Qantas CEO Courts Fliers After Grounding

By Robert Fenner and Joe Schneider - Nov 1, 2011 1:24 PM GMT+0700

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Nov. 1 (Bloomberg) -- Barry Jackson, president of the Australian and International Pilots Association, talks about labor disputes at Qantas Airways Ltd. Qantas Chief Executive Officer Alan Joyce is trying to appease passengers while facing a 21-day deadline to settle the disputes that spurred him to shut down Australia’s largest airline. Jackson speaks from Sydney with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Qantas Airways Ltd. (QAN) Chief Executive Officer Alan Joyce is trying to appease passengers while facing a 21-day deadline to settle labor disputes that spurred him to shut down Australia’s largest airline.

“We will be doing all that we can to put things right,” Joyce, 45, said yesterday in a televised press conference as he announced the end of the two-day grounding and apologized for disruptions that stranded 80,000 fliers. He halted flights at the main Qantas unit after weeks of sporadic strikes that he said were killing the carrier by “a thousand cuts.”

Joyce now has to mollify customers as Virgin Australia and Emirates Airline lure disgruntled corporate travelers. He also has to reach agreements with unions he has said are making “impossible demands” or face the prospect of a potential lengthy arbitration process that would end with the national labor regulator imposing a solution on Sydney-based Qantas.

“From Qantas’s point of view, arbitration could be a nightmare,” said Marcus Clayton, national practice group leader of industrial and employment law claims at Slater & Gordon LLP in Melbourne. “You don’t know what the tribunal will do” at the end of it, he said.

Fair Work Australia set the 21-day deadline when handing down a decision barring strikes and a planned Qantas lockout. At the end of the period, the agency can either agree to another 21 days of talks or name an arbitrator to decide on a binding plan.

During the process, unions can request access to financial documents and challenge the airline’s claims against their proposals, Clayton said.

‘Tactical Victory’

“Qantas had a very large tactical victory” in securing a strike ban, said Allan Drake-Brockman, an industrial-relations lawyer at DLA Piper in Perth. Still, the final “outcome could be something that they didn’t want.”

Joyce announced an immediate halt to flights on Oct. 29 after stoppages by baggage handlers and engineers seeking higher pay and job-security measures. The disruptions cost the carrier A$68 million ($72 million) and caused bookings to plunge. Long- haul pilots were also protesting over employment conditions.

Qantas flights have all returned to normal today and services are on time, it said in an e-mailed statement. The company operated 65 international and 139 domestic flights yesterday.

Fair Work Australia’s ban on further union actions sent the shares up for a second day, with the stock rising 1.1 percent to an almost two-month high of A$1.63 in Sydney, after a 4.4 percent advance yesterday. The shares have plunged 36 percent in 2011 because of the labor disputes, rising competition and cooling global travel.

Virgin Australia

“There’s a bit more certainty than there has been for a number of months,” said Don Williams, chief investment officer at Platypus Asset Management Ltd. in Sydney, which has A$1.8 billion under management.

Still, the parent of Virgin Australia, the nation’s No. 2 carrier, also gained 4.2 percent yesterday on speculation the grounding may help it win over Qantas fliers. Virgin Blue Holdings Ltd. (VBA) unit has revamped its image and abandoned a low- cost strategy to target business travelers.

Qantas may need to cut airfares and boost advertising to win back customers and ease passenger anger caused by the dispute, said Douglas Dow, an associate professor of business strategy at the University of Melbourne’s business school.

‘Short Memory’

“Qantas will need to spend a bit of money to cajole the customers,” Dow said. “Their customers are angry but the consumer can have an incredibly short memory.”

Joyce is counting on 90-year-old Qantas’s nationwide network, its 65 percent market share and what he called an “amazingly resilient brand” to help retain customers. Budget arm Jetstar, regional carrier Qantaslink and another unit that flies to New Zealand weren’t part of the dispute.

Mark Wright, who was stuck in Melbourne because of the grounding, isn’t sure the Qantas name will be enough to keep his employer loyal to the Flying Kangaroo. All of his trips are booked by the trucking company that he works for in the mining town of Kalgoorlie, Western Australia, he said.

“I’m sure they’ll be looking to change airlines,” he said. “Over the last four to five months with all the hassles they’ve had, it’s put them out of pocket. It’s put me out of pocket as well.”

1,000 Job Cuts

Qantas’s conflict with the three unions, the only ones among 15 yet to sign pay deals, had increased since Joyce announced plans in August to cut 1,000 jobs and create two new Asian carriers as he tries to turn around A$200 million of annual losses from international flights.

The airline’s share of long-haul travel has dropped to below 20 percent amid competition from Middle Eastern carriers and low-cost Asian rivals.

Joyce took over as CEO of Qantas in November 2008 after Geoff Dixon retired. Before that, the Dublin-born Joyce set up and ran Jetstar, after stints at the now-bankrupt Australian carrier Ansett Airlines and at Ireland’s biggest airline Aer Lingus. (AERL)

Before moving to Australia in 1996, Joyce earned an undergraduate degree in physics and mathematics, and a master’s degree in management science at Trinity College, Dublin. He has also become a campaigner for cancer awareness after prostate surgery earlier this year.

‘Quite Tough’

“Alan is a very stoic sort of a guy, but he’s quite tough,” said Conor McCarthy, who worked with Joyce at Aer Lingus before becoming CEO of Dublin Aerospace and a board member at AirAsia Bhd. (AIRA) “Even with his prostate cancer he had his operation and was back at work within a matter of weeks.”

Joyce, now an Australian citizen, wasn’t available for comment for this story yesterday, said Luke Enright, a Qantas spokesman.

Joyce decided on the lockout less than 24 hours after facing investors and union pickets at the company’s annual general meeting on Oct. 28. His pay package of about A$5 million for the year ended June, which included A$2 million of base salary, was also approved at the AGM in Sydney.

The next day, Joyce won support from the board for the lockout plans. He then told senior managers about it a few hours before the public announcement, Lyell Strambi, group executive of operations, said at a Fair Work Australia hearing.

“It was a very dramatic move,” said Dow from the University of Melbourne’s Business School. “But there is a danger here that both sides could lose the war because the company has been damaged.”

To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net; Joe Schneider in Sydney at jschneider5@bloomberg.net

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

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Asia Stocks Fall, Bond Risk Climbs on Outlook

By Bloomberg News - Nov 1, 2011 2:34 PM GMT+0700

Stock-index futures for Europe and the U.S. declined, while the euro fell a third day after Greek Prime Minister George Papandreou pledged to hold a referendum on the European Union’s latest bailout plan for the nation. German 10-year government bonds jumped, while commodities declined.

Futures on the Euro Stoxx 50 Index sank 3.4 percent as of 7:21 a.m. in London, while those on the Standard & Poor’s 500 Index lost 1.3 percent. The euro weakened 0.7 percent to $1.3763. Australia’s dollar dropped 1.3 percent after the central bank cut interest rates for the first time in 31 months. German 10- year bund yields decreased 17 basis points to 1.85 percent. Oil retreated for a third day. Copper retreated 1.4 percent.

Papandreou’s referendum gambit risks pushing the country into default if voters reject the EU’s financial accord. Group of 20 leaders gather Nov. 3-4 for a summit in Cannes, France, to discuss the debt crisis. Stocks and commodities also retreated as China’s manufacturing, South Korean exports and Taiwan’s economy are all expanding at the slowest pace since 2009, adding to signs global economic growth may falter.

“Markets are taking a second look and they see a lot of gaps” in Europe’s debt accord, Hans Goetti, chief investment officer for Asia at Finaport Investment Intelligence, said in a Bloomberg Television interview from Singapore. “The fundamentals point in the direction of a recession in the U.S. and Europe and in recessionary times, you do have earnings downgrades. The market has some downside going into 2012.”

Futures signal the Stoxx 600 may extend a two-day, 2.4 percent slump. Credit Suisse Group AG may fall after the Swiss bank reported earnings that missed analysts’ estimates.

Earnings

About five shares declined for every two that gained on MSCI’s Asia Pacific Index, which sank 1.9 percent. Japan’s Nikkei 225 Stock Average decreased 1.7 percent, Australia’s S&P/ASX 200 Index declined 1.5 percent and Hong Kong’s Hang Seng Index lost 2.4 percent.

Among the 397 companies that have released quarterly results on the MSCI regional index, 209 have missed analysts’ profit estimates, compared with 124 that beat forecasts, data compiled by Bloomberg show.

