Economic Calendar

Friday, March 23, 2012

LinkedIn Chairman Hoffman Sells Facebook Stock Before IPO

By Zijing Wu and Douglas MacMillan - Mar 23, 2012 4:26 AM GMT+0700

Reid Hoffman, co-founder and chairman of LinkedIn Corp. and an early investor in Facebook Inc. (FB), plans to sell some of his shares in the world’s largest social network prior to its initial public offering this year.

“I am selling a minority of my position as part of a general diversification strategy, but holding onto the majority of my stock,” Hoffman said in a telephone interview.

LinkedIn Executive Chairman and co-founder Reid Hoffman at the Web 2.0 Expo on March 30, 2011 in San Francisco. Photographer: Justin Sullivan/Getty Images

Hoffman participated in Facebook’s seed funding round in 2004, along with Peter Thiel and Mark Pincus. He later invested in social-gaming leader Zynga Inc. and became a partner at Menlo Park, California-based venture capital firm Greylock Partners.

Facebook, which filed in February to raise as much as $5 billion in an IPO, may be valued at as much as $100 billion in the offering, people with knowledge of the matter said earlier this year.

While Hoffman’s stake in Facebook isn’t disclosed in the company’s prospectus, the website Who Owns Facebook estimates he owns 0.5 percent, or about $500 million, based on a valuation of $100 billion.

The trading of private-company shares has accelerated in recent years, spurring the U.S. Securities and Exchange Commission to examine whether the trades expose investors to fraud because the companies aren’t required to disclose financial data. Last week, the U.S. regulator settled with SharesPost Inc. to resolve claims that the online marketplace acted as an unregistered broker of shares.

Hoffman is the biggest shareholder of LinkedIn (LNKD), with stock valued at about $1.9 billion following its IPO last year.

Jonathan Thaw, a spokesman for Menlo Park-based Facebook, declined to comment on the stock sale.

To contact the reporters on this story: Zijing Wu in London at zwu17@bloomberg.net; Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

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





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Credit Suisse VIX Note Tumbles to Record-Low Price

By Nikolaj Gammeltoft - Mar 23, 2012 3:36 AM GMT+0700

A Credit Suisse Group AG (CSGN) security tracking the benchmark measure of U.S. options prices plunged to an all-time low, reversing ground after trading at a record premium to its underlying assets the last four days.

The VelocityShares Daily 2x VIX Short-Term ETN (TVIX), or TVIX, retreated 29 percent to $10.20 at 4 p.m. New York time, on volume that was 2.6 times the three-month average. Credit Suisse’s exchange-traded note closed at $14.43 yesterday, or 89 percent above its so-called indicative value, after falling 86 percent from its Oct. 3 peak as the Standard & Poor’s 500 Index rose 28 percent to the highest level since May 2008.

The gap between the security’s price and the value of the index it tracks has widened since Credit Suisse suspended issuance of new shares, causing a supply shortage amid record demand for volatility products that provide a hedge against U.S. equity losses. Short sellers may be accelerating bets against TVIX today on speculation Credit Suisse will permit issuance of more shares, said WallachBeth Capital’s Chris Hempstead.

“People are waiting for Credit Suisse or VelocityShares to come out and say what’s going to happen,” Hempstead, director of exchange-traded-fund execution services at WallachBeth in New York, said in a phone interview. “The trading community believes that they will be able to create these shares again in the near future, and if that’s the case then that’s why they are shorting it.”

Market Cap Surges

Katherine Herring, a spokeswoman for Credit Suisse in New York, declined to comment. Her company suspended issuance of TVIX shares after its market value more than quadrupled this year to almost $700 million, data compiled by Bloomberg show. Its market capitalization has since plunged to $415.4 million.

The VelocityShares ETN aims to produce twice the daily return of the S&P 500 VIX Futures Index, which tracks a trading strategy involving futures on the Chicago Board Options Exchange Volatility Index. The VIX (VIX), as the CBOE gauge is known, is used as a benchmark measure of U.S. equities derivatives and measures the cost of protection from losses in U.S. stocks. It rose 2.9 percent today.

ETNs are unsecured bank debt backed by their issuer’s credit, unlike exchange-traded funds that hold assets. Banks create and redeem shares of ETNs based on the level of demand for the securities. That demand usually doesn’t affect the price since the ETNs track the performance of an index.

Credit Suisse’s decision to halt new issuance of TVIX shares coincided with a period in which the ETN began moving independently of its underlying assets. The S&P 500 VIX Futures Index lost 32 percent between Feb. 21, the day of the suspension, and yesterday. That was more than twice the decline in the ETN.

Bigger Premium

The faster decrease in the underlying index contributed to a widening in the premium of the TVIX to its underlying asset. The gap reached a record 36 percent on March 16 and then expanded to 62 percent, 78 percent and 89 percent in the next three days, according to data compiled by Bloomberg.

“People are likely shorting the TVIX and creating the underlying portfolio by buying the VIX futures to hedge,” Michael McCarty, managing partner at Differential Research LLC in Austin, Texas, said today in a phone interview. “That will cause the premium to contract.”

Demand to protect against losses in equities pushed up the number of shares available for trading to records this week in four of the five largest exchange-traded products that rise when U.S. stock volatility increases, data compiled by Bloomberg show. For the iPath S&P 500 VIX Short-Term Futures ETN (VXX), the biggest, outstanding stock reached 113.8 million yesterday, up 80 percent since March 12 and more than fivefold since Dec. 30.

TVIX trading volume surged to 29.7 million shares today, the most since Feb. 17 and more than twice the three-month average, according to data compiled by Bloomberg.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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





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BlackBerry Loses Top Spot to Apple at Home: Corporate Canada

By Hugo Miller - Mar 23, 2012 3:21 AM GMT+0700

Canada’s love affair with the BlackBerry is waning.

Research In Motion Ltd. (RIM) has been ousted from the top spot for smartphone shipments in its home market for the first time, trailing Apple (AAPL) Inc.’s iPhone.

RIM, based in Waterloo, Ontario, shipped 2.08 million BlackBerrys last year in Canada, compared with 2.85 million units for Apple, data compiled by IDC and Bloomberg show. In 2010, the BlackBerry topped the iPhone by half a million, and in 2008, the year after the iPhone’s debut, RIM outsold Apple by almost five to one.

BlackBerry, one of the biggest consumer brands to emerge from Canada, had enjoyed more loyalty among locals who embraced its made-in-Canada roots. BlackBerry’s loss of domestic preeminence shows the iPhone’s user-friendly features and wealth of apps trump other considerations, said Paul Taylor, a fund manager at BMO Harris Private Banking in Toronto.

“For RIM, in its home market, to lose that No. 1 position to iPhone is strategically important,” said Taylor, who manages about $15 billion in assets, including RIM and Apple shares. “It does identify, even with a home-country bias, how consumers are responding to the greater functionality of the iPhone.”

To halt a sales slump that’s spreading north from the U.S., Thorsten Heins, RIM’s new chief executive officer, has vowed to do something “dramatically different.” The BlackBerry 7 phones introduced last year have better Web browsers and touch-screen navigation than older models and the BlackBerry 10 devices due out this year will represent further improvement, Heins said.

