American Universities Infected by Foreign Spies Detected by FBI

By Daniel Golden - Apr 9, 2012 4:00 AM GMT+0700

Michigan State University President Lou Anna K. Simon contacted the Central Intelligence Agency in late 2009 with an urgent question.

The school’s campus in Dubai needed a bailout and an unlikely savior had stepped forward: a Dubai-based company that offered to provide money and students.

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Frank Figliuzzi, assistant director for counterintelligence with the Federal Bureau of Investigation (FBI), sits for a photograph in front of a wall of convicted spy profiles at the FBI headquarters in Washington, D.C. on March 29, 2012. Photographer: Andrew Harrer/Bloomberg

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Lou Anna K. Simon, president of Michigan State University speaks during a video taping in her office in East Lansig, Michigan on Dec. 17, 2010. Photographer: Kurt Stepnitz/Michigan State University via Bloomberg

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Then Penn State University President Graham Spanier. Photographer: Hunter Martin/Getty Images

Sergei Tretyakov, a former Russian intelligence agent. Source: Pete Earley via Bloomberg

Russian spy Lidiya Guryeva was pursuing a master's degree in business at Columbia under the name of Cynthia Murphy. Guryeva was arrested for acting as an agent of a foreign power and deported to Russia. Source: U.S. Department of Justice via Bloomberg

Simon was tempted. She also worried that the company, which had investors from Iran and wanted to recruit students from there, might be a front for the Iranian government, she said. If so, an agreement could violate federal trade sanctions and invite enemy spies.

The CIA couldn’t confirm that the company wasn’t an arm of Iran’s government. Simon rejected the offer and shut down undergraduate programs in Dubai, at a loss of $3.7 million.

Hearkening back to Cold War anxieties, growing signs of spying on U.S. universities are alarming national security officials. As schools become more global in their locations and student populations, their culture of openness and international collaboration makes them increasingly vulnerable to theft of research conducted for the government and industry.

“We have intelligence and cases indicating that U.S. universities are indeed a target of foreign intelligence services,” Frank Figliuzzi, Federal Bureau of Investigation assistant director for counterintelligence, said in a February interview in the bureau’s Washington headquarters.

‘Academic Solicitation’

While overshadowed by espionage against corporations, efforts by foreign countries to penetrate universities have increased in the past five years, Figliuzzi said. The FBI and academia, which have often been at loggerheads, are working together to combat the threat, he said.

Attempts by countries in East Asia, including China, to obtain classified or proprietary information by “academic solicitation,” such as requests to review academic papers or study with professors, jumped eightfold in 2010 from a year earlier, according to a 2011 U.S. Defense Department report. Such approaches from the Middle East doubled, it said.

“Placing academics at U.S. research institutions under the guise of legitimate research offers access to developing U.S. technologies and cutting-edge research” in such areas as information systems, lasers, aeronautics and underwater robots, the report said.

World-Class Talent

Welcoming world-class talent to American universities helps the U.S. sustain global supremacy in science and technology, said University of Maryland President Wallace Loh. He chairs the U.S. Department of Homeland Security’s academic advisory council, which held its first meeting March 20 and is expected to address such topics as federal tracking of international students.

Foreign countries “can never become competitive by stealing,” he said. “Once you exhaust that technology, you have to start developing the next generation.”

Foreigners on temporary visas made up 46 percent of science and engineering graduate students at Georgia Institute of Technology and Michigan State and 41 percent at Massachusetts Institute of Technology in 2009, according to a federal survey. China sent 76,830 graduate students to U.S. universities in 2010-2011, more than any other country and up almost 16 percent from the prior year, according to the Institute of International Education in New York.

Finding Recruits

While most international students, researchers and professors come to the U.S. for legitimate reasons, universities are an “ideal place” for foreign intelligence services “to find recruits, propose and nurture ideas, learn and even steal research data, or place trainees,” according to a 2011 FBI report.

In one instance described in the report, the hosts of an international conference invited a U.S. researcher to submit a paper. When she gave her talk at the conference, they requested a copy, hooked a thumb drive to her laptop and downloaded every file. In another, an Asian graduate student arranged for researchers back home to visit an American university lab and take unauthorized photos of equipment so they could reconstruct it, the report said.

A foreign scientist’s military background or purpose isn’t always apparent. Accustomed to hosting visiting scholars, Professor Daniel J. Scheeres didn’t hesitate to grant a request several years ago by Yu Xiaohong to study with him at the University of Michigan. She expressed a “pretty general interest” in Scheeres’s work on topics such as movement of celestial bodies in space, he said in a telephone interview.

Unaware of Credentials

She cited an affiliation with the Chinese Academy of Sciences, a civilian organization, Scheeres said. The Beijing address Yu listed in the Michigan online directory is the same as the Academy of Equipment Command & Technology, where instructors train Chinese military cadets and officers. Scheeres said he wasn’t aware of that military connection, nor that Yu co-wrote a 2004 article on improving the precision of anti- satellite weapons.

Once Yu arrived, her questions made him uncomfortable, said Scheeres, who now teaches at the University of Colorado. As a result, he stopped accepting visiting scholars from China.

“It was pretty clear to me that the stuff she was interested in probably had some military satellite-orbit applications,” he said. “Once I saw that, I didn’t really tell her anything new, or anything that couldn’t be published. I didn’t engage that deeply with her.”

Wrote About NASA

Yu later wrote a paper on the implications for space warfare of the NASA Deep Impact mission, which sent a spacecraft to collide with a comet. She couldn’t be reached for comment.

American universities have also trained Chinese researchers who later committed corporate espionage. Hanjuan Jin, a former software engineer at Motorola Inc., was found guilty in February in federal court of stealing the Schaumburg, Illinois-based company’s trade secrets and acquitted of charges she did so to benefit China’s military. She is scheduled for sentencing in May and has also filed a motion for a new trial.

Jin joined the company, now known as Motorola Solutions Inc. (MOT), after earning a master’s degree from the University of Notre Dame in South Bend, Indiana. While at Motorola, she received a second master’s, this time in computer science, from the Illinois Institute of Technology in Chicago. IIT’s own research wasn’t compromised, institute spokesman Evan Venie said in an e-mail. A Notre Dame spokesman declined to comment.

Study Abroad Targets

More Americans are heading overseas for schooling, becoming potential targets for intelligence services, Figliuzzi said. More than 270,000 Americans studied abroad for credit in 2009- 2010, up 4 percent from the year before. President Barack Obama has announced an initiative to send 100,000 American students to China, and China has committed 10,000 scholarships for them.

As a junior at Grand Valley State University in Allendale, Michigan, Glenn Duffie Shriver studied at East China Normal University in Shanghai. After graduation, he fell in with Chinese agents, who paid him more than $70,000. At their request, he returned to the U.S. and applied for jobs in the State Department and the CIA. He was sentenced to four years in prison in January 2011 after pleading guilty to conspiring to provide national-defense information to intelligence officers of the People’s Republic of China.

“Study-abroad programs are an attractive target. Foreign security services find young, bright U.S. kids in science or politics, it’s worth winning them over,” Figliuzzi said.

Front Companies

Unlike its counterparts in other countries, which rely on their own operatives, China’s intelligence service deploys a freelance network including students, researchers and false- front companies, said David Major, president of the Centre for Counterintelligence and Security Studies in Falls Church, Virginia and a former FBI official.

China has “lots of students who either are forced to or volunteer to collect information,” he said. “I’ve heard it said, ‘If it wanted to steal a beach, Russia would send a forklift. China would send a thousand people who would pick up a grain of sand at a time.’”

