S&P 500 Trims Longest Weekly Gain Since Jan.

By Rita Nazareth - Oct 28, 2011 11:04 PM GMT+0700
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A trader works on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Jin Lee/Bloomberg

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Oct. 28 (Bloomberg) -- William de Vijlder, chief investment officer of BNP Paribas Investment Partners, discusses risk appetite after this week's European crisis summit and his investment strategy. He speaks from Brussels with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

U.S. stocks fell, trimming the longest weekly rally since January in the Standard & Poor’s 500 Index, as scrutiny deepens on Europe’s latest measures to contain the region’s sovereign debt crisis.

Whirlpool Corp. (WHR), the largest maker of household appliances, slumped 12 percent after saying it will cut more than 5,000 jobs and lowering its earnings targets. Cablevision Systems Corp. (CVC) tumbled 15 percent after the fifth-largest U.S. cable-TV provider by subscribers said profit declined 65 percent as video customers defected and expenses for programming and marketing rose. Hewlett-Packard Co. (HPQ) gained 3.6 percent as the personal- computer maker announced plans to keep its PC unit.

The S&P 500 dropped 0.4 percent to 1,280.15 as of 12:02 p.m. New York time. The gauge was up 3.4 percent since Oct. 21, heading for a fourth week of gains. The Dow Jones Industrial Average lost 10.33 points, or 0.1 percent, to 12,198.22.

“The devil is in the details,” Don Wordell, a fund manager for Atlanta-based RidgeWorth Capital Management, which oversees about $47 billion, said in a telephone interview. “Europe is trying to do anything to solve its problems. Still, there are lots of questions on how the plan is going to work and how they are going to fix their debt issues. We had a big rally yesterday, you got to give it a little breather.”

Stocks rose yesterday, extending the best monthly rally since 1974 for the S&P 500, as European leaders agreed to expand a bailout fund and U.S. economic growth accelerated. Concern over Europe’s crisis sent the S&P 500 to a one-year low this month. The index came within 1 percent of extending its drop from its April peak to 20 percent, the common definition of a bear market. Since then, it has risen 16 percent.

Bond Auction

Italy’s borrowing costs rose to a euro-era record at a sale of three-year bonds, driving yields higher amid concern that efforts to contain the sovereign crisis won’t be enough to safeguard the region’s third-largest economy. Fitch Ratings said part of the plan to contain debt turmoil amounts to a Greek default. German Chancellor Angela Merkel said that the debt crisis won’t be over “in a year.”

European leaders may struggle to maintain the euphoria that drove the euro to its biggest one-day gain in more than a year as scrutiny deepens on their latest attempt to stem the region’s turmoil. The weaknesses of Europe’s common currency area, ranging from its design to a persisting dearth of bank funding and anemic economic growth, weren’t properly addressed in the measures revealed yesterday to stem investor panic, said Harvard University economist Kenneth Rogoff and Jonathan Loynes at Capital Economics Ltd. in London.

Consumer Confidence

Consumer confidence unexpectedly rose in October from the previous month, indicating the biggest part of the economy will help keep the U.S. recovery intact. The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 60.9 from 59.4 in September. The gauge was projected to drop to 58, according to the median forecast of 66 economists surveyed by Bloomberg News. The preliminary reading for the month was 57.5.

A separate report showed that consumer spending in the U.S. accelerated in September. Still, incomes rose less than projected, sending the savings rate down to the lowest level in almost four years.

“While borrowing and spending is what both monetary and fiscal policy keep encouraging, it is savings that is the fuel for healthy economic growth and investment. The decline in the savings rate is not good,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, said in a note to clients.

Whirlpool Slumps

Whirlpool slumped 12 percent to $53.28. The company’s plan, which also includes reducing factory capacity by 6 million units, will cost $500 million and $160 million will be booked in 2011, Whirlpool said. Profit this year will be in a range of $4.75 to $5.25 a share, down from a previous forecast of $7.25 to $8.25, the company said.