Panasonic Corp. sank 5.1 percent after the maker of Viera televisions forecast its biggest annual loss in 10 years. Harvey Norman Holdings Ltd. (HVN) dropped 3.7 percent in Sydney after Australia’s largest electronics retailer estimated pretax profit before slumped 19 percent in the last quarter.

Futures signal the S&P 500 may extend yesterday’s 2.5 percent retreat. The gauge still rallied 11 percent in October, the biggest monthly increase since December 1991. Data today may show the Institute for Supply Management’s factory index rose to 52 this month from 51.6 in September, according to the median forecast of 85 economists surveyed by Bloomberg News.

Treasuries

Treasury 10-year yields decreased one basis point to 2.10 percent, after sliding 28 basis points in the previous two days.

The euro extended yesterday’s 2.1 percent loss against the dollar amid speculation a report tomorrow will confirm the region’s manufacturing shrank for a third month. That may add pressure on the European Central Bank to consider cutting interest rates as early as its next policy meeting on Nov. 3.

Greece’s Papandreou also told lawmakers he’ll seek a vote of confidence in parliament. The referendum on the EU accord, which called for a 50 percent writedown on Greek debt as well as an expansion of the region’s bailout fund, will likely be held after details are wound up, Papandreou said.

“Investors are looking at the details of the European deal and they’re not satisfied,” Russ Koesterich, the San Francisco- based global chief investment strategist for the IShares unit of BlackRock Inc., said in a Bloomberg Television interview. “The problem is the same one we’ve been facing since April 2010: The deal tends to piecemeal, it tends to be complex and it doesn’t provide the finality that investors have been looking for.”

Won, Taiwan Dollar

The won and the Taiwan dollar retreated from six-week highs. South Korea said its exports increased 9.3 percent in October from a year earlier following an 18.8 percent gain in September. The Taiwan dollar depreciated 0.5 percent to NT$30.085 after the statistics bureau said yesterday gross domestic product grew 3.37 percent in the three months through September, the smallest increase in two years.

The China Federation of Logistics and Purchasing said its Purchasing Managers’ Index fell to 50.4 in October from 51.2 the previous month. China is Asia’s biggest economy and the No. 1 export destination for South Korea and Taiwan.

The yen declined as much as 1.1 percent to 78.99 per dollar before trading at 78.17. Japanese Finance Minister Jun Azumi said in Tokyo he will “continue to intervene until I am satisfied,” after yen sales yesterday that Credit Suisse Group AG (CSGN) analysts estimated may have exceeded $50 billion.

The Australian dollar weakened to $1.0396. The central bank lowered interest rates by a quarter of a percentage point to 4.5 percent and said inflation is now likely to be close to target.

Bond Risk, Oil

The cost of protecting Asia-Pacific corporate and sovereign bonds from default rose, with the Markit iTraxx Australia index increasing 13 basis points to 173 basis points, according to Westpac Banking Corp. The gauge is set for its biggest increase since Oct. 4, according to data provider CMA, after rising 10 basis points yesterday by New York close of trading.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan jumped 10 basis points to 189.5 basis points, BNP Paribas SA prices show, while the Markit iTraxx Japan index rose eight basis points to 169.5, according to Deutsche Securities Inc.

Crude for December delivery slid 1.4 percent to $91.89 a barrel on the New York Mercantile Exchange. The contract extended its decline after the PMI report from China, the world’s second-biggest oil user. Futures rose 18 percent in October, the biggest increase since May 2009.

Copper Slumps

Copper in London dropped as much as 1.8 percent to $7,845 a metric ton, falling for the second day, as base metals declined on concern the deepening European debt crisis will damp demand for raw materials. Zinc slumped 2.6 percent to $1,948 a ton.

Copper futures on the London Metal Exchange had open interest, or contracts outstanding, of 502,214 as of Oct. 24, the highest level since Dec. 16, 2008, exchange data on Bloomberg showed. The contract gained almost 14 percent last month, the most since December last year.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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Bank of Japan Losses Exceed $281 Million From Buying ETFs as Stocks Slump

By Lynn Thomasson and Yoshiaki Nohara - Nov 1, 2011 1:45 PM GMT+0700

The Bank of Japan has lost as much as 22.4 billion yen ($281.7 million) purchasing exchange-traded funds as the Topix Index approaches a 27-year low.

The central bank’s stock holdings have fallen about 4 percent since buying began on Dec. 15, 2010, according to estimates calculated by Bloomberg using government filings. Losses climbed above 67.6 billion yen in September as equities plunged amid concern Europe’s debt crisis would trigger a global recession, the data show.

The purchases are part of a 20 trillion yen BOJ plan to stimulate economic growth and boost investor confidence by buying securities, such as government debt, commercial paper and real estate investment trusts. The central bank expanded the program last week by 5 trillion yen after the country’s currency reached a postwar record against the dollar, threatening the export-led economy.

“This is not what a central bank should be doing,” said Masaaki Kanno, the Bank of Japan’s former chief foreign-exchange dealer and now chief Japan economist at JPMorgan Chase & Co., referring to the ETF purchases. “The program started in an emergency, and it’s been snowballing.”

The ETFs aren’t likely to hurt the central bank’s finances and the BOJ may take action should losses increase, said a spokeswoman, who declined to be named, citing bank policy. While the central bank hasn’t provided details on the performance of its ETF holdings, Bloomberg News estimated the loss by calculating the return if it spent all the money on Nomura Holdings Inc.’s Nikkei 225 ETF or the Topix ETF, the biggest Japan funds that trade on exchanges.

Topix, Nikkei ETFs

The central bank said in a statement on Nov. 5, 2010, that it would buy ETFs that track the Topix or Nikkei 225 (NKY) Stock Average and target the volume-weighted average price. The Nikkei 225 entered a bear market seven months ago and the Topix of 1,663 Japanese companies is about 9 percent away from erasing its advance since March 12, 2009.

The Nikkei 225 posted the biggest decline in a month, falling 1.7 percent to 8,835.52 today. The index has declined 14 percent this year.

It’s too early to tell if the BOJ’s program has been a success or failure because the purchases haven’t finished yet, said Naomi Fink, head of Japan strategy at Jefferies Japan Ltd. in Tokyo. She predicts the investments will eventually be profitable as shares recover from “extremely depressed valuations.”

‘Tolerate Losses’

The Topix trades at 0.92 times book value, a measure of corporate assets minus liabilities, near the lowest level since March 2009, according to data compiled by Bloomberg. The index is valued at 16.7 times reported profit, 5.7 percent less than the median multiple from the past five years.

“They should be able to tolerate losses during a bad period for the stock market,” said Fink. “But if they’re in the red in a couple years, then you can safely say, ‘Well, that facility wasn’t very useful.’”

This isn’t the first time the central bank has bought stocks. The BOJ in October 2002 purchased shares that financial firms owned in other companies to stem losses at banks after the Topix plunged 52 percent from a peak in February 2000. The BOJ’s investment foreshadowed a rally in the Topix, which bottomed in March 2003 and more than doubled over the next four years.

More ETF Buying

The BOJ’S ETF purchases accelerated this year after concern over Europe’s sovereign-debt crisis triggered a global equity rout and sent the Nikkei Stock Average Volatility Index on Aug. 9 to the highest level since the aftermath of Japan’s March 11 earthquake and tsunami. The central bank spent 403.5 billion yen on ETF shares tracking the Nikkei 225 or Topix since August, compared with 340.4 billion yen in the previous eight months, filings show.

The purchases, which are listed on the BOJ’s website, have taken place when Japanese stocks declined and have signaled better performance the next day. The Nikkei 225 fell an average of 1.9 percent on days when the BOJ bought, slipping 0.1 percent the following day, data compiled by Bloomberg show.

The investments represent a small part of Japan’s ETF market. The central bank spent 17.3 billion yen buying shares on Oct. 18, less than 1.5 percent of the total value traded in either Nomura’s Nikkei 225 or Topix ETFs, according to data compiled by Bloomberg.

“Given circumstances back then, the BOJ didn’t have a choice but to do this program in order to lift sentiment,” said Tetsuya Inoue, a former BOJ official who is now chief researcher for financial markets for Nomura Research Institute Ltd. in Tokyo. “Maybe they didn’t expect these assets to drop this much.”

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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

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H.K. Home Prices May Fall 45%: Barclays

By Richard Frost - Nov 1, 2011 9:44 AM GMT+0700

Hong Kong’s residential property prices would drop by 35 percent to 45 percent over the next two years in the “hard landing” scenario of a deflationary economic environment, Barclays Capital Research said.