China also has more than 3,000 front companies in the U.S. “for the sole purpose of acquiring our technology,” former CIA officer S. Eugene Poteat, president of the Association of Former Intelligence Officers in McLean, Virginia, wrote in the fall/winter 2006-2007 edition of “Intelligencer: Journal of U.S. Intelligence Studies.”

U.S. and Canadian universities reaped $2.5 billion in 2011 from licensing technology, up from $222 million in 1991, according to the Association of University Technology Managers in Deerfield, Illinois.

‘Opened Some Eyes’

Universities “may not fully grasp exactly who they’re spinning off their inventions to,” Figliuzzi said. “The company could be a front for a foreign power, and often is. We share specific intelligence with university presidents, and we’ve opened some eyes.”

Michigan State’s Simon learned to be wary of front companies by serving on the National Security Higher Education Advisory Board, established by the FBI and CIA in 2005. It “makes you more aware that you need to look below the surface of some of these offers,” she said. “A short-term solution may turn into an institutional embarrassment.”

Arizona State University President Michael Crow also sits on the board. “It’s all a little perplexing and overwhelming,” he said. “We’re in the business of trying to recruit more students from China. We’re operating at a total openness mode, while we recognize there are people working beyond the rules to acquire information.”

The Chinese embassy in Washington and the Ministry of Foreign Affairs in Beijing didn’t respond to e-mailed questions.

Enabling China

Over the years, American universities have enabled China “to leapfrog into the cutting edge of military capability on the way to superpower status,” Richard Fisher, senior fellow on Asian Military Affairs at the International Assessment and Strategy Center in Alexandria, Virginia, said in an e-mail.

Chen Dingchang, the head of a Chinese military-sponsored working group on anti-satellite technology, led a delegation in 1998 to the University of Florida to learn about diamond-coating manufacturing, used in missile seekers and other systems, said Mark Stokes, executive director of the Project 2049 Institute in Arlington, Virginia, which studies Chinese aerospace technology. In a 1999 report in a Chinese journal, the authors, including Chen, said the university’s cooperation would assist in overcoming a technical bottleneck in China’s development of anti-satellite warheads.

‘Unlikely to Advertise’

“A university may not know that a visiting engineer could be conducting sponsored research on a military program that could hurt Americans in the event of a conflict,” Stokes said. “An engineer supporting a People’s Liberation Army program is unlikely to advertise his or her purpose.”

The University of Florida is “unable to verify” the incident, spokesman Stephen Orlando said.

Chen is a technology adviser at China Aerospace Science and Industry Corp., which didn’t respond to an interview request.

University administrators have traditionally viewed their role as safeguarding academic freedom and making sure that all students, domestic or foreign, are treated the same.

“I’ve been to campuses where deans would say to Chinese students, ‘The FBI is coming to talk to you. You have no responsibility to talk to them,’” Major said. “Very hostile environments.”

Some faculty members remain uneasy about a partnership with federal investigators. “The FBI thrives on a certain degree of paranoia, and it operates in secrecy,” said David Gibbs, a history professor at the University of Arizona. “The secrecy goes against so much of what universities are about, which is openness and transparency.”

Stanford University

Stanford University avoids seeking contracts for “export- controlled” research, which only Americans can work on without a license because it has implications for economic or national security.

“Stanford does not, nor will it, restrict participation of students on the basis of citizenship,” President John Hennessy testified at a January 2010, congressional hearing in Palo Alto, California. More than half of Stanford’s doctoral candidates in the physical sciences and engineering come from outside the U.S., he said.

Asked by Dana Rohrabacher, a Republican congressman from California, if he had read that Chinese military intelligence uses Chinese students, Hennessy said, “I am aware of that.”

“Universities need to think that they are patriotic Americans, too,” Rohrabacher responded.

Hennessy is on sabbatical and unavailable to comment, Lisa Lapin, a Stanford spokeswoman, said in an e-mail.

More Collaboration

After becoming Pennsylvania State University president in 1995, Graham Spanier sought closer collaboration with law enforcement. Reading that a president at another state university expressed shock that a faculty member was under investigation for terrorist ties, he resolved not to be similarly taken aback. He arranged a meeting with representatives of national security agencies including the FBI, CIA, Secret Service and Naval Criminal Investigative Service.

“This had never occurred before,” Spanier said in a phone interview. “Nobody from higher education had reached out.”

If they were making inquiries at Penn State, they should let him know, and he would help, Spanier told them. “That began a very fruitful collaboration,” he said.

Shifting priorities after the Sept. 11, 2001, attacks to terrorism and espionage from organized crime and kidnapping, the FBI expanded the Penn State model into a national board.

Handpicked Board

Spanier approached other university presidents, and 90 percent agreed to serve, he said. Michigan State’s Simon took over as chair after Spanier stepped down as Penn State president last November in the wake of a scandal over sex-abuse allegations against a former assistant football coach. Simon and the FBI and CIA have agreed to expand the board and start a subcommittee on cyber-hacking.

The FBI handpicks universities for the board, Figliuzzi said. It looks at how much research they conduct, as well as “sensitive cases -- where is there a potential problem? Then we make an invitation.”

Board members must have security clearances. FBI officials brief them about cases on their campuses, and the presidents in return guide federal investigators through the thickets of higher education.

Problem Solved

When a foreign entity compromised the computer system of a major university, the bureau contacted the school’s information- technology administrators, who denied that they had a security breach. The FBI consulted Spanier, who persuaded the university’s president to meet with the bureau.

“That opened the door to a higher level of cooperation,” he said. “The problem was solved.”

Similarly, the bureau warned Simon that research in behavioral science by a foreign graduate student at Michigan State “might breach the security of corporate America,” she said. “We were able to find a way for the student to complete his research and still modify it in a way that took away the national security issues.”

Beyond resolving such cases, the FBI has also alerted board members to the overall threat, most dramatically through a presentation by a former Russian spy. As a colonel in Russian intelligence and its deputy resident in New York from 1995 to 2000, Sergei Tretyakov set his sights on Columbia University and New York University, according to “Comrade J: The Untold Secrets of Russia’s Master Spy in America After the End of the Cold War” (2008), by Pete Earley.

Mingled With Professors

“We often targeted academics because their job was to share knowledge and information by teaching it to others, and this made them less guarded than, say, UN diplomats,” Earley quoted Tretyakov as saying. A typical task was to obtain information about “a study of genetically engineered food being done at New York University.”

At the board meeting, Tretyakov described to the presidents how Russian spies used to go to campus events and mingle with professors. “It certainly seemed very bold to me that they felt they could interact with faculty and students and attend seminars,” Spanier said. “We never really think about that happening on our campuses.”

In 2009, around the time Tretyakov was briefing the presidents, a Russian spy, Lidiya Guryeva, was pursuing a master’s degree in business at Columbia under the name Cynthia Murphy, the 2011 FBI report said. Russian intelligence instructed her to strengthen “ties w. classmates on daily basis incl. professors who can help in job search and who will have (or already have) access to secret info,” and to report on their potential “to be recruited by Service.”

Columbia and NYU declined to comment.

Tretyakov died in June 2010. That month, Guryeva was arrested for acting as an agent of a foreign power and deported to Russia.

To contact the reporter on this story: Dan Golden in Boston at dlgolden@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net

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S&P 500 Futures, Asian Stocks Decline as Yen Strengthens

By Lynn Thomasson and Norie Kuboyama - Apr 9, 2012 9:32 AM GMT+0700

U.S. equity futures fell and Asian stocks dropped for a fourth day as data on job creation in the world’s biggest economy trailed estimates. The yen strengthened to a one-month high against the dollar, while oil slumped.