Cablevision Systems tumbled 15 percent to $14.68. The company lost 19,000 video subscribers, fewer than the 26,000 average estimate of nine analysts surveyed by Bloomberg. Cablevision’s market has a 40 percent overlap with Verizon Communications Inc.’s FiOS, leading to a “hyper competitive dynamic” that makes it difficult for the company to grow, said Todd Mitchell, a Brean Murray Carret & Co. analyst in New York.

Hewlett-Packard rallied 3.6 percent, the most in the Dow, to $27.95. Chief Executive Officer Meg Whitman is backing away from a spinoff proposal made by former CEO Leo Apotheker, who raised the idea in August as part of a sweeping overhaul. The company’s evaluation found that being the world’s largest PC seller was too valuable to Hewlett-Packard’s brand, procurement power and customer relationships.

Baidu Inc. jumped 3.7 percent to $143.53. China’s biggest Internet company by market value said third-quarter profit rose 80 percent, beating analysts’ estimates, as revenue from search- engine advertising surged.

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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Economy in U.S. Surpasses Pre-Recession Level

By Timothy R. Homan and Ilan Kolet - Oct 28, 2011 11:00 AM GMT+0700

The value of goods and services produced in the U.S. surpassed its pre-recession level after 15 quarters, taking three times longer than the average for 10 previous recoveries since World War II.

Gross domestic product expanded at a 2.5 percent annual rate in the period from July through September, the Commerce Department reported yesterday, the fastest pace in a year and up from 1.3 percent in the prior three-month period. After adjusting for inflation, GDP climbed to $13.35 trillion last quarter, topping the $13.33 trillion peak reached in the last three months of 2007.

“The American economy finally has accomplished the recovery and has now entered the expansion,” said Neal Soss, chief economist with Credit Suisse in New York, who was an aide to former Federal Reserve Chairman Paul Volcker. “But the growth is clearly too slow to solve the most significant problems the economy faces: jobs and getting the public budgets under control.”

Consumers reduced savings to boost purchases and companies stepped up investment in equipment and software, even as the biggest drop in incomes in two years raises concerns about whether the spending increase will continue. The number of Americans with jobs last month, 131.3 million, was lower than the 138 million workers in December 2007, when the 18-month recession began, according to Labor Department data.

Stocks surged yesterday as European leaders agreed to expand a bailout fund to stem the region’s sovereign debt crisis. The Standard & Poor’s 500 Index jumped 3.4 percent to 1,284.59, extending the biggest monthly rally for the gauge since 1974. Treasuries sank, pushing the yield on the 10-year note up to 2.39 percent from 2.21 percent the day before.

Average Growth

The U.S. economy expanded at an average 0.9 percent rate in the first half of 2011, the worst performance since the recovery began in June 2009. Growth needs to exceed 2.5 percent to reduce the jobless rate, according to estimates by Kurt Karl, chief U.S. economist at Swiss RE in New York.

Unemployment stuck around 9 percent or higher for 30 months explains why Federal Reserve policy makers, who meet next week, and the Obama administration are considering additional measures to boost the economy.

“We are well below potential output,” said Ben Herzon, an economist at Macroeconomic Advisers LLC, the St. Louis-based forecasting firm cofounded by former Fed Governor Laurence Meyer. “The time to get excited is when everyone who is looking for work has got work.”

Business Spending

Corporate investment in equipment and software was a bright spot in yesterday’s report, climbing at a 17.4 percent pace, the most in a year.

Profits for companies in S&P 500 rose 16 percent on average in the three months ended Sept. 30, based on results reported so far. Earnings are beating analyst predictions by 5.5 percent, compared with a rate of 3.3 percent since 2005, the data show.

A pickup in investment hasn’t translated into more jobs. Payrolls rose by an average 96,000 workers per month last quarter, down from the 166,000 average in the first quarter.

Household purchases, the biggest part of the economy, increased at a 2.4 percent pace, more than forecast by economists.

“Because the strength was led by consumers, the economy’s outlook is much better than we had previously thought,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York.

The savings rate last quarter dropped to 4.1 percent, the lowest since the last three months of 2007. After-tax incomes adjusted for inflation decreased at a 1.7 percent annual rate, the biggest drop since the third quarter of 2009.

