European Stocks Rise as Berlusconi Awaits Vote

By Peter Levring - Nov 8, 2011 6:04 PM GMT+0700

European stocks rose, with the Stoxx Europe 600 Index rebounding from a two-day decline, as investors awaited a vote on Italy’s budget that will show whether Prime Minister Silvio Berlusconi still has a majority. U.S. index futures advanced, while Asian shares fell.

Vodafone Group Plc (VOD) gained 2.3 percent after increasing its full-year earnings forecast as profit beat analysts’ estimates. Repsol YPF SA (REP) climbed 5.4 percent after raising its prediction for recoverable reserves in Argentina. Banks rallied as Societe Generale SA, France’s second-biggest bank, and Lloyds Banking Group Plc (LLOY), the largest mortgage lender in the U.K., both gained more than 7 percent.

The Stoxx 600 rose 1.4 percent to 241.65 at 11:00 a.m. in London. The benchmark measure has rallied 12 percent since this year’s low on Sept. 22 as investors speculated that the euro area would protect the economies of Italy and Spain from the sovereign-debt crisis.

“If Berlusconi leaves, it’ll cause some political unrest, but most likely also a sigh of relief in the markets,” wrote Lars Moegeltoft, a chief equity adviser at Nordea Private Banking in Copenhagen, in a note to clients. “The big swings in the market will continue as focus stays on the two items that draw attention: Greece and Italy.”

The MSCI Asia Pacific Index fell 0.7 percent today, while Standard & Poor’s 500 Index futures expiring in December climbed 0.3 percent.

Berlusconi’s Budget Vote

Italian Prime Minister Silvio Berlusconi must show today that he has enough support in parliament to stay in power and implement austerity measures to trim the region’s second-biggest debt and bring down borrowing costs. The yield on 10-year Italian bonds slipped to 6.62 percent today after yesterday climbing to a euro-era record.

The country’s Chamber of Deputies will vote at 3:30 p.m. in Rome on a routine report on last year’s budget plan that will reveal whether Berlusconi retains a majority in the 630-seat house. European stocks dropped over the past two days, as two Berlusconi allies defected to the opposition and a third one quit before today’s vote.

In Greece, Prime Minister George Papandreou resumes talks with the opposition in Athens as the ruling Pasok party and the rival New Democracy move closer to naming the premier of a national-unity government to secure rescue funds.

In the U.S., the S&P 500 climbed yesterday as European Central Bank Executive Board member Juergen Stark said the region’s debt crisis will be “under control” in two years. Stark spoke at an event in Lucerne, Switzerland.

German Exports Climb

In Germany, a report from the Federal Statistics Office in Wiesbaden showed that the country’s exports unexpectedly rose for a second month in September, helping Europe’s largest economy weather the sovereign-debt crisis.

Exports, adjusted for work days and seasonal changes, increased 0.9 percent, the report said. Economists had forecast a drop of 0.8 percent, according to the median of 14 estimates in a Bloomberg News survey.

The Stoxx 600 traded at 10.4 times the estimated earnings of its companies, compared with the average multiple of 12 over the past five years, according to data compiled by Bloomberg. Some 47 percent of the 219 companies in the benchmark measure that have released earnings since Oct. 11 beat analysts’ profit estimates compared with 44 percent that missed projections, according to data compiled by Bloomberg.

Vodafone, Repsol, Lloyds

Vodafone advanced 2.3 percent to 176.8 pence. Europe’s third-largest phone company by sales predicted full-year adjusted operating profit of 11.4 billion pounds ($18.3 billion) to 11.8 billion pounds, the upper half of the range indicated in May. First-half earnings before interest, taxes, depreciation and amortization gained 2.3 percent to 7.53 billion pounds in the six months through September. Analysts had predicted profit of 7.42 billion pounds.

Repsol surged 5.4 percent to 22.03 euros after its YPF SA unit in Argentina raised estimates for the Loma La Lata field in northern Patagonia to 927 million barrels of shale oil.

Lloyds jumped 8.2 percent to 30 pence after posting smaller-than-estimated provisions for bad loans in the third quarter and saying it may miss its income target for 2014.

“There was some nervousness in the market ahead of these results,” said Bruce Packard, a banking analyst at Seymour Pierce Ltd. in London. “The fact that there were no monsters in there is reassuring. I didn’t think their 2014 targets were ever achievable.”

Societe Generale (GLE) Rallies

Societe Generale SA shares advanced 7.7 percent to 18.84 euros after the bank said it won’t pay a dividend for 2011, a decision that will reduce its capital needs under European Banking Authority requirements.

The lender also said third-quarter profit fell 31 percent, hurt by a 333 million-euro ($459 million) pretax writedown on Greek sovereign debt and lower trading revenue. Net income dropped to 622 million euros from 896 million euros a year earlier.

Nobel Biocare Holding AG (NOBN) soared 9.4 percent to 11.37 Swiss francs after the world’s second-biggest dental implant maker posted third-quarter sales of 128.2 million euros. That exceeded the 125.7 million-euro average estimate of 15 analysts. The company sold more expensive prosthetics in North America and Asia than it had forecast.

Prudential Plc (PRU) climbed 2.6 percent to 634 pence as the U.K.’s largest insurer by market value reported that sales climbed to 2.7 billion pounds in the first nine months of the year from 2.46 billion a year earlier.

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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

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Candidate Cain Denies Claim He Groped Woman Seeking His Help to Find Job

By Lisa Lerer - Nov 8, 2011 1:07 PM GMT+0700

Herman Cain denied detailed claims of inappropriate sexual behavior made by a fourth woman yesterday, as the Republican presidential candidate seeks to control the scandal threatening to derail his campaign.

“We are taking this head on,” he said in an interview on ABC television’s “Jimmy Kimmel Live” last night. “There’s not an ounce of truth in all of these allegations.”

Sharon Bialek, a single mother from Chicago, accused Cain of sexually assaulting her after she sought his help in finding a job in 1997. Speaking at a news conference in New York, she said Cain reached under the skirt of her suit for her genitals and pushed her head toward his crotch after a dinner meeting to discuss her job search.

“You want a job, right?” Bialek said Cain told her when she objected to his behavior.

The explicit allegations, carried live on national television, heightens the difficulties facing Cain as he works to maintain his position as the leading challenger to former Massachusetts governor Mitt Romney in the Republican race.

“There’s no death blow for Herman Cain; it’s a death of a thousand cuts,” said Michael Robinson, a senior vice president at crisis management firm Levick Strategic Communications. “He’s going to die from excessive bleeding.”

As Bialek addressed reporters, the Cain campaign issued a statement dismissing the allegations as “completely false.”

“Mr. Cain has never harassed anyone,” said the statement.

Cain plans to hold a press conference today in Phoenix, Arizona to address the allegations.

The Fourth Woman

Bialek is the fourth woman -- though the first publically identifying herself -- to accuse the former Godfather’s Pizza chief executive officer of inappropriate sexual behavior while he was head of the Washington-based National Restaurant Association in the late 1990s.

“Come clean,” she urged Cain yesterday, asking him to confess to any inappropriate conduct. “Admit what you did.”

Bialek, identified as a Republican by her lawyer, Los Angeles-based Gloria Allred, said she first met Cain when she attended a restaurant association convention. After she was let go by the group’s Chicago-based educational foundation about a month later, she reached out to him for help in finding a new job. The two decided to meet up in July 1997 in Washington.

When she checked into a Washington hotel, she said she was surprised to discover she had been given a “palatial suite” rather than a standard room. Cain later told her that he had “upgraded” her, she recounted.

Job Serach

After discussing her job search with Cain over dinner, he offered to drive Bialek to the group’s offices for a tour of the national headquarters, she said.

“Instead of going into the offices, he suddenly reached over and he put his hand on my leg, under my skirt and reached for my genitals” while they were in the car, she said.

“He also grabbed my head and brought it towards his crotch,” she said, voice shaking.

Bialek said she asked Cain to stop, which he did. She said she didn’t file a sexual harassment complaint because she was no longer employed by the association.

Allred, a sex discrimination lawyer known for representing high-profile accusers, told reporters that Bialek isn’t publicizing her claims in hopes of making money.

“She could have attempted to sell her story but chose not to do so,” Allred said.

Filing for Bankruptcy

Bialek twice filed for bankruptcy protection, first in 1991 and again in 2001, according to court records. In the 2001 petition, Bialek listed about $14,000 in credit card debts and $17,273.76 in legal fees owed to an attorney who represented her in a suit seeking child support, according to court records.

