U.S. Stock Futures Drop as Europe Woos China

By Rita Nazareth - Oct 31, 2011 8:15 PM GMT+0700

U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will trim its biggest monthly rally since 1974, on concern European leaders will struggle to raise funds to contain the region’s debt crisis.

Morgan Stanley and Citigroup Inc. dropped more than 2.7 percent, following declines in European lenders. Alcoa Inc. and Ford Motor Co. slumped at least 1.3 percent to pace losses in companies most-tied to economic growth. Yahoo! Inc. decreased 3.4 percent as the company is said to be leaning toward selling its Asian assets and redistributing the proceeds to shareholders, rather than selling itself to a group of buyers.

S&P 500 futures expiring in December dropped 1.2 percent to 1,265.70 as of 9:14 a.m. New York time. The benchmark gauge of American equities rose 14 percent in October and was poised to snap a five-month drop. Dow Jones Industrial Average futures retreated 121 points, or 1 percent, to 12,047 today.

“We’re not out of the woods yet,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a telephone interview. His firm manages $300 billion. “Europe did get a rescue that buys them more time, but they are not anywhere near a resolution to their crisis. In addition, we’ve been on a buying stampede. The market was due for a pullback.”

Stocks rose last week after European leaders agreed to expand the region’s bailout fund and American economic growth accelerated. Earlier this month, the index came within 1 percent of extending a drop from its peak in April to 20 percent, the common definition of a bear market. Since then, it has risen 17 percent.

Role of ‘Savior’

China can’t play the role of “savior,” the official Xinhua news agency said yesterday, as investors awaited the country’s response to Europe’s request for money to boost its bailout fund. Japanese Finance Minister Jun Azumi said today the government took unilateral steps to weaken the yen. Group of 20 leaders will gather Nov. 3-4 in Cannes, France, while central bankers from Australia, the U.S. and Europe will hold interest- rate policy meetings this week.

“Investors are waiting for confirmation of help from emerging countries, notably China, regarding the bailout plan,” said Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris, which oversees about $110 million. “There are also some who are locking in profits after last week’s gain.”

Wilbur Ross said European banks will need new capital before they can sell assets to meet requirements, the Financial Times said, citing an interview with the billionaire chairman of private-equity firm WL Ross & Co.

European Banks

European stocks slumped, led by financial companies. American banks also retreated. Morgan Stanley fell 3.1 percent to $18.72. Citigroup declined 2.8 percent to $33.22.

Companies which are most-tied to economic growth fell. Alcoa, the largest U.S. aluminum producer, dropped 2.4 percent to $11.29. Ford erased 1.3 percent to $11.84.

Yahoo decreased 3.4 percent to $16. The Asian asset sale is emerging as the most likely option for Yahoo and would let the Internet company eventually pay a special dividend or buy back shares, according to five people familiar with the situation, who declined to be identified because the talks are private. Dana Lengkeek, a spokeswoman for Yahoo, declined to comment.

Chevron Corp. erased 1.6 percent to $107.90 after being cut to “neutral” from “buy” at Bank of America Corp., which cited valuation concern. SanDisk Corp., the biggest maker of flash-memory cards, lost 2.6 percent to $52. Sterne Agee & Leach Inc. cut its recommendation for the shares to “neutral” from “buy.”

80% Long

Barton Biggs, co-founder of Traxis Partners LP, said his hedge fund’s net long position rose to about 80 percent from 65 percent earlier this month and that the U.S. stock market rally will continue. Biggs said he favors technology stocks, as well as large cap industrial companies, such as Caterpillar Inc. and General Electric Co.

“I’m pretty bullish,” Biggs said today in an interview with Betty Liu on Bloomberg TV’s “In the Loop” program. “I think this rally is about positioning and will continue for a while.”

American companies are beating Wall Street profit estimates for the 11th straight quarter, enough to revive a bull market that analysts say will eclipse any rally in the past 12 years. Price targets for companies in the index from more than 10,000 estimates suggest the S&P 500 will advance 13 percent to 1,447.93 in a year.

Higher Earnings

Companies from Google Inc. to Peabody Energy Corp. are delivering higher earnings at a time when Bill Gross, the co- chief investment officer of Pacific Investment Management Co., is warning that Europe’s debt crisis will spur a recession. While more than $6.3 trillion has been erased from global equities since May, analyst forecasts imply the benchmark measure will post its biggest rally since the 1990s technology bubble, when the gain since March 2009 is included.

“This is looking like it’s going to be a really decent quarter,” Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co. in Boston, which manages about $150 billion, said in an Oct. 25 interview. “Valuations are very, very low relative to history, and you don’t have to make heroic assumptions on multiples to get reasonable returns.”

The S&P 500 traded at 11.7 times reported income on Oct. 3, within 14 percent of its price-earnings ratio at the bottom of the financial crisis in March 2009, Bloomberg data show. The index gained 3.8 percent last week.

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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Berlusconi Stays Defiant as Europe’s Crisis Focuses on Italy Reform Effort

By Patrick Donahue and Armorel Kenna - Oct 31, 2011 4:13 PM GMT+0700

Italian Prime Minister Silvio Berlusconi said he alone can deliver the country’s promised deficit cuts as European leaders ramp up demands that his government do its part to combat the region’s debt crisis.

Berlusconi ruled out early elections and said the current legislature in Rome will last until 2013, according to an interview published yesterday in Corriere della Sera. He said the European Central Bank’s support will only be maintained if his administration follows through on the pledged measures.

“Only I and my government can achieve this reform program for 18 months, which is why there is no way for me to stand aside,” the Italian leader told the newspaper.

The European Union’s latest package of measures failed to staunch a rise in Italian borrowing costs, with an Oct. 28 bond sale sending yields to a euro-era record and damping the euphoria unleashed after the summit that ended the day before. Luxembourg Prime Minister Jean-Claude Juncker insisted that Italy should deliver “substantial structural reform.”

“We’re watching very closely,” Juncker said in an interview yesterday on Germany’s ARD. “Italy can’t simply do what suits it, but rather act as we’ve agreed together.”

Italian five-year notes fell, pushing the yield eight basis points higher to 5.83 percent at 8:06 a.m. London time, the highest since the euro was introduced in 1999. On Oct. 28, the Rome-based Treasury sold 3.08 billion euros of 2014 bonds to yield 4.93 percent, the highest since November 2000.

The euro slid 0.9 percent to trade at 1.4020 to the U.S. dollar as of 9:53 a.m. Frankfurt time.

Not ‘Conclusive’

Leaders from the Group of 20 largest economies will convene in Cannes, France, this week after European leaders agreed to bolster the region’s rescue fund to 1 trillion euros ($1.4 trillion), persuaded bondholders to incur 50 percent losses on Greek debt and agreed on a plan shore up banks.

Juncker said that European leaders hadn’t yet delivered a “conclusive answer” to the crisis last week, while German Finance Minister Wolfgang Schaeuble warned in Der Spiegel against inflated expectations.