Losing the Way

Sales in Canada, which account for about 7 percent of RIM’s revenue, fell 23 percent in the fiscal third quarter from a year earlier as U.S. sales tumbled 45 percent. That dragged worldwide revenue down 5.9 percent, offsetting rising emerging-market sales.

While RIM was once a hotbed of innovation, it didn’t invest enough in promoting its devices once the iPhone arrived, said Alfred DuPuy of Interbrand, a research firm.

“They got so good at innovation they just expected the product to sell itself,” said DuPuy, head of the firm’s Toronto office. “From a brand perspective, they just lost their way.”

BlackBerry slipped two spots to 54th in Interbrand’s October 2011 ranking of the world’s top 100 brands as Apple climbed nine spots to eighth.

“The challenge for Mr. Heins is to take that iconic brand and products that are reasonably competitive and ensure that they do get appropriate attention from the average consumer,” BMO Harris’s Taylor said. “That’s the challenge: to reverse the negative sentiment that has developed.”

Betting on Decline

Market-share losses, a series of marketing missteps and product delays sent the stock down 75 percent last year and RIM today closed down 91 percent from its mid-2008 record. That hasn’t stopped investors from betting on further declines. Short interest (RIMM) in RIM reached an eight-year high this month.

RIM will probably say fourth-quarter profit fell by more than half to 82 cents a share when it reports results March 29, according to a Bloomberg survey of analysts. Sales probably dropped 18 percent to $4.53 billion, analysts predict. RIM said in December sales would be $4.6 billion to $4.9 billion.

By contrast, Apple’s fourth-quarter profit more than doubled to $13.1 billion -- almost triple RIM’s sales -- as revenue surged 73 percent to $46.3 billion.

RIM declined 1.9 percent to $13.78 at 4 p.m. in New York and Apple fell 0.5 percent to $599.34. Apple has gained 48 percent this year and soared almost six-fold since 2009.

Heidi Davidson, a spokeswoman for RIM, declined to comment, citing a quiet period ahead of earnings.

Loyal Customers

Still, many of Canada’s banks and the federal government remain loyal to RIM devices. Royal Bank of Canada, the country’s largest bank, only issues BlackBerrys, said Katherine Gay, a spokeswoman for the Toronto-based bank. Bank of Nova Scotia and Bank of Montreal do the same. Toronto-Dominion Bank (TD), which issues BlackBerrys to its staff, is assessing the policy and allows employees to use personal Apple and Android devices for corporate e-mail, said Dave Codack, head of employee technology.

BlackBerry still has an edge over the iPhone in some emerging markets. In the Middle East and Africa, RIM shipped 8.3 million handsets to Apple’s 2.5 million iPhones last year. In Saudi Arabia, teenagers have embraced RIM because they can flirt using its free BlackBerry Messenger instant messaging, avoiding local religious police who restrict interaction between unmarried men and women.

In Latin America, RIM outsells Apple by an even larger margin, with 10.6 million BlackBerrys shipped versus 2.1 million iPhones in 2011, according to IDC. Venezuelan President Hugo Chavez has dubbed his BlackBerry and Twitter account his “secret weapon.”

More Affordable

For Venezuelans, a no-frills BlackBerry Curve is more affordable than the iPhone because Latin American carriers don’t typically subsidize the cost of devices in exchange for multiyear contracts the way North American operators do. That price advantage has helped RIM expand its base of 75 million subscribers worldwide.

Local concerns about Canada’s technology sector grew after Nortel Networks Corp. (NRTLQ), once North America’s largest phone- equipment maker, filed for bankruptcy in 2009. Nortel, which helped incubate dozens of startups in its heyday, was broken up and its businesses and patents sold to rivals including Ericsson AB and Apple.

That collapse put more pressure on RIM, which had already overtaken Nortel to become Canada’s biggest technology company, to lead the industry’s expansion in the country.

Pitched to Carriers

RIM’s early growth was due in part to the way former co-CEO Jim Balsillie persuasively pitched the BlackBerry to wireless carriers, said Shaw Wu, an analyst with Sterne Agee & Leach Inc. As consumers increasingly choose smartphones for their range of apps, and more companies allow employees to bring their own devices to work and fewer issue BlackBerrys, RIM risks being left behind by the iPhone, Wu said.

“RIM in the past did really well as carriers pushed the product and that’s what sold,” said Wu, who is based in San Francisco and rates RIM the equivalent of a hold. “Now you get the opposite, it’s not what the carriers push but what customers want and customers are choosing iPhones -- even in Canada.”

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

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




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Facebook Is Said to Buy 750 IBM Patents to Boost Defenses

By Brian Womack - Mar 23, 2012 5:48 AM GMT+0700

Facebook Inc. (FB) acquired 750 patents from International Business Machines Corp. (IBM), adding intellectual property that may help it counter allegations of patent infringement, a person with knowledge of the transaction said.

The patents cover various technologies such as software and networking, said the person, who asked not to be identified because the deal hasn’t been made public. The acquisition would swell the size of Facebook’s portfolio, which includes at least 56 issued patents and 503 filed U.S. patent applications.

Facebook. Photogrpher: Frank May/DPA/Landov

Facebook, the world’s biggest social-networking service, is bolstering its legal defenses amid a standoff with rivals that have broader intellectual property portfolios. Yahoo! Inc. (YHOO) sued Facebook this month, accusing it of infringing patents covering critical website functions. Facebook may have shelled out hundreds of millions of dollars for the IBM patents, said Erin- Michael Gill, a managing director at MDB Capital Group LLC.


“This is a very big deal,” said Gill, who is chief intellectual property officer at MDB, an investment bank focused on intellectual property. While it’s not clear how strong the patents are, “Facebook is now where it’s supposed to be.”

The Yahoo suit involves patents covering Internet privacy, advertising and information sharing. Sunnyvale, California-based Yahoo asked for an order barring Facebook from infringing the 10 patents. It’s seeking triple damages.

Jonathan Thaw, a spokesman for Menlo Park, California-based Facebook, declined to comment, as did Ed Barbini, a spokesman for IBM.

Earlier Deals

Facebook already has been acquiring patents from other holders, including early social-networking site Friendster and computing company Hewlett-Packard Co. (HPQ), according to the U.S. Patent & Trademark Office. Yahoo, Google Inc. and Microsoft Corp. all have at least 1,000 patents, according to MDB, based in Santa Monica, California.

Facebook’s IBM deal could help assuage concerns that the company lacks the intellectual property it needs, Gill said. The social network filed for an initial public offering last month, increasing investor scrutiny of the business.

Facebook, which had almost $4 billion in revenue last year, announced earlier this month that it set up a new credit line of $5 billion, replacing a $2.5 billion revolving line, that will be used for working capital and other general corporate purposes. The funds also will help Facebook cover the potential legal costs of patent litigation with Yahoo, according to a person familiar with the matter.

Record IPO

Facebook also had 33 corresponding patents and 149 filed applications in foreign countries as of the end of last year, according to the IPO filing. The company is seeking to raise $5 billion in the offering, making it the largest Internet IPO on record.

Facebook expects more patent lawsuits in the future, according to the filing.