In a “soft landing,” continued mortgage rate increases and a slowing economy would drive prices 25 percent to 30 percent lower over 2012 and 2013, Andrew Lawrence and Vivien Chan, analysts at Barclays, wrote in a report dated today.

“Given the economic outlook, it is difficult to see property prices and transaction volumes reverting to their long- term relationship without a price correction,” the analysts wrote. “The depth of that correction depends upon the external economic environment.”

The threat of a global economic slowdown is intensifying risks in Hong Kong’s home market and the government will monitor housing policies designed to curb prices, Financial Secretary John Tsang said Oct. 27. Home transactions fell for a ninth straight month in September, while prices declined 3 percent from June to August, government statistics show.

Barclays’ soft-landing outlook is based on a continued Hong Kong dollar liquidity “squeeze” in the banking system that boosts mortgage rates for new borrowers, according to the note. In this scenario, higher borrowing costs would price first-time buyers out of the market and discourage existing home owners from trading up, causing a 15 percent to 20 percent decline next year and a 10 percent slump in 2013, as investors sell into “weak demand,” they wrote.

Stronger Dollar

The Hang Seng Property Index, which tracks the performance of the seven-biggest developers in the city, fell 1.7 percent today, the largest drop among the four industry groups in the benchmark Hang Seng Index and the most in almost two weeks. The property gauge is down 17 percent this year, compared to a 15 percent drop in the benchmark.

Under a hard landing, falling household incomes and homebuyer confidence would drive declines in residential property prices, along with a wider relaxation of mainland credit and a U.S. dollar rally, according to Barclays. A stronger dollar has historically been negative for Hong Kong property and stock prices, the analysts wrote.

“Weaker demand and increasing secondary supply coming back to the market would cause property prices to over-shoot their long-term fundamental support levels,” the analysts said. “This would suggest that residential property prices would fall 35-45 percent over 2012 and 2013, which implies a relatively optimistic two to two-and-a half year correction period before prices were to bottom.”

Mortgage Rates

Barclays has been bearish on Hong Kong’s real estate market since at least April 1, when the firm issued a report predicting a 30 percent drop in the city’s property prices from 2012 to 2013, and an increase in mortgage rates. Banks will quadruple mortgage rates for new borrowers to more than 4 percent by the end of 2012 from as little as 1 percent to boost lending margins, they wrote in April. Rates for new borrowers have gained 200 basis points in six months, Barclays said in today’s note.

The city’s home prices climbed more than 70 percent since early 2009 on record-low mortgage rates and an influx of buyers from other parts of China. Hong Kong’s peg to the U.S. dollar means the city follows interest rates set by the Federal Reserve, which has held its benchmark rate at a range of zero to 0.25 percent since December 2008.

To contact the reporter on this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net

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

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Corzine’s MF Global Seeks to Reorganize as Broker-Dealer Unit to Liquidate

By Tiffany Kary, Linda Sandler and David McLaughlin - Nov 1, 2011 11:11 AM GMT+0700

MF Global Holdings Ltd., the holding company for the broker-dealer run by ex-Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine, filed for bankruptcy protection as it seeks to reorganize after making bets on European sovereign debt. Its broker-dealer unit, MF Global Inc., faces liquidation.

The firm listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Manhattan. MF Global’s board met through the weekend to consider options including sale, a person with direct knowledge of the situation said.

The filing came as MF Global told regulators of potential “deficiencies” in some customer accounts, according to a statement by the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission. Regulators are investigating whether hundreds of millions of dollars are missing from client accounts, according to a person with knowledge of the matter.

“They were trying to get a deal but at the end of the day the majority of their business is built on trust,” Scott Peltz, the national leader of RSM McGladrey’s Financial Advisory Services Group in Chicago, said yesterday in an interview. “They had a huge position in European debt, which led to a lot of the troubles. There will be questions about that.”

Sought to Transform

Corzine, 64, a former governor of New Jersey who helped run Goldman Sachs from 1994 to 1999, sought to transform MF Global into a midsize investment bank after arriving there in March 2010. He increased the firm’s risk and used its own money to trade, including investments in European sovereign debt that rattled markets.

MF Global’s filing is the fifth-largest financial-industry public company bankruptcy by assets, coming after Lehman Brothers Holdings Inc., Washington Mutual Inc., CIT Group Inc. and Conseco Inc., according to BankruptcyData.com. It’s the eighth-largest bankruptcy by assets of any public company, according to the research group.

MF Global owns $6.3 billion of Italian, Spanish, Belgian, Portuguese and Irish debt, the company said in an Oct. 25 presentation. Concerns that it might lose money on the holdings amid Europe’s debt crisis led to demands from regulators to boost capital, credit downgrades, margin calls and bankruptcy, MF Global President Bradley Abelow said. The regulators yesterday said they advised bankruptcy as the “safest” course of action.

SEC and CFTC

“For several days, the SEC, CFTC and other regulators had been closely monitoring developments affecting MF Global Inc.” in anticipation of a transaction, the SEC and CFTC said in their e-mailed statement. “Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm.”

The regulators said they determined that a bankruptcy proceeding “would be the safest and most prudent course of action to protect customer accounts.”

MF Global’s Abelow said the company aims to complete “a successful, rapid reorganization” of its finances in court, while maintaining a “business-as-usual atmosphere.”

Broker-Dealer Unit

The company’s regulated U.S. broker-dealer unit, MF Global Inc., which didn’t file for bankruptcy, was sued yesterday in U.S. District Court in Manhattan by the Securities Investor Protection Corp. The SIPC seeks to liquidate the unit so as to protect customer assets.

Broker-dealers aren’t eligible to file for Chapter 11 bankruptcy, and need to either sell assets, as Bear Stearns Cos. did in 2008 to JPMorgan, or liquidate, as did Lehman Brothers’ brokerage unit and Bernard Madoff’s firm.

SIPC trustee James Giddens was approved yesterday by a federal judge. Giddens is also liquidating Lehman Brothers’ brokerage following its parent-company’s bankruptcy in 2008, the largest in U.S. history.

SIPC Suit

The SIPC, which is overseen by the SEC, acts in brokerage insolvency cases to recover investor funds. Liquidations are overseen by SIPC so as to return or replace customer securities. SIPC, created under the Securities Investor Protection Act, insures losses of as much as $500,000 per customer in registered securities.

“The defendant has failed or is in danger of failing to meet its obligations to its customers,” the SIPC said in court papers of MF Global. “Specifically, the defendant is unable to meet its obligations as they mature.”

The firm has drawn almost all of a $1.2 billion credit line that was amended last year to give it more liquidity, Abelow said. The broker-dealer unit has borrowed about $210 million of a $300 million secured credit line, he said. JPMorgan Chase & Co. (JPM) is the agent for the two credit lines.

MF Global’s finance unit, MF Global Finance USA Inc., also filed for bankruptcy, listing debt of as much as $50 million and assets of as much as $500 million. The holding company asked the bankruptcy court for permission to continue intercompany transactions between its bankrupt businesses and non-bankrupt units, allowing MF Global to maintain its deposits, investments and bank accounts.

Protecting Assets

“The boards of directors of both entities authorized the filing of the Chapter 11 petition in order to protect their assets,” the companies said yesterday in a statement. MF Global U.K. Ltd. separately entered administration in Britain with administrators appointed from KPMG LLP, the Financial Services Authority said.

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. Before the bankruptcy filing, MF Global was suspended yesterday from doing new business with the New York Federal Reserve, according to a statement on the regulator’s website, and trading in the stock was halted.

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 held talks with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, said the person familiar with the situation, who asked not to be identified because the talks were private.

Evercore Hired

The firm was getting advice from Evercore Partners Inc. (EVR) as it sought buyers. Skadden, Arps, Slate Meagher & Flom LLP is representing the company as bankruptcy counsel. The case was assigned to U.S. Bankruptcy Judge Martin Glenn, who handled Borders Group Inc.’s bankruptcy.

MF Global, based in the U.S. with offices in at least seven other countries, has about 2,870 employees. Revenue was $2.2 billion in fiscal 2011, with a net loss for the parent of $81.2 million.

The broker of commodities, derivatives, equity and foreign exchange had $7.2 billion of customer funds in segregated accounts as of Aug. 31, according to the Commodity Futures Trading Commission. It was one of 22 primary dealers authorized to trade U.S. government securities with the New York Fed and is a member of more than 70 financial exchanges, according to its website.

Unsecured Creditors

A list of unsecured creditors filed by MF Global includes New York-based JPMorgan, as trustee for holders of $1.2 billion in debt, and Deutsche Bank AG (DBK), as trustee for holders of more than $1 billion in notes due in 2016 and 2018.