Keeping Prices Down

McDonald’s Corp. (MCD), the world’s biggest restaurant chain, is among companies trying to keep prices down to attract budget- conscious customers. The Oak Brook, Illinois-based company this month said third-quarter profit gained 8.6 percent.

“The environment out there is still fragile,” James Skinner, McDonald’s vice-chairman and chief executive officer, said in an Oct. 21 call with analysts. “Consumers everywhere continue to be cautious and hesitant to spend.”

President Barack Obama this week said he is seeking ways to take action without congressional approval after the Senate blocked his $447 billion jobs bill earlier this month. The steps include altering a program to help homeowners refinance mortgages and easing the burden of student loans.

Easing Options

Fed policy makers are developing options for further monetary easing even as the economy picks up.

Vice Chairman Janet Yellen said last week that a third round of large-scale asset purchases “might become appropriate if evolving economic conditions called for significantly greater monetary accommodation.” Governor Daniel Tarullo said buying mortgage-backed securities “should move back up toward the top of the list of options.”

Policy makers pledged in August to hold the benchmark interest rate near zero through the middle of 2013 so long as joblessness stays high and the inflation outlook is “subdued.” On Sept. 21, they announced a plan to replace debt in the central bank’s portfolio with longer-term Treasuries to help cut borrowing costs.

Companies also kept a tight rein on stockpiles last quarter, making it less likely that production will have to be cut back. Inventories were built at a $5.4 billion annual pace, down from the second quarter’s $39.1 billion rate, according to yesterday’s GDP report. The reduction subtracted 1.1 percentage points from growth.

Excluding inventories, the economy grew at a 3.6 percent annual rate last quarter, up from a 1.6 percent in the April through June period.

A narrower trade deficit contributed 0.2 points to GDP. Government spending stagnated, continuing to restrain growth. A 2 percent gain in federal outlays was offset by a 1.3 percent drop in spending by state and local agencies.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Ilan Kolet in Ottawa at ikolet@bloomberg.net

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

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Samsung Overtakes Apple as Biggest Smartphone Seller

By Tim Culpan - Oct 28, 2011 2:10 PM GMT+0700

Samsung Electronics Co. overtook Apple Inc. (AAPL) in the last quarter to become the world’s largest smartphone vendor amid a widening technology and legal battle between the two companies.

Samsung shipped 27.8 million smartphones in the last quarter, taking 23.8 percent of the market, Milton Keynes, U.K.- based Strategy Analytics said in an e-mailed statement today. Apple’s 17.1 million shipments, comprising 14.6 percent of the market, pushed the Cupertino, California-based company to second place. Nokia Oyj (NOK1V) maintained its third position, it said.

Apple, which released its iPhone 4S this month, held the top spot for only one quarter after dislodging Espoo, Finland- based Nokia earlier this year. Samsung, based in Suwon, South Korea, has turned to Google Inc. (GOOG)’s Android software to boost sales of its Galaxy smartphones and tablet computers.

“Samsung has come out with products that appeal to all the different form factors and specifications out there,” said T.Z. Wong, a Beijing-based analyst at researcher IDC. “That is a strategy they have executed very well.”

Natalie Kerris, a spokeswoman for Apple, wasn’t immediately available for comment after normal business hours. Nam Ki Yung, a Seoul-based spokesman for Samsung, declined to comment on the research company’s estimate.

Smartphone Sales

“Samsung’s rise has been driven by a blend of elegant hardware designs, popular Android services, memorable sub-brands and extensive global distribution,” Strategy Analytics wrote. “Samsung has demonstrated that it is possible, at least in the short term, to differentiate and grow by using the Android ecosystem.”

The global smartphone market climbed 44 percent from a year earlier to 117 million units, Strategy Analytics said. Nokia dropped to 14.4 percent from 32.7 percent a year earlier.

In the wider mobile-phone market that includes lower-cost devices, Nokia maintained its top spot even after losing 5 percentage points of share, the researcher said in a separate statement. Its 27.3 percent kept it ahead of Samsung’s 22.6 percent, with LG Electronics Inc. (066570) third.