Rather than focusing on Bialek, Cain’s campaign targeted Allred, describing her in a statement as an “activist celebrity lawyer.”

Mark Corallo, a Republican crisis communication strategist, said Allred hurts Bialek’s credibility. “It ends up looking like an Entertainment Tonight story instead of a real news story,” he said.

Cain aides say the allegations aren’t slowing momentum for his presidential bid. He raised $1.6 million in the five days after the harassment claims surfaced in an Oct. 30 article in Politico, his campaign reported.

National surveys of the Republican race show him still vying with Romney for first place, as he was before the complaints surfaced. A USA Today/Gallup poll released yesterday found the two men each backed by 21 percent of self-indentified Republican and Republican-leaning voters.

No More Questions

Cain vowed not to respond to any more questions about the allegations in comments after a one-on-one debate with rival Newt Gingrich in Texas on Nov. 5.

“You got it,” he snapped at reporters after being asked if he planned to never answer questions about the incidents.

Still, a number of high-profile Republicans have publicly urged Cain to address the allegations in greater detail.

“What he wants to do is get back on message, and the way to do that is to get all the facts on the table, get it behind him,” Mississippi Governor Haley Barbour, a Republican, said in a Nov. 6 interview on MSNBC’s “Meet The Press.”

Two other women who had worked at the restaurant association filed formal sexual harassment complaints against Cain and were paid settlements for their claims. Both women signed confidentiality agreements prohibiting them from discussing the details of the incidents.

Joel Bennett, a lawyer representing one of the women, said in a Nov. 5 statement to reporters that she complained about a “series of inappropriate behaviors” and “unwanted advances.”

A third woman told the Associated Press on Nov. 3 that she considered filing a complaint against Cain for what she considered aggressive behavior, including inviting her to his corporate apartment.

Bialek said: “I’m coming forward to give a face and voice to those women who cannot or for whatever reason do not wish to come forward.”

To contact the reporter on this story: Lisa Lerer in Washington at llerer@bloomberg.net;

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

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Most Solar Makers Will Disappear: Trina CEO

By Natalie Obiko Pearson - Nov 8, 2011 4:07 PM GMT+0700

Most of the biggest solar-equipment makers may disappear in the next few years as plunging prices erode margins and drive the weakest out of business, according to Trina Solar Ltd. (TSL), the fifth-largest supplier of solar panels.

“This is the decade of mergers and acquisitions,” Jifan Gao, chief executive officer of Changzhou, China-based Trina, said in an interview. “From now until 2015 is the first phase, when about two-thirds of the players will be shaken out.”

Three U.S. solar companies including Solyndra LLC have gone bankrupt this year and more led by First Solar Inc. (FSLR) and Yingli Green Energy Holding Co. slashed sales and margin forecasts, reflecting slower demand growth and stiffer competition. SunPower Corp. (SPWRA) and Roth & Rau AG (R8R) of Germany agreed to takeovers.

Gao, who founded Trina in 1997, predicted that only about five companies may survive through 2020 in each of the three major manufacturing segments. He defined those as photovoltaic panels, ingots and wafers, and the raw material polysilicon.

“Globally, that would be stable and sustainable,” Gao said last week in Singapore, without naming survivors or his expectations for his own company.

SunPower and First Solar, the largest U.S. solar-gear manufacturers, this month said they will reorganize after cutting their forecasts.

Meyer Burger Technology Ltd., Europe’s biggest manufacturer of the factory equipment for making solar gear, today said it would delay the full takeover of Roth & Rau.

Roth & Rau Surprise

The decision was made after the German competitor issued a profit warning yesterday that may cause Baar, Switzerland-based Meyer Burger to take impairments of as much as 60 million euros ($83 million), compared with its $376 million takeover price.

Trina ranks fifth by factory capacity among the world’s biggest makers of traditional panels from crystalline silicon. The leaders are China’s Suntech Power Holdings Co. and LDK Solar Co., followed by Ontario-based Canadian Solar Inc. (CSIQ) and Germany’s SolarWorld AG (SWV), according to Bloomberg industry data that lists Trina with a 1.2-gigawatt capacity at Dec. 31. Gao said Trina has since increased that to 1.9 gigawatts.

Hemlock Semiconductor Corp., owned by Dow Corning Corp., is the top maker of polysilicon, followed by Wacker Chemie AG (WCH) of Germany, OCI Co. Ltd. of South Korea and GCL Poly Energy Holdings Ltd. (3800) of China, according to Bloomberg industry data.

‘Flying to Quality’

Investors and project developers are increasingly looking at cash and survivability of manufacturers, executives said.

“Customers are flying to quality,” seeking suppliers who are considered reliable enough for banks to lend on projects, Suntech CEO Zhengrong Shi said last week. The top six manufacturers took 55 percent of the panel market in the second quarter, up from 26 percent last year, he said.

The Bloomberg Industry Global Leaders Large Solar Energy index has lost 59 percent this year, more than 10 times the 5.7 percent decline in the MSCI World Index. The Standard & Poor’s 500 index has gained 0.3 percent in the period.

German solar-panel maker Q-Cells SE (QCE), whose 2012 convertible bond trading at a discount to face value of about 58 percent, has said it’s open to takeover bids. Orkla ASA said on Sept. 14 it’s looking for ways to exit from its 39.7 percent stake in Norwegian panel and polysilicon maker Renewable Energy Corp ASA. (REC)

Quick Innovation

Survivors will need strong technology, economies of scale and the ability to innovate quickly, “but also very strong financial performance, very healthy balance sheets,” Gao said.

A ranking of 35 companies in the Bloomberg Global Leaders Large Solar Index shows Conergy AG, which makes panels in Germany, has the weakest balance sheet with a total debt exceeding total equity by more than tenfold, data compiled by Bloomberg show. LDK Solar and Canadian Solar also rank among the five most leveraged companies with short and long-term borrowings more than double shareholder equity.

The Chinese companies have a “huge” cost advantage over their European, American and Japanese competitors because of better operational management and an ability to react faster to market conditions, Gao said.

The spot price of solar panels has fallen about 40 percent this year as manufacturers particularly in China ramped up their production capacity, according to New Energy Finance. The 10 largest silicon panel manufacturers doubled their manufacturing capacity last year, the data show.

Operating Margins

Many solar-equipment companies are losing money at the operating level, as the average operating margin fell to 0.1 percent in the third quarter compared with 13.7 percent a year earlier, Bloomberg industry data show.

At Trina, second-quarter panel shipments jumped 78 percent from the year-earlier period, while its operating margin shrunk to 5.7 percent from 22.5 percent.

Prices will fall further, which will spur the market to expand many-fold by 2020 because solar power will become more affordable across the world, Fang Peng, chief executive of JA Solar Holdings Co., told a conference in Singapore this week.

“The industry has a very bright future even if right now we’re in winter,” Peng said.

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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EU to Start Rescue Fund Next Month, Press Greece

By James G. Neuger and Stephanie Bodoni - Nov 8, 2011 4:06 PM GMT+0700

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Nov. 8 (Bloomberg) -- David Owen, chief European economist at Jefferies International Ltd., discusses the European Central Bank monetary policy, the region's sovereign debt crisis and Italian bond yields. He speaks with Owen Thomas, David Tweed and Linda Yueh on Bloomberg Television's "Countdown." (Source: Bloomberg)

European finance ministers pledged to roll out a bulked-up rescue fund next month, leaving Greece and Italy on the front lines until then in the fight against the debt crisis.

Greece was ordered to provide written acceptance of bailout terms in order to win an 8 billion-euro ($11 billion) loan installment by the end of November, while Italy was pressed to turn budget-cut promises into reality.

Greece’s reforms “have to be carried out immediately, we cannot wait until there’s a new government, because that could be in March,” Austrian Finance Minister Maria Fekter told reporters today before the second day of a European finance meeting in Brussels. “We need confirmation in writing from all parties.”

Europe is battling to regain the upper hand in the debt crisis after political dramas in Greece and Italy provided unexpected distractions and soured international confidence in a package of measures hammered out last month.

“This isn’t a crisis you can solve quickly, it is a monster with many heads,” Dutch Finance Minister Jan Kees de Jager said late yesterday.

European officials are consulting investors and credit- rating companies over two options for translating the rescue fund’s 440 billion euros in guarantees into as much as 1 trillion euros of spending power.