JPMorgan itself holds less than $80 million of the debt, said Joseph Evangelisti, a spokesman for the bank. JPMorgan also has $26 million in collateral belonging to MF Global that “may be subject to liens in favor” of the bank, MF Global said.

Armin Niedermeier, a spokesman for Frankfurt-based Deutsche Bank, declined to comment on the filing.

Other unsecured creditors include Headstrong Services LLC, owed $3.9 million; Comcast Corp.’s CNBC, owed $845,397; New York-based law firm Sullivan & Cromwell LLP, owed $596,939; Oracle Corp., owed $302,704; and Bloomberg Finance LP, owed $276,064. Bloomberg Finance is a unit of Bloomberg LP, the parent of Bloomberg News.

Deadline Extension

MF Global asked for a Jan. 30 deadline to file its full list of debt and assets, seeking a 75-day extension of the usual two-week window given under bankruptcy law.

The company “is one of the largest brokers in markets for commodities and listed derivatives,” making it large and complex enough to require more time, MF Global said in court papers.

MF Global’s $325 million of 6.25 percent notes due 2016 fell 1.25 cents to 48.75 cents on the dollar at 3:49 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Regulatory Authority. The notes, which were sold in August at face value, dropped to as low as 35 cents on the dollar after the company filed for bankruptcy.

Shareholders

MF Global’s largest common shareholders as of Sept. 30 were Pyramis Global Advisors LLC, with 8.4 percent, and RS Investments in San Francisco, with 7.8 percent, according to court papers. RS has sold its entire stake, Erin Burke, a spokeswoman for the firm, said in an e-mail.

Fine Capital Partners LP held 7.4 percent and Cadian Capital Management LLC had 6.2 percent, the company said. J.C. Flowers & Co. owns 1.5 million preferred shares, MF Global said.

Sugar Brokerage

MF Global, formerly part of Man Group Plc (EMG), has its roots in a sugar brokerage founded by James Man in England in 1793. MF Global became a public company in a 2007 spinoff. It was built up before the spinoff by acquiring the assets of bankrupt brokerage Refco Inc. in 2005.

Corzine reached out to Goldman Sachs about selling all or part of the company, according to two people with knowledge of the firm’s deliberations. Macquarie Group Ltd. examined MF Global’s books, according to a person with knowledge of the situation. David Wells, a spokesman for Goldman, didn’t return a call seeking comment. Paula Chirhart, a spokeswoman for Macquarie in New York, declined to comment.

Barclays Plc was among banks that looked at MF Global, another person said. Kerrie Cohen, a spokeswoman for the U.K.- based bank in New York, declined to comment.

Potential Bidder

Hannah Grove, a spokeswoman for State Street Corp. (STT), which was also reported to be a potential bidder, declined to comment.

“We’re investing in the future of this business,” Corzine said in a May statement that announced new hires in MF Global’s commodities and derivatives areas. In August, the company sold $325 million in senior unsecured notes to repay part of the $1.2 billion revolving credit facility, according to company statements.

MF Global increased net capital at the U.S. unit after Finra raised concerns about the risks to its European debt portfolio, it said in September.

“We are confident that we have the resources, capital, liquidity and expertise to successfully manage our European exposures to their end date maturity of December 2012,” Diana DeSocio, a spokeswoman for the broker, said in an Oct. 24 statement.

Along with the creditors holding millions of dollars in bonds are vendors owed much smaller sums.

Tim Jones is the president of Cedar Knolls, New Jersey- based Ticker Consulting LLC, which advises financial companies such as MF Global on electronic-trading and risk-management systems. Jones, who has an unsecured claim of about $22,800 for services he provided to MF Global, said that in bankruptcy there’s always a chance a debt can’t be collected.

“I’ll move on,” Jones said. “My W-2 will be a little bit light, and hopefully I can find places to make that money up.”

The case is MF Global Holdings Ltd. (MF), 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net; Linda Sandler in New York at lsandler@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.

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S. Korea Plans $50B Fund for Reunification

By Brian Fowler and Eunkyung Seo - Nov 1, 2011 2:05 PM GMT+0700

South Korea will set up a fund as early as this year to begin raising up to 55 trillion won ($50 billion) to pay for its eventual reunification with North Korea.

Individual Koreans at home and abroad will be able to make donations to the fund and the government in Seoul may earmark money including budget surpluses, Unification Minister Yu Woo Ik said in his first interview since being sworn in on Sept. 19. While foreigners will also be allowed to donate, there is no plan to ask overseas governments to contribute, he said.

Yu, 61, is asking South Koreans to put aside more than 60 years of animosity on the divided peninsula and prepare for the fiscal shock of incorporating their impoverished northern neighbors. Fifty South Koreans died last year in attacks blamed on Kim Jong Il’s regime and negotiations to resume six-nation talks aimed at shutting down North Korea’s nuclear-weapons program have made little progress.

“Government agencies are near an agreement over the unification account and I hope lawmakers will pass legislation within this year,” Yu said in his office in Seoul yesterday. “This will unite people and foster their desire for unification.”

Yu, who begins a six-day visit to the U.S. tomorrow to meet lawmakers, State Department officials and United Nations Secretary-General Ban Ki-moon, said he expects the two Koreas to reunite within his own lifetime.

Peaceful Transition

The fund would meet the minimum cost of unification estimated by external researchers, assuming it takes place within the next 20 years and is a peaceful transition, according to his ministry.

Yu and his counterparts at other government agencies are not considering the idea of a special tax to fund unification, said Park Soo Jin, the ministry’s deputy spokeswoman.

President Lee Myung Bak called on South Koreans to think about the option of a “unification tax” in a speech on Aug. 15, 2010. North Korea said the idea was as a “petty trick” to conceal Lee’s aim of regime change in Pyongyang.

“We’re looking at the issue of how to finance the possible unification from various perspectives, considering public opinion and fiscal conditions,” said Suh Kyu Sik, a deputy director of the Finance Ministry. “Unification is one of major reasons that we are trying to improve our fiscal strength as fast as possible.”

Food Handouts

Yu said figures for the cost reach as high as 269 trillion won, or almost a quarter of South Korea’s 2010 gross domestic product. Its economy is more than 40 times larger than North Korea’s, which has relied on outside handouts since the mid-1990s when an estimated 2 million people died from famine, according to South Korea’s central bank.

The population of Kim’s totalitarian state is almost half that of South Korea’s 49 million people. East Germany’s population was about one-quarter that of West Germany’s 61 million when the Berlin Wall fell in 1989, and per capita income was almost one-third that of its larger neighbor, according to a 2009 report by Goldman Sachs Group Inc.

“We cannot apply the German unification model to Korea as the North is much poorer and has a bigger population,” said Moon Chung In, a professor of political science at Yonsei University in Seoul. “Germany had a strong economy while ours is still fragile.”

Generational Costs

South Korea’s budget, which has been in deficit since 2008, is projected to be balanced in 2013, according to the finance ministry. North Korea relies on China to prop up its economy, with bilateral trade accounting for 83 percent of the nation’s $4.2 billion in international commerce last year, according to the Seoul-based Korea Trade-Investment Promotion Agency.

“Reunification won’t result in a debt crisis or multiple sovereign-rating downgrades as most people fear,” said Kwon Young Sun, a Hong Kong-based economist at Nomura Holdings Inc. “South Korea could spread the cost across generations and share the burden with other countries.”

Yu, a former South Korean ambassador to China and chief-of- staff to Lee, promised a more "flexible" approach to North Korea when he replaced Hyun In Taek. Hyun, who once suggested abolishing the Unification Ministry, was vilified by the state- run media in Pyongyang as an "anti-reunification maniac."

Artillery Attack

Still, he dismissed the chances of a summit between Lee and Kim in the near-term after the deadly shelling of a border island and sinking of a South Korean navy ship last year. North Korea blames the South for provoking the artillery attack and denies responsibility for torpedoing the ship.

“A summit between the leaders of the two Koreas would be a very strong and effective event,” said Yu, a former professor of geography at the Korea Military Academy and Seoul National University who received his doctorate from the University of Kiel in Germany. “But we don’t have any specific plan for it at the moment because it’s hard to see any tangible or substantial results.”

North Korea, which remains technically at war with the South after their 1950-1953 conflict ended in a cease-fire, tested nuclear weapons in 2006 and 2009. Six-nation talks on its nuclear program involving China, Japan, Russia, the U.S. and South Korea haven’t convened since 2008. U.S. and North Korean officials resumed direct talks last month that have not yielded any breakthroughs.