Chinese phone maker ZTE Corp.’s cheaper handsets helped it take 4.7 percent and overtake Apple for fourth place. Global market shipments climbed 14 percent to 390 million units, according to the researcher.

Samsung, also the world’s largest manufacturer of televisions, today reported record revenue from its phone division that helped mask a slump in earnings from computer- memory chips and panels.

Legal Battles

Samsung rose 2.3 percent to 945,000 won at the close of trading in Seoul today. The shares have declined 0.4 percent this year, compared with a 25 percent jump for Apple.

Apple and Samsung have accused each other of infringing patents for technology used in handsets and tablets, with court cases still pending in Milan and Sydney. Legal battles between the two companies intensified after Apple claimed in an April lawsuit in the U.S. that Samsung’s Galaxy devices “slavishly” copied the iPhone and the iPad.

Apple’s profit last quarter missed analysts’ estimates for the first time in at least six years after customers delayed handset purchases in anticipation of its new phone. Sales of the new model, iPhone 4S, surpassed 4 million in the first weekend of sales that began Oct. 14, topping Apple’s previous sales record for its handsets.

Samsung and Nokia also released new handsets this month as consumers increasingly use mobile phones to surf the Internet, play videos and access social-networking sites.

Samsung and Google pit the talk-to-type technology of Android Ice Cream Sandwich against Apple’s Siri voice-command digital assistant. Nokia, which has a partnership with Microsoft Corp. (MSFT), this week unveiled its Windows-based handset called Lumia 800.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.

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Samsung Overtakes Apple as World’s Biggest Smartphone Seller

By Tim Culpan - Oct 28, 2011 2:10 PM GMT+0700

Samsung Electronics Co. overtook Apple Inc. (AAPL) in the last quarter to become the world’s largest smartphone vendor amid a widening technology and legal battle between the two companies.

Samsung shipped 27.8 million smartphones in the last quarter, taking 23.8 percent of the market, Milton Keynes, U.K.- based Strategy Analytics said in an e-mailed statement today. Apple’s 17.1 million shipments, comprising 14.6 percent of the market, pushed the Cupertino, California-based company to second place. Nokia Oyj (NOK1V) maintained its third position, it said.

Apple, which released its iPhone 4S this month, held the top spot for only one quarter after dislodging Espoo, Finland- based Nokia earlier this year. Samsung, based in Suwon, South Korea, has turned to Google Inc. (GOOG)’s Android software to boost sales of its Galaxy smartphones and tablet computers.

“Samsung has come out with products that appeal to all the different form factors and specifications out there,” said T.Z. Wong, a Beijing-based analyst at researcher IDC. “That is a strategy they have executed very well.”

Natalie Kerris, a spokeswoman for Apple, wasn’t immediately available for comment after normal business hours. Nam Ki Yung, a Seoul-based spokesman for Samsung, declined to comment on the research company’s estimate.

Smartphone Sales

“Samsung’s rise has been driven by a blend of elegant hardware designs, popular Android services, memorable sub-brands and extensive global distribution,” Strategy Analytics wrote. “Samsung has demonstrated that it is possible, at least in the short term, to differentiate and grow by using the Android ecosystem.”

The global smartphone market climbed 44 percent from a year earlier to 117 million units, Strategy Analytics said. Nokia dropped to 14.4 percent from 32.7 percent a year earlier.

In the wider mobile-phone market that includes lower-cost devices, Nokia maintained its top spot even after losing 5 percentage points of share, the researcher said in a separate statement. Its 27.3 percent kept it ahead of Samsung’s 22.6 percent, with LG Electronics Inc. (066570) third.

Chinese phone maker ZTE Corp.’s cheaper handsets helped it take 4.7 percent and overtake Apple for fourth place. Global market shipments climbed 14 percent to 390 million units, according to the researcher.

Samsung, also the world’s largest manufacturer of televisions, today reported record revenue from its phone division that helped mask a slump in earnings from computer- memory chips and panels.

