovereignty to Brussels,” Smith said in an interview.

To be sure, Smith said that while Merkel supporters may be “furious” at some of her policy moves, they will still vote for her “because they don’t want anyone else in power.”

“Merkel is the whipping boy now, but she also understands brinkmanship,” Smith said. “Things that were unthinkable a year ago are now being demanded, and Merkel understands that when she finally makes the right decision people will say that she was right.”

To contact the reporter on this story: Leon Mangasarian in Berlin at lmangasarian@bloomberg.net

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

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Stocks Drop, Metals Decline on Europe Divisions; U.S. Futures, Oil Climb

By Stephen Kirkland - Oct 20, 2011 6:02 PM GMT+0700

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Oct. 20 (Bloomberg) -- Kirk Hartman, the Los Angeles-based chief investment officer for Wells Capital Management, talks about his investment strategy. Hartman also discusses Europe's sovereign debt crisis and the global economy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Stocks fell and metals declined as a split emerged among European leaders on a rescue plan and the Federal Reserve said companies grew more pessimistic about the U.S. economy. Standard & Poor’s 500 Index futures rose, while Spanish bonds retreated.

The MSCI All-Country World Index slipped 0.5 percent at 7 a.m. in New York. The Stoxx Europe 600 Index retreated 0.3 percent, after declining 1.5 percent. S&P 500 futures advanced 0.6 percent. The euro strengthened 0.4 percent, reversing earlier losses. The Spanish two-year note yield jumped nine basis points. Copper, zinc and tin slid more than 2 percent.

Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt yesterday failed to resolve differences ahead of a summit scheduled for this weekend. The Fed’s Beige Book survey released yesterday showed companies reported more doubt about the recovery even as the economy maintained its expansion last month.

“Time is running out,” Gary Jenkins, head of fixed income at Evolution Securities in London, said in a report. “I hate to think what the market will be like next week if there is a complete lack of clarity or agreement from the European Union this weekend.”

Paring Losses

Stocks pared losses and the euro rebounded after European Commission President Jose Barroso expressed optimism that euro- area leaders will reach agreement this weekend. Draft guidelines of an EU working paper obtained by Bloomberg indicated the European Financial Stability Facility would provide loans to national governments that in turn would inject the capital into lenders deemed to pose systemic risk.

Two shares declined for every one that gained on the Stoxx 600. Schneider Electric SA (SU), the world’s biggest maker of low-and medium-voltage equipment, plunged 7.4 percent after trimming its 2011 profit target for the second time in four months. Actelion Ltd. (ATLN) sank 12 percent as Europe’s largest biotechnology company said it expects drug sales to decrease next year.

Nokia Oyj climbed 11 percent after reporting a smaller- than-estimated loss and forecasting the handset business to be profitable this quarter.

The gain in S&P 500 futures indicated the U.S. gauge may pare yesterday’s drop. EBay Inc. fell 3.4 percent in German trading after the largest online marketplace forecast sales and profit that missed some analysts’ estimates.

Seventy percent of the 66 companies in the index that have reported earnings since Oct. 11 have beaten analysts’ profit estimates, Bloomberg data show. Microsoft Corp., the world’s largest software maker, and AT&T Inc. are among 32 members of the S&P 500 due to release results today.

‘Modest’ Growth

The Beige Book said many Fed districts described the pace of growth as “modest” or “slight” in September, even though overall economic activity continued to expand. Data today may show initial jobless claims eased to 400,000 in the week ended Oct. 15 from 404,000 previously, while a gauge of leading indicators grew at a slower pace.

The yield on the Spanish 10-year bond rose seven basis points as Spain sold 3.91 billion euros ($5.37 billion) of 10- year bonds and notes maturing in 2017 and 2019, compared with the Treasury’s maximum target for the sale of 4.25 billion euros, data from the Bank of Spain showed.

French Auction

The French two-year yield rose three basis points after the government auctioned 4.26 billion euros of two- and five-year notes. The yield on the Greek 6.25 percent bond maturing in June 2020 increased nine basis points.

The euro gained 0.4 percent against the yen. New Zealand’s dollar rose against all 16 major peers, advancing 0.6 percent versus the U.S. currency and 0.7 percent against the yen. The Dollar Index lost 0.4 percent.

Copper fell 3 percent, after sinking 4.4 percent in the previous three days. Zinc declined 2.8 percent and tin slipped 2.4 percent. Oil rose 0.5 percent to $86.50 a barrel.

The MSCI Emerging Markets Index retreated 1.9 percent, the biggest decline on a closing basis in more than two weeks. The Shanghai Composite Index slumped 1.9 percent to a 31-month low on concern China may persist with policies to rein in lending. Risks stemming from private lending must be “strictly controlled,” China’s banking regulator said.

China Southern Airlines Co. led losses for carriers after China Business News said the aviation regulator reduced its estimates for passenger volume growth.

