Fitch Cuts JPMorgan Rating as S&P Calls Outlook Negative

By Michael J. Moore - May 12, 2012 11:00 AM GMT+0700

JPMorgan Chase & Co. (JPM), the largest and most profitable U.S. bank, had its credit grade lowered one level by Fitch Ratings and Standard & Poor’s said it may follow after the bank revealed a $2 billion trading loss.

The lender’s long-term issuer default rating was cut to A+ from AA-, and the short-term grade was lowered to F1 from F1+, Fitch said yesterday in a statement. Fitch placed all parent and subsidiary long-term ratings on rating watch negative.

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Signage stands outside JP Morgan Chase & Co. headquarters in New York. Photographer: Peter Foley/Bloomberg

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May 11 (Bloomberg) -- Jamie Dimon, chief executive officer of JPMorgan Chase & Co., and Bloomberg's Dawn Kopecki and Christine Harper talk about JPMorgan's $2 billion trading loss after what Dimon said was an "egregious" failure in the firm's chief investment office. This report also includes comments from Bloomberg Television contributing editors William Cohan, Thomas Brown and Neil Barofsky, Portales Partners' Charles Peabody, Aegis Capital's Stanley Crouch, Fifth Third Asset Management's Keith Wirtz and Rochdale Securities' Richard Bove. (Source: Bloomberg)

Standard & Poor’s cited the possibility of broader problems with JPMorgan’s hedging strategies, which the credit rater said isn’t “consistent with what we have viewed as the company’s sound risk-management practices.” A downgrade might result if the missteps prove to be wider, or if management “is pursuing a more aggressive investment strategy than we originally believed” and misses financial targets, according to an S&P statement. S&P affirmed JPMorgan’s A rating.

JPMorgan announced the loss linked to synthetic credit securities on May 10. Chief Executive Officer Jamie Dimon told analysts that the New York-based firm’s chief investment office took flawed positions tied to the investments that may cost an additional $1 billion this quarter or next.

“The magnitude of the loss and ongoing nature of these positions implies a lack of liquidity,” Fitch said. “It also raises questions regarding JPM’s risk appetite, risk management framework, practices and oversight.”

JPMorgan is under review by Moody’s Investors Service for a possible two-level downgrade. The credit rater said in February it was examining 17 lenders and securities firms with global capital-market operations.

Downgrade’s Consequences

A downgrade could raise borrowing costs and oblige the firms to put up more cash for collateral calls and termination payments tied to derivatives contracts. Collateral calls were blamed in the 2008 credit crisis for draining cash and driving firms toward failure.

Morgan Stanley, Credit Suisse Group AG and UBS AG may be reduced three levels, Moody’s said. Analysts said before Dimon spoke that the industry-wide cuts could push more business to JPMorgan, Credit Suisse, Goldman Sachs Group Inc. and Deutsche Bank AG because they’d be left with some of the highest grades if Moody’s goes through with all its maximum reductions.

Joe Evangelisti, a spokesman for JPMorgan, didn’t immediately return a message requesting comment.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net

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

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Fed Officials Seek More Information on JPMorgan Trade

By Craig Torres and Caroline Salas Gage - May 12, 2012 7:54 AM GMT+0700

Federal Reserve officials are gathering more information about the trading position that led to a $2 billion loss at JPMorgan Chase & Co. (JPM), which they have known about for several weeks, according to a person familiar with the matter.

Fed officials don’t view it as their role to approve or reject individual trades at banks, the person said. Rather, their job is to ensure the firms have sufficient capital to withstand losses, said the person, who wasn’t authorized to discuss the matter and asked not to be identified.

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JPMorgan Chase & Co. chairman and CEO Jamie Dimon. Photographer: Mario Tama/Getty Images

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May 11 (Bloomberg) -- Federal Reserve officials are gathering more information about the trading position that led to a $2 billion loss at JPMorgan Chase & Co., which they have known about for several weeks, according to a person familiar with the matter. (Source: Bloomberg)

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JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon. Photographer: Scott Eells/Bloomberg

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Bloomberg News first reported April 5 that London-based JPMorgan trader Bruno Iksil had amassed positions linked to the financial health of corporations that were so large he was driving price moves in the $10 trillion market. Photographer: Peter Foley/Bloomberg

JPMorgan Chief Executive Officer Jamie Dimon announced the “egregious” trading loss yesterday, two months after the biggest U.S. bank by assets passed a Fed stress test that put its loans and securities through a scenario of deep recession and a simulated global financial market shock.

“This is the way the system should work,” said Mark Calabria, a former Senate Banking Committee staff member and now director of financial regulation studies at the Cato Institute in Washington. “The capital should be there to actually absorb losses.”

The U.S. Securities and Exchange Commission opened a preliminary investigation into JPMorgan’s disclosures related to the trades, according to a person briefed on the probe who spoke on condition of anonymity because the matter isn’t public.

JPMorgan’s announcement points to gaps in the Fed’s enforcement of governance and risk management, said Robert Eisenbeis, a former research director at the Atlanta Fed.

‘Watching the Store’

“The fact that Jamie Dimon could come out and make some of those statements” raises “lots of questions about who was watching the store,” said Eisenbeis, who is now chief monetary economist at Sarasota, Florida-based Cumberland Advisors. The Fed “ought to be going in and looking at the internal controls and monitoring procedures that the institution is taking, and stress those.”

Krishna Guha, a spokesman for Federal Reserve Bank of New York, JPMorgan’s regulator, declined to comment. JPMorgan spokesman Joseph Evangelisti also declined to comment.

The Financial Stability Oversight Council, a group of regulators charged with preventing a financial crisis, wasn’t convened to discuss the JPMorgan loss and had no plans to meet, said a Treasury Department official who declined to be identified. The council is chaired by Treasury Secretary Timothy F. Geithner and includes Fed Chairman Ben S. Bernanke.

Capital Ratio

JPMorgan’s tier 1 common capital ratio, a measure of capital strength tracked by the Fed, never dipped below 5 percent in the 2012 stress scenario despite a hypothetical $28 billion in trading and counterparty losses and $56 billion in loan losses, according to results of the stress tests released on March 13.

“I don’t think this particular number is big enough to get in the way of the capital buffers that JPMorgan has,” Robert Engle, winner of the Nobel Prize in economics, said of the $2 billion loss.

“We think of JPMorgan as being one of the more systemic institutions because it is so big,” said Engle, a professor at New York University’s Stern School of Business, who helped develop a model of systemic risk at the school’s Volatility Lab. “But because it is big, a loss like this is not going to bring it to its knees.”