Berlusconi will present commitments made to European leaders on Nov. 9 and 10, he told Corriere. He also said there was “no deal” with Umberto Bossi, leader of the Northern League party, to resign and hold early elections in return for an agreement to increase the retirement age, as reported on Oct. 26 in newspaper La Repubblica.

Crisis Response

European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy wrote to the G-20 “to summarize and explain Europe’s comprehensive crisis response” ahead of their summit in Cannes this week.

“We will implement these measures rigorously and in a timely manner, and we are confident that they will contribute to the swift resolution of the crisis,” according to their letter, issued yesterday. “Whilst we in Europe will play our part, this cannot alone ensure global recovery and rebalanced growth. There is a continued need for joint action by all G-20 partners in a spirit of common responsibility and common purpose.”

European officials began to seek contributions to a prospective fund from countries with bulging reserves such as China, Brazil and Japan. Chinese Vice Finance Minister Zhu Guangyao said Oct. 28 that his government wants more details about the “technicalities” before making any decision on investing in the European Financial Stability Facility.

China as ‘Savior’

China can’t play the role of “savior” to Europe, nor provide a “cure” for the region’s malaise, the official Xinhua news agency said in an English-language commentary. The rescue package announced Oct. 27 is just the start of a long and difficult process to solve Europe’s debt crisis for good and more concerted efforts are needed, the commentary said.

Juncker said the euro area would still be able to resolve the crisis even without investments from countries such as China, even if Chinese participation “makes sense.”

“If China and other investors were not to invest in the end, the decisions that we’ve made are substantial enough alone to master the debt crisis,” Juncker told ARD.

The success of European measures also depends on the Greek debt writedown. Charles Dallara, managing director of the Institute of International Finance and chief negotiator for the lenders, said he’s “very optimistic that more than 90 percent will participate,” he told Welt am Sonntag newspaper yesterday.

Germany’s Schaeuble issued a warning to the banks, saying in Der Spiegel that while the EU prefers a “voluntary” agreement on Greek debt, a “less consensual path is also possible.”

To contact the reporters on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net; Armorel Kenna in Milan at akenna@bloomberg.net

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

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MF Global Suspended From Trading With N.Y. Fed

By Matthew Leising - Oct 31, 2011 7:40 PM GMT+0700
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MF Global Holdings Inc Chairman and CEO Jon Corzine. Photographer: Mario Tama/Getty Images

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Oct. 31 (Bloomberg) -- William Cohan, author of "Money and Power: How Goldman Sachs Came to Rule the World" and a Bloomberg View Columnist, talks about the performance of MF Global Holdings Ltd.'s Chief Executive Officer Jon Corzine and the outlook for the firm. Pressure is mounting on Corzine after MF Global declined 67 percent last week and its bonds started trading at distressed levels. Cohan speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Oct. 31 (Bloomberg) -- MF Global Holdings Ltd., the futures broker run by Jon Corzine, was suspended from conducting new business with the Federal Reserve Bank of New York today after posting a record loss. MF Global’s board met through the weekend in New York to consider options, according to a person with direct knowledge of the situation. Sheila Dharmarajan and Michael McKee report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

MF Global Holdings Ltd., the futures broker run by Jon Corzine, was suspended from conducting new business with the New York Federal Reserve today after posting a record loss.

The firm’s board met through the weekend in New York to consider options including a sale to avert failure, according to a person with direct knowledge of the situation. It was stopped from doing new business with the New York Fed until it shows it’s able to fulfill its responsibilities as a primary dealer, according to a statement on the regulator’s website. Trading in MF Global’s stock was also halted.

Pressure is mounting on Corzine, the former governor of New Jersey and U.S. senator, after MF Global declined 67 percent last week and its bonds started trading at distressed levels amid its disclosures of bets on European sovereign-debt. MF Global was in discussions with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, said the person, who asked not to be identified because the talks are private.

“While the pieces are attractive, figuring out potential buyers is a lot harder,” Robert Rutschow, an analyst with CLSA Credit Agricole Securities in New York, said in an Oct. 28 note to clients. “In the current environment, banks can’t even go to the bathroom without permission from their regulator, let alone buy a brokerage firm that was looking to grow proprietary trading and expand risk-taking activities.”

Interactive Brokers

The most attractive part of the New York-based firm is its retail futures brokerage, which could fetch $500 million to $600 million, he said. MF Global hired Weil, Gotshal & Manges LLP for a London affiliate, a person said. The law firm currently represents Lehman Brothers Holdings Inc., which in 2008 filed the biggest bankruptcy in U.S. history.

MF Global may file for Chapter 11 bankruptcy protection as soon as today and sell assets to Interactive Brokers Group Inc., the Wall Street Journal reported on its website, citing a person familiar with the matter it did not identify. Interactive Brokers would likely make an initial bid of about $1 billion during a court-supervised auction after the company files for Chapter 11, the newspaper cited the person as saying.

Caitlin Duffy, a spokeswoman for Interactive Brokers, declined to comment.

Jeremy Skule, a New York-based spokesman at MF Global, didn’t immediately respond to an e-mailed request for comment on the Wall Street Journal article or answer his telephone outside of normal business hours. The shares dropped 47 percent to 64 cents in European trading from their Oct. 28 close in New York.

Moody’s, Fitch Downgrades

MF Global is getting advice from Evercore Partners Inc. as it seeks buyers. In addition to Weil Gotshal, MF Global hired Skadden, Arps, Slate, Meagher & Flom LLP to plan for restructuring that may include bankruptcy, the Wall Street Journal reported yesterday.

MF Global reported a $191.6 million quarterly loss on Oct. 25 and Moody’s Investors Service and Fitch Ratings cut its credit rankings to junk.

The company’s $325 million of 6.25 percent bonds, issued at par in August, fell 14.75 cents to 35.25 cents on the dollar at 8:28 a.m. in New York, for a yield of 35.2 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its shares fell 16 percent to $1.20 on Oct. 28 after reaching a low of 99 cents.

Macquarie Examined

Corzine, who served as co-chief executive officer of Goldman Sachs Group Inc., reached out to his former firm about selling all or part of the company, according to two people with knowledge of the firm’s deliberations. Goldman Sachs may be interested in acquiring futures positions or other financial assets at the right price, said the people, who asked not to be named because the discussions were private.

Macquarie Group Ltd. has examined MF Global’s books, though Australia’s largest investment bank wasn’t working toward getting a deal done over the weekend, according to a person with knowledge of the situation. Paula Chirhart, a spokeswoman for Macquarie in New York, declined to comment.

Barclays Plc is among banks that have looked at MF Global, another person said. Kerrie Cohen, a bank spokeswoman in New York, declined to comment.

State Street Corp., which is also reported to be a potential bidder, doesn’t comment on rumors, Hannah Grove, a spokeswoman for the Boston-based firm, said in an e-mail.