‘Protection Certificates’

The first idea is to bring down troubled countries’ borrowing costs by issuing “partial protection certificates,” a form of insurance for bond sales. One undecided point is whether the certificates would remain attached to the bonds or trade freely.

The second option is to create one or more special investment vehicles that would court outside investment in weaker European states’ bonds, potentially from sovereign wealth funds, private investors or cash-rich emerging markets such as China and Russia.

Known as co-investment funds, the special vehicles would consist of two or three layers: a first-loss guarantee from the EFSF, a freely tradable equity tranche and, potentially, a freely traded senior debt tranche. The funds may be channeled through an International Monetary Fund trust fund or administrative account.

G-20 Summit

Finance ministers intend to complete “legal and operational work” by the end of November, with “implementation” set for December, according to a presentation by the rescue fund, known as the European Financial Stability Facility.

“It’s all very well saying we’ve got a firewall, but the euro zone now need to convincingly show the world that the firewall exists and it’s got sufficient resources in it,” said Chancellor of the Exchequer George Osborne of Britain, the largest of the 10 EU countries outside the euro.

Efforts to attract international donors hit a roadblock at last week’s Group of 20 summit in France, when the heads of the world’s up-and-coming powers called on Europe to do more to help itself first. Russia would channel more aid through the IMF in exchange for more influence on IMF decision-making, the Kremlin said yesterday.

Meantime, Japan’s government said today that it purchased 10 percent of the 3 billion euros of bonds sold by the EFSF yesterday. By contrast, Japan bought more than 20 percent of the fund’s initial issue of five-year securities in January. China’s central bank declined to comment on any Chinese participation in yesterday’s sale.

Hard-Hit Countries

Also unsettled is whether the European Central Bank will continue to buy hard-hit countries’ bonds once the rescue fund assumes that task. Over opposition of Germans on its council, the ECB has bought 183 billion euros of bonds since May 2010.

European leaders scratched a reference to the ECB’s bond- buying program from a summit communiqué on Oct. 27, loathe to make public demands on the independent central bank. Irish Finance Minister Michael Noonan said the ECB can’t shed the market-support duties.

The central bank “must continue to play a role until the EFSF firewall is put in place, whenever that may be,” Noonan said. “And even when it has been put in place it’s going to be tested, so I think the ECB must carry out a parallel function until it’s quite clear the new firewall is doing its job.”

Europe’s immediate focus was on Athens. Greece struggled to form a cross-party government after last week’s call by Prime Minister George Papandreou for a referendum on the next bailout led European leaders to speak publicly about pushing the country out of the euro.

Emergency Government

The stratagem brought down Papandreou, now set to hand over to an interim leader to run an emergency government with the power to enact austerity measures and pave the way for new elections. Negotiations on a new government continued early today.

The Greek turmoil contributed to a 2.5 percent slump in the euro last week. The currency slipped 0.1 percent today to $1.3761 as of 9:35 a.m. in Brussels.

Europe is asking of Greece what it got from Portugal earlier this year: a pledge during an election campaign by both main political forces that whoever wins will stay the austerity course. Portugal’s victor, Pedro Passos Coelho, was rewarded with a 78 billion-euro aid package.

Signed Pledge

European governments approved Greece’s latest installment on Oct. 21, only to retract it after the referendum gambit threw Greece’s budget cuts into doubt. Finance chiefs agreed last night that the money won’t be released until Papandreou’s Socialists and the center-right New Democracy party headed by Antonis Samaras deliver a signed pledge to enact the cuts.

Italy, with Europe’s second-biggest debt load, prepared to host European Commission inspectors charged with making sure that planned budget cuts and economic reforms become reality. That mission, starting today or tomorrow, will be in cooperation with the ECB, said Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers.

Prime Minister Silvio Berlusconi denied a report in Il Foglio that he is on the verge of resigning to make way for an Italian version of a unity government with a budget-cutting mandate. A test of strength comes today on a normally routine vote to rubber-stamp last year’s budget report that may show whether Berlusconi still has a majority in the 630-seat Chamber of Deputies.

Italian bonds were little changed today after slumping yesterday. The extra yield on Italian bonds over 10-year German bonds was 486 basis points, close to yesterday’s euro-era record of 491 basis points.

“Italy is not in a situation that’s comparable” to Greece, German Finance Minister Wolfgang Schaeuble said. “Italy’s real figures don’t justify this nervousness in markets.”

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Stephanie Bodoni in Brussels at sbodoni@bloomberg.net

To contact the editor responsible for this story: Leon Mangasarian at lmangasarian@bloomberg.net

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Stocks, U.S. Futures Rise on Earnings Before Italy Vote; Commodities Gain

By Stephen Kirkland - Nov 8, 2011 7:33 PM GMT+0700

European stocks rose for the first time in three days and U.S. index futures gained on earnings that beat analysts’ estimates and as Italian lawmakers prepare to vote on Prime Minister Silvio Berlusconi’s budget. Commodities advanced for a fifth day, led by energy.

The Stoxx Europe 600 Index climbed 1.5 percent at 7:32 a.m. in New York. Standard & Poor’s 500 futures added 0.4 percent. The S&P GSCI index of 24 commodities increased 0.5 percent as New York oil jumped to a three-month high. The German 10-year bund yield rose four basis points, gaining for the first day in three, with the French yield two basis points higher.

Vodafone Group Plc (VOD) boosted its full-year earnings forecast and Marks & Spencer Group Plc said expenses will rise less than earlier predicted. The vote in Rome today will test Berlusconi’s majority in parliament and determine if he has enough support to stay in power and implement austerity measures. The European Central Bank’s Juergen Stark said yesterday the debt crisis will be controlled within two years and Germany’s Federal Statistics Office reported an unexpected increase in exports today.

“If Berlusconi leaves, it’ll cause some political unrest, but most likely also a sigh of relief in the markets,” wrote Lars Moegeltoft, a chief equity adviser at Nordea Private Banking in Copenhagen, in a note to clients.

About five shares advanced for every one that declined in the Stoxx 600, helping the gauge rebound from a two-day, 1.6 percent loss. Vodafone, the world’s largest mobile-phone operator, gained 3.1 percent, the most since September. Marks & Spencer, the U.K.’s largest clothing retailer, climbed 1.9 percent. Lloyds Banking Group Plc and Societe Generale SA rallied more than 5 percent after also reporting results.

Priceline.com

S&P 500 futures erased earlier losses of as much as 0.7 percent. Priceline.com Inc., the biggest U.S. online travel agency by stock market value, gained 2.1 percent in Germany after saying fourth-quarter sales will rise 27 percent to 32 percent from a year earlier.

The Dutch 10-year yield increased one basis point as the Netherlands sold 1.99 billion euros, compared with a maximum target of 2.5 billion euros, of July 2021 bonds. The Italian two-year yield declined four basis points, with the 10-year yield two basis points lower after rising to 6.74 percent, the most since before the euro was introduced in 1999.

Bond Risk

The cost of insuring sovereign debt fell for a second day, with the Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments dropping three basis points to 323.

The yield on the 10-year U.S. Treasury note slipped one basis point to 2.03 percent. The government auctions $32 billion of three-year notes, the first of three sales this week totaling $72 billion.

The pound strengthened against most of its 16 major peers monitored by Bloomberg after a report showed U.K. manufacturing production rose for the first time in four months in September, led by transport equipment and metals.

New York oil climbed as much as 1.1 percent to $96.60 a barrel, the highest since Aug. 1, on shrinking crude stockpiles in the U.S. Copper climbed for the first day in three as stockpiles in warehouses monitored by the London Metal Exchange fell to an eight-month low. The GSCI index earlier today rose to the highest level since Sept. 9.

The MSCI Emerging Markets Index slipped 0.1 percent. South Korean chipmakers including Samsung Electronics Co. retreated as prices for dynamic random access memory declined for a fourth day. Mol Nyrt., Hungary’s largest oil refiner, jumped 3.4 percent after its exploration partner in Iraq boosted its estimate for oil in the Shaikan discovery. The benchmark BUX Index in Budapest advanced 1.4 percent, and Poland’s WIG20 gained 0.6 percent.