“We expect the number of patent and other intellectual property claims against us to grow,” the company said in the Feb. 1 document, prior to Yahoo’s actions. “We may introduce new products, including in areas where we currently do not compete, which could increase our exposure to patent and other intellectual property claims.”

Already, Facebook ranked No. 28 on the list of companies most frequently targeted in patent cases last year, with 22 suits, according to LegalMetric.com. That’s more than companies such as Cisco Systems Inc. and Yahoo.

‘Weapons in Arsenal’

“They need to have some weapons in their own arsenal,” Thomas Scott, a lawyer at Goodwin Procter LLP in Washington, said in an interview last week.

Acquired patents made up $51 million of Facebook’s goodwill and intangible assets in 2011, up from $33 million in 2010, according to Facebook.

IBM, meanwhile, has been offering portions of its patent hoard to Internet companies. The Armonk, New York-based computer-services giant has made a series of intellectual- property deals with Google (GOOG) over the past year.

IBM continues to add to its patent trove, receiving 6,180 new patents last year. The company has topped the list of U.S. patent recipients for 19 straight years.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

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




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Etch A Sketch Maker Capitalizes After Being Drawn Into Race

By Chris Christoff and Matt Townsend - Mar 23, 2012 5:22 AM GMT+0700

Mitt Romney didn’t make Etch A Sketch a playtime fixture. Generations of nimble-fingered budding artists did that.

His campaign did manage to make the toy that Ohio Art Co. (OART) released in 1960 a central political metaphor when a spokesman compared the Republican presidential candidate’s views to the erasable drawing pad.

Rick Santorum, right, hands an Etch A Sketch to a staff member on March 22, 2012, in San Antonio. Photographer: Eric Gay/AP Photo

March 22 (Bloomberg) -- Carol Dean, manager of Creative Minds, talks with Bloomberg's Chris Christoff about Etch A Sketch sales. Creative Minds is located in Bryan, Ohio, home of Ohio Art Co. which makes Etch A Sketch. (Source: Bloomberg)

An Etch A Sketch toy made by Ohio Art Co. Source: Ohio Art Co. via Bloomberg

The mention during a CNN interview -- and ensuing storm of rivals’ mockery and social-media reiteration -- prompted a flood of attention. In its 52 years, nothing spread the name Etch A Sketch so fast and wide, said Martin Killgallon, senior vice president for marketing and product development.


“If you went out and tried to buy this kind of media coverage, it would be impossible,” Killgallon, 36, said in a telephone interview. “I don’t know how to measure it.”

Nicole Gresh, spokeswoman for the Bryan, Ohio-based toymaker founded in 1908, said she hadn’t had so many calls since June. That’s when Lyons, Colorado, held a Sketch-A-Palooza to set a Guinness Book of Records mark for simultaneous sketching.

The red, plastic tablet, a mainstay of U.S. playrooms and Ohio Art’s best-selling product through last year, allows children to use knobs to control a line’s horizontal and vertical progress. Shake the gizmo and the picture disappears, leaving a clean slate for a new creation.

Franco-American Fun

The toy was invented by Andre Cassagnes in the late 1950s. The French electrician’s original version, called the Telecran, used a joystick, glass and aluminum powder. Ohio Art then bought the rights. It sells the toy for $17.99.

Etch A Sketch’s star turn began yesterday, when Romney aide Eric Fehrnstrom was asked on CNN whether he was concerned that the candidate was being forced by Republican opponents to take extreme positions during the primary that might alienate moderates in a race against President Barack Obama.

“You hit a reset button for the fall campaign,” Fehrnstrom said. “Everything changes. It’s almost like an Etch A Sketch. You can kind of shake it up, and we start all over again.”

The statement resounded in the political world -- and beyond. Tim George, a Columbus, Ohio, artist whose medium is the Etch A Sketch, said he has drawn all 44 U.S. presidents.

Get Scribbling

“I haven’t drawn any of the Republican candidates yet because I was kind of waiting until they narrow it down to one,” George, 60, said in a telephone interview. “It looks like I’ll be drawing Romney, though, at some point. In fact, I wish I had it done now.”

At the FAO Schwarz toy store in midtown Manhattan -- which displays a prototype Etch A Sketch dating from 1959 -- shopper and father Cal Elcan said the plaything is “timeless.”

“We’ve all played with an Etch A Sketch before -- every one of us,” said the tourist from Nashville, Tennessee.

Alexis Elcan, 9, said she finds twiddling the knobs more challenging than a newfangled computer drawing game.

“They’re weird,” she said. “You have to be really good at them.”

Ohio Art, which manufactures the plaything in China, employs about 100 people at its Toy Street facility in Bryan (12939MF), including sales and design staffs, Killgallon said. The town of about 11,500, dominated by the county courthouse’s clock tower, is a capital of childhood delights: It is also home of Spangler Candy Co., maker of Dum Dums lollipops.

Divine Plug

Ohio Art competes in a field dominated by Mattel Inc. (MAT) and Hasbro Inc. (HAS), the world’s largest toymakers, with combined sales of more than $10 billion. They spend millions on advertising and marketing, and Hasbro even owns part of a cable television station to help market its toys.

“It’s virtually impossible to get attention,” said Michael Greenberg, chief executive of Chester, New Jersey-based PlayWow International, a small manufacturer that tries to garner publicity by donating its inflatable toys. “Something like this is a gift from God.”

Fehrnstrom’s free publicity might be worth tens of millions to Ohio Art, according to Jordan Zimmerman, founder of an eponymous advertising firm whose clients include Papa John’s International Inc. (PZZA) and Office Depot Inc. (ODP)

“It will help resurrect the brand and drive sales,” said Zimmerman, who’s based in Fort Lauderdale, Florida. “If they are smart, they will parlay this.”

Surprise Gift

This gift of free advertising comes after sales in the arts-and-crafts category, which includes Etch a Sketch, declined 1 percent to $2.7 billion last year, according to NPD Group. Total revenue in the U.S. toy industry fell 2 percent to $21.2 billion, the researcher said.

Shares of Ohio Arts, which is thinly traded, more than doubled to $9.65 after three transactions totaling 800 shares at the close in New York’s over-the-counter market.

It’s too early tell whether sales will increase, Ohio Art said.

“It’s a pop culture icon and it’s nice to be part of the discussion,” Killgallon said. “One thing we’d like to do with all this publicity is to try to find a way to turn it into a positive and look at some sort of get-out-the-vote campaign.”

Killgallon said he’s been asked whether Etch A Sketch leans toward Democrats or Republicans.

“Etch A Sketch has right- and left-hand knobs,” he said. “We speak to both parties. And together we can draw circles.”

To contact the reporters on this story: Chris Christoff in Bryan at cchristoff@bloomberg.net; Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net




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Thursday, March 22, 2012

Google Said to Rethink Wallet Strategy Amid Slow Adoption

By Olga Kharif - Mar 22, 2012 12:53 AM GMT+0700

Google Inc. (GOOG) is weighing changes aimed at improving its Google Wallet mobile-payment system following slow adoption and the departure of two key managers, according to people with knowledge of the project.