Increased Sovereign Debt

Corzine was recommended for the position at MF Global by former Goldman Sachs banker Christopher Flowers, the chairman and CEO of JC Flowers & Co. At the same time he took the job, Corzine became an operating partner of Flowers’s buyout firm, which in 2008 bought as much as $300 million of preferred stock in the firm at a conversion price of $12.50 a share.

JC Flowers, which controls one of the eight board seats at MF Global, is also a potential buyer, a person familiar with the matter said.

Diana DeSocio, an MF Global spokeswoman, declined to comment.

MF Global’s futures unit earns interest income from the collateral it holds to back its customers’ trades. That revenue has been cut as the Federal Reserve target interest rate on overnight loans has been between zero and 0.25 percent since late 2008. The firm reported interest income of $113.2 million in the quarter ended in September. When rates were at 5.25 percent in 2007, the company earned $1.77 billion in the quarter ended in March. MF Global also makes money by charging fees for brokering trades at futures and options exchanges.

Eight-Member Board

Since Corzine, 64, arrived at MF Global in March 2010, he increased the firm’s risk and used its own money to trade, including investments in European sovereign debt that have rattled markets.

MF Global, which has a market value of $198 million, owns $6.3 billion of Italian, Spanish, Belgian, Portuguese and Irish debt, the company said in an Oct. 25 presentation.

The company’s eight-member board consists of Corzine, MF Global’s chairman and CEO; Edward Goldberg, managing member of Dix Hills Partners LLC; David Gelber, chairman of Walker Crips Group Plc; Robert Sloan, managing partner of S3 Partners LLC; Martin Glynn, the former CEO of HSBC Bank USA; David Schamis, managing director at JC Flowers; David Bolger, former chief financial officer of Aon Corp.; and Eileen Fusco, vice chairman, Pro Mujer International, according to data compiled by Bloomberg.

Tap Bank Lines

The company tapped the entirety of two bank lines, three people with knowledge of the matter said last week. MF Global said in an Oct. 25 investor presentation that it had $1.3 billion in unused credit facilities, without giving a date for the tally.

MF Global’s lenders include Citigroup Inc., Bank of America Corp., and JPMorgan Chase & Co., Bloomberg data show.

“We believe MF could generate proceeds from sale of its customer asset portfolio or FCM which frees up capital,” Niamh Alexander, an analyst at KBW Inc. in New York, wrote in an Oct. 27 note to clients, referring to a so-called futures commission merchant, or futures brokerage. “However, we cannot quantify the cost of wind down or exiting broker positions that could offset those proceeds and wipe out equity.”

Alexander estimated MF Global could get about $765 million for the futures unit. A sale would also free up as much as $1.3 billion in regulatory capital MF Global is required to hold against its $12.7 billion in customer collateral, Alexander said.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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Tencent Seeks Games, E-Commerce Apps From Third Parties

By Bloomberg News - Oct 31, 2011 9:42 AM GMT+0700

Tencent Holdings Ltd., China’s biggest Internet company by sales, is seeking more social games and e-commerce applications from third-party developers.

The company is “marching to open” its site to external developers, Tencent Chief Executive Officer Ma Huateng said at the TechCrunch conference in Beijing today.

Tencent is adding partners to expand its range of services to counter competition from Chinese rivals such as Baidu Inc., Sina Corp. and Renren Inc. Shenzhen, China-based Tencent will double a fund that invests in technology developers to 10 billion yuan ($1.6 billion) to search for new content and services and expand its user base, founder Ma said in June.

Tencent, also the provider of the most popular instant- messaging service in China, fell 1.1 percent to HK$184.90 as of 10:20 a.m. in Hong Kong trading. The stock has climbed 9.5 percent this year, underperforming shares of Baidu and Sina.

The company will continue to make “significant investments” in existing products and new strategic products including microblog, e-commerce and search, Tencent said in August when reporting second-quarter earnings.

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

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Groupon IPO Becomes a Must as Cash Burns With Investor Base at Limit: Tech

By Ari Levy - Oct 31, 2011 11:01 AM GMT+0700

Groupon Inc.’s decision to push ahead with an initial public offering as other startups hold off may be driven more by necessity than choice: The company needs cash to keep growing and is nearing the number of shareholders that requires it to report financial results.

Groupon is seeking to raise as much as $540 million, saying it won’t need to use the money for at least a year and has no urgent cash needs. Even so, the biggest provider of online daily deals owed almost twice as much to merchants at the end of September as it held in cash. Marketing costs rose 37 percent in the latest quarter, four times as quickly as its cash pile.

Proceeding now may cushion Groupon against slowing sales growth and ballooning costs and give the company time to tweak it strategy, including cutting its marketing expenses, according to research firm PrivCo. Groupon is taking its chance amid the biggest IPO backlog since 2000, as other startups delay offers because of stock-market volatility.

“They may have a cash flow problem and need the funds,” said Ed Ketz, an associate professor of accounting at Pennsylvania State University. “At some point they have to change the business model in some way.”

Groupon, based in Chicago, remains unprofitable. The company had $243.9 million in cash at the end of September and still owed merchants $465.6 million. The 8.4 percent increase in cash from the prior period was outstripped by the rise in marketing costs, which jumped 37 percent to $234.4 million.

‘Can’t Go Back’

The company has used 85 percent of the $1.11 billion it has raised from venture capitalists and other investors to buy equity from early investors eager for a return, instead of funding growth. That is contributing to a potential cash crunch, said Sam Hamadeh, chief executive officer of New York-based PrivCo, which provides financial data on more than 20,000 private companies.

“They can’t go back at this point,” Hamadeh said.

Groupon said in its prospectus that the company doesn’t need the capital, because of its cash on hand and the amount being generated from operations. Cash from operations totaled $129.5 million in the nine months through September.

“We do not expect that we will utilize any of the net proceeds of this offering to fund operations, including online marketing expenses, during the next 12 months,” the company said. Groupon said it might use the proceeds for general corporate purposes, including possible acquisitions.

Julie Mossler, a spokeswoman for Groupon, declined to elaborate.

Concerns Over Growth

A growth slowdown amid rising competition still may necessitate a change in plans. Already the pace of sales growth is tapering off. Third-quarter revenue increased 9.5 percent from the previous period, following quarter-over-quarter growth rates of 33 percent and 72 percent in the two previous periods.

Groupon faces escalating competition from LivingSocial and Google Inc. (GOOG), which are giving more favorable terms to merchants. That’s led Groupon to accept lower margins to avoid losing business. The amount of billings the company booked as revenue shrank to 37 percent in the third quarter from 42 percent in the prior period and 44 percent in the first quarter. Groupon attributes the lower margins to getting into new products, like travel and event tickets.

“There’s a lot of people getting into Groupon’s markets,” Carter Mack, president of JMP Group Inc. (JMP) in San Francisco, said in an interview on “Bloomberg West.” “The company is currently getting valued at a pretty high value, so people are going to have questions about the sustainability of that growth.”