JPMorgan shares fell 9.3 percent to $36.96 at the close of trading today in New York. The KBW Bank Index of 24 financial stocks was down 1.2 percent to 46.40.

Separately, the Commodity Futures Trading Commission, the main U.S. derivatives regulator, has been reviewing JPMorgan’s derivatives trading activities since last month, according to another person who was briefed on the matter.

The CFTC hasn’t opened an enforcement action against the bank, according to the person, who spoke on condition of anonymity because the review is private.

To contact the reporters on this story: Craig Torres at ctorres3@bloomberg.net; Caroline Salas Gage at Csalas1@bloomberg.net

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

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Facebook Co-Founder May Gain Choosing Singapore Over U.S.

By Danielle Kucera, Christine Harper and Jesse Drucker - May 12, 2012 8:57 AM GMT+0700

Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.

Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin’s stake is about 4 percent, according to the website whoownsfacebook.com. At the high end of the proposed IPO market capitalization, that would be worth about $3.84 billion. His holdings aren’t listed in Facebook’s regulatory filings.

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Eduardo Saverin, co-founder of Facebook, in New York City. Photographer: Jason Kempin/Getty Images for Common Sense Media

Saverin, 30, joins a growing number of people giving up U.S. citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the world’s largest social network holds its IPO.

“It’s plainly lawful and at the same time profoundly ungrateful to the country that provided these opportunities for him,” said Edward Kleinbard, a tax law professor at the University of Southern California in Los Angeles. “He benefited from his U.S. education, the contacts he made at Harvard, and most important the extraordinary openness and flexibility of our economy that encourages startup ventures to flourish.”

Saverin’s name is on a list of people who chose to renounce citizenship as of April 30, published by the Internal Revenue Service. Saverin made the move “around September” of 2011, Tom Goodman, a spokesman for Saverin, said in an e-mailed statement.

‘Practical’ Residence

“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” Goodman said. Saverin still does hold Brazilian citizenship, Goodman said.

Americans who give up their citizenship owe what is effectively an exit tax on the estimated capital gains from their stock holdings at the time of the renunciation, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. In other words, for tax purposes, the IRS treats the stock as if it has been sold.

In Saverin’s case, the gain and subsequent tax bill would be based on the estimated fair market value as calculated by his tax advisers, not an actual open market sale. They could value his Facebook stake at less than it will be worth once shares trade publicly.

Saverin and his advisers could say that the value of his stake should be reduced for tax purposes because of the potential difficulty of selling the shares while the company was private.

‘Smart Idea’

Renouncing citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, Avi-Yonah said. “Once it’s public you can’t fool around with the value.”

And even the tax bill triggered by Saverin dropping his U.S. citizenship can be deferred indefinitely until he actually sells the shares. In that case, Saverin would have to pay interest during the deferral period -- currently at an annual rate of 3.28 percent per year, Kleinbard said.

Gains from any future appreciation of the stock will be earned free of any capital gains tax both in the U.S. and in Singapore. Singapore does not impose a capital gains tax.

While Saverin helped start Facebook, he hasn’t always had a harmonious relationship with Zuckerberg. He scuffled with his Harvard University classmate over his ownership in Facebook. Saverin sued him and settled for an undisclosed amount.

Brazilian Investment

The 2010 movie “The Social Network” portrayed Saverin as a scorned friend who provided the company’s early financing and then got squeezed out. In the film, written by Aaron Sorkin, Saverin was portrayed by Andrew Garfield, who will play Spider- Man in “The Amazing Spider-Man,” due to be released in July.

Saverin moved to the U.S. in 1992, and became a citizen in 1998, his spokesman said. He has invested in Asian, U.S. and European companies.

He plans to invest in Brazilian and in other global companies that have strong interests in entering the Asian markets, Goodman said.

Saverin’s U.S. holdings include Jumio Inc., an online payments company, and ShopSavvy Inc., a price-comparison service.

Renouncing citizenship is an option chosen by increasing numbers of Americans. A record 1,780 gave up their U.S. passports last year compared with 235 in 2008, according to government records.

Income-tax rates for top U.S. earners will rise to 39.6 percent from 35 percent next year and rates on capital gains and dividends also are due to rise, unless Congress intervenes.

U.S. Loss

“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Richard Weisman, head of the global tax practice at Baker & McKenzie LLP in Hong Kong. “The tax cost, complexity and the traps for the unwary are among the considerations.”

Some of the world’s largest wealth-management firms have ramped up efforts to fight tax evasion ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc (HSBA), Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. (DBS) all say they have turned away business.

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. That means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which may depress banks’ returns.

Facebook plans to price its IPO on May 17, offering 337.4 million shares at $28 to $35 each. The shares will be listed on the Nasdaq Stock Market under the symbol FB. Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. are leading the sale.

To contact the reporters on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net Sanat Vallikappen in Singapore at vallikappen@bloomberg.net Christine Harper in New York at charper@bloomberg.net

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

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California Deficit Swells to $16 Billion, Governor Says

By Michael B. Marois - May 13, 2012 2:49 AM GMT+0700

California’s budget deficit has swelled to $16 billion after tax collections trailed projections amid the tepid economic recovery, Governor Jerry Brown said in a comment on his Twitter post.

The shortfall has widened from the $9.2 billion Brown estimated in January, after lawmakers resisted the Democrat’s call for cost cuts, the federal government blocked other reductions and April income-tax revenue missed budget forecasts by $2 billion. On May 14, he’s set to unveil a revised spending plan and to say how he would erase the gap.

Brown, 74, set out an initial budget in January with $92.6 billion in spending for fiscal 2013, which begins in July. That plan stripped more than $4 billion from health and welfare programs while relying on higher income and sales taxes. The levy increases will go before voters in November. If rejected, schools will lose $4.8 billion midway through the year.

“We are still recovering from the worst recession since the 1930s,” Brown said in a YouTube video cited on his Twitter post. “Tax receipts are coming lower than expected and the federal government and the courts have blocked us from making billions of necessary budget reductions. The result is that we are now facing a $16 billion deficit.”

Brown this week submitted more than 1.5 million signatures to place the tax measure on the ballot. It would temporarily raise the state sales tax, already the highest in the U.S., to 7.5 percent from 7.25 percent. It would also boost rates on income starting at $250,000. The 10.3 percent levy on those making $1 million or more would rise to 13.3 percent, the most of any state.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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Dow Drops Most in 2012 as Europe Concern Resurfaces

By Lu Wang - May 12, 2012 11:00 AM GMT+0700

U.S. stocks fell for a second straight week, driving the Dow Jones Industrial Average to the biggest loss of 2012, as political tension in Greece heightened concern about Europe’s debt crisis and JPMorgan Chase & Co. (JPM)’s $2 billion trading loss weighed on shares of banks.