Standard & Poor’s 500 Index futures declined 1.1 percent as of 11:11 a.m. in Tokyo, while the MSCI Asia Pacific Index (MXAP) slid 0.5 percent. The yen rose 0.2 percent and bond risk in Japan increased. South Korea’s won weakened against 14 of its 16 major counterparts. Oil lost 1.3 percent to $102 a barrel in New York, while copper declined in Shanghai.

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The Nikkei 225 Stock Average lost 1.6 percent, poised for the lowest close since Feb. 21. Photographer: Tomohiro Ohsumi/Bloomberg

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April 9 (Bloomberg) -- Kelvin Tay, chief investment strategist at UBS Wealth Management in Singapore, talks about Asian stock markets. He also discusses the U.S. economy and Federal Reserve monetary policy. He speaks with Susan Li on Bloomberg Television's "First Look." (Source: Bloomberg)

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April 9 (Bloomberg) -- Kenji Abe, an equity strategist at Citigroup Global Markets Japan Inc., talks about the nation's financial markets and economy. Japan swung to a current-account surplus in February after a record deficit in January, lending support to a currency that officials have sought to weaken to spur the recovery of the world’s third-biggest economy. Abe speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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April 9 (Bloomberg) -- Sandy Shen, a Shanghai-based analyst at research company Gartner Inc., talks about Asia's telecommunications industry. HTC Corp., Asia’s second-largest smartphone maker, posted its biggest drop in profit since listing a decade ago after sales declined amid competition from Apple Inc. and Samsung Electronics Co. Shen speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

American employers added 120,000 jobs in March, the fewest in five months and less than the median economist forecast of 205,000 in a Bloomberg survey, the Labor Department reported on April 6. Stocks fell the most in South Korea, Taiwan and Japan on concern North Korea is preparing for a nuclear test and as data that showed China’s inflation accelerated more than forecast in March.

“The job data reduced investors’ optimism,” said Naoki Fujiwara, who helps oversee $6.4 billion at Shinkin Asset Management Co. in Tokyo. “People in the markets are getting more cautious and the mood is growing that the U.S. economy won’t recover so easily.”

U.S. Jobs Report

The U.S. jobs report presents a challenge that stocks have overcome nine times during the bull market that’s driven the S&P 500 up 107 percent in three years. The government’s monthly tally of U.S. hiring missed the median projection by 85,000, according to data compiled by Bloomberg. While the S&P 500 averaged losses of 0.8 percent in the day after shortfalls of this magnitude since March 2009, the benchmark gauge cut its decline in half a week later and was up 0.9 percent after two weeks, the data show.

Almost seven stocks fell for each that rose in the MSCI Asia Pacific Index. The Nikkei 225 Stock Average (NKY) lost 1.1 percent, poised for the lowest close in a month. South Korea’s Kospi index and Taiwan’s Taiex Index retreated 1.2 percent. European markets are shut today for a holiday, along with Australia, New Zealand, Hong Kong, Thailand and South Africa.

HTC Corp. (2498) tumbled 6.3 percent in Taiwan. Asia’s second- largest smartphone maker posted its biggest drop in profit since listing a decade ago after sales declined amid competition from Apple Inc. and Samsung Electronics Co.

Korean Defense Stocks

Victek Co., a South Korean maker of electronic warfare equipment, and Huneed Technologies, which makes military communication devices, rallied 15 percent. Satellite images show North Korea digging a new tunnel at a site where the country conducted nuclear tests in 2006 and 2009, Yonhap News reported yesterday, citing an unidentified intelligence official.

South Korea’s won slid 0.4 percent to 1,136.55 per dollar and government bonds gained after Joint Chief of Staff spokesman Lee Bung Woo said the military is “closely monitoring” North Korea’s planned rocket launch and preparation for a possible nuclear test. The five-year government bond yield fell four basis points to 3.65 percent.

“Reports that North Korea may launch a rocket near the end of this week is tilting market sentiment toward a weaker won,” said Ryoo Hyun Jung, a Seoul-based chief currency dealer at Citibank Korea Inc.

The Shanghai Composite Index (SHCOMP) slid 0.6 percent. China’s consumer prices rose 3.6 percent in March from a year earlier, the government said. That compared with the 3.4 percent median estimate in a Bloomberg News survey of economists and a 3.2 percent gain the previous month. The one-year swap rate rose four basis points to 3.185 percent.

“The CPI number is very high and disappointing,” said Ju Wang, a rates strategist at Barclays Capital in Singapore. “It’s bad for sentiment as it may delay a reserve requirement cut.” Barclays has predicted a reduction this month.

Yen Strengthens

The yen strengthened as official data showed Japan returned to a current-account surplus in February, bolstering the allure of the currency as an investment haven. The nation had a 1.18 trillion yen ($14.5 billion) surplus in its February current account, the widest measure of trade, government data showed today. That was after a record deficit in the account in January.

The cost of insuring Japanese corporate bonds from default increased, according to traders of credit-default swaps. The Markit iTraxx Japan index climbed 4.5 basis points to 162, according to Deutsche Bank AG. The benchmark is set for its highest close since March 22, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Oil futures slid as much as 1.4 percent in New York today after climbing 1.8 percent on April 5. Iran agreed to resume talks over its nuclear program, easing speculation that supplies could be disrupted. Copper on the Shanghai Futures Exchange fell as much as 0.8 percent.

Ten-year Treasuries were little changed after last week’s biggest rally this year, with yields at 2.06 percent.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

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

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Oil Declines After U.S. Stockpiles Surge the Most Since 2

By Mark Shenk - Apr 5, 2012 3:09 AM GMT+0700

Oil tumbled after the Energy Department said U.S. stockpiles surged the most since 2008 as domestic crude output climbed to the highest level in 12 years.

Futures fell to a seven-week low as inventories rose 9.01 million barrels to 362.4 million last week, the most since June. Production gained 2.9 percent to 6.05 million barrels a day. Oil also decreased after the Federal Reserve signaled it may refrain from more monetary stimulus.

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April 4 (Bloomberg) -- Stephen Schork, president of the Schork Group, talks about the outlook for the oil market, gasoline prices and the possible release of oil from the U.S. Strategic Petroleum Reserve. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

“U.S. inventories are obviously more than ample,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.3 billion. “U.S. production keeps increasing. This proves that when prices rise high enough, producers are going to find new ways to bring supply to market.”

Crude oil for May delivery dropped $2.54, or 2.4 percent, to $101.47 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 14. Prices have increased 2.7 percent this year.

Brent oil for May settlement fell $2.52, or 2 percent, to end the session at $122.34 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract settled at a $20.87 premium to West Texas Intermediate, the grade traded in New York, the widest spread since October.

U.S. crude output last week was at the highest level since December 1999. Domestic production averaged over four weeks rose 5.2 percent from a year earlier, the department said.

Surging Output

The surge in U.S. oil production reflects a change in the way the department estimates output, said Barbara Mariner-Volpe, who is in charge of the oil and gas supply statistics. The weekly estimates rely on monthly production tallies that the department calculates using state reports and Interior Department data, she said.

In the past, the Energy Department revised its monthly figures once a year based on updated state and federal numbers, she said. In April, the department began incorporating that information on a monthly basis.