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

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

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Italian Vote Will Test Berlusconi’s Majority

By Andrew Davis - Nov 8, 2011 7:01 PM GMT+0700

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Nov. 8 (Bloomberg) -- Joergen Moeller, visiting senior research fellow at the Institute of Southeast Asian Studies, talks about Italian Prime Minister Silvio Berlusconi's struggle to stay in power. He speaks from Singapore with Linzie Janis on Bloomberg Television "First Look." (Source: Bloomberg)

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Nov. 8 (Bloomberg) -- Michael Fuchs, the Christian Democratic Union party's deputy leader in Germany's parliament, discusses the credentials of former European Union Competition Commissioner Mario Monti, touted as a possible replacement for beleaguered Prime Minister Silvio Berlusconi. Fuchs talks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

Italian Prime Minister Silvio Berlusconi must show today whether he still has enough support in Parliament to stay in power and implement austerity measures to trim the region’s second-biggest debt and bring down record borrowing costs.

The Chamber of Deputies will vote at 3:30 p.m. in Rome on a routine report on last year’s budget plan that will reveal whether Berlusconi retains a majority in the 630-seat house. It’s the first such test since three party members defected to join the opposition and six others publicly called on the premier to quit. Should Berlusconi fail to muster 316 votes, he would probably face a confidence vote that will decide his fate.

Northern League leader Umberto Bossi, whose party underpins the ruling coalition, called on Berlusconi to “step aside” and for the head of the premier’s party, Angelino Alfano, to become prime minister, Ansa newswire reported today. Berlusconi told key ministers last night he may consider resigning should he not win an absolute majority in the vote, Ansa said, without saying where it got the information.

Italian bonds gained with the yield on Italy’s benchmark 10-year bond falling 4 basis points to 6.617 percent at 12:53 p.m. in Rome. That pushed the difference over German bunds to 479 basis points, after it had reached a euro-era record 496 basis points in earlier trading.

Staying in Power

“The worst outcome for the market would probably be if Berlusconi stays in power,” Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London, said in an interview. “As far as how big the market reaction is assuming he goes depends on what comes next.”

A report yesterday that Berlusconi’s resignation was imminent led to a surge in Italian stocks and the benchmark FTSE MIB stock index extended those gains, advancing 1.4 percent today at 10:55 a.m. in Milan. Berlusconi yesterday denied the reports and said he would call a confidence vote himself next week to secure passage of an austerity package that aims to boost growth in the region’s third-largest economy and lower the 1.9 trillion-euro ($2.6 trillion) debt.

Berlusconi told newspaper Libero that he would use the confidence vote to “look into the eyes of those who try to betray me.”

“The market’s bias is fairly clear. The question is; what comes afterward, assuming he falls?” Schaffrik said.

Spreading Contagion

Berlusconi’s coalition has been unraveling since contagion from the region’s debt crisis led the country’s bond yields to surge in July, prompting Italy’s EU allies and the European Central Bank to demand more austerity measures to balance the budget and try to spur growth in an economy that has lagged behind the European average for more than a decade.

“It’s essential now that Italy stick to its fiscal targets, ensure their implementation and intensify the structural reforms,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters before a meeting of euro-area finance ministers in Brussels yesterday.

Finance Minister Giulio Tremonti abandoned the Brussels meeting this morning to return to Rome for the vote.

The ECB began buying Italian bonds on Aug. 8 after Berlusconi announced he would adopt measures to eliminate the budget deficit in 2013, a year earlier than previously planned. He did deliver a 45.5 billion-euro plan that included some higher taxes and spending cuts, though bickering within his coalition over the package delayed its passage and sapped investor confidence in Italy’s ability to implement the changes.

IMF Monitoring

To try to shore up confidence, Berlusconi presented EU leaders at a summit this month with a timetable for putting parts of that plan into action. It’s that schedule that Berlusconi will put to a confidence vote next week in Parliament if today’s ballot doesn’t derail him first.

Leaders of the opposition parties have said their members will either abstain or vote against the measure today to force Berlusconi to show he can get to the 316-vote threshold that indicates he still holds a majority. Should he miss that mark or lose outright, they may call a vote of no-confidence to try to topple the leader who has governed Italy for half of the 17 years since he entered politics in 1994.

“I fear we no longer have a majority in Parliament,” Interior Minister Roberto Maroni said on a talk show on Nov. 6. Maroni, a member of the Northern League party that underpins the ruling coalition, said he backs early elections.

IMF Monitoring

With the yield on the benchmark bond now nearing the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts, pressure is mounting on Berlusconi to show he can still rule. In a bid to boost confidence, the premier asked the International Monetary Fund on Nov. 4 to monitor Italy’s debt- cutting efforts. The European Commission is sending a mission to Italy this week to ensure that the government follows through on promised reforms, EU President Jose Barroso said last week.

Should Berlusconi fail to muster a majority in either type of confidence vote, the government would fall and President Giorgio Napolitano would then consult with political parties to see whether another majority administration could be formed.

Napolitano could also try to build support for a so-called technical government led by a prominent figure charged with implementing the economic overhaul and eventually preparing the country for new elections. If Napolitano cannot forge a new government, elections would be called and probably held two months after the consultations end.

Unity Government

“The only possibility is to form a new unity government” headed by someone who’s above party politics “who should be able to give credibility back to Italy and press ahead with reforms,” Lavinia Santovetti, an economist at Nomura International in London, wrote in a note to investors.

Former European Union Competition Commissioner Mario Monti would be such a candidate and would likely be supported by the main opposition parties -- the Democratic Party and the Union of Centrists -- as well as by many members of the premier’s People of Liberty Party, “who would support him only once” the government falls, she wrote.

Should Berlusconi survive the confidence vote next week, he would likely resign anyway and try to get Napolitano to agree to elections in January, rather than negotiating a new government, Giuliano Ferrara, a former Berlusconi spokesman who’s editor of Il Foglio, said in an interview. Ferrara first reported yesterday that Berlusconi was poised to quit.

Berlusconi’s popularity is at a record low and his coalition trailed the main opposition alliance by 10 percentage points in a poll by IPR Marketing conducted on Oct. 28. No margin of error was given.

Italy, which is due to auction treasury bills this week, sells more than 200 billion euros of bonds a year. Its 1.9 trillion-euro debt amounts to 120 percent of gross domestic product and is bigger than that of Greece, Spain, Ireland and Portugal combined.

To contact the reporters on this story: Andrew Davis in Rome at abdavis@bloomberg.net

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net.

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Flaherty to Update Budget, May Extend Bank of Canada’s Mandate in Speech

By Theophilos Argitis and Andrew Mayeda - Nov 8, 2011 12:02 PM GMT+0700

Canadian Finance Minister Jim Flaherty may say he won’t be able to fulfill his plan to balance the budget within three years, and may extend the central bank’s inflation-control mandate, in an update of the government’s fiscal plan to be released today.

Flaherty, 62, will update his projections at a speech to the Calgary Chamber of Commerce at about 12:30 p.m. local time, according to a person familiar with the plan who spoke on condition of anonymity because the speech content isn’t public.

Flaherty said Oct. 25 he will cut growth projections to reflect dimming global economic output when he unveils the annual update to his fiscal plan, declining at the time to say how that will influence his plans to balance the budget. Instead, he said the government still aims to eliminate the deficit “in the medium term.”

“If they are inclined to make any adjustments, they’ll probably look towards a more gradual reduction in deficits and that gives them a nod in the direction that there are still some vulnerabilities out there,” said Craig Wright, chief economist at RBC Capital Markets in Toronto.

Flaherty may also use the fiscal update to extend the Bank of Canada’s inflation-control mandate today. Canadian governments used fiscal updates to announce renewals of the central bank’s inflation control mandates in 2006 and 2001. The current Bank of Canada policy agreement expires at the end of this year.

Less Revenue

Flaherty’s office released estimates Oct. 25 showing that economists forecast Canada’s economy will generate C$83 billion ($82 billion) less in output between 2011 and 2015 than the government projected in June. That may reduce revenue by about C$12 billion over the period, based on figures from the June budget showing the government expects revenue to be about 15 percent of nominal output over that time.

Canada’s federal government will generate C$8 billion less in revenue through the fiscal year that ends in March 2016, according to an Oct. 27 report by Toronto-Dominion Bank economists Derek Burleton and Sonya Gulati. That means the country won’t run a surplus until the 2016-2017 budget year, and hold C$5.6 billion more debt than planned over five years, unless it takes additional measures, the report said.

In his June budget, Flaherty projected deficits of C$32.3 billion in the current year, shrinking to C$18.4 billion in 2012-13 and C$7.4 billion in 2013-14, before swinging to a C$3.7 billion surplus in 2014-15, once a review of government spending is completed.