500 Shareholders

Groupon’s hand is also being forced by growth in its investor base. The company has close to 500 shareholders, according to a person familiar with the matter. At that threshold, the U.S. Securities and Exchange Commission requires companies to disclose financial results, even if they aren’t public. Facebook Inc. plans to start reporting financials by April because of the shareholder limit. Once it reaches that number, Groupon would be bound to update its results quarterly.

Mossler declined to comment on the number of shareholders.

A.B. Mendez, a senior research analyst at GreenCrest Capital Management LLC in New York, said there are plenty of good reasons for Groupon to sell shares. It can provide publicity heading into the Thanksgiving and Christmas shopping seasons, and the offering will attract retail investors because people know the company’s name.

Higher Price Possible

Groupon is also adding to its cash pile while only selling about 5 percent of the company, meaning it can do a bigger offering later, Mendez said. The company is considering whether to increase the IPO price range amid higher-than-expected demand for the shares from investors, three people with knowledge of the matter said.

Groupon has been planning to sell 30 million shares at $16 to $18 apiece, out of the 630.4 million shares that will be outstanding after the offering. At the midpoint of the price range, Groupon would be valued at $10.8 billion.

“We’re seeing pretty strong demand on the part of institutional investors, and you’ll see uncommonly strong demand from retail investors,” Mendez said. “Sell now, because it’s a great marketing event ahead of the fourth-quarter holiday retail season, which is going to be crucial for them.”

Founded in 2008 by Andrew Mason, Eric Lefkofsky and Brad Keywell, Groupon gained popularity last year by offering discounts of 50 percent to 90 percent at businesses like restaurants, nail salons and resorts. Groupon originally kept about half the revenue, giving the rest to the merchant.

Spurning Google

Sales in 2010 surged to $312.9 million from $14.5 million the previous year, a growth rate so fast that Google offered to buy the company for $6 billion last year. Groupon rejected the deal, choosing instead to raise $950 million in private capital and stay independent while pushing toward an IPO.

That strategy came under fire in June, when Groupon filed its prospectus, showing the company had lost $540.2 million in three years and that in the first quarter alone had spent $179.9 million to bring in subscribers.

Then the missteps began. Lefkofsky, the chairman, told Bloomberg News the following week that he expected the company to be “wildly profitable,” a statement the company later asked investors to disregard in a regulatory filing. Company executives are forbidden from talking about financials during the so-called quiet period before an IPO.

Restatements

In September, the company restated its revenue figures to exclude sales passed on to merchants and announced the departure of its second operating chief in six months. This month, Groupon said it had a net loss of $214.5 million for the first three quarters of 2011.

Meanwhile, the European debt crisis and concerns about the U.S. economy dragged down the stock market and slowed the pace of IPOs. The Standard & Poor’s 500 Index dropped 19 percent from July 7 to Oct. 3, amid concerns that the crisis in Europe would lead to a global economic slowdown.

The market has since rebounded, with the S&P 500 gaining 14 percent so far in October, erasing its 2011 loss. European leaders agreed last week to expand a bailout fund to stem the debt crisis.

“None of us can control what’s going on with debt in Europe so if you want to go public just go and see what the market is like later if you want to raise more,” said Lise Buyer, founder of IPO advisory firm Class V Group. “There’s been so much noise about this IPO they may just want to get it in the rearview mirror.”

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net.

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

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Panasonic Forecasts $5.3 Billion Annual Loss on Stronger Yen, Competition

By Mariko Yasu - Oct 31, 2011 1:59 PM GMT+0700

Panasonic Corp. forecast an annual net loss of 420 billion yen ($5.3 billion), citing the impact of the strong yen and stronger competition in its overseas digital products business.

Panasonic reversed an earlier projection for profit of 30 billion yen for the year ending March 2012, the Osaka-based electronics maker said in a statement today.

The maker of Viera TV was affected by floods in Thailand just months after restarting domestic plants that were crippled by Japan’s magnitude-9 temblor on March 11. Falling prices of TVs, sluggish demand in developed countries and a stronger yen are adding pressure on the company even after it disclosed plans in April to eliminate 17,000 jobs to revive profitability.

For the three months ended Sept. 30, Panasonic reported a net loss of 106 billion yen, compared with the 5.6 billion yen average of four analyst estimates compiled by Bloomberg.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

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

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Qantas Resumes Flights as Goverment Steps In

By Robert Fenner - Oct 31, 2011 12:24 PM GMT+0700

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Oct. 31 (Bloomberg) -- Richard Woodward, vice president of the Australian and International Pilots Association, talks about labor disputes at Qantas Airways Ltd. Qantas plans to resume flights as early as today after Australia's labor regulator barred work stoppages that had prompted the nation’s biggest carrier to ground its fleet, stranding about 80,000 passengers. Woodward speaks from Sydney with Susan Li on Bloomberg Television's "First Up."(Source: Bloomberg)

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Oct. 31 (Bloomberg) -- Peter Harbison, executive chairman at Sydney-based CAPA Centre for Aviation, an industry adviser, talks about labor disputes at Qantas Airways Ltd. Qantas plans to resume flights as early as this afternoon after a labor regulator barred stoppages that prompted Australia's biggest carrier to ground its fleet, stranding about 80,000 passengers. Harbison speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Qantas Airways Ltd. resumed flights today after Australia’s labor regulator barred strikes that had prompted the nation’s biggest carrier to ground its fleet two days ago, stranding about 80,000 passengers.

The airline jumped as much as 7.4 percent in Sydney trading, the most in two months, after Fair Work Australia granted a government request for a strike ban. Chief Executive Officer Alan Joyce halted flights at his main unit after weeks of sporadic stoppages over pay and job security that cost Qantas A$68 million ($72 million) and caused a plunge in bookings.

The ruling marks a victory for Joyce, 45, whose move to ground the fleet with no notice sparked criticism from Prime Minister Julia Gillard, union leaders, tourism operators and stranded passengers. Joyce is seeking to reverse losses at the Sydney-based carrier’s international operations by setting up new ventures overseas, while also cutting jobs in Australia.

“It’s been a public relations disaster but the status quo for Qantas was not sustainable,” said Matt Williams, who helps manage A$17 billion of assets at Sydney-based Perpetual Ltd. “In the fullness of time, people will be back and they’ll recover from the public relations side of things.”

Qantas recommenced services with a flight from Sydney to Jakarta carrying 88 passengers shortly after 3:40 p.m. local time today after the Civil Aviation Safety Authority approved a resumption, a spokeswoman for the carrier said by telephone, asking not to be named in line with company policy.

The industrial-relations regulator handed down its order at about 2 a.m. in Melbourne, following more than 12 hours of hearings spread over two days. The agency also banned Qantas from locking out workers from three unions.