‘Fear of War’

Working toward unification with North Korea is better than living with the fear of war, said Kim Seok Joong, 43-year-old orthopedic surgeon from Seoul.

“I want peaceful unification for my five-year-old son, he said. ‘‘I will contribute regularly to the fund if it’s run in a transparent way and not to be used for political purpose.’’

Kim Do Hyung, 38, a manager at SK Telecom Co. in Seoul, said he questions the goal of unifying the Korean peninsula and that he won’t be paying many into the fund.

‘‘My parents may want a unified Korea at whatever cost but my generation is different,’’ he said. ‘‘We’re the ones who’d have to shoulder all the burden and my life is tough enough.”

Kim’s regime has vowed to build a “thriving nation” where all citizens can enjoy meat soup by 2012, the 100th birthday of his father and North Korea’s founder, Kim Il Sung. He is grooming his son Kim Jong Un to succeed him amid worsening food shortages and a “rapid” rise in child malnutrition, according to a UN report in September.

The country faces a shortfall of as much as 700,000 metric tons of food this year, which could affect a quarter of the population, Hiroyuki Konuma, the UN Food & Agriculture Organization’s Asia representative said on Sept. 15.

The Korean Central News Agency reports on an almost daily basis on Kim Jong Il’s exploits, ranging from the multiple holes-in-one he scored in his first game of golf to advice given to farmers and engineers to improve farm and factory output.

“All the stories idolizing the Kim family may undermine North Korea’s credibility both at home and abroad,” Yu said. “The North Koreans I’ve met haven’t been free to say they whether they believe these myths, but defectors from the North don’t believe in them.”

To contact the reporters on this story: Brian Fowler in Tokyo at bfowler4@ bloomberg.net Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editors responsible for this story: Peter Hirschberg in Hong Kong at phirschberg@bloomberg.net Paul Panckhurst at ppanckhurst@bloomberg.net

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Japan May Ready Sustained Yen Intervention

By Aki Ito and Toru Fujioka - Nov 1, 2011 8:19 AM GMT+0700

Japan’s government signaled it is prepared for sustained intervention to ward off speculators from yen purchases after currency appreciation forced companies from Panasonic Corp. (6752) to Honda Motor Co. to lower earnings forecasts.

Finance Minister Jun Azumi said in Tokyo he will “continue to intervene until I am satisfied,” after yen sales yesterday that Credit Suisse Group AG analysts estimated may have exceeded $50 billion. The intervention was the first since August, when Japan spent 4.51 trillion yen ($57 billion) seeking to stem the currency’s surge to a postwar high against the dollar.

The effort showed support by Prime Minister Yoshihiko Noda for exporters seeing a loss in competitiveness after the yen rose 15 percent against the dollar and 21 percent versus the euro the past two years. With Nissan Motor Co. Chief Executive Officer Carlos Ghosn warning last month about a hollowing out of industry, lack of action risked undermining Noda’s agenda, said Hideo Kumano, an economist at Dai-Ichi Life Research Institute.

“Noda will encounter difficulty in gaining support for his budget package and participation in the Trans-Pacific Partnership,” if the yen’s exchange rate provokes a wave of corporate complaints, said Tokyo-based Kumano, who previously worked at the Bank of Japan. Noda has placed a priority on a third package of reconstruction spending from the aftermath of the March earthquake and tsunami, and on considering joining the TPP forum of trade talks with the U.S.

Impact of Sales

Yesterday’s sales spurred the biggest intraday drop in the yen against the dollar since October 2008. It sank 2.9 percent in New York after reaching a low of 79.53 earlier and also declined 1.9 percent versus the euro, to 109.33. The Japanese currency traded at 78.31 per dollar and 108.29 per euro at 10:09 a.m. in Tokyo today.

Japanese media speculated today that the intervention was bigger than the previous one, with the Asahi newspaper estimating sales of 10 trillion yen and the Yomiuri newspaper reporting intervention of 6 trillion yen.

Japan’s policy makers gave no indication of a Swiss-style target for their currency. Like Japan, Switzerland has seen its exchange rate appreciate as investors sought a haven from the euro-region’s debt crisis and from a U.S. economy burdened by the wreckage of a housing-market collapse. Swiss officials put a floor on the euro versus the franc and pledged to defend it.

‘Powerful Precedent’

“A Japanese floor would create a powerful precedent for the rest of Asia, something both the U.S. and Europe are loath to see,” Credit Suisse strategists led by Ray Farris in Singapore wrote in a note to clients. American policy makers have sought to persuade China, which manages its exchange rate, to allow greater appreciation against the dollar.

Rather than a target for the yen, Japanese policy makers have indicated they are concerned about any speculative trading that causes sharp, one-sided moves. A government official said on condition of anonymity that yesterday’s move was triggered by an abrupt climb in the yen in Sydney trading that was indicative of speculative activity. It reached a post-World War II high of 75.35 during Australian morning trading.

Azumi reiterated today that he is ready to take appropriate action in currency markets. He also said he will tell the G-20 that authorities acted because yen movements were straying from economic fundamentals.

Tactical Approach

While currency policy in Japan is set by the finance ministry, comments by Bank of Japan Governor Masaaki Shirakawa also indicated a more tactical than strategic approach toward the yen. He told reporters in Osaka yesterday that it isn’t really strong in nominal effective terms.

“Shirakawa’s remark that the yen is not particularly strong on a trade-weighted basis suggests little real enthusiasm at the central bank” for intervention, said Julian Jessop, chief global economist at Capital Economics Ltd. in London.

With the U.S. Federal Reserve and European Central Bank meeting this week to consider monetary stimulus, and no sign yet that the euro-region debt crisis is over, economic fundamentals argue in favor of continued yen strength, analysts said. Brown Brothers Harriman & Co. strategists predicted the currency will “retest levels near 76.”

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo indicated disapproval of the yen sales, saying yesterday that “unilateral interventions neither have a lasting effect nor are they good from the point of view of global stability.”

G-20 Criticism

Even so, Europeans may be loath to criticize Japan at the Group of 20 summit in Cannes, France, Nov. 3-4 given that they are seeking Asian contributions for an expanded rescue fund, UBS AG analysts said in a note.

For Noda, who took office in September, the yen’s surge risked distracting from his efforts to foster an economic rebound from three quarters of contraction, worsened by a record earthquake in the northeast that left about 19,000 people dead or missing and triggered a nuclear crisis.

Noda’s cabinet last month approved a 12.1 trillion yen spending plan to rebuild after the March disaster and to help companies cope with the currency. The package is subject to parliamentary approval.

Japan’s industrial output fell 4 percent in September from August, a sharper drop than analysts surveyed by Bloomberg News forecast. Export growth slowed to 2.4 percent from a year earlier in September from 2.8 percent in August, while retail sales also fell more than expected.

Stocks Fall

Stocks in Japan fell yesterday as Mitsui O.S.K. Lines Ltd. projected a loss and Fujifilm Holdings Corp. (4901) cut its profit forecast. Even after the intervention, which at one point during the day sparked a gain in the benchmark Nikkei 225 Stock Average of as much as 1.1 percent, the Nikkei closed down 0.7 percent. It fell 0.9 percent today.

Panasonic, the maker of Viera televisions, yesterday forecast a full-year loss of 420 billion yen, its biggest in a decade. It cited the impact of a stronger yen and one-time charges. Honda, Japan’s third-largest carmaker, reported second- quarter profit that missed analysts’ estimates as the strong yen eroded earnings.

“We’d like the government to do more intervention,” Yuji Isoda, manager of investor relations at Nippon Yusen K.K. told reporters in Tokyo yesterday. “Ideally we’d like the yen to weaken to around 85 yen to 90 yen against the dollar.”

BOJ Pressure

Pressure may also rise on the central bank to do more, after it expanded planned government-bond purchases by 5 trillion yen last week.

“The root cause for yen appreciation is the Bank of Japan’s passive stance toward monetary policies, compared with the Federal Reserve,” said Atsushi Ito, a senior rate strategist in Tokyo at UBS AG.

Former Japanese Finance Ministry official Eisuke Sakakibara said earlier this month that intervention efforts by Japan will only be successful if coordinated with other nations. Sakakibara became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance.

“The most we can expect is for intervention to slow the speed of the yen’s gains,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. In Tokyo and a former official in the BOJ’s foreign exchange division. “The government can’t keep intervening forever.”