The company is considering sharing revenue with carriers such as Verizon Wireless and AT&T Inc. (T) to get them to embrace the technology, which lets users pay for items at checkout by tapping phones on a reader device, said the people, who asked not to be named because the discussions are private.

The Google Inc. Mobile Wallet application for cardless payment is displayed on a smartphone screen at the Mobile World Congress in Barcelona, Spain, on Feb. 29, 2012. Photographer: Chris Ratcliffe/Bloomberg

Nov. 3 (Bloomberg) -- Bloomberg's Rich Jaroslovsky reviews Google Inc.'s Google Wallet mobile-payment application. It is one of the first systems in a push by companies like Visa Inc., Mastercard Inc. and the wireless carriers to encourage the use of smartphones to replace cash and credit cards in retail transactions. (Source: Bloomberg)

Google aims to spur demand for its Wallet app, which is designed to boost its share of the multibillion-dollar market for mobile advertising by letting it target shoppers with coupons and promotions. The challenge: Few phones have the right technology installed, and rivals are readying their own systems, including one called ISIS that’s backed by carriers.

“They are in a bit of a re-evaluation pattern right now,” said Rick Oglesby, an analyst at Boston-based research firm Aite Group. “It’s going much slower than anticipated.”

One of the two original creators of the Google Wallet software, Jonathan Wall, left Google this month to start his own company focused on mobile shopping, Tappmo Inc. Marc Freed- Finnegan, lead product manager for Google Wallet, also departed to join Tappmo.

Making Progress

Google said it’s enthusiastic about Google Wallet’s progress so far. The company is enlisting retailers such as the Pinkberry frozen-yogurt chain, which announced this week that it is using the system. Google Wallet relies on a system called near field communications, a wireless standard that works from within a few inches.

“We continue to work hard to develop Google Wallet and build the partner ecosystem to make it possible for everyone to pay with their phones and get great deals while shopping,” Nate Tyler, a spokesman for Mountain View, California-based Google, said in an e-mailed statement.

The mobile-payment market has drawn scads of competitors, including startups and more established companies such as Visa Inc. (V), all aiming to capitalize on the growth of smartphones. The idea is to free shoppers from having to carry credit cards or cash -- they just need their handsets. Mobile-payment transactions will top $170 billion by 2015, up from about $60 billion last year, according to Juniper Research.

ISIS System

As the owner of both the world’s most popular search engine and smartphone operating system, Google has an inside track with consumers. Still, it lacks the support of the two biggest U.S. carriers, Verizon and AT&T, which are backing the ISIS system. For now, Google Wallet’s NFC functions only work on two phones from Sprint Nextel Corp. (S), the third-largest U.S. carrier. While 50,000 to 100,000 people have downloaded the software, only a small percentage use it, Oglesby estimates.

“The reception has been lukewarm,” said Chetan Sharma, an independent consultant focused on the wireless industry.

Gaining a bigger foothold in the wireless-payment market would help solidify Google’s role as the leading seller of ads on phones and other mobile devices. That industry is projected to reach almost $11 billion in 2016, up from $2.61 billion this year, according to research firm EMarketer Inc.

The proposal to share revenue with carriers would involve the coupons and special offers that run on the Google Wallet app, the people familiar with the matter said. Carriers might get a cut of the proceeds when consumers accept the deals.

‘No Incentive’

“Today, the operators have no incentive to adopt Google Wallet, given that they have their own ambitions in this space,” said Sharma, who is based in Issaquah, Washington.

Verizon, AT&T and T-Mobile USA have joined forces to create ISIS, which is slated to roll out in the next few months. At the same time, carriers aren’t making it easy for their customers to use Google Wallet. In December, Verizon blocked the app from its new Galaxy Nexus smartphone, citing security concerns.

“We are continuing our commercial discussions with Google on this issue,” Brenda Raney, a Verizon spokeswoman, said in an e-mail. Mark Siegel, an AT&T spokesman, declined to comment on whether the carrier might offer the app in the future.

Another option Google is exploring: sidestepping the carriers altogether and relying more heavily on in-store terminals to complete mobile-payment transactions, the people said. This approach could involve additional hardware or software for the terminals, coupled with software that runs on Google’s servers, they said.

Work Around

So instead of requiring phones to authenticate payments -- something that needs assistance from carriers -- the system might send transactions to Google’s servers for approval and then clear it with the retailer.

Google currently works with VeriFone Systems Inc. (PAY), Ingenico (ING) and ViVOtech Inc., which make hardware and software for cash registers and other payment systems. Other Google Wallet partners include retailers such as Macy’s Inc. (M), Subway Restaurants and American Eagle Outfitters Inc. (AEO)

Google is adding more employees to the effort, seeking to fill eight Google Wallet positions. Last November, the company folded its Checkout service, which lets customers make online purchases, into Google Wallet.

Sprint will introduce as many as 12 new phones able to run the Wallet app this year. Even so, Google’s retail partners aren’t seeing much traffic for now.

“We knew from the get-go we won’t see a lot of volume,” said Robert Notte, chief technology officer at Jamba Juice (JMBA), which accepts Google Wallet NFC payments at 276 stores. “We are in very early stages of this.”

To contact the reporter on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net

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




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U.S. Stocks Fall as Energy Shares Drop on Profit Concern

By Rita Nazareth - Mar 22, 2012 3:38 AM GMT+0700

U.S. stocks fell, sending the Standard & Poor’s 500 Index down a second day, on concern the best first-quarter since 1998 has outpaced economic prospects and as Baker Hughes Inc. drove a selloff in energy shares.

Baker Hughes, the world’s third-largest oilfield-services provider, tumbled 5.8 percent after saying that a shift away from gas rigs will hurt earnings. Morgan Stanley (MS) and Fifth Third Bancorp dropped at least 1.7 percent to pace losses in financial companies. Hewlett-Packard Co. (HPQ) slumped 2.2 percent for the biggest decline in the Dow Jones Industrial Average.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Scott Eells/Bloomberg

March 21 (Bloomberg) -- Bloomberg's Pimm Fox and Deborah Kostroun report on the performance of the U.S. equity market today. U.S. stocks fell, sending the Standard & Poor’s 500 Index down a second day, on concern the best first-quarter since 1998 has outpaced economic prospects and as Baker Hughes Inc. drove a selloff in energy shares. (Source: Bloomberg)

March 21 (Bloomberg) -- Adam Parker, head of U.S. equity strategy at Morgan Stanley, talks about investment strategy and some of his industry picks. He speaks with Adam Johnson and Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)

March 21 (Bloomberg) -- Kate Moore, senior global equity strategist at Bank of America Merrill Lynch, talks about the outlook for stocks, investor sentiment and investment strategy. She speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

Sales of previously owned homes probably rose in February to the highest in almost two years, a report at 10 a.m. in Washington may show. Photographer: Jim R. Bounds/Bloomberg

The S&P 500 slipped 0.2 percent to 1,402.89 at 4 p.m. New York time. The Dow retreated 45.57 points, or 0.4 percent, to 13,124.62. About 6.1 billion shares changed hands on U.S. exchanges, or 7.9 percent below the three-month average.

“People won’t play real hard at these levels,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which oversees more than $300 billion. “I don’t think you should get bearish. Yet the market’s energy seems to be used up after the strong rally.”