Crude imports climbed 5.4 percent to 9.77 million barrels a day last week, the highest level since the period ended Jan. 6. Fuel imports surged 15 percent to 2.04 million barrels a day, the most in two months.

Supplies of crude oil were projected to rise 2.5 million barrels, according to the median estimate of 11 analysts surveyed by Bloomberg.

Test $100

“We’re going to probably test $100 in the next week and go lower,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York.

Stockpiles at Cushing, Oklahoma (DOESCROK), the delivery point for New York futures, rose 729,000 barrels to 40.3 million, the highest level since May, the report showed.

“Rising production here is the reason WTI is trading at such a big discount to Brent,” O’Grady said.

Oil also fell after the Federal Reserve signaled it may refrain from further monetary accommodation unless the economy falters or prices rise at a rate slower than its 2 percent target, according to the minutes of its March 13 policy meeting released yesterday.

The central bank affirmed its plan, first announced in January, to hold interest rates near zero through late 2014 as the economy’s improvement may not be sufficient to lower the outlook for coming years. There had been speculation the Fed would proceed with a third round of bond purchases in a tactic that has been dubbed quantitative easing. The Fed bought a total of $2.3 trillion in bonds from December 2008 to June 2011.

Quantitative Easing

“The release of the Fed minutes have confirmed to the market that there won’t be any QE3,” said Marshall Berol, co- portfolio manager of the Encompass Fund in San Francisco, which manages about $300 million of assets. “The inventory numbers add to the negative sentiment.”

Markets also moved lower after Spain sold fewer bonds than its maximum target, bolstering concern that the European debt crisis will spread. Spain sold 2.59 billion euros ($3.4 billion) of bonds today, just above the minimum amount it planned for the auction and below the 3.5 billion-euro maximum target.

“We were down before the inventory report because of the Fed minutes” and the bond auction in Spain, said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “Absent a supply shock, supplies should be fine.”

Equity Decline

The Standard & Poor’s 500 Index was down 0.9 percent at 3:14 p.m. The dollar strengthened 0.7 percent versus the euro. A stronger U.S. currency reduces the appeal of raw materials as an investment. The Standard & Poor’s GSCI Index of 24 commodities dropped 1.8 percent, led by silver and cotton.

“There’s no reason to have any view of the markets other than risk off,” Berol said.

Electronic trading volume on the Nymex was 591,428 contracts as of 4:08 p.m. in New York. Volume totaled 542,362 contracts yesterday, 17 percent below the three-month average. Open interest was 1.57 million.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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RIM Deal Seen Dubious With Cheapest Value Amid Losses

By Tara Lachapelle and Hugo Miller - Apr 5, 2012 4:19 AM GMT+0700

Research In Motion Ltd. (RIMM) needs more than the cheapest valuation in the communications-equipment industry to lure potential buyers. It also needs a hit smartphone.

RIM of Waterloo, Ontario, said last week it will review options, including joint ventures and licensing agreements, and predicted “continued pressure” on revenue and earnings as its BlackBerry loses market share to Apple Inc. (AAPL)’s iPhone and Google Inc. (GOOG)’s Android system. After the shares fell 77 percent in the last year, the $6.8 billion company traded yesterday at a 32 percent discount to the value of its net assets, the only communications-equipment maker greater than $5 billion selling at less than book value, according to data compiled by Bloomberg.

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A BlackBerry Curve 9300 smartphone, manufactured by Research In Motion Ltd. Photographer: Simon Dawson/Bloomberg

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March 30 (Bloomberg) -- Research In Motion Ltd. said it plans to refocus on the business market and review strategic options after struggling to compete against Android devices and Apple Inc.’s iPhone. This report contains comments from RIM Chief Executive officer Thorsten Heins, Eric Jackson, president of Ironfire Capital LLC, Dixon Doll, co-founder of DCM Inc. and Bloomberg contributing editor Nick Thompson. Bloomberg's Betty Liu and Sheila Dharmarajan report. (Source: Bloomberg)

With Chief Executive Officer Thorsten Heins saying the smartphone maker would also consider a sale, an acquirer could pay a 41 percent premium and still buy RIM at the industry’s lowest price relative to earnings. Ironfire Capital LLC says RIM may attract interest from Amazon.com Inc. (AMZN) with its operating system and tablet, while Samsung Electronics Co. (005930) may be drawn by the e-mail and messaging infrastructure, said Recon Analytics LLC. Still, the fate of the company -- and any takeover -- rests on the success of new BlackBerry 10 devices to stabilize customer losses, according to UBS AG.

“It’s easy to say it’s cheap and that somebody’s going to acquire RIM, but it becomes a little bit harder in reality,” Walter Todd, who oversees about $950 million as chief investment officer at Greenwood Capital in Greenwood, South Carolina, said in a telephone interview. “They’ve had some stumbles from an innovation standpoint. Why rush to catch a falling knife?”

BlackBerry’s Decline

Today, RIM shares fell 1.9 percent to $12.76, the lowest price since Dec. 20.

Tenille Kennedy, a spokeswoman for RIM, said the company doesn’t comment on speculation and referred to Heins’ comments last week.

While Heins said on March 29 that a sale would be considered, it’s not the “main direction” for RIM’s strategic review. Heins, who became CEO in January, also said RIM will refocus on business customers and more targeted consumer segments after sales missed analysts’ estimates for the fifth straight quarter.

RIM’s BlackBerry, the dominant smartphone in the U.S. before Cupertino, California-based Apple unveiled the iPhone in 2007, has lost market share in the past three years as consumers turned to iPhones with faster Web browsers and more applications.

‘Running Away Faster’

While former CEOs Jim Balsillie and Mike Lazaridis, who both stepped down in January, had assured investors the latest iteration of its smartphone would deliver a revival, BlackBerry 7 devices with better Web browsing and touch-screen navigation failed to do so after going on sale last year. Total sales last quarter tumbled 25 percent from a year earlier as U.S. revenue plunged 57 percent, RIM said last week.

The U.S. decline reduced RIM’s share of the worldwide smartphone market to 8.2 percent in the fourth quarter from 14 percent a year earlier, while Apple’s share rose to 24 percent from 16 percent, according to research firm IDC. Market share for Samsung, the biggest handset maker to run Android, jumped to 23 percent from 9.4 percent.

“The competition has more resources, they’re further ahead and they’re running away faster,” James Faucette, a Portland, Oregon-based analyst for Pacific Crest Securities, said in a phone interview. “At some point it will get cheap enough that somebody will buy it. I don’t think it’s cheap enough yet.”

Getting Cheaper

Valued as high as $83 billion in June 2008, RIM’s market capitalization plummeted to $6.8 billion as of yesterday. The stock’s 91 percent plunge from its peak is the second-steepest in the Nasdaq-100 Index. (NDX) In the same time, Apple shares have more than tripled, giving the company a market value of $587 billion as of yesterday.

RIM traded yesterday at 0.68 times the value of its assets minus liabilities, after falling below book value in November, data compiled by Bloomberg show. Its peers had a median price- to-book multiple of 2.3, the data show.

“I don’t think there’s any urgency to acquire RIM given what’s happened to the stock,” said Todd of Greenwood Capital. “Having said that, it is trading below book value and at some point it becomes attractive.”

The company is also the least expensive in the industry relative to free cash flow and its $1.16 billion in net income in the last 12 months, the data show.

Stabilizing Sales

After annual revenue at RIM fell for the first time in the company’s history last year, sales are projected to drop 16 percent this fiscal year to $15.5 billion, according to analysts’ estimates compiled by Bloomberg. The company also posted its first quarterly net loss since 2005. RIM said it will no longer give financial forecasts, in part because of “weakness” in its U.S. business.