Financial and technology companies in the Standard & Poor’s 500 Index slipped at least 1.7 percent for the week as JPMorgan tumbled 11 percent and Cisco Systems Inc. (CSCO)’s forecasts missed analysts’ estimates. Macy’s Inc. (M) lost 7.6 percent and Fossil Inc. sank 39 percent amid disappointing projections. Walt Disney Co. (DIS) rose 6.1 percent to an all-time high after the movie “Marvel’s The Avengers” earned a record $200.3 million in its opening weekend and profit beat analysts’ estimates.

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

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May 11 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks fell, sending the Standard & Poor’s 500 Index to a two-month low, as a slump in banks driven by JPMorgan Chase & Co.’s $2 billion trading loss overshadowed an increase in a gauge consumer confidence. (Source: Bloomberg)

The S&P 500 fell 1.2 percent to 1,353.39, the lowest level in two months. The index dropped 3.6 percent over two weeks, trimming its 2012 gain to 7.6 percent. The Dow slipped 217.67 points, or 1.7 percent, to 12,820.60 for its biggest weekly decline of the year.

“Europe is the big overlay,” Bernie Williams, a portfolio manager at USAA Investment, which oversees $52 billion in San Antonio, said in a phone interview. “People are relatively fearful, but the U.S. seems to be weathering this fairly well.”

Global equities declined during the week as an inconclusive election in Greece left political parties struggling to form a government. The impasse reignited concern over Greece’s ability to meet terms of its two bailouts and the possibility the country will leave the euro. In France, Francois Hollande, who defeated Nicolas Sarkozy as president, pledged to curtail austerity measures. The Europe turmoil overshadowed U.S. data showing jobless claims fell to a one-month low and consumer confidence rose in May to the highest level in four years.

Biggest Retreat

Concern that European officials would fail to contain the region’s debt crisis helped trigger the bull market’s biggest retreat last year. The S&P 500 plunged 19 percent from April 29 through Oct. 3, 2011, as Moody’s Investors Service cut its credit ratings on Portugal and Ireland to junk levels.

The index then rallied 29 percent to a four-year high on April 2 amid better-than-expected earnings and economic data. Per-share profits have topped projections at 70 percent of S&P 500 companies that reported results during the current earnings season, according to data compiled by Bloomberg.

The S&P 500 fell 0.8 percent in April and is down 3.2 percent in May as speculation grew that Europe’s debt crisis could slow the global economy. The index hasn’t posted back-to- back monthly declines since September. The Dow retreated in eight out of the past 10 trading sessions.

‘Egregious’

JPMorgan sank 11 percent to $36.96. Chief Executive Officer Jamie Dimon blamed an “egregious” failure in trading of synthetic credit securities for the trading loss. The firm’s chief investment office, run by Ina Drew, took flawed positions on synthetic credit securities that remain volatile and may cost an additional $1 billion this quarter or next, Dimon said.

Cisco tumbled 14 percent to $16.51. The largest maker of computer-networking equipment forecast fourth-quarter sales and profit that missed analysts’ estimates, saying some business clients are reluctant to spend. Chief Executive Officer John Chambers said orders from big companies fell in the third quarter and that it’s taking longer to sign large deals with corporate customers.

Cyclical, Defensive

Before this week, technology and financial stocks were market leaders this year, jumping 15 percent and 16 percent, respectively as a group, as investors snapped up stocks most tied to economic growth. Concern about the global slowdown prompted investors to seek safety in so-called defensive shares, driving S&P 500 gauges of phone stocks, utilities and health- care companies to the only gains this week.

The index of phone companies rallied 1.8 percent, the most among 10 S&P 500 groups. MetroPCS Communications Inc. (PCS) jumped 5.9 percent to $7.04. Deutsche Telekom AG is discussing a merger of its T-Mobile USA unit with the pay-as-you-go wireless carrier as it reviews options for the customer-losing business, according to people familiar with the matter.

Raw-materials and industrial companies fell the most as a group, sinking 2 percent and 1.8 percent, respectively. CF Industries Holdings Ltd., the largest U.S. maker of nitrogen fertilizers, fell 6.2 percent to $172.18 after Dahlman Rose & Co. recommended selling the shares. Dun & Bradstreet Corp., the owner of the Hoover’s business information service, slumped 13 percent to $66.59 after cutting its full-year sales forecast.

Macy’s, Fossil

Macy’s slid 7.6 percent to $37.98. The second-biggest U.S. department-store chain repeated its 2012 earnings forecast of no more than $3.30 a share. The average analyst estimate is $3.39.

Fossil (FOSL) plunged 39 percent, the most in the S&P 500, to $78.55. The watchmaker reported first-quarter revenue of $589.5 million, missing the average analyst estimate of $617.9 million, citing a softening economy in Europe. The company also lowered its 2012 earnings forecast to no more than $5.33 a share. The average analyst estimate was $5.56.

Disney climbed 6.1 percent to $45.56. The world’s largest entertainment company is working on a sequel to “The Avengers” and racing to get more merchandise in stores and plotting to get the characters in its parks, Chairman and Chief Executive Officer Robert Iger said.

Dean Foods Co. (DF) surged 18 percent, the most in the S&P 500, to $14.55. The biggest U.S. dairy processor boosted its full- year earnings forecast, saying it expects at least $1.10 a share. Analysts, on average, estimated 95 cents, according to a Bloomberg survey.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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

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Facebook Co-Founder Saverin Gives Up U.S. Citizenship Before IPO

By Danielle Kucera, Sanat Vallikappen and Christine Harper - May 12, 2012 5:58 AM GMT+0700

Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.

Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin’s stake is about 4 percent, according to the website whoownsfacebook.com. At the high end of the proposed IPO market capitalization, that would be worth about $3.84 billion. His holdings aren’t listed in Facebook’s regulatory filings.

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Eduardo Saverin, co-founder of Facebook, in New York City. Photographer: Jason Kempin/Getty Images for Common Sense Media

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May 11 (Bloomberg) -- Results of a Bloomberg investor poll show that 79 percent of respondents say Facebook is overvalued at $96 billion. Dominic Chu reports on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Saverin, 30, joins a growing number of people giving up U.S. citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the world’s largest social network holds its IPO.

“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” said Tom Goodman, a spokesman for Saverin, in an e-mailed statement.

Saverin’s name is on a list of people who chose to renounce citizenship as of April 30, published by the Internal Revenue Service. Saverin made that move “around September” of last year, according to his spokesman.