The S&P 500 has rallied 12 percent this year amid better- than-estimated economic and corporate data. More than $3.6 trillion was restored to U.S. equity values since last year’s low for the benchmark gauge in October. The rally drove the index to about 14.6 times reported earnings this week, the highest valuation level since July.

Data today showed purchases of previously owned U.S. houses dropped 0.9 percent to a 4.59 million annual rate from a revised 4.63 million pace in January that was faster than previously estimated. The median forecast in a Bloomberg News survey called for a rise to 4.61 million.

‘One-Way Ride’

“The housing situation is not a quick turnaround,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm manages about $6.5 billion. “In addition, the stock market had an almost one-way ride. It’s due for a pause.”

Energy shares in the S&P 500 slumped 1 percent for the biggest decline among 10 groups.

Baker Hughes (BHI) tumbled 5.8 percent to $45.04. North American first-quarter profit margin will drop to as low as 13.2 percent from 18.7 percent because of lower prices, higher costs and supply shortages as U.S. operators shift rig locations, the company said. Companies are drilling for oil because it’s worth about eight times more on an energy-equivalent basis than gas on U.S. markets, according to data compiled by Bloomberg.

Financials Fall

A measure of financial shares in the S&P 500 lost 0.4 percent for the second-biggest decline among 10 industries. Morgan Stanley fell 1.7 percent to $20.06. Fifth Third retreated 1.8 percent to $14.24.

Hewlett-Packard slid 2.2 percent to $23.46. The company will combine its personal-computer unit with the division that sells printers into a group led by Todd Bradley, who ran the PC business, to help cut expenses amid declining sales and profit.

“Deeper issues will likely take more than management changes,” Maynard Um, an analyst with UBS AG in New York, said in a note to investors.

Hartford Financial Services Group Inc. (HIG) rose 1.4 percent to $22.02. Chief Executive Officer Liam McGee responded to billionaire John Paulson’s call for a breakup with plans to shut or sell parts of the 201-year-old insurer. Hartford will stop selling individual annuities and seek buyers for its individual life, Woodbury Financial Services and retirement-plan operations.

LinkedIn Corp. (LNKD) surged 6.5 percent to $97.78. The biggest professional-networking website was raised to buy from neutral at Goldman Sachs Group Inc.

Netflix Jumps

Netflix Inc. (NFLX) gained 4.4 percent to $120.10. The online and mail-order video-rental service said the mystery series “Hemlock Grove” will be available exclusively to its members for instant viewing early in 2013.

Stocks will probably begin a “steady upward trajectory” over the next few years because any declines in economic growth are already reflected in share prices, Goldman Sachs Group Inc. said. The MSCI World Index (MXWO) is trading at 13.2 times estimated earnings after falling 7.6 percent last year, data compiled by Bloomberg show.

“Given current valuations, we think it’s time to say a ‘long goodbye’ to bonds, and embrace the ‘long good buy’ for equities as we expect them to embark on an upward trend over the next few years,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs in London, wrote in a report today.

The prospects for returns in equities versus bonds “are as good as they have been in a generation,” he wrote.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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





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Zynga Said to Pay $200 Million for ‘Draw Something’ Creator

By Douglas MacMillan - Mar 22, 2012 3:37 AM GMT+0700

Zynga Inc. (ZNGA) agreed to acquire OMGPOP Inc., adding the popular application “Draw Something” to its portfolio of games played on Facebook Inc. (FB) and Apple Inc. iPhones.

Zynga will pay about $200 million for the startup, said a person familiar with deal, who asked not to be identified because the terms weren’t made public. OMGPOP will remain headquartered in New York, the companies said in a statement, which didn’t disclose the purchase’s financial terms.

Zynga Inc. employees through the "time tunnel" at the company's new headquarters in San Francisco on March 15, 2012. Photographer: David Paul Morris/Bloomberg

Zynga Inc. headquarters in San Francisco on March 15, 2012. Photographer: David Paul Morris/Bloomberg

Zynga Inc. signage and logo are displayed on the facade of the company's new headquarters in San Francisco. Photographer: David Paul Morris/Bloomberg

The biggest maker of social games is stepping up spending on acquisitions after paying a combined $147.2 million for 22 companies in 2010 and 2011. Zynga, which raised $1 billion in a December initial public offering, aims to lessen its reliance on Facebook, accounting for more than 90 percent of its sales.



“They have done a lot of acquisitions of small game companies along the way,” said Brian Blau, research director at Gartner Inc. “Most of those acquisitions were for talent rather than titles. This is a case where they are buying a title” already popular with users, he said.

OMGPOP’s “Draw Something,” a game where users take turns guessing what their friends draw, has 22.4 million monthly users on Facebook, according to the website AppData. A mobile version for iPhones and iPads released in February is currently the most popular program in Apple’s App Store.

Adam Isserlis, a spokesman for San Francisco-based Zynga, declined to comment on the price of the acquisition.

Facebook takes a 30 percent cut of virtual goods sold in Zynga’s games. Earlier this month, Zynga took the wraps off of Zynga.com, a game-playing hub separate from the social network.

In 2010, Zynga acquired Newtoy Inc., the developer of the mobile application “Words With Friends,” for $53.3 million, according to a company filing.

Zynga shares rose 2.5 percent to $13.72 at the close in New York. The stock has climbed 46 percent this year.

Technology blog TechCrunch reported earlier this week that Zynga could pay between $150 million and $250 million to acquire OMGPOP.

To contact the reporter on this story: Douglas Macmillan in San Francisco at dmacmillan3@bloomberg.net;

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



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JPMorgan Joins BofA in Cutting Senior Mortgage Traders

By Hugh Son and Dawn Kopecki - Mar 22, 2012 4:48 AM GMT+0700

JPMorgan Chase & Co. (JPM) and Bank of America Corp., the two biggest U.S. banks, are cutting senior mortgage traders and salesmen amid a decline in the asset-backed securities market, people with knowledge of the moves said.

Raphael Gonzalez, JPMorgan’s co-head of trading in subprime mortgages, and John Angelica, a securitized-products salesman, resigned from the New York-based bank within the past four weeks in exchange for severance packages that included all their deferred stock awards, said the people, who declined to be identified because the terms are private. Roy Kim, who traded adjustable-rate mortgages, left on his own accord with a similar exit deal, the people said.

JPMorgan and Bank of America, based in Charlotte, North Carolina, are re-evaluating staffing on mortgage-trading desks amid pressure to cut expenses and stricter capital requirements tied to the assets. Some employees were offered severance packages allowing them to keep millions of dollars of deferred stock that otherwise may have been forfeited, the people said.

“When you start doing something like this, you’re making a forward statement about the mortgage-backed security market -- they are saying it isn’t going to be as active,” said Brad Hintz, an analyst covering banks at Sanford C. Bernstein & Co. in New York. “Firms are right-sizing for the fixed-income market of the future. We’ll probably be seeing this in a lot of other Wall Street businesses as the regulations become clear.”

Trading Decline

Trading revenue from securitized products at the 10 biggest global investment banks dropped to roughly $10 billion last year from about $17.5 billion in 2010, according to data from consultant Coalition Ltd.