To contact the reporters on this story: Aki Ito in Tokyo at aito16@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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China PMI Drops to Lowest in Almost 3 Years

By Bloomberg News - Nov 1, 2011 9:39 AM GMT+0700

A Chinese manufacturing index dropped to the lowest level since February 2009, bolstering the case for fiscal or monetary loosening to support the expansion of the world’s second-biggest economy.

The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement today. That was lower than any of 16 economist estimates in a Bloomberg News survey that had a median forecast of 51.8. A reading above 50 indicates expansion.

An index of export orders contracted for the second time in three months as Europe’s failure to resolve its debt crisis dims the outlook for shipments to China’s biggest market. South Korea reported today the weakest export growth since 2009 and Taiwan’s government said yesterday that the island’s economy expanded by the least in two years.

The PMI reading “is a reflection of slowing momentum in the economy” and exports may “slow sharply in coming months,” said Wang Tao, a Hong Kong-based economist at UBS AG. “Policy will ease more visibly in the first quarter of 2012.”

A separate manufacturing index released today by HSBC Holdings Plc and Markit Economics rose to 51 from 49.9. The surveys have different sample sizes and methodologies.

Premier Wen Jiabao said last week that economic policies will be “fine-tuned” as needed. That fueled speculation that the government may ease reserve requirements for smaller banks and add fiscal stimulus, putting growth ahead of inflation risks.

‘Weak’ Figure

The MSCI Asia Pacific Index fell 0.9 percent as of 11:07 a.m. in Tokyo. The benchmark Shanghai Composite Index rose 0.3 percent on speculation that more easing is possible after the government last month offered tax breaks for smaller companies that have been hardest hit by lending curbs and slowing growth.

“The weak PMI figure may prompt the government to loosen policies going forward such as a cut in reserve-requirement ratios for small banks and that’ll be positive for stocks,” Liu Li-Gang, head of Greater China Economics at Australia & New Zealand Banking Group Ltd., said in an interview in Bloomberg’s Shanghai office. “China’s economy is poised for a soft landing in the fourth quarter rather than a hard landing.”

On Oct. 26, the government announced a trial of changes to value-added taxes, a move that HSBC Holdings Plc economist Qu Hongbin said heralds the “official start” of selective easing. The finance ministry yesterday raised the threshold for payment of VAT and business taxes.

Exports, Orders

The manufacturing index from the logistics federation and National Bureau of Statistics is based on a survey of purchasing managers in more than 820 companies in 20 industries. The gauge hasn’t fallen below 50, the level dividing expansion from contraction, since February 2009.

The gauge of new export orders declined to 48.6 from 50.9 the previous month. The new orders index fell to 50.5 from 51.3 in September, the lowest reading since February 2009. A measure of output dropped to 52.3 from 52.7 in September.

The data “indicate fourth-quarter economic growth will continue to slow,” Zhang Liqun, a senior researcher at the Development Research Center of the State Council, said in today’s statement. “Export and investment growth will continue to fall.”

China’s economy grew 10.4 percent in 2010 and 9.4 percent in the first nine months of this year.

Shipyard Orders Drop

Positive signs for policy makers include a decline in a measure of input prices to 46.2 in October from 56.6 the previous month, the first reading below 50 since March 2009.

The drop suggests cost pressures on companies are decreasing, although it may also signal destocking is increasing because of expectations prices will fall, Zhang said.

In a sign manufacturing growth is moderating, new orders placed at Chinese shipyards in the first nine months of the year dropped 42.8 percent, the Ministry of Industry and Information Technology said on its website on Oct. 20. Guangzhou Shipyard International Co. said last week its third-quarter net income dropped 45 percent from a year earlier due to higher costs and an impairment provision for shipbuilding contracts.

--Zheng Lifei, Victoria Ruan, With assistance from Ailing Tan in Singapore, Regina Tan in Beijing and Zhang Shidong in Shanghai. Editors: Nerys Avery, Paul Panckhurst

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at +86-10-6649-7560 or lzheng32@bloomberg.net;

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Obama Order Targets Drug Price ‘Gouging’

By Drew Armstrong and Anna Edney - Nov 1, 2011 2:29 AM GMT+0700

President Barack Obama directed U.S. regulators to gather information from drugmakers about potential shortages so the government can respond before patients’ lives are threatened and help prosecutors head off “price gouging.”

More than half of hospitals and medical centers said last year that shortages compromised patient care, according to a survey from the American Society of Health-System Pharmacists, a Bethesda, Maryland-based trade group. About 97 percent said the shortages drove up costs through purchases from resellers.

The administration said early notice will allow it to work with manufacturers to find alternate sources for medicines, increase production or bring new plants online. The Food and Drug Administration plans to more than double the size of its office dealing with shortages, from five people to 11, said FDA Commissioner Margaret Hamburg.

“This is one of those slow-rolling problems that could end up resulting in disaster for patients and health-care facilities all across the country,” Obama said, signing an executive order from the Oval Office at the White House with a cancer patient and a pharmacy manager at his side.

His administration is calling on Congress to pass legislation that would make it mandatory for drugmakers to report the shortages.

“We don’t have a whole lot of teeth,” Hamburg said. Without mandatory reporting, “we’re really asking for our partners in industry to work more closely with us,” she said.

In the order signed today, Obama also asked the Justice Department to look into potentially illegal mark-ups by resellers.

Shortages Nearly Triple

Drug shortages almost tripled to 178 in 2010 from 61 in 2005, according to an FDA report released today. Sterile injectables account for 80 percent of the 127 shortages the FDA studied, 28 percent of which were cancer drugs.

Manufacturing issues, at 43 percent, was the main reason reported to the FDA for a drug shorts, the agency said. Delays in production or shipping accounted for 15 percent of the shortages while active ingredient scarcity caused 10 percent.

Most sterile injectables have one manufacturer that produces at least 90 percent of the drug. FDA helped prevent 38 shortages in 2010 and 99 to date this year, the agency said.

During a shortage, hospital pharmacies sometimes turn to third-party resellers who obtain the drugs from pharmacies or other resellers and offer them to hospitals in need.

While these so-called gray-market resellers can provide life-saving drugs that are in low supply, they charge on average sevenfold the typical contract price, with some surgical and other medically critical treatments increasing 20-fold, according to a survey by the Premier Healthcare Alliance.

Gray Market Activities

A 2011 report by the Institute for Safe Medication Practices examined gray market activities associated with drug shortages. Fifty-six percent of 549 hospital purchasing agents and pharmacists reported receiving daily solicitations from vendors and 52 percent said they bought drugs from gray market suppliers in the past two years. Respondents gave examples markups, including a 1,500 percent increase for the anesthetic propofol, according to the institute, a nonprofit group based in Horsham, Pennsylvania that aims to prevent medication errors.

The administration’s plan won’t ease shortages because drugmakers have little incentive to raise output when Medicare and Medicaid, the two big U.S. public health programs, limit how fast the price of a drug can rise, said Devon Herrick, senior fellow at the national Center for Policy Analysis, a policy research organization in Dallas.

“Firms have little incentive to ramp up production,” Herrick said.

Hospitals and purchasing organizations recommended that reports of price gouging be monitored and investigated by appropriate federal agencies. The FDA accepts reports of price gouging on its website.

Obama directed the FDA to work with the Justice Department to “examine whether potential shortages have led to illegal price gouging or stockpiling of life-saving medications,” the administration said in a statement.

To contact the reporters on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net; Anna Edney in Washington at aedney@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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AT&T to Begin Selling First LTE Smartphones From Samsung, HTC on Nov. 6

By Scott Moritz - Nov 1, 2011 3:07 AM GMT+0700

AT&T Inc. (T), the second-largest U.S. mobile carrier, plans to start selling its first handsets using a faster standard called long-term evolution on Nov. 6, a bid to catch up with larger rival Verizon Wireless.

AT&T’s first LTE phones, both running Google Inc. (GOOG)’s Android software, will be the $200 Vivid from HTC Corp. (2498) and the $250 Galaxy S II Skyrocket from Samsung Electronics Co., according to a statement from the carrier today. To get those prices, customers need to sign up for two-year service agreements.

The Dallas-based carrier said it is expanding its LTE service to Boston, Washington, Baltimore, and Athens, Georgia, after starting it in five markets last month. AT&T plans to offer LTE in 15 cities by year-end. Verizon started selling its first LTE handset, the HTC Thunderbolt, in March and offers LTE in about 165 metropolitan areas.

AT&T “is going to be rolling out markets fairly rapidly now, so they’ll come on line rather quickly,” said Chris King, a Stifel Nicolaus &Co. analyst in Baltimore. He rates AT&T “buy.”