‘Guiding Star’

The government may be reluctant to make up revenue losses through new spending cuts at a time when the world economy is slowing, said Doug Porter of Bank of Montreal’s capital markets unit in Toronto.

“I don’t think that should necessarily be their absolute guiding star at this point to hit the balanced budget target by 2014 come heck or high water,” Porter, deputy chief economist at BMO, said in a telephone interview.

CTV reported late yesterday the update will contain stimulus measures that include lowering planned increases in payroll taxes. Employment insurance premiums paid by employees will rise by 5 cents per C$100 of earnings, less than the 10- cent increase budgeted in June. Employer premiums will climb by 7 cents, also half the budgeted amount. The government will also extend a work sharing program, according to the television network.

Chisholm Pothier, a spokesman for Flaherty, said he wouldn’t comment on “the timing and the content” of the fiscal update.

Crisis Impact

Harper acknowledged last week that the European debt crisis has begun to impact the country’s growth outlook, citing a 54,000 drop in employment during October.

“It’s a reflection of the lack of confidence that has been spreading in world markets as a consequence of the European debt crisis,” Harper told reporters Nov. 4 in Cannes, France, where he attended a meeting of leaders from Group of 20 countries. “This is not by any way unique to Canada.”

Canadian data have shown a rebound, accompanied by languid job growth, following a contraction in the second quarter.

The country’s employers have added a net 8,520 jobs over the past four months, even as output data show the economy may have grown at a quarterly rate of more than 2.5 percent in the third quarter.

The Bank of Canada last month cut its forecasts for economic growth through the middle of 2012 as the U.S. and European economies falter, predicting the annualized pace of expansion in the world’s 10th largest economy will average 1.8 percent in the four quarters through June, compared with a previous estimate of 2.8 percent.

Central Bank Mandate

Governor Mark Carney has said economic recovery from the global financial crisis will take longer than from past recessions, and that the policy interest rate -- currently 1 percent -- may not return to normal levels even when the country has returned to its capacity levels.

The bank’s inflation control mandate may be tweaked to let it return inflation to target more slowly when there are risks to the financial system, the Globe and Mail newspaper reported Oct. 17.

At the last renewal, in November 2006, the central bank and finance department agreed the target would remain the 2 percent midpoint of a 1 percent to 3 percent range.

Porter said any move to introduce flexibility into the mandate may help the central bank keep interest rates in check in the face of a weak economy, even if inflation remains above the Bank of Canada’s target.

Return to Surplus

Flaherty’s governing Conservatives promised to accelerate Canada’s return to surplus during the campaign for May 2 elections that returned Prime Minister Stephen Harper to power with his first parliamentary majority.

The change in growth outlook won’t affect the government’s budget projections in the “near-term,” Porter said.

Canada’s budget deficit was a smaller-than-forecast C$33.4 billion in the year ended March 31, C$2.8 billion less than predicted in the June budget. The deficit in the first five months of the current fiscal year narrowed to C$10.7 billion from C$13.5 billion.

“The near-term targets are still more or less on course even though the growth outlook has taken a step back,” Porter said.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.

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Republic Wins $26 Million A319 Lease Reductions, Will Return Four Planes

By Mary Schlangenstein - Nov 8, 2011 12:20 PM GMT+0700

Republic Airways Holdings Inc. (RJET) said it had reached agreement with lessors on cutting Airbus SAS A319 payments by $26 million next year and returning four aircraft, as it turns around unit Frontier Airlines.

The carrier will return the planes in the first quarter of next year, it said in a Businesswire statement dated today. The Indianapolis-based company has also deferred delivery of four Embraer SA (EMBR3) E190 planes and agreed to return two others to lessors ahead of schedule.

Republic said it has achieved “substantially” all of its restructuring goals for Frontier under a plan designed to generate $120 million in annual improvement at the unit, which was bought out of bankruptcy in 2009. That helped the carrier post better-than-estimated third-quarter ex-item net income of $20.4 million or 40 cents a share.

“We are beginning to see the benefits of our network- restructuring efforts,” Bryan Bedford, Republic’s chairman and chief executive officer, said in the statement. “Our team remains focused on optimizing the fleet at Frontier to produce a sustainable and profitable network.”

Republic was expected to post ex-item net income of 24 cents a share based on the average of seven analyst estimates compiled by Bloomberg. A year earlier, net income, excluding items, was $25.9 million.

The carrier had $15.3 million of ex-item, pre-tax income at its branded operations in the quarter. The company also flies regional services for other carriers, such as Delta Air Lines Inc. (DAL) and American Airlines.

A320neo Order

Republic completed a previously announced agreement to buy 80 A320neo planes from Airbus, it said. The company’s total operational fleet declined by three planes to 279 in the third quarter.

Republic fell 0.7 percent to $2.69 in New York trading yesterday. It has tumbled 66 percent in the past year.

On a GAAP basis, Republic reported net income of $9.0 million, compared with $21.1 million a year earlier. The profit ended a succession of three quarterly losses that began in the last three months of 2010.

The carrier will accept two Embraer E-190 planes in the fourth quarter. It will return two E-190s to lessors late next year.

An agreement with Embraer on deferring new planes would make about $20 million in cash available to Republic, Bedford wrote in a memo to employees last month,

The company is considering further steps to boost liquidity, which may include issuing debt backed by spare parts and selling some assets, it said without elaboration.

Steps under study in a second round of restructuring at Frontier, worth about $113 million, include selling flight slots at Ronald Reagan Washington National Airport valued at almost $50 million, and 10 Embraer E190 jets, for a total of about $40 million, according to Bedford’s memo.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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Talks on Greek Unity Goverment Resume

By Natalie Weeks, Marcus Bensasson and Maria Petrakis - Nov 8, 2011 12:22 PM GMT+0700

Prime Minister George Papandreou resumes talks with his opposition rival in Athens today as they moved closer to agreement on naming the premier of a Greek unity government to secure outside financing and avert a collapse of the country’s economy.

Papandreou and Antonis Samaras, leader of New Democracy, “made progress in talks” yesterday “to name a head of a national unity government,” Elias Mosialos, a Greek government spokesman, said in an e-mailed statement. The two men spoke by phone a number of times yesterday, said a Greek government official who declined to be named. Talks will resume in Athens today, the official said. Papandreou will meet his Cabinet at 12 p.m. local time, NET TV reported, without citing anyone.

There was no confirmation of news reports that Lucas Papademos, the former vice-president of the European Central Bank, would be named Greece’s next prime minister. To Vima newspaper reported yesterday Papademos arrived in Athens and wanted a say in who would be appointed to key ministries in the new government. To Vima didn’t say how it got the information.

The unity government’s mission will be implementing the European summit decision from Oct. 26 on a second Greek financing package of 130 billion euros ($179 billion) before leading the country to elections, according to an e-mailed statement from the premier’s office. Papandreou, who has agreed to step aside for a new prime minister, spoke yesterday with German Chancellor Angela Merkel; Jean-Claude Juncker, who heads the group of euro area finance ministers; and European Commission President Jose Barroso.

Election Mode

“This is the best possible outcome,” Wolfango Piccoli, a London-based analyst at Eurasia Group, which assesses political risks, said in a note. “However, the coalition government is likely to offer only a temporary relief as the political leaders will soon get into ‘election mode.’”

The dollar rose and Asian stocks fell ahead of a parliamentary vote in Italy that will show whether Prime Minister Silvio Berlusconi can stay in power and implement austerity measures. Earlier, 10-year Italian bond yields reached a euro-era record of 6.68 percent, signaling Europe’s debt crisis was intensifying.

The U.S. currency rose 0.2 percent to $1.3748 at 2:16 p.m. in Tokyo, while the MSCI Asia Pacific Index dipped 0.5 percent. Standard & Poor’s 500 Index futures lost 0.3 percent after closing up 0.6 percent yesterday.

Greek Bond

The yield on the 10-year Greek bond rose 88 basis points to 27.65 percent, climbing for the sixth straight day, while the two-year note yield touched a euro-era record above 107 percent. The yield on the 10-year German bund decreased four basis points to 1.78 percent, while the French 10-year yield rose three basis points, driving the difference in yield between the two securities almost eight basis points higher to 130.