The decision gives the two sides 21 days to reach agreement. After that, the regulator may extend talks for another 21 days or begin an arbitration process that will impose a resolution.

Extra Flights

The carrier plans to lay on extra staff and flights to help clear a backlog of stranded travelers after canceling at least 450 services since Oct. 29. Qantas’s budget arm Jetstar, regional carrier QantasLink and a unit that flies to New Zealand weren’t affected by the shutdown.

“The only option that we had in response to the union action was to take our own action,” Joyce said today at a televised news conference in Sydney. “The clouds have gone. Qantas will get back to where it was before this activity.”

Virgin Australia

The parent of Virgin Australia, the nation’s No. 2 carrier, also surged as much as 8.3 percent, the most in two months, on speculation the Qantas grounding may threaten the Flying Kangaroo’s grip on the corporate-travel market. The carrier, a unit of Virgin Blue Holdings Ltd., has rebranded itself and abandoned a low-cost strategy to challenge Qantas for business- class traffic.

“This grounding could not have come at a better time” for Virgin, said Robert Bruce, an aviation analyst at CLSA Ltd. in Hong Kong. “In the medium term, corporate procurement departments are more likely to allocate a greater portion to Virgin.” The Brisbane-based carrier was also adding extra flights today.

Joyce halted flights to confront engineers and baggage handlers seeking higher pay and job-security measures. Long-haul pilots have also staged protests in a bid to get the same employment conditions whether they fly for the Qantas-branded unit or Jetstar.

Richard Woodward, vice president of the Australian & International Pilots Association, said that the two sides would meet tomorrow to begin talks. Still, he said he expects Qantas to feel emboldened by the labor ruling, which may dent chances for a compromise.

“I think it will end up in enforced arbitration,” he said.

Singapore Air, Tiger

The Qantas dispute may also help Singapore Airlines Ltd. win long-haul traffic and aid the carrier’s budget arm Tiger Airways Holdings Ltd. in winning back passengers, CLSA’s Bruce said. Tiger’s Australia unit was ordered to halt flights earlier this year because of safety concerns.

“Qantas took an extreme approach,” Gillard said today in a television interview on Channel 7. “It’s a question of the grand inconvenience for passengers and the impact for the national economy that’s concerning me,” she said.

The airline rose 4.3 percent to A$1.612 in Sydney today, compared with a 1.3 percent decline for the country’s benchmark S&P/ASX 200 index. The carrier has declined 37 percent this year.

Qantas has about 65 percent of Australia’s domestic market and less than 20 percent of international travel. Keeping the Qantas unit’s 108 planes out of the skies would have cost A$20 million a day, the airline estimated. The carrier has already lost A$68 million because of labor disputes this year, Joyce said on Oct. 28.

To contact the reporter on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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China Stocks Decline on Wen’s Property Remarks

By Bloomberg News - Oct 31, 2011 12:15 PM GMT+0700

China’s stocks fell for the first time in six days, narrowing the benchmark index’s biggest monthly gain in a year, after Premier Wen Jiabao said the government should “firmly” maintain property curbs.

China Vanke Co. and Huaxia Bank Co. led a gauge of financial companies to its first drop in more than a week after the government said local authorities should continue to strictly implement tight policies in the property industry in the coming months. Baoshan Iron & Steel Co., the biggest publicly traded steelmaker, slid the most in two weeks and China Railway Group Ltd. dropped 2.2 percent after earnings for both companies slumped in the third quarter.

“It’s too early to celebrate after the rally as the government is still keeping its control policies,” said Tu Jun, a strategist at Shanghai Securities Co. “The market may be range-bound at current levels and the uncertainty over policy easing will lead to volatility.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 17.3 points, or 0.7 percent, to 2,456.16 at 1:06 p.m. local time. The gauge advanced 6.7 percent last week, the biggest gain since the period ended Oct. 15, 2010. The CSI 300 Index slid 1 percent to 2,681.82.

A gauge tracking real estate companies in the Shanghai Composite dropped 1 percent, the most among five industry groups, and the first slide since Oct. 20. China Vanke, the biggest developer, sank 1 percent to 7.83 yuan. Gemdale lost 1.6 percent to 5.06 yuan. Huaxia Bank retreated 2.8 percent to 11.14 yuan, set for the biggest drop since Oct. 18.

China will “firmly” maintain its property curbs and “fine tune” other economic policies at an appropriate time, according to a statement following a State Council meeting chaired by Premier Wen.

Property Tightening

Local authorities should continue to strictly implement the central government’s real-estate policies in the coming months to let people see the results of the curbs, according to the statement on Oct. 29. The government will “fine tune” its economic policies by “an appropriate degree and at an appropriate time,” it said.

The government this year increased down-payment requirements and mortgage rates on some homes and imposed housing purchase restrictions in about 40 cities. The central bank has also raised interest rates three times in 2011 and ordered lenders to set aside a bigger portion of their deposits to curb inflation that’s near a three-year high.

“It demonstrates to local governments and developers the central government’s determination to tighten the property market,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. “With inflation still at a high level, it’s unlikely the government will take a big step to loosen its policy, but only a partial easing.”

Selective Easing

The Shanghai measure has gained 4.3 percent this month, the best monthly rally since October 2010, with gains accelerating after Wen said on Oct. 25 the government will fine-tune economic policies at an “appropriate time.” The government has announced measures to help cash-strapped small companies through tax breaks and easier access to loans.

China may loosen its lending standards as the “next logical step” after announcing selective policy easing measures to boost the economy, according to China International Capital Corp.

“Earnings growth is slowing substantially across the board for the A-share market as it continues through quarterly earnings season,” Hao Hong, CICC’s Beijing-based global equity strategist, wrote in a report. “Just as fundamentals are slowing down, in part due to the government’s tightening campaign earlier, more signs of designated easing are emerging.”

Earnings Slump

Baoshan Iron & Steel slid 1.5 percent to 5.28 yuan after China’s biggest publicly traded steelmaker said third-quarter profit slid 51 percent to 1.24 billion yuan as increases in raw- material costs outpaced product-price gains. China Railway Group slipped 2.2 percent to 3.14 yuan after the nation’s biggest builder of train lines said third-quarter profit fell 49 percent after a 15-fold jump in borrowing costs.

The Shanghai Composite may rebound to between 2,600 and 2,700 on the prospect of improving economic data and as concern over the European debt crisis eases, according to Citic Securities Co.

The October purchasing manager’s index may be “better” than September as Premier Wen Jiabao said the government will fine-tune policies, sales of railway bonds resume and the outlook for the European debt crisis improves, Xi Feng, an analyst at the brokerage, wrote in a report today. Citic Securities recommends shares related to environmental protection and water conservancy.

Manufacturing Data

The purchasing managers’ index, which measures China’s manufacturing sector, probably rose to 51.8 in October, the highest level since May, according to the median forecast of 13 economists surveyed by Bloomberg. HSBC Holdings Plc and Markit Economics are scheduled to release the report tomorrow.