Besides helping cut tax bills stemming from the Facebook, the move may also help him avoid capital gains taxes on future investments since Singapore doesn’t have a capital gains tax.

Exit Tax

Saverin won’t escape all U.S. taxes. Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from their stock holdings, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. For tax purposes, the IRS treats the stock as if it has been sold.

Renouncing your citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, Avi-Yonah said. “Once it’s public you can’t fool around with the value.”

Saverin’s estimated gain, and subsequent tax bill, would be based on an appraisal by his tax advisers. They could have valued his Facebook stake at less than it will be worth once shares trade publicly, reducing his liability. For tax purposes, Saverin could say that the value of his stake should be discounted because of the potential difficulty of selling the shares while the company remains private.

Zuckerberg Scuffle

Saverin previously scuffled with Zuckerberg, his Harvard University classmate, over his ownership in Facebook. Saverin sued him and settled for an undisclosed amount.

The 2010 movie “The Social Network” added to Saverin’s fame after it portrayed him as a scorned friend who provided the company’s early financing and then was squeezed out. In the film, written by Aaron Sorkin, Saverin was portrayed by Andrew Garfield, who will play Spider-Man in “The Amazing Spider- Man,” due to be released in July.

Saverin moved to the U.S. in 1992, and became a citizen in 1998, his spokesman said. He has invested in Asian, U.S. and European companies, according to his spokesman.

He plans to invest in Brazilian and in other global companies that have strong interests in entering the Asian markets. “Accordingly, it made the most sense for him to use Singapore as a home base,” Goodman said in the statement.

Jumio, ShopSavvy

His U.S. holdings include Jumio Inc., an online payments company, and ShopSavvy Inc., a price-comparison service.

Renouncing citizenship is an option chosen by increasing numbers of Americans. A record 1,780 gave up their U.S. passports last year compared with 235 in 2008, according to government records.

Income-tax rates for top U.S. earners will rise to 39.6 percent from 35 percent next year and rates on capital gains and dividends also are scheduled to rise, unless Congress blocks the increases.

“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Richard Weisman, head of the global tax practice at Baker & McKenzie in Hong Kong. “The tax cost, complexity and the traps for the unwary are among the considerations.”

Combatting Evasion

Some of the world’s largest wealth-management firms have ramped up efforts to fight tax evasion ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc, Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. all say they have turned away business.

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. That means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which may depress banks’ returns.

Facebook plans to price its IPO on May 17, offering 337.4 million shares at $28 to $35 each. The shares will be listed on the Nasdaq Stock Market under the symbol FB. Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. are leading the sale.

To contact the reporters on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net Sanat Vallikappen in Singapore at vallikappen@bloomberg.net Christine Harper in New York at charper@bloomberg.net

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

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U.S. Posted Budget Surplus of $59.1 Billion in April

By Meera Louis - May 11, 2012 1:28 AM GMT+0700

The U.S. government posted a budget surplus in April, the first in more than three years, as tax revenue climbed and spending dropped.

Receipts topped outlays by $59.1 billion compared with a deficit of $40.4 billion in April 2011, the Treasury Department said today. Economists projected a $35 billion surplus, according to the median estimate in a Bloomberg News survey. It was the first surplus since September 2008 and the biggest since April 2008.

“The total federal budget deficit is slowly shrinking,” said Steven Wood, president of Insight Economics LLC in Danville, California. “However, this improvement has been halting, due largely to erratic economic and employment growth.”

President Barack Obama, in his campaign to win a second term, is trying to make the case that while the recovery has been uneven, the U.S. is making progress. The administration has said won’t accept any of the dozen spending bills House Republicans are working on unless they agree to abide by a budget deal reached last year.

The dispute may lead to a government shutdown shortly before the November elections unless lawmakers agree on legislation to keep agencies operating in the 2013 fiscal year, which starts Oct. 1.

Obama Budget

Republicans rejected President Barack Obama’s $3.8 trillion election-year budget plan, saying it didn’t go far enough to reduce the deficit or boost economic growth.

Estimates of the April budget outcome ranged from roughly in balance to a surplus of $60 billion in a Bloomberg survey of 23 economists. April has been a surplus month in 44 of the past 58 fiscal years, the Treasury Department said.

The non-partisan Congressional Budget Office estimated this week the April surplus would reach $58 billion. The CBO said in a report dated May 7 that the results were influenced by shifts in the timing of certain payments.

Receipts increased 10 percent from the same month last year to $318.8 billion, today’s Treasury Department report showed. Over the same period, spending dropped 21 percent to $259.7 billion.

Obama’s proposed budget would initially boost the U.S. economy though later in this decade it would become a drag on growth, the CBO said April 20.

Between 2018 and 2022, the administration’s plan would cut growth by 0.5 percent to 2.2 percent, according to the analysis.

To contact the reporters on this story: Meera Louis in Washington at mlouis1@bloomberg.net

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

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Romney Apologizes After Report He Bullied Fellow Student

By Lisa Lerer - May 11, 2012 6:13 AM GMT+0700

Mitt Romney apologized today for high school pranks that may have pushed the boundaries into bullying, including an incident in which he led a group of boys in pushing down a screaming fellow student who frequently was taunted about his suspected homosexuality.

“Back in high school, I did some dumb things, and if anybody was hurt by that or offended, obviously I apologize,” the presumptive Republican presidential nominee said in an interview on Fox News Radio. “I don’t recall the incident myself,” he said in a later interview on Fox TV.

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Mitt Romney with his family after his father was elected Governor of Michigan, November 7,1962. Photograph: AP Photo

An article published by the Washington Post today disclosed the incident, saying the student, John Lauber, was often teased because others presumed he was gay. It attributed accounts of the group -- including Romney shoving Lauber and cutting his long blond hair -- to five fellow students at the all-boys private Cranbrook School in Michigan. One former student described the attack as “vicious” and another called it “senseless.”

The Post reported that another student, Gary Hummel, a closeted gay at the time, said his efforts to speak in class were punctuated by shouts of “Atta girl” from Romney.

Romney, 65, said he didn’t remember either incident.

“I had no idea what that individual’s sexual orientation might be,” he said of Lauber. “That was the furthest thing from our minds back in the 1960s,” he said earlier.

Adopting Children

Romney, in his later interview, expressed support for the right of gay couples to adopt children. “I also know many gay couples are able to adopt children,” he said. “That is fine.”

The account comes amid a national conversation about gay rights, after President Barack Obama announced his support for same-sex marriage in an interview with ABC News yesterday. Romney opposes gay marriage and says domestic partnership rights should be determined by individual states.