RIM’s Heins is counting on the new BlackBerry 10 operating system to stabilize sales. The first device will come out in the “latter” part of this year, he reiterated last week.

A full takeover of RIM or a licensing deal is “only conceivable once business conditions stabilize and after BB10 devices have proven some success,” Phillip Huang, an analyst with UBS in Toronto, wrote in a March 30 note. “RIM’s future depends on BB10. There is simply too much flux at this juncture for any acquirer to have a good handle of the intrinsic value of this company.”

Still, an acquirer could pay as much as $18.37 a share for RIM and value the company at only 6 times last year’s earnings, less than all of its peers, which trade at a median of 18 times, data compiled by Bloomberg show. That would be 41 percent higher than RIM’s closing price of $13.01 yesterday.

Amazon as Buyer

Amazon, which began making electronic reading devices in 2007, has “slowly shown the desire to move into consumer electronics,” said Brian Blair, a New York-based analyst at Wedge Partners Corp. Acquiring RIM would allow Amazon to enter the mobile handset and smartphone business, he said.

Eric Jackson, president of Ironfire Capital, said Seattle- based Amazon would be a logical buyer as it looks to shore up its tablet business.

Mary Osako, a spokeswoman for Amazon, said the company doesn’t comment on speculation, when asked whether it would consider buying RIM.

While RIM’s PlayBook tablet initially garnered praise for its hardware capabilities and the power of its operating system, the device was panned by other critics for lacking a dedicated e-mail and calendar program. A series of marketing gaffes and delay in introducing an e-mail upgrade also hurt sales.

Samsung Chasing Business

Amazon’s unprofitable Kindle Fire tablet has been “very underwhelming” as readers switch from physical books to digital, said Jackson. Although sales of RIM’s PlayBook have been lackluster, its software offers “a potentially legitimate operating system for them to look at buying that could help them,” he said.

Samsung, the world’s No. 2 handset maker, may also consider an acquisition to get a hold of RIM’s business e-mail infrastructure and messaging service as the Suwon, South Korea- based company pursues the corporate market, said Roger Entner, an analyst at Recon Analytics in Dedham, Massachusetts. RIM has 77 million subscribers around the world, many of whom are loyal to their devices because of the free BlackBerry Messenger instant messaging app.

“Buying BlackBerry would give them that differentiation factor of superior e-mail and Messenger,” Entner said.

Samsung is not considering an acquisition of RIM, Nam Ki Yung, a Seoul-based spokesman, said in an e-mail. The company said it doesn’t comment on market speculation when asked if it’s considering a licensing deal with RIM.

‘One-Trick Pony’

HTC Corp. (2498), Asia’s second-largest smartphone maker, shouldn’t be ruled out as a buyer of RIM because the company needs to differentiate itself from Android rivals as sales stagnate, said Entner. The Taoyuan City, Taiwan-based company has missed analysts’ sales estimates for three straight quarters because of competition from Apple and Samsung.

“HTC might actually need them more than Samsung does,” said Entner. “They’re a one-trick pony whereas Samsung makes everything under the sun.”

Linda Mills, a spokeswoman for HTC, could not be reached outside of normal business hours.

Even if BlackBerry 10 is able to retain customers, it may not be enough to fix RIM’s problems and attract buyers, according to Faucette at Pacific Crest.

“I don’t expect BlackBerry 10 will change things much,” Faucette said. “Ultimately, they’re a dwindling business.”

‘Wait and See’

RIM shares fell 9.5 percent yesterday, the most since December, on speculation potential bidders are losing interest.

Anil Doradla, a Chicago-based analyst for William Blair & Co., says RIM is more likely to receive interest in a joint venture or licensing deal because competitors won’t want to pay for the whole company.

Matt Thornton, an analyst at Avian Securities LLC in Boston, agrees that investors betting on a sale should think twice.

“I’m sure a lot of people have been kicking the tires, but I think a sale is pretty tough to come up with,” Thornton said in a phone interview. Instead, licensing BlackBerry 10 would be appealing to a company like Samsung to help lessen its dependence on Android, he said.

Still, if RIM becomes a “single-digit stock,” it may feel the desperation to sell and suitors may be willing to take the risk on a full acquisition, said Blair at Wedge Partners.

“RIM, as well as any potential acquirers, are going to watch and see what happens to RIM’s subscriber base this year and how the new version of BlackBerry does this year and whether there’s anything worth owning,” Blair said. “Any potential suitors are going to wait and see how that’s received by consumers. Nobody knows just how bad this could get.”

To contact the reporters on this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Ville Heiskanen at vheiskanen@bloomberg.net.

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Stocks, Commodities Drop on Fed Minutes, Spanish Auction

By Michael Shanahan and Lu Wang - Apr 5, 2012 3:32 AM GMT+0700

Stocks and commodities slid for a second day as weaker demand at a Spanish debt auction and the U.S. Federal Reserve’s reluctance to add more monetary stimulus fueled concern the global economic recovery will slow. The euro fell and Spanish, Italian and Portuguese bond yields surged.

The Standard & Poor’s 500 Index lost 1 percent as of 4 p.m. in New York, its second-worst drop of the year, and the Dow (INDU) Jones Industrial Average slid 124.8 points to 13,074.75. The Stoxx Europe 600 Index tumbled 2.1 percent. The euro depreciated against 12 of 16 major peers, while 10-year Treasury yields fell seven basis points to 2.23 percent. Spanish 10-year yields surged 24 basis points to 5.69 percent. Silver and gold plunged more than 3 percent and oil extended losses after U.S. supplies grew by the most since 2008.

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

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April 4 (Bloomberg) -- Federal Reserve Bank of Richmond President Jeffrey Lacker talks about Fed policy, the U.S. economy and the housing market. Trish Regan reports on Lacker's remarks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

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April 4 (Bloomberg) -- Stephen Schork, president of the Schork Group, talks about the outlook for the oil market, gasoline prices and the possible release of oil from the U.S. Strategic Petroleum Reserve. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

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April 4 (Bloomberg) -- Russ Koesterich, global chief investment strategist for the IShares unit of BlackRock Inc., talks about asset allocation and global stocks. He speaks with Mark Barton on Bloomberg Television's "On the Move." (Source: Bloomberg)

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April 4 (Bloomberg) -- Vasu Menon, vice president for wealth management at Oversea-Chinese Banking Corp., talks about the minutes of the Federal Reserve's last meeting and the outlook for Asia equities. Menon speaks from Singapore with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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April 4 (Bloomberg) -- George Boubouras, head of investment strategy at UBS AG's Australian wealth-management unit, talks about global financial markets and economies following the release of U.S. Federal Reserve minutes. The Fed is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target. Boubouras speaks from Melbourne with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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April 4 (Bloomberg) -- Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co., talks about the nation's opening of its capital markets, the country's banking industry and his investment strategy. Wan speaks with Susan Li, Rishaad Salamat, Mia Saini and Zeb Eckert on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

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Passersby stand in front of the Australia Securities Exchange (ASX Ltd.) electronic stock board in Melbourne, Australia. Photographer: Luis Enrique Ascui/Bloomberg

The S&P 500 has tumbled 1.4 percent from an almost four- year high of 1,419.04 on April 2 following a 12 percent rally in the first three months of the year, the best first-quarter gain in 14 years. The Fed will refrain from increasing monetary accommodation unless the economic expansion falters or prices rise at a rate slower than its 2 percent target, minutes of a March 13 policy meeting released yesterday showed.