Greek media said other candidates being considered as unity government premier are Panagiotis Roumeliotis, the country’s representative to the International Monetary Fund, and Nikiforos Diamandouros, the European Union ombudsman, who told Kathimerini newspaper he hasn’t been approached about the post.

European finance ministers met in Brussels yesterday to discuss the latest developments. The ministers pledged to roll out a bulked-up rescue fund next month, leaving Greece and Italy on the front lines until then in the fight against the debt crisis.

Greece was ordered to provide written acceptance of bailout terms in order to win an 8 billion-euro loan installment by the end of November, while Italy was pressed to turn budget-cut promises into reality.

Conflicting Reports

There were conflicting reports on whether Papandreou and Samaras had settled on a prime minister.

The lack of progress “is not encouraging,” said George Karatzaferis, leader of opposition LAOS party, who has been one of the most vocal supporters of a national unity government. “I hope it happens soon before the situation gets out of control and makes its formation impossible.”

LAOS says it will support the new government and Karatzaferis said it appeared the unity government will be a coalition between the ruling party Pasok and New Democracy.

International Aid

Trying to preserve international aid before the nation runs out of money next month, Papandreou raced over the weekend to clinch an agreement with the opposition before markets opened.

Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of the bailout plan agreed at the Oct. 26 summit of European leaders and bankers. Its 4 percent notes due in August 2013 now trade at about 35 cents. Fitch Ratings says the agreement with creditors would amount to a “default event” if implemented, while the International Swaps and Derivatives Association says it won’t trigger credit- default swaps.

Papandreou’s surrender caps a tumultuous 10 days that started with him securing a second bailout from the EU, then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote, a plan he then dropped. Bowing to pressure from his party and the opposition, Papandreou pledged to stand aside for a government with wider support.

In Brussels, Greek Finance Minister Evangelos Venizelos said he had a “positive and productive” meeting with EU Economic and Monetary Affairs Commissioner Olli Rehn yesterday and discussed procedures to release the sixth tranche of loans under a 110 billion-euro May 2010 EU-led bailout.

To contact the reporters on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net.

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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Holcim Blocks PIC’s Bid to Convert Afrisam Debt to Shares at Board Meeting

By Vernon Wessels and Sikonathi Mantshantsha - Nov 8, 2011 1:10 PM GMT+0700

The Public Investment Corp. said Holcim Ltd. (HOLN) and its South African partner in Afrisam Ltd. blocked a proposed conversion of debt into equity that’s threatening the operations of the country’s second-largest cement maker.

Holcim and its partner, Bunker Hills Investments Ltd., are “seeking to better their own interests at the expense of the remaining stakeholders,” Africa’s largest pension fund manager said in an e-mailed statement yesterday.

The PIC and former MTN Group Ltd. (MTN) Chief Executive Officer Phuthuma Nhleko are bidding to convert debt they own in Afrisam into shares as interest repayments threaten Afrisam’s ability to continue operating. Holcim, the world’s second-largest cement producer, created Afrisam in 2006 by selling most of its South African business to black investors led by Bunker Hills.

Holcim and Bunker Hills failed to honor their contractual obligations by voting against the plan, which would have allowed Afrisam management to issue the ordinary shares required to effect the conversion, the PIC said. Both Holcim and are Bunker Hills are now in breach of the transaction agreements, it said.

Bunker Hills would “have been supporting what we believe is an illegitimate transaction” if it had voted in favor of the resolution, Peter Tshisevhe, a lawyer for Johannesburg-based investment company, said by phone. “They aren’t entitled to behave in the manner that they did.”

Debt Conversion

Christof Haessig, a director of Jona, Switzerland-based Holcim and its representative on the Afrisam board, didn’t immediately respond to requests for comment through the company’s lawyer.

Bunker Hills, which owns 37 percent of Afrisam, and Holcim, which retained a 15 percent stake, have said they oppose the debt conversion because it will dilute existing shareholders.

South Africa’s government is pushing companies from banks to mines to sell stakes to black investors to make up for discrimination during apartheid, which ended in 1994. Bunker Hills funded the acquisition, its only investment, with about 23 billion-rand ($2.9 billion) in debt, which it’s struggling to repay after a recession curbed cement demand in Africa’s largest economy.

Afrisam management owns 13 percent of the company, while the PIC, which manages 1 trillion rand in government-employee pensions, has 20 percent plus 4.7 billion rand in preference shares. Community trusts owns the rest.

‘Own Interests’

Worldwide Africa Investment Holdings Ltd., of which Nhleko, who is black, is chairman, wants to convert the 3.7 billion rand it’s owed into shares, the Johannesburg-based company said last month.

Further delays may cause Afrisam to enter a process in which it is placed under temporary supervision and avoid claims while it restructures its liabilities, it said.

“Already, these delays are having a negative impact on the operations of the company,” the PIC said, without giving further detail. “The PIC will be pursuing all possible remedies to ensure that its rights are honored.”

The PIC expects Bunker Hills to “commit business suicide” by supporting the resolution, Tshisevhe said. “We’ve been trying to do our level best to act in the interests of the company.”

There was no “trigger event” that allows the PIC to redeem its debt, he said, declining to give details on what would allow the PIC to take the steps to convert its debt.

Bunker Hills will ask the Pretoria-based North Gauteng High Court on Nov. 29 to make permanent an Oct. 31 interim order to prevent the PIC from attaching any Afrisam shares owned by Bunker Hills, Tshisevhe said.

To contact the reporter on this story: Vernon Wessels in Johannesburg at vwessels@bloomberg.net

To contact the editors responsible for this story: Riad Hamade at rhamade@bloomberg.net

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Toyota Scraps Estimates After Thai Floods

By Anna Mukai, Masatsugu Horie and Yuki Hagiwara - Nov 8, 2011 1:12 PM GMT+0700

Toyota Motor Corp. (7203), Asia’s biggest carmaker, scrapped its profit forecast after Thailand’s worst floods in almost 70 years and the appreciating yen hampered the company’s ability to recover from Japan’s record earthquake.

The company needs more time to assess the financial toll from the Thai floods, the Toyota city, Japan-based company said in a statement today. Profit fell 19 percent to 80.4 billion yen in the quarter ended Sept. 30, compared with the 103.5 billion yen average of seven analyst estimates compiled by Bloomberg.

The Thai floods floods have halted production at Toyota’s Southeast Asian production base, disrupting parts shipments and prompting the company to cancel plans to run factories overtime in North America. That’s allowed General Motors Co., Volkswagen AG (VOW) and Hyundai Motor Corp. to gain market share in the U.S., while the yen’s gains erode the value of Toyota’s exports.

“Toyota needs to do change the way they’ve been doing things for a long time,” said Satoru Takada, an analyst at TIW. “The Thai floods showed that their production capacity may be too concentrated. They may have to think about dispersing production to developing countries.”

The Camry-sedan maker, which follows Honda in reporting second-quarter results that missed analyst estimates, fell 1.7 percent to 2,503 yen at the close of trading on the Tokyo Stock Exchange, before results were disclosed. The stock has fallen 22 percent this year, underperforming Nissan Motor Co. and outperforming Honda.

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

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

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Most Solar Manufacturers May Disappear by 2015, Trina CEO Says

By Natalie Obiko Pearson - Nov 8, 2011 7:01 AM GMT+0700

Most of the biggest solar equipment makers may disappear in the next few years as plunging prices erode margins and drive the weakest out of business, according to Trina Solar Ltd. (TSL), the fifth-largest supplier of solar panels.

“This is the decade of mergers and acquisitions,” Jifan Gao, chief executive officer of Changzhou, China-based Trina, said in an interview. “From now until 2015 is the first phase, when about two-thirds of the players will be shaken out.”

Three U.S. solar companies including Solyndra LLC have gone bankrupt this year and others led by First Solar Inc. (FSLR) and Yingli Green Energy Holding Co. slashed sales and margin forecasts, reflecting slower demand growth and stiffer competition. SunPower Corp. (SPWRA) and Roth & Rau AG (R8R) of Germany agreed to takeovers.

Gao, who founded Trina in 1997, predicted that only about five companies may survive through 2020 in each of the three major manufacturing segments. He defined those as photovoltaic panels, ingots and wafers, and the raw material polysilicon.

“Globally, that would be stable and sustainable,” Gao said last week, without naming survivors or his expectations for his own company.

SunPower and First Solar, the largest U.S. solar-gear manufacturers, this month said they will reorganize after cutting their forecasts.