The Post story lit up social networking sites, including Twitter, and is being spotlighted by a website called the New Civil Rights Movement that is popular with gays. The words “Romney” and “bully” were both included in about 13 Twitter messages per minute today, according to TweetCharts.com, a website that tracks traffic.

In an effort to tamp down the reaction, Romney aides set up the Fox radio interview so he could respond to the allegations. As the candidate did so, campaign aides sought to get former high school friends to publicly share their more positive recollections of Romney, according a staffer.

Not Mean Spirited

Andrea Saul, a spokeswoman for the campaign, told the Post that “anyone who knows Mitt Romney knows that he doesn’t have a mean-spirited bone in his body.”

The Post also quoted fellow students, including a former girlfriend, who described Romney as an industrious leader at Cranbrook, where children from the state’s wealthiest families ate in a chandeliered dining room and studied in reading rooms decorated with frescoes and marble friezes. Romney attended the school while his father, George, headed American Motors Co. and he served as governor of the state.

Romney said marrying his wife, Ann, whom he met while at Cranbrook, and going on a Mormon mission in France changed him into a “very different person.”

Romney, who graduated from high school in 1965, questioned how much of a candidate’s background is fair game, given that the incidents in question happened close to 50 years ago. He said he prefers the campaign focus on bigger issues facing the country, including the economy, energy and Iran’s nuclear development.

High School Talk

“There’s going to be some that want to talk about high school,” the former Massachusetts governor said in the Fox News interview. “Well, if you really think that’s important, be my guest.”

Campaigning in Omaha, Nebraska, today, he made no reference to the report or gay marriage as he delivered a 10-minute version of his standard stump speech.

“The problem with the president is his policies are a fallback to the liberal ideas of the past,” Romney told voters at a riverfront restaurant. “These old liberals thought that you could spend and spend and borrow without consequences.”

The federal debt, he said, “is unacceptable.”

“It’s bad economics; it’s bad policy. I think it’s immoral,” he said.

Continuing an effort by his campaign to woo women voters, Romney praised the work of female business owners and his wife, who spent her life raising the couple’s five children.

“I appreciate the contributions of all mothers of all ages and all stages. So thank you to the mothers of this country,” he said to applause.

Earlier in the day, about 500 supporters paid at least $250 --- and $2,500 for a photo with Romney -- to attend a campaign fundraiser at an Omaha hotel.

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

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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S&P 500 Rises From 2-Month Low on Greece Government Talks

By Rita Nazareth - May 11, 2012 4:02 AM GMT+0700

The Standard & Poor’s 500 Index (SPX) rose, rebounding from the lowest level in two months, as Greece attempted to form a new government and a decline in American jobless claims helped allay concern of a labor market setback.

Wells Fargo & Co. (WFC) and U.S. Bancorp rose at least 1.4 percent to pace gains in banks. News Corp., the media company run by Rupert Murdoch, and Monster Beverage Corp. (MNST), an energy- drink maker, rallied more than 4.8 percent as earnings beat estimates. Cisco Systems Inc. (CSCO) sank 10 percent as its forecasts disappointed investors. S&P 500 futures fell 0.5 percent at 5:01 p.m. as JPMorgan Chase & Co. (JPM) slumped 3.8 percent after saying one of its divisions had “significant” mark-to-market losses.

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May 10 (Bloomberg) -- David Gerstenhaber, president and founder of Argonaut Management LP, talks about the equity market and investment strategy. He speaks with Betty Liu, Dominic Chu and Sheila Dharmarajan on Bloomberg Television's "In the Loop." (Source: Bloomberg)

The S&P 500 rose 0.3 percent to 1,357.99 at 4 p.m. New York time. The Dow Jones Industrial Average added 19.98 points, or 0.2 percent, to 12,855.04. The Nasdaq-100 Index (NDX) dropped 0.2 percent to 2,616.24, led by Cisco, which comprises 3.1 percent of the measure. About 6.6 billion shares changed hands on U.S. exchanges, almost in line with the three-month average.

“They are still talking in Greece and that brings some relief,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama. “The crash off the cliff in terms of an extreme political alliance didn’t play out today. In the U.S., jobless claims didn’t surprise negatively. That was seen as a positive.”

U.S. equities joined a global rally and the euro halted an eight-day slump, its longest since 2008. Greece’s Evangelos Venizelos, the socialist Pasok leader and former finance minister, said his goal is to form a government that keeps the nation in the euro area. Investors also watched economic data as initial claims for jobless benefits fell to a one-month low.

Political Turmoil

Greek political turmoil extended into a fourth day after the inconclusive May 6 elections, with coalition talks deadlocked, raising the possibility that another election will have to be held as early as next month. The standoff has reignited European concerns over Greece’s ability to hold to terms of its two bailouts negotiated since May 2010.

“There’s an attempt to patch things together in Greece,” said Michael Strauss, who helps oversee about $27 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut. “They will try to stay in the euro, though I’m not sure they can. Greece is a failed chemistry experiment even if they put something together.”

Banks had the biggest gain in the S&P 500 among 24 groups, adding 1.5 percent, as a measure of European lenders rallied. The KBW Bank Index (BKX) rose 1 percent as 22 of its 24 stocks advanced. Wells Fargo climbed 1.7 percent to $33.19. US Bancorp (USB) increased 1.4 percent to $31.91.

Bernanke on Banks

Federal Reserve Chairman Ben S. Bernanke said the U.S. banking system is stronger and more resilient while still facing challenges on credit quality and liquidity.

“Banks still have more to do to restore their health and adapt to the post-crisis regulatory and economic environment,” Bernanke said today in a speech at the Chicago Fed’s annual conference on banks. As the economic expansion proceeds, “a financially stronger banking system will be well positioned to expand its lending.”

Some corporate reports also helped drive stocks higher today. Per-share profits have topped projections at about 70 percent of S&P 500 companies that reported results since the start of the earnings season.

News Corp. (NWSA) climbed 4.9 percent to $20.32 after revenue growth at its cable networks and film studio helped it exceed analysts’ third-quarter profit estimates. The owner of Fox Broadcasting and Fox News derives at least 70 percent of its annual profit from television, and is working to expand in markets outside the U.S. with investments in pay-TV operators.

International Markets

Monster Beverage surged 9 percent to $71.17. Net sales rose 28 percent to $454.6 million as Chief Executive Officer Rodney Sacks expands into international markets, including Hong Kong and Macau last month.

Big Lots Inc. (BIG) gained 1.4 percent to $36.73. The discount retailer was raised to the equivalent of buy at Barclays Plc. The share-price estimate is $43.