The Bloomberg China-US 55 Index is up 9.8 percent this month after climbing to a two-month high on Oct. 27. The measure of the most-traded Chinese companies in the U.S. retreated 2.2 percent on Oct. 28 as global stocks slipped on concern the gains driven by a European agreement on solving the debt crisis went too far.

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

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

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Colonel Sanders Devouring Little Sheep in China Signals 69% Gain: Real M&A

By Bloomberg News - Oct 31, 2011 12:18 PM GMT+0700

Anti-monopoly regulators are turning Yum! Brands Inc.’s acquisition of a chain of Mongolian hot-pot restaurants into the most profitable bet in China.

Little Sheep Group Ltd. has tumbled after saying last week that China’s Ministry of Commerce extended a review of Yum’s HK$4.4 billion ($573 million) takeover by two months. Little Sheep, which rose to within 25 cents of Louisville, Kentucky- based Yum’s HK$6.50-a-share bid, has now fallen 18 percent below that price, according to data compiled by Bloomberg.

Yum, the owner of the KFC fried chicken chain founded by Colonel Harland Sanders, is facing increased scrutiny from Chinese regulators as it attempts its biggest acquisition. While Little Sheep would extend Yum’s lead among restaurant chains in China, independently owned eateries would still control more than 90 percent of sales. That means the Ministry of Commerce, which has blocked only one of the more than 250 takeovers it has reviewed since China’s anti-monopoly law began three years ago, is unlikely to reject Yum’s bid, DBS Vickers Hong Kong Ltd. said.

“People are just too nervous,” Alick Wong, an analyst at Louis Capital Markets in Hong Kong, said in a telephone interview. “If an American company wants to buy in China, it makes investors cautious. Any bad news will move the stock.”

Wong expects the deal to close by March, which implies an annualized 69 percent return based on last week’s closing price of HK$5.30, data compiled by Bloomberg show. Little Sheep dropped 3.2 percent to HK$5.13 as of the midday break in Hong Kong trading today.

Jonathan Blum, a spokesman at Yum, didn’t immediately respond to telephone or e-mail messages requesting comment on whether it expects the transaction to gain approval.

Mongolian Hot Pot

Zhang Zhanhai, chief operating officer at Baotou, Inner Mongolia-based Little Sheep, declined to comment. The Ministry of Commerce, known as Mofcom, didn’t respond to a faxed request for comment on Yum’s bid for Little Sheep.

Founded in 1999, Little Sheep has more than 400 Mongolian hot-pot restaurants, where diners cook a variety of thinly sliced meats such as pork, mutton and beef in a simmering broth. The restaurant operator, whose Chinese name translates to Little Fat Sheep, agreed in May to an all-cash deal that would give Yum 93 percent of the company, data compiled by Bloomberg show.

The acquisition would strengthen Yum’s presence in China, where it generates more sales than in the U.S., by enabling the fast-food chain operator to offer a local specialty in the world’s most populous nation.

Little Sheep has posted annual sales growth of more than 20 percent since 2006 and analysts project the company will extend that streak through at least 2013, according to data compiled by Bloomberg. Yum’s sales haven’t increased by more than 10 percent since 2002, the data show.

Local Specialty

“They want to be a leading brand in all the major markets,” Sara Senatore, an analyst at Sanford C. Bernstein & Co. in New York, said in a telephone interview. “Little Sheep is how they’re going to do that.”

Right now, Yum doesn’t “have an Asian or Chinese full- service, and Chinese food is still many, many times bigger as a market than the market for Western food,” she said.

Little Sheep, which had climbed as high as HK$6.26 after the announcement, plunged by the most in three years on Oct. 26 after Yum notified the hot-pot chain of the 60-day extension by the Ministry of Commerce. The decision came four months after it first acknowledged the application. The regulator now has until December to decide on Yum’s acquisition.

With the gap to the deal offer widening to HK$1.20 based on last week’s closing price, buying shares of Little Sheep would translate into a 23 percent gain if the deal closes -- without accounting for how long it will take to complete the transaction, data compiled by Bloomberg show.

Spooked

That’s a bigger potential windfall than any other takeover target based in China, data compiled by Bloomberg show.

While investors dumped shares of Little Sheep because of the possibility the deal will be blocked by antitrust regulators, the concern is unwarranted because China is dominated by independently owned eateries, said Titus Wu, a Hong Kong-based analyst at DBS Vickers.

Under China’s anti-monopoly law, an acquisition that allows the companies involved to reach certain market share and sales levels needs the approval of the commerce ministry.

The ministry has reviewed 267 mergers under the anti- monopoly law and rejected only one -- Coca-Cola Co.’s $2.3 billion bid for China Huiyuan Juice Group Ltd. in 2009, said Marc Waha, Hong Kong-based partner at law firm Norton Rose LLP.

The deal would have combined China’s largest and third- largest juicemakers and given Coca-Cola a 17.5 percent share of the market that year, according to Euromonitor International.

‘Finger Lickin’ Good’

In China’s restaurant industry, independent operators garnered 92 percent of sales last year, while restaurant chains including Yum controlled just 8 percent, Euromonitor said.

Yum, which opened its first KFC outlet in China in 1987 and has more than 3,300 fried chicken outlets across the country, still accounted for less than a fifth of the sales within the smaller chain market. Little Sheep had a 2.1 percent share.

“This case is more likely to be approved because it’s hard to standardize Chinese food,” said Mei Xinyu, a researcher at the Ministry of Commerce’s Chinese Academy of International Trade and Economic Cooperation. “There are many local restaurants which have the capability to compete.”

Nevertheless, political objections to non-Chinese companies acquiring local businesses can’t be ruled out, according to James McGregor, senior counselor in China for APCO Worldwide, a public-affairs consulting firm.

Overreacting

“On a pure business level, there’s no reason to reject it,” said McGregor, who wrote the book ‘One Billion Customers: Lessons from the Front Lines of Doing Business in China.’ Still, “the government is worried about getting criticized for allowing foreigners to buy into Chinese brands. We never know what the politics are behind this.”

Traders may still have more to gain from buying shares of Little Sheep now -- even if the deal ultimately unravels, according to DBS Vickers’ Wu.

Before Yum made its takeover announcement in May, analysts covering Little Sheep had an average share-price estimate of HK$6.09, according to data compiled by Bloomberg. That’s 15 percent higher than its closing price last week.

“The market may have overreacted,” said Christina Lie, an analyst at First Shanghai Securities in Hong Kong.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Bloomberg News at swong139@bloomberg.net

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Yen Drops on Intervention; Aussie Weakens

By Bloomberg News - Oct 31, 2011 2:04 PM GMT+0700

Play Video

Oct. 31 (Bloomberg) -- Naomi Fink, head of Japan strategy at Jefferies Japan Ltd., discusses Japan's intervention in markets to weaken its currency and the impact of the yen's appreciation on Japanese corporations and trade. Fink speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

Oct. 31 (Bloomberg) -- Nick Maroutsos, who oversees about $3 billion at Kapstream Capital, discusses the outlook for global markets after euro-area leaders last week persuaded bondholders to write down 50 percent of Greek debt holdings. Maroutsos speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The yen dropped from a post-World War II record against the dollar after Japan intervened in currency markets. Asian stocks sank as companies reported lower- than-estimated earnings and commodities declined.