“I can’t remember a time where knowing where you are in the trading cycle is as almost important as the news that’s coming,” Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas Asset Management LLC in Norfolk, Virginia, which oversees about $2 billion, said in a telephone interview. “When you are at the top of a trading range between 1,100 and 1,400, it will take very little bad news -- and maybe some news about quantitative easing, which is not bad news -- for the market to go down.”

Economic Data

U.S. stocks retreated even after an ADP Employer Services report showed companies expanded payrolls by 209,000 following a revised 230,000 gain in February. The median estimate in the Bloomberg News survey called for a 206,000 increase. Economists project a government report in two days will show private employers added 215,000 jobs and total payrolls, including government positions, increased by 205,000.

Service industries in the U.S. expanded less than forecast in March as orders grew at the slowest pace in three months. The Institute for Supply Management’s non-manufacturing index dropped to 56 from a one-year high of 57.3 in February. Readings above 50 signal expansion, and economists surveyed by Bloomberg News projected 56.8 for the gauge, according to the median estimate.

SanDisk Tumbles

Losses in U.S. stocks today were led by financial, technology and commodity companies, with gauges of each group dropping at least 1.2 percent as nine of the 10 main industry groups in the S&P 500 retreated. Bank of America Corp., Alcoa Inc. and Microsoft Corp. lost more than 2 percent for the biggest declines in the Dow.

SanDisk Corp. slid 11 percent, the most since January, after the biggest maker of flash-memory cards cut its forecast for first-quarter sales and profitability, citing weaker-than- expected pricing and demand for components that store data in mobile phones.

General Electric Co. fell 1.1 percent after its debt rating was cut by Moody’s Investors Service because of “heightened risk” from its finance unit, whose own grade was cut below the parent company’s for the first time in two decades.

U.S. equities retreated yesterday as the Fed minutes showed less urgency to add stimulus. Policy makers last month affirmed the plan, first announced in January, to hold interest rates near zero through late 2014 on concern the economy may fail to grow fast enough to continue bringing down unemployment.

‘Welcome Change’

“There’s no justification for the Fed to ease monetary policy further,” Vasu Menon, vice president for wealth management at Oversea-Chinese Banking Corp., said in a Bloomberg Television interview from Singapore. “The market has run up at a very heavy pace, so I think a breather or a correction would be a welcome change for now.”

Almost 50 shares fell for each that advanced in the Stoxx 600. Automakers slumped after U.S. sales of cars and light trucks in March missed the average estimate in a Bloomberg survey of analysts. PSA Peugeot Citroen (UG) slid 5.8 percent and Volkswagen AG fell 2.7 percent. Petropavlovsk Plc, a producer of gold in Russia, sank 6.5 percent as the precious metal retreated for a second day.

Germany’s DAX Index slumped 2.8 percent and Sweden’s OMX Stockholm 30 Index tumbled 3.6 percent to lead losses among major European national indexes. German factory orders increased in February less than economists had forecast. Orders, adjusted for seasonal swings and inflation, increased 0.3 percent from January, the Economy Ministry in Berlin said. Economists had predicted a gain of 1.5 percent, according to the median of 35 estimates in a Bloomberg News survey.

Euro Weakens

The euro weakened 0.7 percent to $1.3142, falling for a third straight day and reaching the weakest level since March 16. Yields on Italian and Portuguese 10-year bonds surged 21 basis points each.

The cost of insuring sovereign debt rose, with the Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments climbing 6.1 basis points to 271. Swaps on Spain jumped 22 basis points to 461, the highest since November, according to CMA.

Spain sold 2.59 billion euros ($3.41 billion) of bonds due between January 2015 and October 2020, compared with a planned maximum of 3.5 billion euros.

ECB Holds Rates Steady

European Central Bank officials meeting in Frankfurt today kept the benchmark interest rate at a record low of 1 percent, as predicted by all 57 economists in a Bloomberg News survey. ECB President Mario Draghi said while a moderate economic recovery is expected this year, the outlook is subject to “downside risks” as the debt crisis damps momentum. Draghi also said any talk of an exit strategy from stimulus measures is premature for now.

Oil tumbled 2.4 percent to $101.47 a barrel, extending losses after the U.S. Energy Department said stockpiles rose 9.01 barrels to 362.4 million. Gold plunged 3.5 percent to $1,614.10 an ounce, the lowest since January, silver sank 6.7 percent and copper dropped 3.3 percent to $3.7905 a pound as 21 of 24 commodities tracked by the S&P GSCI Index retreated, sending the gauge down 2 percent for its biggest drop of the year.

Emerging Markets

Markets in China and Taiwan were shut for holidays. The MSCI Emerging Markets Index (MXEF) fell 1.7 percent, halting a three- day, 2.2 percent climb. The Micex Index (MICEX) fell 2.4 percent in Moscow and the FTSE/JSE Africa All Shares Index (JALSH) slid 2.3 percent in Johannesburg as oil and metals fell. Turkey’s ISE National 100 Index (XU100) retreated 1.3 percent. South Korea’s Kospi Index (HSCEI) slid 1.5 percent, the biggest loss since Dec. 19.

China accelerated the opening of its capital markets by more than doubling the amount foreigners can invest in stocks, bonds and bank deposits. The China Securities Regulatory Commission increased quotas for qualified investors to $80 billion from $30 billion, according to a statement yesterday. Offshore investors will also be allowed to pump an extra 50 billion yuan ($7.95 billion) of local currency into the country, up from 20 billion yuan.

Australia’s dollar sank to an 11-week low as data showed the nation had an unexpected trade deficit. The Aussie slid 0.7 percent to $1.0257 after Australia posted a trade deficit for a second month in February, completing the first consecutive shortfalls in two years.

To contact the reporters on this story: Michael Shanahan in London at mshanahan3@bloomberg.net; 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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U.S. Stocks Drop on Spanish Bond Sale, SanDisk Forecast

By Joseph Ciolli and Lu Wang - Apr 5, 2012 3:53 AM GMT+0700

U.S. stocks fell, with the Standard & Poor’s 500 Index posting this year’s second-biggest decline, as demand dropped at a Spanish bond auction and SanDisk (SNDK) Corp.’s lower forecast dragged down technology shares.

Computer and software makers fell 1.4 percent as a group and were the biggest drag on the S&P 500 among 10 industries as SanDisk, the biggest maker of flash-memory cards, tumbled 11 percent. Alcoa Inc. lost 2.5 percent, pacing declines among material companies, as investors sold shares of companies most- tied to the economy after a report on U.S. service industries missed estimates. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) slumped at least 2.2 percent as financial stocks slid.

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A trader on the floor of the New York Stock Exchange on April 4, 2012. Photographer: Jin Lee/Bloomberg

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April 4 (Bloomberg) -- Stocks and commodities slid for a second day as weaker demand at a Spanish debt auction and the U.S. Federal Reserve’s reluctance to add more monetary stimulus fueled concern the global economic recovery will slow. Bloomberg's Josh Lipton reports on Bloomberg Television's "Money Moves." (Source: Bloomberg)

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April 5 (Bloomberg) -- Katherine Schapiro, a San Francisco-based manager at Sentinel Asset Management Inc., talks about U.S. stocks, Europe's debt crisis and China's economic growth. Schapiro speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Traders on the floor of the New York Stock Exchange on April 2, 2012. Photographer: Spencer Platt/Getty Images

The S&P 500 lost 1 percent to close at 1,398.96 at 4 p.m. in New York today, retreating the most since March 6, when the benchmark index plunged 1.5 percent in its worst drop of the year. The Dow Jones Industrial Average slid 124.8 points, or 1 percent, to 13,074.75.