The five biggest makers of traditional crystalline silicon panels by factory capacity are China’s Suntech Power Holdings Co. and LDK Solar Co., Ontario-based Canadian Solar Inc. (CSIQ), Germany’s SolarWorld AG (SWV) and Trina, according to Bloomberg industry data.

Hemlock, Wacker

Hemlock Semiconductor Corp., owned by Dow Corning Corp., is the leading maker of polysilicon, followed by Wacker Chemie AG (WCH) of Germany, OCI Co. Ltd. of South Korea and GCL Poly Energy Holdings Ltd. (3800) of China.

Investors and project developers are increasingly looking at cash and survivability of manufacturers, executives said.

“Customers are flying to quality,” seeking suppliers who are considered reliable enough for banks to lend on projects, Suntech CEO Zhengrong Shi said last week. The top six manufacturers took 55 percent of the panel market in the second quarter, up from 26 percent last year, he said.

German solar-panel maker Q-Cells SE (QCE), whose 2012 convertible bond trading at a discount to face value of about 58 percent, has said it’s open to takeover bids. Orkla ASA said on Sept. 14 it’s looking for ways to exit from its 39.7 percent stake in Norwegian panel and polysilicon maker Renewable Energy Corp ASA. (REC)

Quick Innovation

Survivors will need strong technology, economies of scale and the ability to innovate quickly, “but also very strong financial performance, very healthy balance sheets,” Gao said.

A ranking of 35 companies in the Bloomberg Global Leaders Large Solar Index shows Conergy AG, which makes panels in Germany, has the weakest balance sheet with a total debt exceeding total equity by more than tenfold, data compiled by Bloomberg show. LDK Solar and Canadian Solar also rank among the five most leveraged companies with short and long-term borrowings more than double shareholder equity.

The Chinese companies have a “huge” cost advantage over their European, American and Japanese competitors because of better operational management and an ability to react faster to market conditions, Gao said.

The spot price of solar panels has fallen about 40 percent this year as manufacturers particularly in China ramped up their production capacity, according to New Energy Finance. The 10 largest silicon panel manufacturers doubled their manufacturing capacity last year, the data show.

Operating Margins

Many solar-equipment companies are losing money at the operating level, as the average operating margin fell to 0.1 percent in the third quarter compared with 13.7 percent a year earlier, Bloomberg industry data show.

At Trina, second-quarter panel shipments jumped 78 percent from the year-earlier period, while its operating margin shrunk to 5.7 percent from 22.5 percent.

Prices will fall further, which will spur the market to expand many-fold by 2020 because solar power will become more affordable across the world, Fang Peng, chief executive of JA Solar Holdings Co., told a conference in Singapore this week.

“The industry has a very bright future even if right now we’re in winter,” Peng said.

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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Forecaster Says Hong Kong Now In Recession

By Sophie Leung and Richard Frost - Nov 8, 2011 10:43 AM GMT+0700

Hong Kong’s economy, a barometer of global growth, probably sank into recession with a contraction in the third quarter, according to Daiwa Capital Markets Ltd. and Australia & New Zealand Banking Group Ltd.

Gross domestic product shrank 1.5 percent from the previous quarter, seasonally adjusted, said Kevin Lai, a Hong Kong-based economist at Daiwa. The report is due Nov. 11. Lai came closest in a Bloomberg News survey to predicting the 0.5 percent contraction in the second quarter.

Hong Kong’s exports declined in September for the first time in almost two years, and the benchmark Hang Seng Index plunged 21 percent in the third quarter, the biggest loss since 2001, as Europe's debt crisis roiled global markets. Donald Tsang, the city's chief executive, warned yesterday in New York that there’s a 50 percent chance of a world recession in the coming year.

“The economy is faltering on a rapidly deteriorating external environment,” said Raymond Yeung, an economist at ANZ in Hong Kong. Hong Kong is “the nerve center of regional economic activities” and “any degeneration may signal a global economic downturn,” Yeung said.

Analysts in a Bloomberg News survey are split on whether the economy contracted in the latest quarter, meeting the technical definition of a recession. Seven out of 15 forecast a gain in GDP, seven predict a fall and one sees no change.

Stocks Rise

The Hang Seng Index (HSI) rose 0.8 percent as of 11:28 a.m. local time today ahead of a report tomorrow that may show inflation easing in China.

Europe’s debt crisis and elevated U.S. unemployment have sapped demand for Asian exports, contributing to an easing in economic growth in nations from China to South Korea. Taiwan’s economy shrank 0.28 percent in the third quarter from the previous three months, the first contraction since 2009, a government report showed Oct. 31.

Besides weakness in global trade, Hong Kong is grappling with elevated inflation and the risk of a slumping housing market. Shares of Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, fell 17 percent this year, worse than 14 percent slide in the benchmark index.

Hong Kong’s economy grew 4.2 percent from a year earlier in the third quarter, the smallest increase since 2009, according to economists’ median estimate.

While weakness in global demand hurt the economy, retail sales have remained robust, said Donna Kwok, a Hong Kong-based economist for HSBC Holdings Plc.

“Consumption should remain strong amid a tight labor market,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “We have consumption being the sweet spot, counteracting weak external demand.”

Private spending accounted for about 62 percent of Hong Kong’s GDP in 2010, according to Cheung.

To contact the reporters on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net; Richard Frost in Hong Kong at rfrost4@bloomberg.net

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

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Buffett Broadens Portfolio by Spending $23.9 Billion

By Andrew Frye - Nov 7, 2011 12:01 PM GMT+0700

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) invested $23.9 billion in the third quarter, the most in at least 15 years, as he accelerated stock purchases and broadened the portfolio beyond consumer and financial-company holdings.

Berkshire bought almost $7 billion of equity securities in the three months ended Sept. 30, compared with $3.62 billion in the second quarter and $834 million in the first, the Omaha, Nebraska-based company said Nov. 4 in a filing. Stockholdings labeled “commercial, industrial and other” soared 62 percent in the three months to $17.4 billion on a cost basis, surpassing equity investments in financial and consumer-product firms.

“He sees something, and it’s big,” said Thomas Russo, a partner at Berkshire investor Gardner Russo & Gardner.

Buffett, 81, drew down Berkshire’s cash as Europe’s debt crisis and Standard & Poor’s downgrade of the U.S. pushed stocks to their worst quarterly performance since 2008. The investments disclosed Nov. 4 include $6.9 billion of equities, $5 billion for preferred shares and warrants in Bank of America Corp. and the acquisition of Lubrizol Corp. for about $9 billion.

Buffett is expanding a portfolio that for more than 20 years has included equity stakes in Coca-Cola Co. (KO), the world’s largest soft-drink maker, and Wells Fargo & Co. (WFC), now the No. 1 U.S. home lender. The chairman and chief executive officer acquired a power company in 2000 and railroad Burlington Northern Santa Fe last year.

“Historically he has preferred consumer products and banking to industrial companies,” said James Armstrong, president of Berkshire shareholder Henry H. Armstrong Associates. “But the market changes, so the names he comes up with changes.”

U.S. Downgrade

The S&P 500 Index (SPX) fell 14 percent in the third quarter, the most since dropping 23 percent in the last three months of 2008. The period’s biggest one-day decline was more than 6 percent on Aug. 8, the first trading day after S&P stripped the U.S. government’s AAA rating. Berkshire spent more on stocks that day than any other this year, Buffett told Charlie Rose in an interview broadcast on PBS on Aug. 15.

Berkshire’s third-quarter net income slid 24 percent to $2.28 billion as the stock market slump pressured the value of Buffett’s equity derivative bets, the firm said in the filing. Insurance units posted a $1.7 billion pretax underwriting gain, while net earnings at the railroad rose 8.5 percent to $766 million. The market value of the stock portfolio advanced to $68.1 billion on Sept. 30 from $67.6 billion at the end of June.

Berkshire’s holdings of banks, insurance and finance stocks advanced 2.7 percent to $16 billion on a cost basis in the three months ended Sept. 30, while consumer products shares fell 5 percent to $12.6 billion. Berkshire’s equity investments include stakes in American Express Co. (AXP) and Procter & Gamble Co. (PG)

Confidential Treatment

Berkshire has disclosed new stakes this year in MasterCard Inc. (MA), the world’s second-biggest payments network, and retailer Dollar General Corp. (DG) Buffett’s firm has requested permission to omit information from filings that list U.S. equity holdings as of March 31 and June 30. Regulators sometimes let companies withhold data to limit copycat investing while building or cutting a position. Berkshire hasn’t filed its third-quarter stocks statement as of yesterday.