AT&T and Verizon Wireless, co-owned by Verizon Communications Inc. (VZ) and Vodafone Group Plc, are boosting network speeds and offering devices with more capabilities to lure higher-spending customers. Both the Vivid and the Skyrocket have 4.5-inch (11.4-centimeter) screens, accommodating users who are increasingly browsing the Web and watching video on their handsets.

Shares of AT&T fell 1.4 percent to $29.31 at the close in New York. The stock is little changed this year.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net Or Ville Heiskanen at vheiskanen@bloomberg.net

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MetroPCS May Be No Answer for U.S. Concerns With AT&T Deal

By Olga Kharif and Scott Moritz - Nov 1, 2011 3:23 AM GMT+0700

MetroPCS Communications Inc. (PCS), the wireless carrier looking to expand, may struggle to become a viable replacement for T-Mobile USA as AT&T Inc. (T) tries to win government approval to buy the company from Deutsche Telekom AG.

MetroPCS has less than one-third the customers of T-Mobile, the fourth-largest U.S. wireless carrier, and covers less than half the U.S. population. The company would need to spend as much as $10 billion for wireless spectrum and customers to compete with Verizon Wireless, Sprint Nextel Corp. (S) and AT&T, said Michael Mahoney, senior managing director and portfolio manager at San Francisco-based Falcon Point Capital LLC. That is probably beyond its capability, he said.

“They are a very niche player right now, with a specific brand image,” Mahoney said in an interview. “They need to be more than that to be a credible nationwide player.”

MetroPCS has emerged as the frontrunner to buy assets from AT&T and T-Mobile USA as those companies seek to complete their merger, people familiar with the matter said this month. AT&T is trying to sell assets to address regulatory concerns that a reduction in nationwide providers to three from four would undermine competition, after the U.S. Justice Department sued to block the merger in August.

MetroPCS, based in Richardson, Texas, fell 4.9 percent to $8.50 at the close in New York. The stock has lost 33 percent this year. AT&T, based in Dallas, fell 1.4 percent to $29.31 and is little changed this year.

Drew Crowell, a MetroPCS spokesman, declined to comment on potential transactions. The company reports earnings tomorrow.

National Competitor?

To compete with the largest three operators, any company would need a critical mass of customers and wireless spectrum. Wireless licenses are distributed by the federal government and allow operators to offer service in specific areas.

MetroPCS had 9.1 million wireless subscribers at the end of June, compared with 33.6 million subscribers for T-Mobile. Verizon Wireless, AT&T and Sprint had 107.7 million, 100.7 million and 53.3 million, respectively, at the end of September.

MetroPCS probably needs 25 million users to compete with the industry giants, Mahoney said. That means it has to acquire the equivalent of about half the subscribers at T-Mobile, which AT&T has agreed to buy from Deutsche Telekom for $39 billion.

MetroPCS had $2.16 billion in cash and short-term investments at the end of June. It’s unlikely to spend more than $4 billion, though it could also use stock or debt for acquisitions, Michael Nelson, an analyst with Mizuho Securities USA Inc. in New York, said in an interview.

‘No-Brainer’

The company would also need more wireless licenses to be a national player, Mahoney said. MetroPCS currently has rights to offer service in regions with 146 million people, about 46 percent of the population, though it hasn’t built networks in all those places. It doesn’t operate in many smaller towns and has limited service in cities such as Chicago and Seattle.

To compete nationally, MetroPCS probably has to add spectrum to cover at least two-thirds of the population, or more than 200 million people, Mahoney said. The costs for the licenses and network to get there may exceed the company’s current resources, he said.

The company has options to expand beyond the purchase of AT&T-T-Mobile assets. The company recently said it may buy spectrum from Clearwire Corp. (CLWR), which is looking to raise funds to finance a network overhaul.

Another possibility is merging with Leap Wireless International Inc. (LEAP), a similar pay-as-you-go service provider based in San Diego, Timothy Horan, an analyst at Oppenheimer & Co., said in an interview. Leap, which had 5.75 million customers at the end of the second quarter, operates in regions that would complement MetroPCS’s territory, he said.

“Leap-MetroPCS is a no-brainer,” Mahoney said. “It completely makes sense.”

Failed Talks

Leap’s stock has tumbled in the past four years and its market value has dropped to less than $600 million. The company also had $3.25 billion in bonds and loans at the end of June.

The two companies have considered a combination in the past and haven’t been able to reach an agreement. They discussed a merger in 2007 and failed to agree on terms.

Rather than spend money to acquire customers or wireless licenses in new territories, MetroPCS is more likely to expand in current regions, said Kevin Smithen, an analyst at Macquarie Securities USA Inc. in New York. Adding spectrum in such areas would let MetroPCS offer more subscribers faster mobile Web access, reducing customer turnover and boosting organic growth, he said.

“They need the spectrum immediately,” Smithen said in an interview. In the second quarter, MetroPCS’s monthly churn, or customer losses, reached 3.9 percent.

Quality Suffers

The company is battling a spectrum crunch as more customers buy smartphones that use more data, which may have hurt service quality, said Walter Piecyk, an analyst at BTIG LLC in New York. While MetroPCS ranks high among other prepaid service providers on cost of service, it’s among the lowest in performance and reliability, according to J.D. Power & Associates.

“When they buy the spectrum, a lot of concerns over their growth are going to be resolved,” Piecyk said in an interview. “Maybe they can be more aggressive on price to grow their base even faster.”

MetroPCS might buy spectrum and customers in San Francisco, Dallas, Jacksonville, Florida, and Bakersfield, California, where the combined AT&T-T-Mobile would hold more than 50 percent of the market, Nelson said. MetroPCS already operates in the four metro areas, and is building out a 4G wireless network to offer faster services for smartphones.

MetroPCS Chief Executive Officer Roger Linquist said during the company’s second-quarter call that it’s interested in acquiring spectrum, though they will be “disciplined and opportunistic” in doing so.

Strategic Fit?

Besides the company’s financial limitations, analysts such as Nelson are skeptical that MetroPCS even wants to expand geographically on a large scale. Moving into less populated regions would clash with the existing strategy, he said.

“MetroPCS management has repeatedly stated in the past their desire to focus on large urban markets,” Nelson said. “I do not think it’s their intention to become a nationwide provider.”

To contact the reporters on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net. Scott Moritz in New York, at smoritz6@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Yahoo Dips as Company Said to Reject Sale

By Serena Saitto, Jeffrey McCracken and Brian Womack - Nov 1, 2011 4:15 AM GMT+0700

Yahoo! Inc. shares dropped the most in more than two months after the company was said to be leaning toward selling its Asian assets and redistributing the proceeds to shareholders, rather than selling itself to a group of buyers.

This scenario 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.

The shares declined 5.6 percent to $15.64 at the close, the biggest drop since Aug. 4. Before today, the stock had surged 28 percent since the company fired Chief Executive Officer Carol Bartz in early September, making it a more expensive target for private-equity buyers, the people said last week.

Yahoo has been exploring options while searching for a replacement for Bartz, who struggled to boost revenue growth or fend off competition from Google Inc. and Facebook Inc. Co- founder Jerry Yang said on Oct. 20 that the company isn’t necessarily on the block.

“The intent going in is not to put ourselves up for sale,” Yang said that day at the All Things Digital Asia conference in Hong Kong. “The intent is to look at all options. There’s plenty of options for the board, and plenty of options for our shareholders to realize value.”

No decision has been made yet and Yahoo could still sell to a group of investors, the people said. Yahoo may also sell a minority stake in the company, or seek a buyer for the entire company after finding buyers for Asian assets, said the people. A change of ownership entirely would put the tax-efficiency of the Asian asset deals at risk, one of the people said.

Dana Lengkeek, a spokeswoman for Sunnyvale, California- based Yahoo, declined to comment.

Interest in Yahoo

“Multiple parties” have expressed interest in Yahoo, according to a September memo by Yang. KKR & Co. and Blackstone Group LP (BX) are among the private-equity firms considering possible bids for Yahoo, people with knowledge of the matter have said.

In addition, Alibaba Group Holding Ltd., whose biggest shareholder is Yahoo, has discussed a plan with private equity firm Silver Lake and Russia’s Digital Sky Technologies to make a joint bid, people familiar with the matter have said. Another group that is interested includes Providence Equity Partners Inc. and former News Corp. (NWSA) executive Peter Chernin, people said.

The sheer number of parties that have mulled offers for Yahoo is contributing to the difficulty in reaching an agreement, the people said. Amassing the financing needed to acquire a $20.9 billion company is another hurdle, the people said.