Thailand’s SET Index lost 3.1 percent as the central bank said it will cut its economic growth forecast as the worst floods in 50 years threaten to keep factories closed for months. South Korea’s Kospi Index (KOSPI) declined 2.7 percent and benchmark gauges in Poland, Turkey, Thailand and Taiwan fell at least 1 percent.

To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net

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Apple’s IOS 5 More Catch-Up Than Forge-Ahead: Rich Jaroslovsky

By Rich Jaroslovsky - Oct 20, 2011 3:00 AM GMT+0700
Bloomberg Opinion
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The Apple iPhone 4S. iOS 5 is the latest version of the operating system that runs every iPhone, iPad and iPod touch. Source: Apple via Bloomberg

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Oct. 20 (Blooomberg) -- Bloomberg's Rich Jaroslovsky reviews Apple Inc.'s iOS 5, the latest version of the operating system that runs every iPhone, iPad and iPod touch. (Source: Bloomberg)

As impressive as it was for Apple Inc. (AAPL) to sell four million new iPhones last week, millions more users will be affected by another release: iOS 5, the latest version of the operating system that runs every iPhone, iPad and iPod touch.

I’ve been testing the software and a lot of its claimed 200 new features for a couple of weeks and find it generally impressive. But unlike the iPhone 4S, with its breakthrough Siri voice-based personal assistant, iOS 5 feels more catch-up than forge-ahead.

Many of the new features -- secure texting, tabbed Web browsing, pull-down notifications -- may already be familiar to users of devices running Google Inc. (GOOG)’s Android software, Microsoft Corp. (MSFT)’s Windows Phone 7 and Research In Motion Ltd. (RIM)’s BlackBerry. As usual, Apple’s contribution is to polish the concepts, making them seamless and painless.

That doesn’t necessarily extend to setting up iOS 5, which wasn’t as smooth as it should have been. When I updated my iPad 2, my Mac continued to display a “Restoring iPad apps” message long after the iPad itself was telling me that everything had already been installed.

At the end of the process, I was presented on my Mac with an obscure, Windows-worthy error message. The new software finally appeared on the iPad, more than an hour from when I started. After that, things got a lot better.

Demoting the Computer

The importance of iOS 5 is the way it reduces the personal computer’s role as hub for all your digital devices, the vital middleman for transferring and synchronizing information. Now, it’s just one more spoke on the wheel, while the hub becomes iOS 5’s new iCloud feature.

ICloud automatically stores your content and data on Apple’s remote servers, where they are accessible by all your enrolled devices. Take pictures with your iPhone and a new feature called Photo Stream will automatically push them up to the cloud, then down to your iPad, where they will pop up almost immediately. Documents, apps, media and contacts work the same way.

The iCloud service is free and replaces Apple’s paid, problematic MobileMe. You get five gigabytes of online storage free, and can buy more; photos as well as content purchased from Apple’s iTunes Store and App Store don’t count against your storage limit.

Liberating

In my testing, iCloud generally performed well, and it was liberating to be cut loose from the computer. When I took a photo I liked, I no longer had to e-mail it to myself or rush back to sync devices and ensure that I had a fail-safe copy.

About the only downer was the difficulty I had migrating my existing MobileMe account to iCloud; even days after the launch of iOS 5, I continued to run into a “please try again later” message, blaming the volume of requests. I didn’t think MobileMe was that popular.

Among the other new features of iOS 5, a couple stand out. One is iMessage, which allows you to directly text other iOS 5 users. For those using an iPhone, the service is fully integrated with the device’s existing text app. And iMessages don’t count against any message limits in your wireless-phone plan. In addition, iPad and iPod touch users also can use those devices to text iPhones and each other.

Integrated Tweeting

Then there’s the Notification Center: Swipe your finger down from the top of any screen, and a windowshade-like overlay displays your alerts and reminders. And Twitter users will appreciate the ability to tweet directly from within Safari as well as the camera, photo, YouTube and map apps.

One thing I couldn’t try was iTunes Match, which the company says will launch later this month. For $25 a year, Apple will scan your entire music library, looking for tunes you might have ripped yourself from a CD or downloaded from some source other than iTunes. If Apple has the same song, you’ll get access to it on all your devices via iCloud; if not, it will upload your copy of the tune and give you full access to it.

Though it isn’t being billed this way, the service is essentially offering absolution -- at a nominal cost -- to people who have illegally downloaded music. And they’ll get access to Apple’s high-quality versions even if their originals were of lower quality. It’s a way to gain a benefit and assuage a guilty conscience at the same time.

(Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Rich Jaroslovsky in San Francisco at rjaroslovsky@bloomberg.net.

To contact the editor responsible for this story: Manuela Hoelterhoff at mhoelterhoff@bloomberg.net.