The yen sank 4.2 percent to 79.01 per dollar at 4:03 p.m. in Tokyo after climbing to a record 75.35 earlier today. The Australian dollar dropped 1.4 percent. The dollar-denominated MSCI Asia Pacific Index fell 3 percent. Standard & Poor’s 500 Index futures slipped 0.8 percent and Euro Stoxx 50 contracts lost 1 percent. Copper slid as much as 3.7 percent in London, gold dropped 1.6 percent, and oil dipped 0.8 percent in New York.

Japanese Finance Minister Jun Azumi said today the government took unilateral steps to weaken the yen, which strengthened even as stocks rallied globally this month on optimism that Europe will contain its debt crisis. Group of 20 leaders will gather Nov. 3-4 in Cannes, France, while central bankers from Australia, the U.S. and Europe will hold interest- rate policy meetings this week.

“You wouldn’t want to be buying yen here,” said Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB. “At least for the next few weeks, the Japanese might have just created better levels to be buying yen or for exporters to effectively do the same.”

The yen weakened 3.4 percent to 110.88 per euro after Azumi said he will act against speculation and plans to continue intervention until he is “satisfied.” The currency climbed last week even as the Bank of Japan unveiled measures that Governor Masaaki Shirakawa said were intended to respond to the appreciation and fallout from the European debt crisis.

Protecting Exports

The weaker yen bolstered shares of Japanese exporters. Canon Inc., a camera maker that gets more than 80 percent of its revenue outside Japan, rose 1 percent. Nintendo Co., the maker of the Wii game console, rallied 1.5 percent.

Thailand’s baht dropped 0.6 percent to 30.72 per dollar, trimming its monthly gain to 1.2 percent. Indonesia’s rupiah fell 0.7 percent to 8,853, taking losses in October to 0.5 percent. Taiwan’s dollar fell 0.1 percent to NT$29.909.

“After the spike in the yen, traders worry that other Asian central banks will follow their Japanese counterpart to protect their exports,” said Henry Lin, a Taipei-based foreign- exchange trader at Taiwan Shin Kong Commercial Bank.

The Australian dollar slipped 1.4 percent to $1.0556. The central bank is forecast to cut interest rates by a quarter- percentage point to 4.5 percent, according to economists surveyed by Bloomberg before tomorrow’s policy meeting.

ECB, FOMC

European Central Bank officials will meet to decide on rates on Nov. 3, with data today forecast to show inflation eased in October. The Federal Open Market Committee is scheduled to meet on Nov. 2. The euro fell 1 percent to $1.4008. The Dollar Index, which tracks the U.S. currency against those of six trading partners, jumped 1.5 percent.

Today’s losses pared the MSCI Asia Pacific Index’s October gain to 7 percent. The regional index was headed for its largest monthly advance since December 2010. Australia’s S&P/ASX 200 Index decreased 1.3 percent, South Korea’s Kospi Index slid 1.1 percent and Hong Kong’s Hang Seng Index retreated 1.2 percent.

Among the 324 companies on the MSCI regional index that have released earnings since Oct. 11, 175 have missed analysts’ profit estimates, compared with 104 that have beaten forecasts, according to data compiled by Bloomberg. China Railway Group Ltd. sank 13 percent in Hong Kong after the company said net income dropped 49 percent last quarter. Tohoku Electric Power Co. slumped 6.4 percent after the Japanese utility reported a wider- than-expected first-half loss.

‘Sobering’

Futures on the S&P 500 indicate the U.S. stocks gauge may pare its 14 percent rally this month. The S&P 500 jumped 3.8 percent last week after European leaders agreed to boost its rescue fund and investors agreed to a voluntary writedown of 50 percent of Greek debt.

“As a result of the European Union announcement, risk assets performed exceptionally well” last week, Nick Maroutsos, who oversees the equivalent of about $3 billion at Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “As with any big party, the day after can be a bit sobering. We’re certainly not ready to sound the all clear yet.”

U.S. data this week may show nonfarm payrolls increased 95,000 in October, less than the 103,000 jobs added the previous month, according to the median forecast of economists surveyed by Bloomberg. Treasury 10-year yields declined three basis points to 2.29 percent.

Bond Risk

The cost of protecting Asia-Pacific bonds from default rose, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increasing six basis points to 171 basis points, according to Royal Bank of Scotland Group Plc. The index is headed for its biggest daily advance since Oct. 20, according to data provider CMA, after falling 35.4 basis points last week.

Copper in London dropped 2.8 percent to $7,950 a metric ton, leading a decline among industrial metals, after Chinese Premier Wen Jiabao said the government will maintain property curbs. Copper is still set for a 13 percent advance this month, the most since December 2010. Zinc retreated 2.2 percent to $1,942 a ton and lead dropped 3.6 percent to $2,014.75 a ton.

Gold for immediate-delivery declined 1.6 percent to $1,715.35 an ounce, paring its monthly rally to 5.6 percent. December-delivery oil lost 0.8 percent to $92.61 a barrel, trimming its October gains to 17 percent.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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MF Global Faces Pivotal Days as Firm Mulls Sale

By Matthew Leising - Oct 31, 2011 12:12 PM GMT+0700

MF Global Holdings Ltd., the company run by Jon Corzine that last week reported a record loss, had two of its credit ratings cut to junk and drained bank lines, faces a pivotal few days as the futures broker pitches itself to potential buyers to avert failure.

The firm’s board met through the weekend in New York to consider options, according to a person with direct knowledge of the situation. MF Global has hired Weil, Gotshal & Manges LLP for a London affiliate, another person said. The law firm currently represents Lehman Brothers Holdings Inc., which in 2008 filed the biggest bankruptcy in U.S. history.

Pressure is mounting on Corzine, the former governor of New Jersey and U.S. senator, after MF Global declined 67 percent last week and its bonds started trading at distressed levels amid its disclosures of bets on European sovereign-debt. MF Global was in discussions with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, said the person, who asked not to be identified because the talks are private.

“While the pieces are attractive, figuring out potential buyers is a lot harder,” Robert Rutschow, an analyst with CLSA Credit Agricole Securities in New York, said in an Oct. 28 note to clients. “In the current environment, banks can’t even go to the bathroom without permission from their regulator, let alone buy a brokerage firm that was looking to grow proprietary trading and expand risk-taking activities.”

Interactive Brokers

The most attractive part of the New York-based firm is its retail futures brokerage, which could fetch $500 million to $600 million, he said.