The three JPMorgan executives left amid involuntary reductions in the past four weeks in the bank’s securitized- products division, which trades and sells mortgage bonds, derivatives and other asset-backed securities, according to two of the people with knowledge of the matter. Jennifer Zuccarelli, a JPMorgan spokeswoman, said she couldn’t comment on the departures, as did Gonzalez and Angelica. Contact information for Kim couldn’t immediately be located.

The bank also dismissed about 5 percent of its equities traders and salesmen yesterday and cut about 100 employees in its treasury and securities services unit in January, according to three people with knowledge of those moves. Andy Taylor, the bank’s head of commercial mortgage bond trading, was shifted to run the loan-trading book. Justin Perras, a company spokesman, confirmed Taylor’s move.

Bank of America eliminated at least half a dozen mortgage traders and salesmen this week. That included John McNiff, a managing director who served as co-head of commercial mortgage securities trading, said people with knowledge of the moves.

Jackier, Eck

Managing directors Seth Jackier in mortgage sales and John Eck in asset-backed trading also opted to leave Bank of America, said the people. Michael Case, a director in commercial mortgage security banking, and salesmen John Livingstone and Michael L. Miller also departed, one of the people said.

Some Bank of America employees volunteered to resign in exchange for a so-called garden leave, a period of 90 days in which they receive full salary and benefits while staying at home, and severance packages including stock, the people said.

“This isn’t necessarily bad news” for people who are weighing moves to other firms, said Jeanne Branthover, managing director at Boyden Global Executive Search Ltd. in New York. “Areas like this that didn’t come back as expected are the ones that companies are now evaluating.”

European Crisis

Banks pulled back from making new loans to package into bonds last year as Europe’s debt crisis roiled credit markets and sent relative yields soaring. Credit Suisse Group AG is shutting its unit responsible for making loans, while the retreat has left other firms short on mortgages to pool for sale.

Bank of America is also cutting outside the U.S., dismissing almost a dozen workers at its Canadian capital- markets business as part of a global staff reduction, one person said. The move leaves the bank with almost 500 people at offices in Toronto, Montreal, Vancouver and Calgary, the person said.

Wall Street firms are firing staff and reducing pay as revenue wanes from trading and underwriting. More cuts are coming at Bank of America as part of Chief Executive Officer Brian T. Moynihan’s efficiency plan, which may target as much as $8 billion in total annual savings. Moynihan, 52, already announced as many as 30,000 job cuts in retail banking and technology.

Bank of America lost market share last year to rivals including New York-based Morgan Stanley (MS) in the trading of equities, bonds, currencies and commodities, Matthew O’Connor, an analyst at Deutsche Bank AG, said in a Jan. 19 research note.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Dawn Kopecki in New York at dkopecki@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net





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Kraft’s Name Change to Mondelez Leaves Experts Guessing

By David Welch - Mar 22, 2012 3:19 AM GMT+0700

Is it pronounced mon-dah-lay? Mon- dah-lezz? Oh, it’s mohn-dah-LEEZ.

That, according to corporate naming expert Nina Beckhardt, is the first problem with Mondelez, the name Kraft Foods Inc. (KFT) plans to give its global snacks business after spinning off its U.S. grocery unit this year.

Photographer: Brent Murray

The second problem: What does it mean? The name is a combination of the word “monde,” derived from the Latin for “world,” and “delez,” an expression for delicious. The name might suit a company commanding $32 billion in revenue from Beijing to Berlin if the connection was apparent. It’s not, Beckhardt said.

“The public gets sick of compressed words if they aren’t intuitive,” said Beckhardt, founder and president of The Naming Group, a New York-based firm that has named shoes for Puma SE (PUM) and high-end stereos for Sony Corp. (6758) “When the pronunciation isn’t accessible, it looks bad. It’s not intuitive.”

Mondelez isn’t the first corporate name to generate confusion. When Andersen Consulting switched to Accenture in 2001, pundits wondered why they would leave behind such name recognition. The move paid off later when Arthur Andersen accounting -- once under the same corporate umbrella as the consulting firm -- became embroiled in the Enron Corp. (ENRNQ) accounting scandal.

Philip Morris changed its name to Altria Group Inc. (MO), claiming that the Latin word “altus,” suggested high performance. The name also disassociated the company from the baggage of tobacco litigation and health concerns.

Corporate Versus Brand

Corporate name changes tend to have less of an impact, either good or bad, than brand name changes, Beckhardt said. That could be good news for Northfield, Illinois-based Kraft, which plans to use Mondelez strictly on the back of packages of such snack foods as Oreo cookies and Newtons snacks. After the split, the snacks business will market those brands directly to consumers and Mondelez will remain in the background.

Establishing the corporate name will take time, said Sharon Shedroff, founder of San Diego consulting firm Strategic Vision Inc. The Mondelez name may be understood in European countries where Latin-based languages are spoken. People speaking other languages will have a tougher time figuring it out.

“Until the brand is established, it will be difficult for people to give it meaning in the U.S. and probably in Asia,” Shedroff said in a phone interview. “Brands under it, like Oreo, could lend credibility to Mondelez.”

Kraft Groceries

Kraft’s grocery business will retain the Kraft name as it continues selling cheese and other items that have borne founder J.L. Kraft’s moniker since he started as a wholesaler in 1903.

Nissan Motor Co. (7201)’s decision to put its corporate name on Datsun cars sold in the U.S. in 1981 was a disaster, said Jim Hall, principal of 2953 Analytics in Birmingham, Michigan.

Americans liked the Datsun 510 sedan and 240Z sports car, and Datsun was the second-best selling Japanese brand in the U.S. behind Toyota Motor Corp. (7203) at the time. The change to Nissan caused confusion, Hall said. Today, Nissan trails Toyota and Honda Motor Co. (7267)

Kraft asked employees to suggest names, and more than 1,000 participated, submitting more than 1,700 potential names, the company said. The inspiration for Mondelez came from two employees, one in Europe and another in North America.

Kraft realizes that the pronunciation of Mondelez isn’t easily picked up by everyone, said Michael Mitchell, a company spokesman. People will figure it out before too long, he said.

“It will take a while to get used to,” Mitchell said in a phone interview. “People will learn how to pronounce it, and it will be good.”

To contact the reporter on this story: David Welch in Detroit at dwelch12@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net




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Madonna Vows to Oppose Gay Law in Putin’s Hometown

By Anastasia Ustinova - Mar 22, 2012 4:22 AM GMT+0700

Madonna’s first tour in Russia drew the ire of orthodox Christian activists. Now she vows to defy a new law against promoting homosexuality when she performs in President-elect Vladimir Putin’s hometown in August.

“I will come to St. Petersburg to speak up for the gay community and to give strength and inspiration to anyone who is or feels oppressed,” the pop star said by e-mail late yesterday. “I’m a freedom fighter.”

Madonna performs during the Bridgestone Super Bowl XLVI Halftime Show at Lucas Oil Stadium on Feb. 5, 2012 in Indianapolis, Indiana. Photographer: Christopher Polk/Getty Images

The law, signed on March 7 by St. Petersburg Governor Georgy Poltavchenko, a Putin ally and former KGB officer, bans lesbian, gay, bisexual and transgendered “propaganda” that could give minors “the false perception that traditional and nontraditional relationships are socially equal.”