Tax Implications

Alibaba Chairman Jack Ma has publicly expressed interest in buying Yahoo’s stake in his company. Alibaba has no comment on the Bloomberg story, John Spelich, a spokesman, said by phone in Hong Kong. Yahoo also co-owns Yahoo Japan with Softbank Corp. (9984) of Japan.

Softbank and Yahoo Japan have been in talks with Yahoo to buy its stake in Yahoo Japan for nine months but the talks are complicated by tax considerations, one person with direct knowledge of the situation said earlier this month.

The Wall Street Journal reported Oct. 28 that Yahoo is exploring a tax-free disposal of its Asian assets.

The plan involves creating a new subsidiary into which Alibaba would put cash and some assets from Alibaba or another party, the Wall Street Journal reported. The stock of that company would be swapped for Yahoo’s stake, leaving Yahoo with the cash and assets and giving Alibaba its shares back, the Journal reported. Under U.S. tax law, such a deal isn’t considered a sale and therefore is not taxable, the paper said.

A change of ownership of Yahoo would threaten the tax- efficiency of this arrangement, said one person with direct knowledge of the situation.

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

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

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Obama in ‘Excellent Health,’ ‘Fit for Duty’: Doctor

By Catherine Dodge - Nov 1, 2011 4:30 AM GMT+0700

President Barack Obama is in “excellent health” and all indications are he will remain so for the duration of his term, the president’s doctor wrote in a physical exam report released by the White House.

Obama is “fit at 50” and tobacco free, the physician, Jeffrey C. Kuhlman, wrote. Steps the president takes to stay well include eating a healthy diet and keeping physically active. The report said Obama on occasion drinks alcohol in moderation.

The president’s blood pressure is “normal” at 107/71 and his cholesterol level is “ideal.” He has a 10-year coronary heart disease risk of just 2 percent. Obama’s heart rate was 67 beats per minute.

Obama’s medications include “rare” anti-inflammatory drugs related to strenuous physical activity and immunizations associated with world travel. He had “benign skin tags” removed from his neck.

Obama had his physical last week. The president’s previous exam was in February 2010.

To contact the reporter on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net

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

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IMF Faces Discontent on Currency Appraisals

By Sandrine Rastello - Nov 1, 2011 4:14 AM GMT+0700

The International Monetary Fund, facing “dissatisfaction” about how it assesses countries’ exchange rates, agreed to better take into account other data such as capital flows when reviewing member nations’ external stability.

The decision was endorsed by the board of directors Oct. 24 after discussing a review of the fund’s economic and financial surveillance. In a report, IMF staff said they faced “continued discontent” from the economists and officials it consulted about exchange-rate analysis. Some said they found too much focus on that measurement while others said there was not enough candor.

“Despite technical improvements in the Fund’s exchange rate assessments, there is considerable dissatisfaction among stakeholders with the Fund’s external stability analysis and policy advice,” the Washington-based agency’s staff said in the report. “Nearly two-fifths of executive directors felt that a significant share of staff reports had insufficient coverage of capital flows and reserve adequacy issues.”

IMF analysis of exchange rates has been a sensitive point with some countries, including China, which prevented the publication of reports on that nation’s economy in 2007 and 2008. That stalemate ended in 2009, after the IMF dropped the phrase “fundamental misalignment” to describe certain exchange rates in a bid to improve cooperation with member states.

Gaining Influence

The review, which takes place every three years, also discussed how to gain more influence on policies of the agency’s 187 member nations. It noted that the IMF currently has the most sway in countries that borrow from it and is paid little heed in the U.S. and in the euro area.

An internal audit released this year found that the IMF was overly influenced by developed countries, including the U.S. and the U.K., when assessing their economies and ended up missing signs of fragility that led to the 2008 global financial crisis.

“Two-thirds of mission chiefs saw themselves as largely candid in their dialogue with authorities,” the IMF said today. “However, mission chiefs noted some degree of self censorship in the reports, with one in seven stating that the need to preserve good relationships with authorities limited the candor of their report.”

To improve candor, the IMF should bring in more external views according to the report, which itself leaned on outside contributors, including Nobel Prize-winning economist Joseph Stiglitz.

After popular uprising in the Middle East and North Africa this year in countries that the IMF had praised for their economic policies, the Fund agreed to aim to cover more social issues that are important to the stability of its members.

The IMF also agreed to continue working on assessing the impact economies have on one another, including through their financial institutions. Yearly assessment of countries’ economies should make more room for analysis of their financial stability, it said.

To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net;

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

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Chinatown Buses’ Death Rate Said Seven Times That of Competitors

By Jeff Plungis - Nov 1, 2011 3:12 AM GMT+0700

Curbside bus operators such as ones involved in crashes this year in New York, New Jersey and Virginia are seven times more likely to be involved in a fatal wreck than intercity lines with more conventional business models, U.S. safety investigators said.

Companies that pick up passengers at street locations, such as so-called Chinatown buses, had 1.4 fatal accidents per 100 vehicles, compared with 0.2 crashes for terminal-based operators like Greyhound Lines Inc., the National Transportation Safety Board said in a report today.

The study -- the most detailed look at curbside lines to date -- shows regulation hasn’t kept pace with the fast-growing industry, Senator Charles Schumer, a New York Democrat, said in a telephone interview.

“It cries out for action to make this industry safer,” Schumer said. “The consumer now buys a ticket in the dark.”

Fatal crashes have surged as intercity bus travel becomes the fastest-growing U.S. mode of commercial transportation. In 2011, 28 people have died in eight fatal crashes, including three in an 11-week period involving carriers operating out of, or carrying passengers between, Chinatown neighborhoods in East Coast cities.

“For too long, some bad apples have played fast and loose with passenger safety,” Schumer said today at a news conference on a block of Allen Street in New York’s Chinatown where three curbside carriers operate. “We’re here to say enough is enough.”

Business Model ‘Morphed’

Led by FirstGroup Plc (FGP)’s Bolt Bus and Stagecoach Group Plc (SGC)’s Megabus, as well as Chinatown lines such as Sky Express, U.S. bus departures increased 24 percent last year, according to Joseph Schwieterman, professor of public service at DePaul University in Chicago.

Curbside operators, which offer fares as low as $1, now outnumber terminal-based companies 71 to 51 in the U.S., the NTSB found. “It’s time to recognize that traditional transportation services have morphed into new business models that challenge existing regulatory constructs,” NTSB Chairman Deborah Hersman said in a statement.

The Federal Motor Carrier Safety Administration, which regulates the trucking and bus industries, doesn’t have enough people to do adequate oversight, the NTSB said. The 878 FMCSA and state inspectors are responsible for 765,000 motor carriers, a ratio of 1.15 investigators for every 1,000 companies, it said.

Multiple Identities

Curbside companies make it difficult for regulators to track them, the NTSB said. Some operate under multiple names, the board said. This can spread safety violations among several entities, hindering regulators’ ability to spot patterns and target the correct companies for enforcement actions.

Many curbside carriers use unregulated ticket brokers rather than selling directly to consumers, which also creates problems for regulators, the NTSB said. The Transportation Department has no legal authority to oversee ticket websites, the safety board said. It has asked Congress to change the law.

The motor-carrier safety administration needs better information on the carriers once they’re operating, Hersman said in an interview in New York today. The agency relies on data that’s often wrong, incomplete or out-of-date to flag the riskiest companies, she said.

New Companies

The ease of starting a new company is another challenge for regulators, Hersman said. An operator can pay a $300 application fee, get a minimal amount of insurance, lease a vehicle and begin carrying passengers before the trucking agency inspects it, she said.

“This is backward,” Hersman said. “They don’t give them an audit or a review until after they give them operating authority.”

Consumers often don’t know which company they’ll be traveling on when shopping on sites like Gotobus.com, making it impossible to check safety records before buying tickets, the NTSB said in its report.

Companies should have letter grades from A to D for their safety records posted in bus windows, online and on ticket- broker websites, Schumer said.

Restrictions in U.S. law against regulators stopping buses while they’re in transit has made it difficult to do meaningful inspections, the safety board said. Curbside carriers have few locations where unscheduled inspections can be carried out, it said.

Firstgroup agrees with the NTSB’s conclusions and hopes they start a push for bus-safety legislation, Maureen Richmond, a company spokeswoman, said in an e-mail.

“The NTSB noted the industry has a great safety record overall,” Peter Pantuso, chief executive officer of the Washington-based American Bus Association, said in a telephone interview. The association represents companies include Firstgroup and Stagecoach.

“It is a small number of bad actors we’ve got to get off the road,” he said.

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

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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