Technology shares had the biggest decline in the S&P 500 among 10 industries, falling 0.8 percent, as 47 out of its 71 stocks retreated. The group comprises 20 percent of the S&P 500.

Cisco, the largest maker of computer-networking equipment, tumbled 10 percent to $16.81. Chief Executive Officer John Chambers said orders from big companies fell in the third quarter, and it’s taking longer to sign large deals with corporate customers. Cisco is also concerned about demand from Europe, India and government agencies, he said.

Rival Juniper Networks Inc. (JNPR) plunged 4.9 percent to $18.07. Salesforce.com Inc. (CRM), the biggest provider of online customer- management software, sank 9.1 percent to $135.44.

Higher Offer

Avon Products Inc. (AVP) dropped 3.3 percent to $20.89. Coty Inc. raised its offer to acquire Avon to about $10.7 billion, or $24.75 a share, and said Warren Buffett’s Berkshire Hathaway Inc. will provide financing as the perfume-maker seeks to draw Avon into negotiations. Avon traded below Coty’s offer, suggesting investors aren’t convinced the bid will succeed.

MEMC Electronic Materials Inc. sank 25 percent to $2.45, the lowest level since November 2001. (WFR) The second-largest U.S. polysilicon maker posted a first-quarter loss 20 times greater than a year earlier as solar sales fell by more than one-third.

Priceline.com Inc. (PCLN) dropped 5.3 percent to $681.11. The biggest U.S. online travel agency by market value forecast second-quarter earnings that trailed analysts’ estimates.

Pessimism about stocks rose to the highest level since October and optimism plunged to an eight-month low, according to a survey from the American Association of Individual Investors.

Bulls vs Bears

The proportion of investors who anticipate a decline in the next six months jumped 13.6 percentage points to 42.1 percent in the past week, according to the Chicago-based company, which has tracked individual investors’ projections since 1987. Bullish sentiment, or expectations that stocks will rise over the next six months, slumped 10 percentage points to 25.4 percent, the data showed.

It’s the fourth time in the past five weeks that bearish sentiment has topped its average of 30 percent, according to the survey. While many technical analysts usually see a surge in pessimism as a contrarian sign that will give way to a rally, AAII Vice President Charles Rotblut said it may not be high enough compared to historical levels.

“A bearish sentiment reading above 50 percent would be a stronger contrarian signal,” 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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JPMorgan Loses $2 Billion in Chief Investment Office

By Dawn Kopecki and Michael J. Moore - May 11, 2012 4:59 AM GMT+0700

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said the firm lost about $2 billion on synthetic credit securities after an “egregious’” failure in its chief investment office, which the bank says focuses on hedging.

“This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the New York-based company said today in a quarterly securities filing. JPMorgan declined 5.5 percent to $38.50 in extended trading at 5:55 p.m. in New York.

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James "Jamie" Dimon, chief executive officer of JPMorgan Chase & Co. Photographer: Scott Eells/Bloomberg

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May 10 (Bloomberg) -- Charles Lieberman, chief investment officer at Advisors Capital Management LLC, talks about JPMorgan Chase & Co.'s loss. Chief Executive Officer Jamie Dimon says the firm lost about $2 billion on synthetic credit securities after an "egregious" failure at its chief investment office. Lieberman speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

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May 10 (Bloomberg) -- JPMorgan Chase & Co. said losses tied to the chief investment office are bigger than the company projected. Bloomberg’s Erik Schatzker and Adam Johnson reports on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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May 10 (Bloomberg) -- JPMorgan Chase & Co. said it lost about $2 billion tied to synthetic credit securities after positions taken by its chief investment office were riskier than expected. Bloomberg’s Erik Schatzker and Pimm Fox report on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

The chief investment office has been transformed in recent years under Dimon into a unit that makes bigger and riskier speculative bets with the bank’s money, according to five former employees, Bloomberg News reported April 13. Some bets were so big that JPMorgan probably couldn’t unwind them without losing money or roiling financial markets, the former executives said.

Bloomberg News first reported April 5 that London-based trader Bruno Iksil had amassed positions linked to the financial health of corporations that were so large he was driving price moves in the $10 trillion market.

After the Bloomberg report, Dimon on a conference call said the news coverage was “a complete tempest in a teapot.”

The losses disclosed today were “a little bit to do with the article in the press,” Dimon said, without specifying who in the bank oversaw the trades. “I also think we acted a little bit too defensively” to the reports.

‘Flawed, Complex’

Synthetic credit products are derivatives that generate gains and losses tied to credit performance without the owner buying or selling actual debt. The losses occurred as the company sought to unwind a portfolio of the instruments used to hedge JPMorgan’s credit exposure.

“In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored,” Dimon said.

JPMorgan said the losses were partly offset by gains from the sales from its available-for-sale credit portfolio, resulting in a net loss for the firm’s corporate division, which includes the CIO, of about $800 million after taxes. The losses could widen or narrow during the rest of the quarter, Dimon said.

The bank is “repositioning” the synthetic credit portfolio, and the CIO “may hold certain of its current synthetic credit positions for the longer term,” the firm said.

To contact the reporter on this story: 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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Biden Said to Apologize to Obama for Gay Marriage Remarks

By Mike Dorning - May 11, 2012 5:19 AM GMT+0700

Vice President Joe Biden apologized to President Barack Obama for making remarks that prompted the president to disclose his support for same-sex marriage before he planned to, according to an administration official.

Biden delivered the apology to the president yesterday morning, before Obama gave an interview to ABC News in which he said he’s had a change of heart and now supports legal gay marriage, the official said.

Biden’s remarks in a May 6 broadcast of NBC’s “Meet the Press” that he is “absolutely comfortable” with same-sex marriage forced the president to speed up his timetable for revealing his position, administration officials said.

“The president has been the leader on this issue from Day One and the vice president never intended to distract from that,” Kendra Barkoff, Biden’s press secretary, said in an e- mail. The New York Times reported the apology earlier.

In the ABC News interview in which he revealed his change in stance, Obama said Biden “probably got out a little bit over his skis” in making his remarks “out of a generosity of spirit.”

While Obama said he would have preferred to announce his stance “in my own way, in my own terms,” there were no hard feelings.

“All’s well that ends well,” Obama said.

Setting Timing

Administration officials who briefed reporters on the president’s decision to make public his support for same-sex marriage said Obama had changed his stance earlier this year. The president and about a half-dozen aides were still deliberating the time and place for the announcement when Biden made his remarks on “Meet the Press.”

The president’s advisers knew that Biden, though speaking on his own, would effectively be voicing a new policy when the recorded interview aired, according to the officials.