Homosexuality was outlawed in the Soviet era and wasn’t decriminalized in Russia until 1993. Seventy-six of the 193 members of the United Nations deem homosexuality illegal, according to Human Rights Watch. At least five countries, including Iran, impose the death penalty for consensual same-sex relations, the New York-based advocacy group says.

Madonna, ranked the 8th highest-earning celebrity in Forbes magazine’s 2010 list with estimated earnings of $58 million, plans to return to Russia for the third time with a concert in Moscow on Aug. 7, followed two days later by St. Petersburg. Tickets for both performances range from 1,500 rubles ($51) to 50,000 rubles apiece, according to PMI Corp. and Euro Entertainment, the organizers of the events.

‘Ridiculous Atrocity’

“I don’t run away from adversity,” Madonna, who has used her fame to support gay rights, said in the e-mail. “I will speak during my show about this ridiculous atrocity.”

Madonna’s first show in Russia six years ago was marred by protests of Russian Orthodox activists who objected to her performance of the song “Live to Tell,” which she sang while wearing a crown of thorns and dangling from a cross.

During the singer’s second visit in 2009 on the Sticky and Sweet tour, a Communist group urged her to sing a revolutionary anthem like the Marseillaise as she performed near the Winter Palace in St. Petersburg, which was stormed by the Bolsheviks in 1917. The palace now houses the Hermitage Museum.

The American pop star’s financial interests in Russia extend beyond show business. She opened a Hard Candy upscale fitness center in Moscow last year, a 35,000 square-foot (3,250 square-meter) facility less than 650 yards (600 meters) from the Kremlin. This was the second Madonna-themed gym in the world, after Mexico City. She plans to open a third in St. Petersburg, Europe’s fourth-largest city.

‘Lots of Criticism’

The Russian Orthodox Church, the dominant religious body in a country of 143 million people, considers homosexuality a sin. About 69 percent of Russians identify themselves as Orthodox, according to a poll last August by the Moscow-based Levada Center.

“There’s lots of criticism from the media community about this law, but somehow most of the media forget about this crucial word -- minors,” said Vladimir Vigilyansky, a spokesman for the Moscow Patriarchy, by phone. “It’s about propaganda among minors, not about banning homosexuality itself.”

Russia, which is preparing to host the Winter Olympics in 2014 and the soccer World Cup in 2018, was chastised for the legislation by Canada, which issued a warning to its citizens who plan to travel to St. Petersburg to avoid “displaying affection in public, as homosexuals can be targets of violence.”

The former imperial capital, founded by Peter the Great in 1703, is the country’s top tourist destination and a host city for the World Cup. About 2.3 million foreigners visited the city in 2010, the last year for which government data is available.

To contact the reporter on this story: Anastasia Ustinova in в Чикаго at austinova@bloomberg.net

To contact the editor responsible for this story: Brad Cook at bcook7@bloomberg.net



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Wednesday, March 21, 2012

Free Lunches Pushing U.S. to Insolvency, Columbia’s Mundell Says

By Allison Bennett and Tom Keene - Mar 20, 2012 11:39 PM GMT+0700

Political competition for votes and lack of fiscal discipline are pushing the world’s largest economy toward solvency issues, according to the Nobel Prize- winning economist Robert Mundell.

“The public is looking for free lunches, and the political competition for votes makes the politicians offer them free lunches,” Mundell, a professor of economics at Columbia University, said on Bloomberg Radio interview with Tom Keene and Ken Prewitt. “That’s what gets us in to the difficulties of insolvency.”

Robert Mundell, Nobel Prize winning economist. Photographer: Forbes Conrad/Bloomberg

The U.S. plans to finance a budget deficit forecast to exceed $1 trillion for a fourth year, and outstanding U.S. marketable debt expanded to $10 trillion in February.

Even as the jobless rate has fallen from a high of 10 percent in October 2009 to 8.3 percent in February, it remains almost 2 percent above the average of the past decade and the central bank has called unemployment “persistent.”

“You could have fiscal stimulus back in the day of Keynes, when the government was a small proportion of gross domestic product and there was no insolvency problem,” he said, referring to British economist John Maynard Keynes. “You can’t just issue more bonds to pay for deficits and expect it to solve the employment problem.”

The euro area is forecast to have fiscal spending of 3.3 percent of GDP in 2012, compared to 7.1 percent in the U.S. this year.

“The United States is not in as bad a situation as Europe,” he said, “but it’s getting that way.”

‘Political Glue’

As the International Monetary Fund said Greece may require additional funding or a third debt restructuring, the odds of the fiscal union breaking up by the end of 2013 have reached 36.5 percent, based on bets made at Intrade.com. Mundell, often referred to as the father of the common currency, sees a different outcome.

“It’s political glue inside Europe to keep it together -- the euro is the best thing going for it since the creation of the common market,” he said. “The end game is going to be deeper integration in Europe and more centralization of the fiscal authority.”

To contact the reporter on this story: Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net




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U.S. Exempts Japan, 10 EU Nations From Iran Oil Sanctions

By Indira A.R. Lakshmanan - Mar 21, 2012 4:11 AM GMT+0700

The Obama administration won’t impose sanctions on Japan and 10 European Union nations that have “significantly” cut back their imports of Iranian oil this year, Secretary of State Hillary Clinton said.

The U.S. didn’t grant exemptions today to China (CCCIIQIR), the top importer of Iranian crude in the first half of last year, or to India and South Korea, the No. 3 and No. 4 buyers, according to the U.S. Department of Energy.

March 21 (Bloomberg) -- Robert Kaplan, chief geopolitical analyst at Stratfor Global Intelligence and previously an adviser to former U.S. Secretary of Defense Robert Gates, talks about tension between Western nations and Iran over the Middle Eastern nation's nuclear ambitions. Kaplan also discusses the outlook for the North Korean regime. He speaks with Susan Li from the Credit Suisse Asian Investment Conference in Hong Kong on Bloomberg Television's "First Up." (Source: Bloomberg)

Under a U.S. law enacted Dec. 31, countries have until June 28 to demonstrate that they have “significantly reduced” the volume of their Iranian crude purchases or their banks and other institutions financing oil trade with Iran may be cut off from the U.S. financial system. The European countries exempted are Belgium, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain, and the United Kingdom -- the only EU nations that purchased Iranian oil in the past year.

The 10 EU nations and Japan have taken actions that “were not easy,” Clinton said in a statement today. “They had to rethink their energy needs at a critical time for the world economy and quickly begin to find alternatives to Iranian oil, which many had been reliant on for their energy needs.”

Today’s decision means Japan, which was the No. 2 importer of Iranian oil after China in the first half of last year, according to the U.S. Department of Energy, may continue buying some Iranian oil after U.S. sanctions take effect on June 28, without exposing Japanese banks to penalties.

Pressuring Iran

Under the sanctions law, the president must cut off the U.S. bank accounts of any foreign financial institution that transacts petroleum-related business with Iran’s central bank -- unless its country receives an exemption for reducing Iranian oil imports.