The Spanish auction “serves as a reminder to the market that Europe is still with us,” Mark Freeman, chief investment officer at Westwood Holdings Group Inc. in Dallas, said in a telephone interview. His firm oversees about $13 billion. “We still have a long way to go before things get worked out,” he said. “The market has now moved significantly higher. But guess what, expectations are now much higher. What ultimately it’s going to take is much stronger corporate profits.”

Fed Minutes

The S&P 500 dropped 0.4 percent yesterday as the minutes from the March 13 meeting of the Federal Open Market Committee showed a decreased urgency for further monetary stimulus. The Federal Reserve will refrain from increasing monetary accommodation unless economic expansion falters or prices rise at a rate slower than its 2 percent target. The S&P 500 rallied to its highest level since May 2008 on April 2 after a gauge of U.S. manufacturing climbed more than estimated.

Spain sold 2.59 billion euros ($3.4 billion) of bonds at an auction today, the Bank of Spain said. That was less than the maximum target of 3.5 billion euros. It auctioned 973 million euros of five-year notes at an average yield of 4.32 percent. Investors bid for 2.46 times the amount of debt allotted. That compared with a bid-to-cover ratio of 2.59 at the previous auction of the securities on March 1.

Stocks extended losses after the Institute for Supply Management’s non-manufacturing index dropped to 56 from a one- year high of 57.3 in February. Readings above 50 signal expansion, and economists surveyed by Bloomberg News projected 56.8 for the gauge, according to the median estimate.

‘Excuse to Pause’

Companies added 209,000 jobs last month after a revised 230,000 gain in February, figures from ADP Employer Services showed today. The median estimate in the Bloomberg News survey called for a 206,000 increase.

“It doesn’t matter what the news is today, I don’t think it’ll stem a decline,” said Richard Weeks, the Vienna, Virginia-based managing director and partner at HighTower’s VWG Wealth Management. His firm oversees more than $20 billion. “The market is showing signs that it’s ready for a little consolidation. You could make a case that the market is looking for an excuse to pause and digest some of its gains.”

Technology and financial shares in the S&P 500 have risen 21 percent and 20 percent this year respectively, the most among the 10 industry groups.

The S&P 500 Information Technology Index tumbled 1.4 percent today, the biggest decline since Dec. 21. SanDisk sank 11 percent, the most in the S&P 500, to $44.51 after predicting revenue in the quarter that ended April 1 of about $1.2 billion. That compared with an earlier forecast for sales of $1.3 billion to $1.35 billion. Gross margin, a measure of profitability, will be less than the company’s previous prediction of 39 percent to 42 percent, SanDisk said.

Micron, KBW

Micron Technology Inc. (MU), the largest U.S. maker of computer memory, lost 4.1 percent to $7.66.

Investors sold shares of companies most-tied to economic growth, sending raw-material producers to a 1.4 percent drop, the third-biggest loss in the S&P 500. Alcoa Inc., the largest aluminum producer in the U.S., slumped 2.5 percent to $9.81 for the second-biggest retreat in the Dow.

All groups in the S&P 500 except phone companies slumped today. The Morgan Stanley Cyclical Index fell 1.4 percent.

The KBW Bank Index retreated 1.8 percent. Bank of America slumped 3.1 percent to $9.20 while JPMorgan declined 2.2 percent to $44.41.

GE’s Rating

General Electric Co. (GE), the maker of jet engines, power generation equipment, health-care imaging equipment and locomotives, fell 1.1 percent to $19.74. Moody’s Investors Service cut its credit rating by two steps, citing “heightened risk” from the company’s finance unit.

St. Jude Medical Inc. slipped 4.9 percent to $41.67. The medical-device maker will stop selling the QuickSite and QuickFlex left-ventricular leads, wires that help pace the heart after 39 reports of the wires protruding from their insulation.

WebMD Health Corp. (WBMD) fell 9.4 percent to $23.29, the lowest since April 2009. The medical information company said it will purchase 5.77 million shares, or about 10 percent of outstanding equity, for $26 each.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; 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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Burger King to Be a Public Company Again After ’10 Buyout

By Leslie Patton - Apr 4, 2012 8:49 PM GMT+0700

Burger King Worldwide Holdings Inc. (BKC), the fast-food chain taken private in 2010 by New York investment firm 3G Capital Inc., will go public again after merging with a company owned by William Ackman.

3G will get $1.4 billion in cash to transfer Burger King to Justice Holdings Ltd. (JUSH), a special-purpose acquisition company co- founded by Ackman, according to a statement yesterday. Justice and its founders will hold 29 percent of the fast-food chain, giving Burger King an equity value of about $4.8 billion.

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French fries at Burger King Holdings Inc. fast food restaurant. Photographer: Dimas Ardian/Bloomberg

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A Burger King restaurant logo is seen on display in New York. Photographer: Jin Lee/Bloomberg

3G, backed by Brazilian billionaires such as Jorge Paulo Lemann, paid $3.3 billion for Burger King just 18 months ago. Since that takeover, the biggest restaurant deal in at least a decade, Burger King sales have stagnated, prompting the chain to experiment with new items and delivery service.

“It seems a little quick,” said Peter Saleh, an analyst at Telsey Advisory Group in New York. 3G hasn’t “changed all that much in a year and a half,” and a lot of the restaurants are in need of remodeling, he said.

Burger King, which announced a new menu on April 2, has struggled to keep pace with McDonald’s Corp. (MCD) The company has also tried to remodel stores to a so-called 20/20 prototype, which includes corrugated metal, brick, wood and concrete. There are more than 12,500 Burger King restaurants worldwide, of which about 90 percent are franchised.

Fourth-quarter revenue fell 0.7 percent to $580.6 million from a year earlier, Burger King said last month in a statement. Global comparable-store sales rose 1.2 percent in the same period, led by growth in Latin America, the Caribbean, Europe, the Middle East and Africa.

New Menu

The Whopper burger seller’s new food includes salads, smoothies and chicken snack wraps -- all of which Oak Brook, Illinois-based McDonald’s already has on its menu. Burger King also retired its King mascot last year to appeal to a broader group of consumers, including women and kids.

“I don’t know if they necessarily had a clear strategy in terms of the customer they were targeting,” Saleh said. “Switching your strategy takes some time.”

After the deal closes, Justice will immediately stop trading on the London Stock Exchange and Burger King Worldwide Inc. will start trading on the New York Stock Exchange.

3G will remain the largest shareholder in Burger King, with a 71 percent stake. The firm’s Brazilian investors include Lemann, who owned a stake in the Brazilian-Belgian beer company InBev, which later bought Anheuser-Busch.

Justice Holdings, started by Nicolas Berggruen, Martin Franklin and Ackman, raised 900 million pounds ($1.4 billion) in a February 2011 initial public offering in London. Berggruen is the owner of Karstadt, Germany’s biggest department-store chain, and also co-leads the New York-based Liberty Acquisition Holdings Corp. with Franklin. Ackman’s Pershing Square Capital Management LP oversees about $9 billion.

Berggruen targets companies loaded with debt or those with family owners looking to retire. He restructures those businesses’ debt and invests in expansion, typically owning them for a decade or more.

(Justice will hold a conference call at 10 a.m. New York time to discuss the transaction. to access, go to www.justiceholdingsltd.com.)