Gay rights advocates stepped up pressure on the White House for Obama to take a stand in favor of same-sex marriage following broadcast of Biden’s statement. Education Secretary Arne Duncan also expressed his support when asked about the issue the day after Biden’s statements aired.

While Obama’s spokesman, Jay Carney, said on May 7 he didn’t have any update on the president’s previous declaration that his view was “evolving,” other members of Obama’s team were working on ways to present the issue.

Interview Set

On May 8, before Obama left Washington for a trip to Albany, New York, to talk about the economy, Obama’s communications office called ABC News to arrange the interview, officials said.

Biden has previously stepped on the administration’s message with public statements.

At a retreat for Democratic House members in February 2009, shortly after taking office, Biden told his audience about an Oval Office conversation on reviving the economy, saying, “if we do everything right, if we do it with absolute certainty, we stand up there and we make really tough decisions, there’s still a 30 percent chance we’re going to get it wrong.”

A week later, Obama was asked about it at a White House news conference.

“You know, I don’t remember exactly what Joe was referring to, not surprisingly,” Obama said to laughter. He said his vice president “may have been suggesting” that “given the magnitude of the challenges that we have, any single thing that we do is going to be part of the solution, not all of the solution.”

In March 2010, an open microphone picked up Biden whispering into Obama’s ear before he signed landmark health- care legislation, “This is a big f----ng deal.”

To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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Sukhoi SuperJet Disappears During Indonesia Demo Flight

By Yudith Ho and Andrea Rothman - May 10, 2012 6:01 AM GMT+0700

The search continued for a Russian Sukhoi SuperJet 100 that vanished from radar screens during a brief promotional flight in Indonesia yesterday with 50 people on board, as poor weather complicated the rescue effort.

Indonesia’s National Search & Rescue Agency deployed more than 100 people to track down the aircraft that disappeared in the afternoon in West Java. Helicopters were forced to abort an earlier mission and will resume their search today. Sukhoi representatives said they were heading for Jakarta to support the effort, along with Russia’s Ministry of Industry & Trade.

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Relatives of passengers on the ill-fated Russian Sukhoi Superjet 100 grieve at the arrival area of Halim airport in Jakarta on May 9, 2012. Photographer: Romeo Gacad/AFP/GettyImages

The twin-engine aircraft, which can carry about 100 people, lost contact after descending to 6,000 feet (1,828 meters) on its second flight of the day during a promotional tour of Asian countries. The SuperJet, developed with support and equipment of Western partners, is the spearhead in Russia’s attempt to revive the nation’s aerospace industry and modernise the fleet following the 1991 collapse of the Soviet Union.

“I cannot say that it has crashed,” Daryatmo, head of the Search and Rescue Agency, said at a press briefing at Halim Perdana Kusumah airport. “What we can say at the moment is that it has lost contact.” .

The terrain in the West Java province reaches 10,000 feet around the peak of the Ciremai volcano. The Sukhoi had taken off from the Halim Perdana airport as part of a tour of Asia that had included previous stints to Myanmar, Pakistan and Kazakhstan. Further appearances were planned in Laos and Vietnam, Olga Kayukova, a spokeswoman for Sukhoi owner United Aircraft Corp., said by telephone.

Proper Condition

The aircraft has an operating range of as much as 4,578 kilometers (2,845 miles) and is a challenger to similar-sized jets from Bombardier Inc. (BBD/B) and Brazil’s Embraer SA. (EMBR3) Sukhoi said the jet used in Jakarta had gone through the “full pre-flight check” and displayed the “proper technical condition.”

The second demonstration flight for the day followed a first tour that had gone “without any technical problems,” Sukhoi said in a statement on its website. Commanding the jet were a “very experienced crew” consisting of Chief Test Pilot Alexander Yablontsev and co-pilot Alexander Kochetkov, it said.

The Sukhoi SuperJet carried 42 passengers and eight crew, Sunaryo, an official from PT Trimarga Rekatama, said at a press conference yesterday in Jakarta. Trimarga Rekatama is Sukhoi’s agent in Indonesia.

Prone to Accidents

The SuperJet was developed in a venture with Finmeccanica SpA (FNC)’s Alenia Aeronautica SpA, which is helping market the plane. Russia’s aviation industry has sought to overcome the image of outdated aircraft prone to accidents. Last year, the country suffered 99 deaths after five jetliner accidents through late September, according to the most recent figures available from researcher Ascend Worldwide Ltd.

Following an accident last year when a plane carrying the Lokomotiv Yaroslavl hockey team failed to gain altitude, then- President Dimitry Medvedev said Russia might turn to foreign aircraft producers to ensure safety of air travel.

The age of Russia’s domestically manufactured single-aisle aircraft fleet is between 25 and 30 years, while the U.S. fleet averages around 13 years, according to figures published late last year by Ascend, a London-based aviation consultant company.

“It’s a setback, but we don’t know anything about the causes yet,” said Richard Aboulafia, vice president of the Teal Group, an aviation forecaster in Fairfax, Virginia. “Russia’s jetliner industry completely lost its competitiveness after the Cold War and shrank to almost nothing.”

Muted Interest

Customers for the SuperJet included Armenia’s Armavia and Russia’s flagship airline OAO Aeroflot, and the eight aircraft in service for two carriers have accumulated more than 3,500 flights. PT Sky Aviation, an Indonesian carrier, has ordered 12, and the Asian tour was an attempt to raise the aircraft’s profile with prospective customers.

While European carriers including Air France-KLM Group and Deutsche Lufthansa (LHA) AG initially said they were studying the plane, neither has so far placed orders. The SuperJet’s main competitors are the CRJ900 built by Bombardier and the E175 and E190 models by Embraer.

Seating five abreast, the plane is powered with engines built by PowerJet, a joint venture between French engine maker Snecma, a unit of Safran SA (SAF), and NPO Saturn. Safran’s Messier- Dowty unit also provides the integrated landing gear system, with B/E Aerospace providing the doors. Italy’s Avio provides the gearbox for the propulsion systems and Safran’s Aircelle unit provides the engine nacelles.

Development and capital costs were about $1 billion, according to Fairfax’s Teal, with another $1 billion for the engines and customer support. The list price is $28 million. The aircraft had 170 orders in total, according to Teal. Sukhoi itself has not disclosed order numbers.

To contact the reporters on this story: Yudith Ho in Singapore at yho35@bloomberg.net; Andrea Rothman in Paris at aerothman@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Neil Denslow at ndenslow@bloomberg.net

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Greece Euro-Exit Debate Goes Public

By James G. Neuger - May 10, 2012 5:01 AM GMT+0700

From the monetary fortress of the European Central Bank to the pro-European duchy of Luxembourg, policy makers are beginning to air their doubts that Greece can stay in the euro.