Buffett, in preparation for his eventual retirement, hired money manager Todd Combs last year and instructed him to focus on equities. MasterCard was one of Combs’s holdings at his former hedge fund, Castle Point Capital Management LLC.

‘Crazy With Buy Orders’

“I wonder if he turned Todd Combs loose,” said David Rolfe, chief investment officer of Berkshire investor Wedgewood Partners Inc., which also owns stakes in AmEx and Visa Inc., the No. 1 payments network. “I hope Buffett went to the movies one day and Combs got on the phone and went crazy with buy orders” for Purchase, New York-based MasterCard.

Manufacturing firms with proprietary technology like 3M Co. (MMM), the maker of auto parts and Scotch-Brite sponges; and toolmaker Kennametal Inc. (KMT) may appeal to Buffett, Russo said. MasterCard had a market value of about $46 billion as of Nov. 4, compared with the $55.6 billion form 3M and $3.3 billion for Kennametal of Latrobe, Pennsylvania.

Buffett didn’t respond to a request for comment e-mailed to an assistant outside of normal business hours in Omaha.

The last time Buffett invested more than $20 billion in a period was 2008 when he did it in both the second and fourth quarters of the year. Buffett deployed more than $70 billion that year, including $10.1 billion on stocks, as the S&P 500 posted its biggest decline since 1937. This year, Berkshire bought $11.4 billion of stocks in the nine months ended in Sept. 30, while selling $885 million of equities.

Cash holdings dropped to $34.8 billion at the end of September from $47.9 billion on June 30. The hoard is replenished from maturing securities and profit from investments and the company’s more than 70 operating subsidiaries.

‘Ready to Buy’

In the third quarter, Buffett directed $1.9 billion to fixed-maturity securities and about $2.2 billion to property, plants and equipment at Berkshire’s units. Some of the results were derived by subtracting first-half results from Sept. 30 data released last week. Berkshire, which doesn’t pay a dividend, started its first buyback in September, giving Buffett an additional investment option.

“We’re ready to buy lots of things,” Buffett told Bloomberg Television’s Betty Liu on Sept. 30. “If the stock is cheap, we will buy it.”

Berkshire declined 8 percent in the third quarter and 3.9 percent in 2011 through Nov. 4. St. Paul, Minnesota-based 3M fell 24 percent in the three months ended in September, while Kennametal slid 22 percent. MasterCard rose 5.3 percent in the same period.

‘Part of His Legacy’

Berkshire bought 80 percent of Israel’s Iscar Metalworking Cos., the maker of machine tools, for $4 billion in 2006. Buffett has expanded MidAmerican Energy Holdings, the power producer he bought in 2000. Burlington Northern hauls freight over a 32,000-mile rail network.

“He’s broadly diversifying across numerous industries, and he would perhaps want that to be part of his legacy,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. The third-quarter stock spending “sounds like at least one major investment. And it wouldn’t surprise me if it were two or three,” said Kass.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

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Olympus Hid Losses With Gyrus Fees, Takeovers

By Mariko Yasu and Naoko Fujimura - Nov 8, 2011 12:41 PM GMT+0700

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Nov. 8 (Bloomberg) -- David Herro, chief investment officer of international equities at Harris Associates LP, talks about a scandal involving Japanese camera and medical-equipment maker Olympus Corp. Olympus said it hid losses by paying inflated fees to advisers on the 2008 acquisition of Gyrus Group Plc, the first admission of wrongdoing from the company since accusations from its former chief executive officer surfaced four weeks ago. Herro speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Nov. 8 (Bloomberg) -- Olympus Corp. said it hid losses by paying inflated fees to advisers on the 2008 acquisition of Gyrus Group Plc, the first admission of wrongdoing from the Japanese camera and medical-equipment maker since accusations from its former chief executive officer surfaced four weeks ago. Mike Firn reports from Tokyo on Bloomberg Television's "On the Move Asia" with Rishaad Salamat. (Source: Bloomberg)

Olympus Corp. said three executives helped conceal decades of losses by paying inflated fees to takeover advisers, the first admission of wrongdoing since accusations from its former chief executive officer engulfed the Japanese camera maker in scandal four weeks ago.

Former Olympus Chairman Tsuyoshi Kikukawa was involved in hiding losses at the company, said president Shuichi Takayama in a press conference in Tokyo today. Executive Vice President Hisashi Mori, who was fired today, and auditor Hideo Yamada were also involved, Takayama said. The company may take legal action against all three, he said.

Olympus shares plunged by the daily limit and pulled other Japanese equities lower on broader concerns about accounting practices in the country, as Olympus made an about-face after weeks of denying any wrongdoing in the 2008 acquisition of Gyrus Group Plc and payments for three other takeovers.

“The investigation must continue to determine how much rot there is,” said David Herro, chief investment officer of Harris Associates LP. “All responsible must, at a minimum, leave. Also, since the management’s credibility is nearly nonexistent, all of what they say must be verified.”

Olympus released a statement this morning saying an independent investigation found advisory fees, takeover payments and writedowns were used to hide soured investments from the 1990s.

Enron Repeat

The Tokyo Stock Exchange said it’s considering moving the shares in the world’s biggest maker of endoscopes to a watchlist for possible delisting following today’s revelations. Japan’s Securities and Exchange Surveillance Commission is investigating Olympus, according to a person with knowledge of the situation.

“It’s a repeat of WorldCom and Enron,” said Ichiro Yamada, manager of equities at Fukoku Mutual Life Insurance Co. “This scandal has revealed a lack of transparency in Japan’s accounting, which is dragging down the whole market.”

Allegations by Michael C. Woodford after he was axed as CEO on Oct. 14 had wiped more than half the value from the company’s stock before today. Olympus funneled more than $600 million in fees on the $2 billion Gyrus takeover to offshore funds to cancel impairments that the company had kept off its books, the statement said.

Woodford should return to run the company and conduct the “house cleaning,” Herro said in an e-mailed comment to Bloomberg News and on Bloomberg Television. Harris held 10.9 million Olympus shares as of June 30, a 4 percent stake that makes it the company’s second-biggest overseas investor.

While Olympus President Takayama today spoke of the anger he felt toward the three executives who hid the losses, he said there’s no plan for Woodford to return.

Woodford Comment

“They need to start rebuilding the company,” Woodford said in a phone interview today. “I’d have to see what shareholders are saying and consider very carefully what to do next.”

Former chairman and president Kikukawa, who had Woodford removed, resigned on Oct. 26 as investors increased pressure for a review of the deals. Kikukawa denied any wrongdoing when he stepped down and said he intended to stay on the board.

Olympus plunged 29 percent at the open in Tokyo trading. The stock has lost almost 70 percent of its value since Oct. 14.

The company set up a six-person independent investigation, including two former judges and a retired prosecutor, to probe the $1.4 billion of writedowns and fees related to acquisitions.

Diversification

Olympus paid a total of 73.4 billion yen ($940 million) to increase stakes in Altis Co., News Chef Co. and Humalabo Co. between 2006 and 2008, which was also used to hide losses, it said today. Olympus wrote down 55.7 billion yen, or 76 percent of the acquisition value, in March 2009, the company said in a statement Oct. 19.

Olympus last week said the acquisitions of three Japanese companies unrelated to its main operations were part of an attempt to diversify earnings.

After being fired, Woodford went public with his concerns raised with Kikukawa and Mori over $687 million paid in advisory fees in the $2 billion acquisition of U.K. medical-equipment company Gyrus and the writedowns. All the transactions involved payments to Cayman Islands companies or special purpose vehicles whose beneficiaries are not known.

FBI Probe

The U.S. Federal Bureau of Investigation is probing the allegations, according to Woodford.

The probes center on more than $600 million in fees paid to AXAM Investments Ltd., a now-defunct Cayman Islands fund connected to U.S.-based Japanese banker Hajime Sagawa.

Mori, a key official involved in the Gyrus takeover according to U.K. company records, on Oct. 27 declined to name the person who introduced Sagawa to Olympus.

Repeated attempts to reach Sagawa at his registered address in Boca Raton, Florida, have been unsuccessful, as have efforts to trace the owners of Cayman entities paid for the three other acquisitions.

“The money went to those shareholders,” Mori said at the Oct. 27 briefing in Tokyo. “We have no idea who they are.”

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net

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