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Japan Fund to Handle Yen’s Advance to Rise to $130 Billion, Document Says

By Takashi Hirokawa and Sachiko Sakamaki - Oct 20, 2011 12:16 PM GMT+0700

Japan will increase a fund to help companies cope with a surging yen by about 25 percent to 10 trillion yen ($130 billion), according to a document obtained from a ruling Democratic Party of Japan official.

The government will increase from 8 trillion yen the foreign-exchange reserves being shifted to the state-run Japan Bank for International Cooperation to aid exporters and spur acquisitions overseas. The cabinet is scheduled to agree on the plan at a meeting tomorrow, according to the document.

The yen’s rise to a record high of 75.95 to the dollar on Aug. 19 prompted the government to adopt a two-pronged approach to currency policy. In addition to continuing to threaten intervention, Japanese authorities have been highlighting the benefits of the strong yen. Cheaper overseas acquisitions aid a nation that imports about 80 percent of its energy needs.

The plan could be “very effective” in encouraging overseas investments, said Minori Uchida, a senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. “Japan’s companies are struggling under the most severe environment ever at the moment.”

The yen strengthened 0.1 percent to 76.76 against the dollar at 1:28 p.m. in Tokyo. The Japanese currency has risen 5.8 percent versus the dollar year to date.

‘Bold’ Management

In addition to the increase in reserves, which was agreed upon by the ruling DPJ today, the document also calls for the Bank of Japan to use “appropriate and bold monetary policy management” of the yen in close coordination with the government.

The government will continue to fight to prevent what it perceives to be the recent one-way rise in the yen, according to the document. “Excessive fluctuations in the currency market can have an adverse impact on the economy and financial markets, so we will continue to monitor the situation closely and rule nothing out, taking bold steps as needed,” the document said.

Former Japanese Finance Ministry official Eisuke Sakakibara said yesterday at a conference in Tokyo that Japan’s currency may gain past 100 per euro and strengthen to the low 70s versus the greenback. Japan may intervene to weaken the yen, though such efforts will only be successful if coordinated with other nations, he said.

‘Mr. Yen’

Sakakibara became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance for his efforts to influence the yen rate through verbal and actual intervention in the currency markets.

“The Japanese economy is still suffering from deflation and it’s important to prevent a vicious cycle of a strong yen intensifying deflation and deflation strengthening the yen,” according to the 13-page document. Japan should make the “most of the merits” of the strong yen by pursuing oil and natural gas as well as rare-earth assets overseas, it said.

The document said the government will also establish five special economic zones, where companies will get special benefits and tax breaks to help them compete internationally, by the end of the year. The cabinet tomorrow will also detail a fund to help encourage the use of alternative-energy sources such as solar energy and fuel cells, the document said.

To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net

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

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Ericsson Beats Estimates on China, Latin America

By Diana ben-Aaron - Oct 20, 2011 12:58 PM GMT+0700

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Oct. 20 (Bloomberg) -- Sandy Shen, an analyst at research firm Gartner Inc., talks about the outlook for China Mobile Ltd. and the nation's telecommunications industry. Shen speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Ericsson AB, the world’s largest maker of wireless networks, reported third-quarter profit that beat analyst estimates as phone companies in Latin America and China increased spending.

Net income climbed to 3.82 billion kronor ($573 million) from 3.68 billion kronor a year earlier, Stockholm-based Ericsson said today in a statement. Analysts had predicted profit of 3.66 billion kronor, the average of 21 estimates compiled by Bloomberg. Sales rose 17 percent, also topping estimates.

North American carriers such as AT&T Inc. and Verizon Communications Inc. spent less than before to fortify their networks for increasing numbers of smartphone and tablet users, while those in other regions stepped up their additions of capacity. Ericsson increased its proportion of network modernization projects in Europe, which have smaller margins than new buildout.

“Our performance year-to-date reaffirms our indications of a strengthened global market share,” Chief Executive Officer Hans Vestberg said in the statement. Sales were driven by services as well as demand for mobile broadband, he said.

Third-quarter revenue reached 55.5 billion kronor, beating the 52.6 billion-kronor average estimate of 30 analysts.

Global sales of wireless infrastructure equipment are expected to reach $41.3 billion this year, rising to $48 billion in 2015, market researcher Gartner Inc. said. Ericsson was the market leader in the second quarter with a share of about 40 percent, according to researcher Dell’Oro Group.

Nokia Siemens Networks and Huawei Technologies Co. compete with Ericsson for sales and maintenance of stations used by third-generation, or 3G, mobile-broadband networks and contracts for newer fourth-generation networks.

Ericsson’s contract wins in the quarter included a five- year managed services agreement with Bharti Airtel in Africa. The company also announced it will open a fourth global network operations center in China, where it has taken over field maintenance for China Mobile in one local province.

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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