Post-election tumult in Athens has put the once-taboo subject of an exit from the 17-country currency union on the agenda, lifting the veil on possible scenario planning afoot behind the scenes.

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The euro fell for the eighth day as it dawned on investors that Greek voters’ revolt against austerity, and not the victory of Socialist Francois Hollande in France, was the more significant of the two national elections in the EU on May 6. Photographer: Simon Dawson/Bloomberg

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May 10 (Bloomberg) -- Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley in Asia, talks about the global economy and Europe's sovereign debt crisis. He speaks from Connecticut with Susan Li on Bloomberg television's "First Up." (Source: Bloomberg)

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May 10 (Bloomberg) -- Elena Panaritis, a former Greek member of parliament for the socialist Pasok party, talks about the outlook for the nation's debt crisis and possible exit from the euro zone. Post-election tumult in Athens has put the once-taboo subject of an exit from the 17-country currency union on the agenda, lifting the veil on possible scenario planning afoot behind the scenes. Panaritis speaks from Athens with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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May 9 (Bloomberg) -- Riccardo Barbieri, chief European economist at Mizuho International Plc, talks about European Union fiscal cooperation and the prospects for another round of Greek elections in June. He speaks with Manus Cranny on Bloomberg Televisions's "Last Word." (Source: Bloomberg)

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May 9 (Bloomberg) -- Robert Jukes, global strategist at Collins Stewart Wealth Management, discusses global investment strategy and controls against portfolio risk. He speaks with Linzie Janis and Mark Barton on Bloomberg Televisions's "Countdown." (Source: Bloomberg)

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May 9 (Bloomberg) -- Bank of Italy Director General Fabrizio Saccomanni talks about Greece's bailout terms and the outlook for the Italian economy. He speaks with Bloomberg Television's David Tweed in Florence, Italy. (Source: Bloomberg)

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A German activist, member of the Frankfurter 'Occupy Public Space,' outside the German embassy in Athens protesting 'against the austerity and debt politics in the EU forced by the German government'. Photographer: Simela Pantzartzi/EPA/Landov

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Alexis Tsipras, center, leader of Greece's radical left coalition SYRIZA, leaves Greek President Karolos Papoulias' office in Athens on May 8, 2012. Photograph: Kyodo/Landov

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Wolfgang Schaeuble, Germany's finance minister. Photographer: Jock Fistick/Bloomberg

“If Greece decides not to stay in the euro zone, we cannot force Greece,” German Finance Minister Wolfgang Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels yesterday. “They will decide whether to stay in the euro zone or not.”

After 386 billion euros ($499 billion) in aid pledges for Greece, Ireland and Portugal, 214 billion euros in ECB bond purchases and another trillion euros in low-interest loans for banks, plus 17 high-level crisis summits, Greece’s political chaos thrust Europe into a perilous new phase.

The world is witnessing an “important moment in European Union history, a moment of crisis,” EU President Herman Van Rompuy said in Brussels on the 62nd anniversary of the declaration by Robert Schuman, then France’s foreign minister, that launched postwar European integration.

Euro’s Drop

The euro fell for the eighth day as it dawned on investors that Greek voters’ revolt against austerity, and not the victory of Socialist Francois Hollande in France, was the more significant of the two national elections in the EU on May 6.

Bonds of at-risk countries have suffered since the balloting. Spain’s extra 10-year yield over German levels widened to 456 basis points from 415 at the end of last week. Italy’s widened to 408 basis points from 385 over the same timespan. The euro bought $1.2950 at 6:15 p.m. in Brussels, bringing its eight-day loss to 2.4 percent.

“Politically speaking, Greece is already out of the euro zone,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mailed note. “The only question is about the timing and disorderliness of its exit.

The Greek parties running on an austerity-for-rescue platform took one-third of the vote. Top vote getter Antonis Samaras failed to assemble a government, throwing in the towel after a few hours. Second-place finisher Alexis Tsipras of the Syriza party began coalition talks with an ultimatum to would-be partners to renounce support for the bailout.

‘Catastrophic Uncertainty’

The response outside Athens left little room for maneuver. Schaeuble said that fiddling with the bailout terms would unleash ‘‘catastrophic uncertainty’’ in financial markets, and the central bank’s verdict came from his former deputy, Joerg Asmussen.

‘‘Greece has to be aware that there is no alternative to the agreed consolidation program if it wants to remain a member of the euro zone,’’ Asmussen, who last year moved from the German Finance Ministry to the ECB board, told Handelsblatt in an interview published yesterday.

With polls showing roughly the same proportion of Greeks wanting to stay in monetary union while opposing austerity, the haggling over the future government and possible elections next month put the country before two incompatible options.

‘Very Painful’

‘‘If 80 percent of Greeks want to stay in the euro, then I think they have to support parties that are in favor of this policy of staying in the euro,’’ Luxembourg Foreign Minister Jean Asselborn said at the Brussels conference. Otherwise ‘‘comes the point where Greece unfortunately has squandered the opportunity and that will be very, very painful for the people.’’

European treaties label the euro ‘‘irrevocable’’ and provide no legal procedure for a country to leave or be thrown out. A December 2009 study by the ECB’s legal department deemed an ouster or departure ‘‘so challenging, conceptually, legally and practically, that its likelihood is close to zero.’’

Europe’s crisis managers put the odds at zero until last November, when German Chancellor Angela Merkel and French President Nicolas Sarkozy turned a planned Greek referendum on austerity into an in-or-out vote on Greece’s euro future.

The referendum was dropped and the Greek leader who mooted it, George Papandreou, was out within days. A nonpartisan government led by former ECB Vice President Lucas Papademos took over. Unlike Italy, which got a technocratic government at the same time, Greek politicians gambled on early elections.

Re-Vote

With the coalition talks in Athens at risk of stalemating, another vote may come as soon as next month.

Merkel’s first finance minister, Peer Steinbrueck, questioned whether a new election would yield a functioning government with the mandate to deliver the additional savings demanded by international donors.

Greece may be mired in ‘‘a fragile, virtually paralyzed situation for months,” Steinbrueck, a potential challenger to Merkel in Germany’s 2013 election, said at the Brussels conference.

The next Greek ballot “will be a referendum on continued euro membership,” said John Stopford, co-head of fixed income and currency in London at Investec Asset Management, which oversees about $90 billion. “As last week’s election shows, it’s going to be a close-run thing.”

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

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

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