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

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

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Manhattan Apartment Prices Decline

By Oshrat Carmiel - Apr 3, 2012 11:13 PM GMT+0700

Manhattan apartment prices dropped in the first quarter as new buyers seeking refuge from rising rents drove purchases of lower-cost studios and one-bedroom units to a two-year high.

The median price of all condominiums and co-ops that changed hands in the three months ended March 31 fell 0.9 percent from a year earlier to $775,000, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report today. Deals totaled 2,311, down 3.5 percent from the first quarter of 2011.

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Residential and commercial buildings stand in New York. Photographer: Scott Eells/Bloomberg

Studios and one-bedrooms accounted for 56 percent of sales completed in the quarter, the highest share since the last three months of 2009, when first-time purchasers qualified for a federal tax credit of as much as $8,000, according to Jonathan Miller, president of Miller Samuel. The smaller units, favored by entry-level buyers, accounted for 49 percent of all transactions a year earlier.

“Because the rental market is so hot, people are realizing that maybe buying a starter home is a better option, especially if they can take advantage of these low interest rates,” said Sofia Song, vice president of research at property-listings service StreetEasy.com, which also released a report on the Manhattan sales market today.

Among pending sales -- contracts signed but not completed in the first quarter -- studio deals climbed 19 percent from a year earlier, according to StreetEasy. Buyers agreed to purchase 12 percent more one-bedroom units than in the first three months of 2011.

Rents Approach Peak

The median effective rent for Manhattan apartments, or what tenants paid after landlord-sponsored incentives, rose 9.5 percent in the fourth quarter from a year earlier to $3,121 a month, according to Miller Samuel and Prudential. Rents averaged $3,376 in February, $18 less than the market peak in May 1997, data from New York brokerage Citi Habitats show.

The average interest rate for a 30-year fixed U.S. home loan fell to 3.87 percent in February, the lowest in Freddie Mac records dating to 1971. The rate was 4 percent or lower for all but one week in the first quarter, according to the McLean, Virginia-based mortgage financier.

For Katharine Tuckerman, a message from her landlord pushed her into homeownership: The rent for the Midtown apartment she had leased since 2009 would be raised “significantly” come June. Tuckerman decided that it might be time to buy.

“I’ve seen everything that was out there for rent and none were as nice as if I had just bought something,” she said.

Cheaper Than Leasing

Tuckerman, 28, a sales associate at brokerage Brown Harris Stevens, set out to find a building with low maintenance fees so that her entire monthly burden would be no more than $2,500. She considered three options before choosing an 800-square-foot (74- square-meter) co-op on East 66th Street. She put down 50 percent of the $575,000 purchase price and borrowed the rest at a rate of less than 4 percent. After a gut-renovation of the kitchen and bathroom, she plans to move in this week.

Her monthly payments, including mortgage and maintenance, are $2,200 -- “less than I would have to pay for a rental the same size, for sure,” she said.

Other reports issued today on the Manhattan apartment market showed mixed results for sales and values in the first quarter. Corcoran Group said purchases of condos and co-ops totaled 2,700 deals, little changed from a year earlier. The median price climbed 1 percent to $809,000.

StreetEasy said the median price was unchanged at $775,000, while completed deals climbed 9.4 percent to 2,969.

Luxury Properties

Brown Harris Stevens and its sister brokerage, Halstead Property LLC, both reported a median price of $821,500, up 4 percent from the first quarter of 2011. The gain was spurred by an increase in sales of properties priced higher than $10 million, said Gregory Heym, chief economist at Terra Holdings LLC, which owns the two firms. There were 17 deals in that range, up from 12 a year earlier, according to Brown Harris and Halstead.

Purchases of luxury apartments, defined as the top 10 percent of all sales by price, declined 3.3 percent to 231 deals, Miller Samuel and Prudential said. The median price of those transactions climbed 4.4 percent to $4.13 million.

On the Upper East Side, the median price of previously owned co-ops climbed 7 percent to $890,000 from a year earlier, according to Corcoran. Condo prices in the neighborhood declined 17 percent to a median $1.06 million. On the Upper West Side, the median price of co-op resales dropped 4 percent to $669,000, while condo resale prices climbed 28 percent to $1.23 million.

To contact the reporter on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net

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U.S. Stocks Drop on Spainish Bond Sale, Fed Minutes

By Joseph Ciolli - Apr 4, 2012 8:42 PM GMT+0700

U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for a second day, as demand dropped at a Spanish bond auction and the Federal Reserve signaled it may refrain from more monetary stimulus.

Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC) retreated at least 1 percent, pacing losses among financial shares. SanDisk Corp. (SNDK), the biggest maker of flash-memory cards, tumbled 8.5 percent after cutting its forecast for first-quarter sales and profitability.

The S&P 500 dropped 0.8 percent to 1,402.10 at 9:40 a.m. New York time. The Dow Jones Industrial Average slipped 113.26 points, or 0.9 percent, to 13,086.29 today.

“It doesn’t matter what the news is today, I don’t think it’ll stem a decline,” Richard Weeks, the Vienna, Virginia- based managing director and partner at HighTower’s VWG Wealth Management. His firm oversees more than $20 billion. “The market is showing signs that it’s ready for a little consolidation. You could make a case that the market is looking for an excuse to pause and digest some of its gains.”

The S&P 500 dropped 0.4 percent yesterday as the minutes of the March 13 meeting of the Federal Open Market Committee showed a decreased urgency for further monetary stimulus. The Fed will refrain from increasing monetary accommodation unless economic expansion falters or prices rise at a rate slower than its 2 percent target. The S&P 500 rallied to its highest level since May 2008 on April 2 after a gauge of U.S. manufacturing climbed more than estimated.

Spanish Auction

Spain sold 2.59 billion euros ($3.4 billion) of bonds at an auction today, the Bank of Spain said. That was less than the maximum target of 3.5 billion euros. It auctioned 973 million euros of five-year notes at an average yield of 4.32 percent. Investors bid for 2.46 times the amount of debt allotted. That compared with a bid-to-cover ratio of 2.59 at the previous auction of the securities on March 1.

A report at 10 a.m. New York time will show that service industries in the U.S. expanded at a slower pace in March, economists said. The Institute for Supply Management’s non- manufacturing index fell to 56.8 from 57.3 in February, according to the median estimate in a Bloomberg News survey of 68 economists. Readings greater than 50 signal growth.

Employment increased by 209,000 for the month after a revised 230,000 gain in February, figures from ADP Employer Services showed today. The median estimate in the Bloomberg News survey called for a 206,000 increase.

SanDisk Sinks

SanDisk sank 8.5 percent to $45.79 after predicting revenue in the quarter that ended April 1 of about $1.2 billion. That compared with an earlier forecast for sales of $1.3 billion to $1.35 billion. Gross margin, a measure of profitability, will be less than the company’s previous prediction of 39 percent to 42 percent, SanDisk said.

Chevron Corp. (CVX), the second-biggest U.S. oil producer, slipped 1.1 percent to $105.93, while Transocean Ltd., the biggest operator of offshore drilling rigs, dropped 2.1 percent to $52.50.

A Brazilian federal prosecutor sued the two companies for 20 billion reais ($11 billion) over a second oil spill at the Frade field off the nation’s coast. Prosecutors filed a 20 billion-reai lawsuit last year following the first spill at project -- a 3,000-barrel leak in November.

Gold miners declined as metals fell. Freeport-McMoRan Copper & Gold Inc. (FCX) slipped 2 percent to $37.81, while Barrick Gold Corp. (ABX) lost 2 percent to $42.10.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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