MF Global may file for Chapter 11 bankruptcy protection as soon as today and sell assets to Interactive Brokers Group Inc., the Wall Street Journal reported on its website, citing a person familiar with the matter it did not identify. Interactive Brokers would likely make an initial bid of about $1 billion during a court-supervised auction after the company files for Chapter 11, the newspaper cited the person as saying.

Jeremy Skule, a New York-based spokesman at MF Global, did not immediately respond to an e-mailed request for comment on the Wall Street Journal article or answer his telephone outside of normal business hours.

Moody’s, Fitch Downgrades

MF Global is getting advice from Evercore Partners Inc. as it seeks buyers. In addition to Weil Gotshal, MF Global hired Skadden, Arps, Slate, Meagher & Flom LLP to plan for restructuring that may include bankruptcy, the Wall Street Journal reported yesterday.

MF Global reported a $191.6 million quarterly loss on Oct. 25 and Moody’s Investors Service and Fitch Ratings cut its credit rankings to junk.

The company’s $325 million of 6.25 percent bonds, issued at par in August, fell 11.9 cents to 50 cents on the dollar on Oct. 28, for a yield of 25.2 percent, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. Its shares fell 16 percent to $1.20 on the same day after reaching a low of 99 cents.

Corzine, who served as co-chief executive officer of Goldman Sachs Group Inc., reached out to his former firm about selling all or part of the company, according to two people with knowledge of the firm’s deliberations. Goldman Sachs may be interested in acquiring futures positions or other financial assets at the right price, said the people, who asked not to be named because the discussions were private.

Macquarie Examined

Macquarie Group Ltd. has examined MF Global’s books, though Australia’s largest investment bank wasn’t working toward getting a deal done over the weekend, according to a person with knowledge of the situation. Paula Chirhart, a spokeswoman for Macquarie in New York, declined to comment.

Barclays Plc is among banks that have looked at MF Global, another person said. Kerrie Cohen, a bank spokeswoman in New York, declined to comment.

State Street Corp., which is also reported to be a potential bidder, doesn’t comment on rumors, Hannah Grove, a spokeswoman for the Boston-based firm, said in an e-mail.

Corzine was recommended for the position at MF Global by former Goldman Sachs banker Christopher Flowers, the chairman and CEO of JC Flowers & Co. At the same time he took the job, Corzine became an operating partner of Flowers’s buyout firm, which in 2008 bought as much as $300 million of preferred stock in the firm at a conversion price of $12.50 a share.

Increased Sovereign Debt

JC Flowers, which controls one of the eight board seats at MF Global, is also a potential buyer, a person familiar with the matter said.

Diana DeSocio, an MF Global spokeswoman, declined to comment.

MF Global’s futures unit earns interest income from the collateral it holds to back its customers’ trades. That revenue has been cut as the Federal Reserve target interest rate on overnight loans has been between zero and 0.25 percent since late 2008. The firm reported interest income of $113.2 million in the quarter ended in September. When rates were at 5.25 percent in 2007, the company earned $1.77 billion in the quarter ended in March. MF Global also makes money by charging fees for brokering trades at futures and options exchanges.

Since Corzine, 64, arrived at MF Global in March 2010, he increased the firm’s risk and used its own money to trade, including investments in European sovereign debt that have rattled markets.

Tap Bank Lines

MF Global, which has a market value of $198 million, owns $6.3 billion of Italian, Spanish, Belgian, Portuguese and Irish debt, the company said in an Oct. 25 presentation.

The company’s eight-member board consists of Corzine, MF Global’s chairman and CEO; Edward Goldberg, managing member of Dix Hills Partners LLC; David Gelber, chairman of Walker Crips Group Plc; Robert Sloan, managing partner of S3 Partners LLC; Martin Glynn, the former CEO of HSBC Bank USA; David Schamis, managing director at JC Flowers; David Bolger, former chief financial officer of Aon Corp.; and Eileen Fusco, vice chairman, Pro Mujer International, according to data compiled by Bloomberg.

The company tapped the entirety of two bank lines, three people with knowledge of the matter said last week. MF Global said in an Oct. 25 investor presentation that it had $1.3 billion in unused credit facilities, without giving a date for the tally.

Sale Proceeds

MF Global’s lenders include Citigroup Inc., Bank of America Corp., and JPMorgan Chase & Co., Bloomberg data show.

“We believe MF could generate proceeds from sale of its customer asset portfolio or FCM which frees up capital,” Niamh Alexander, an analyst at KBW Inc. in New York, wrote in an Oct. 27 note to clients, referring to a so-called futures commission merchant, or futures brokerage. “However, we cannot quantify the cost of wind down or exiting broker positions that could offset those proceeds and wipe out equity.”

Alexander estimated MF Global could get about $765 million for the futures unit. A sale would also free up as much as $1.3 billion in regulatory capital MF Global is required to hold against its $12.7 billion in customer collateral, Alexander said.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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Fukushima Plant Released Record Amount of Radiation

By Beth Thomas - Oct 31, 2011 12:07 PM GMT+0700

The destroyed Fukushima nuclear plant in Japan was responsible for the biggest discharge of radioactive material into the ocean in history, a study from a French institute said.

The radioactive cesium that flowed into the ocean from the Fukushima Dai-Ichi nuclear plant was 20 times the amount estimated by its owner, Tokyo Electric Power Co., according to the study by the Institute for Radiological Protection and Nuclear Safety, which is funded by the French government.

It’s the second report released in a week calling into question estimates from Japan’s government and the operator of the plant that was damaged in the March earthquake and tsunami. Tokyo Electric’s Fukushima station may have emitted more than double the company’s estimate of atmospheric release at the height of the worst civil atomic crisis since Chernobyl in 1986.

The oceanic study estimates 27,000 terabecquerels of radioactive cesium 137 leaked into the sea from the Fukushima plant, north of Tokyo.

Tepco is aware of the estimate from the institute through media reports and has no comment, spokesman Hajime Motojuku said today by phone.

Cesium 137 is a source of concern for public health because the radioactive isotope has a half-life of 30 years.

A becquerel represents one radioactive decay per second and involves the release of atomic energy, which can damage human cells and DNA. Prolonged exposure to radiation can cause leukemia and other forms of cancer, according to the World Nuclear Association. A terabecquerel is 1 million times 1 million becquerels.

The three melted reactors and at least one damaged spent- fuel pool may have emitted 35,800 terabecquerels of cesium 137 into the atmosphere at the height of the disaster, according to a study in the Atmospheric Chemistry and Physics journal. Japan’s nuclear regulator in June said 15,000 terabecquerels of cesium 137 was discharged.

The estimated amount is about 42 percent of that released into the atmostphere in the Chernobyl explosion in 1986, according to the study.

To contact the reporter on this story: Beth Thomas in Hanoi at bthomas1@bloomberg.net

To contact the editor responsible for this story: Peter Langan at plangan@bloomberg.net

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