The sanctions are part of a coordinated campaign by the U.S. and the EU to ratchet up economic pressure on Iran to abandon any illicit aspects of its nuclear program. Iran is the No. 2 producer in the Organization of Petroleum Exporting Countries, and earns more than half of its government revenue from oil sales, according to the International Monetary Fund.

The European Union decided two months ago to bar Iranian oil imports effective July 1.

A U.S. official who spoke on condition of anonymity because he wasn’t authorized to be quoted said the administration announced today’s exemptions to signal that the EU and Japan are being rewarded for their efforts in the hope that other countries will follow suit before the June 28 deadline.

Japan managed to cut its imports of Iranian oil by 15 percent to 22 percent in the second half of last year, according to public data, during a difficult time when it was reeling from an earthquake and subsequent nuclear disaster, and its energy needs were high, the official said.

‘Sanctions Are Working’

Senator Bob Menendez, a New Jersey Democrat and co-author of the sanctions law enacted Dec. 31, said he supports the decision and applauds “the actions of our friends and allies in the EU and Japan for their forthright and expedient action” in reducing purchases of Iranian oil.

“The sanctions are working,” Menendez said in an interview. “Since President Obama signed the National Defense Authorization Act on December 31, we have seen Iran’s currency plummet and oil shipments in February fell to a 10-year low.”

Mark Dubowitz, executive director of the Foundation for Defense of Democracies in Washington, said in an interview the action “begins to reduce some of the uncertainty in oil markets over how the administration will apply oil market sanctions.”

“It gives Japan, in particular, which needs to keep buying Iranian oil, a clear pathway to continue those purchases without putting their financial institutions at risk,” said Dubowitz, who has advised the administration and Congress on sanctions. “It also establishes an early precedent that puts pressure on South Korea, India, China, Turkey, South Africa and other major buyers of Iranian oil to also comply with US law.”

To contact the reporter on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net




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Pentagon’s Iran Buildup Call for Adding Laser Weapons

By Tony Capaccio - Mar 20, 2012 12:06 AM GMT+0700

The U.S. Central Command plans to bolster military capabilities against Iran by fielding new laser target-trackers for machine guns, enhanced sensors for underwater vehicles, improved protection against drone attacks and upgrades of U-2 spy planes.

The Tampa, Florida-based command, which is responsible for U.S. forces in the Persian Gulf region, also wants to shift $5.5 million in previously approved funds to buy Gatling guns for Navy coastal patrol craft, according to budget documents.

A U.S. Air Force U-2 Dragon Lady takes off from an undisclosed location in Southwest Asia. Source: U.S. Air Force

March 19 (Bloomberg) -- Jonathan Schanzer, vice president of research at the Foundation for Defense of Democracies, talks about Iran's reaction to the severing of a key link between the world financial system and Iranian banks subject to European Union sanctions. Schanzer speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Iranian officials have periodically threatened this year to block the Strait of Hormuz, through which 20 percent of the world’s daily oil transits, in retaliation for Western sanctions aimed at slowing its nuclear program. The U.S. Navy would move to stop any Iranian attempt to lay mines in the Strait or Gulf as an “act of war,” the services’s top Gulf commander, Vice Admiral Mark Fox, has said.

The Central Command’s intentions are spelled out in two “reprogramming” requests that Pentagon Comptroller Robert Hale sent Congress last month. The four congressional defense committees have approved the requests to move defense funds, which were to go to other programs, and the changes are being implemented, according to the comptroller’s website.

“There’s no significant area where I’ve got to come in and say, we’ve got a big problem here.” Central Command commander General James Mattis told the House Armed Services Committee on March 7. “They’re just areas I want to make certain we maintain our edge.”

Faster Than Anticipated

In a “couple of cases,” Iran improved capabilities “faster than we anticipated,” he said.

The Command requested the additional funds because “our growing reliance on our maritime forces requires an ability to project power against asymmetric threats, particularly in the confined and crowded sea lanes” of the Strait of Hormuz and the Persian Gulf, Major David Nevers, spokesman for the Central Command, said in an e-mailed statement.

Funds were shifted from Pentagon biological and chemical weapons defensive programs and Navy and Air Force shipbuilding, satellite and aircraft programs deemed to have excess funds or experiencing delays.

Congress approved a $28 million shift to provide six U-2 spy planes with upgraded satellite links that increase their capability to “provide real-time, high bandwidth video feeds to ships, ground forces and command and control centers,” according to the reprogramming documents.

Air Combat Command spokeswoman Kelly Sanders declined to discuss the upgrade, citing its classification.

Anti-Radar Missile

Congress also backed the shift of $10 million to increase funding for a joint Navy-National Reconnaissance Office program to equip the service’s new anti-radar missile -- the Advanced Anti-Radiation Guided Missile made by Alliant Techsystems Inc. (ATK) - - with a “Special Target Engagement” capability that includes a broadcast receiver.

The National Reconnaissance Office is the spy agency that manages U.S. intelligence satellites.

An additional $4.8 million was approved for integrating new sensors on a Navy underwater vehicle “for very shallow water- mine countermeasures missions,” according to the documents.

The Central Command also won congressional approval to shift $3.7 million to developing a defense against drone attacks. The system will cover “vulnerable areas below typical air-defense radar coverage areas,” according to the documents.

Iran’s Drones

Iran “has an active program and two families of reconnaissance, target and lethal” drones, an April 2010 Pentagon report on Iran’s military capabilities found.

Congress also approved plans to accelerate installation on coastal patrol craft of the “MK 38 Mod 2” system, which includes the laser-tracker for precision aiming of machine guns. Lawmakers rejected the planned source of $4 million in funds so the Comptroller is looking to other sources, a document said.

As described by BAE Systems Plc (BA/) and subcontractor Boeing Co. (BA), the tactical laser system “brings high precision accuracy against surface and air targets such as small boats and unmanned aerial systems. The system also provides the ability to deliver different levels of laser energy, depending on the target and mission objectives.”

Iran has increased the number of small, fast patrol vessels, some of which have been outfitted with large warheads for a suicide run at U.S. vessels, Fox told reporters last month.

Iran’s Subs, Speedboats

The Pentagon’s 2010 assessment of Iran’s military power listed four midget submarines, 80 patrol craft and 18 guided missile patrol boats under control of the Islamic Revolutionary Guard Corps navy. The Corps also “controls hundreds of small patrol boats,” it said.

The Guard navy since the 1990s has purchased Italian-made speedboats and has been making them domestically, according a 2009 report by the U.S. Office of Naval Intelligence.

It also has Chinese-built C-14 missile boats and North Korean-made “semi-submersible” vessels that can carry two torpedoes.

The planned Central Command improvements are in addition to deploying four additional mine-sweeping vessels and four more MH-53 helicopters within three months, doubling U.S. counter- mine capabilities, Admiral Jonathan Greenert, the chief of naval operations, told reporters on March 16.

Greenert said he determined new capabilities were warranted after making a trip the Gulf and a carrier transit through the Strait of Hormuz. He likened the improvements to giving vessels a “hunting rifle” or a “sawed-off shotgun” if needed in the Strait’s narrow waters.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

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





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