Legal Battles

Samsung rose 2.3 percent to 945,000 won at the close of trading in Seoul today. The shares have declined 0.4 percent this year, compared with a 25 percent jump for Apple.

Apple and Samsung have accused each other of infringing patents for technology used in handsets and tablets, with court cases still pending in Milan and Sydney. Legal battles between the two companies intensified after Apple claimed in an April lawsuit in the U.S. that Samsung’s Galaxy devices “slavishly” copied the iPhone and the iPad.

Apple’s profit last quarter missed analysts’ estimates for the first time in at least six years after customers delayed handset purchases in anticipation of its new phone. Sales of the new model, iPhone 4S, surpassed 4 million in the first weekend of sales that began Oct. 14, topping Apple’s previous sales record for its handsets.

Samsung and Nokia also released new handsets this month as consumers increasingly use mobile phones to surf the Internet, play videos and access social-networking sites.

Samsung and Google pit the talk-to-type technology of Android Ice Cream Sandwich against Apple’s Siri voice-command digital assistant. Nokia, which has a partnership with Microsoft Corp. (MSFT), this week unveiled its Windows-based handset called Lumia 800.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.

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Samsung Electronics Phone Sales Rise to Record, Mask Slump in Chips, TVs

By Jun Yang - Oct 28, 2011 8:37 AM GMT+0700

Samsung Electronics Co., competing with Apple Inc. (AAPL) for leadership in smartphone sales, had record profit and sales at its handsets division, helping mask a slump in earnings from computer-memory chips and panels.

The handset business had an operating profit of 2.52 trillion won ($2.3 billion) in the three months ended Sept. 30, Suwon, South Korea-based Samsung said in a statement today. That helped the company post 3.44 trillion won net income in the quarter, matching the 3.4 trillion won average of 25 analysts’ estimates compiled by Bloomberg.

The introduction of new phones that compete with Apple’s iPhone will help mitigate falling profits at the display and chip units in the coming quarters, said Koo Ja Woo, an analyst at Kyobo Securities Co. (030610) Samsung, which uses Google Inc. (GOOG)’s Android software, overtook Apple in smartphone sales in the quarter, according to estimates by brokerages including JP Morgan Chase & Co.

“Samsung’s handset business is on a solid footing,” said Yoo Byung Ok, a Seoul-based fund manager at UBS Hana Asset Management Co. “Their device is on par with Apple, and they have succeeded in positioning themselves as the leader in the Android camp. It’s hard to find downside risks to the stock.”

Samsung gained as much as 2.4 percent to 946,000 won in Seoul after the earnings announcement. They changed hands up 1.3 percent at 10:07 a.m., helping trim the losses this year to 1.3 percent. The benchmark Kospi index (KOSPI) has declined 4.7 percent.

Samsung vs. Apple

Handset shipments rose “high-20 percent” in the third quarter from a year ago, Samsung said without disclosing a specific figure. The company probably sold about 29 million smartphones in the third quarter, according to estimates by JPMorgan Chase & Co. (JPM) and Bank of America Corp. Apple sold about 17 million iPhones in the quarter ended Sept. 24, the Cupertino, California-based company said Oct. 18.

Samsung expanded its smartphone market share to become Apple’s closest competitor earlier this year, helped by the popularity of Android-powered Galaxy devices, according to Strategy Analytics. Global smartphone shipments expanded 76 percent in that quarter, the research company said.

Samsung and Apple have been involved in multiple court cases worldwide since Apple claimed in an April lawsuit filed in the U.S. that the Galaxy devices “slavishly” copied the iPhone and iPad.

Semiconductors

Companywide operating income, or sales minus the cost of goods sold and administrative expenses, fell 13 percent to 4.25 trillion won, in line with the company’s preliminary estimate of 4.2 trillion won.

Profit at the semiconductor division fell 53 percent to 1.59 trillion won on sales of 9.48 trillion won. Analysts estimated a profit of 1.46 trillion won.

The price of the benchmark DDR3 2-gigabit DRAM has slumped more than 70 percent in the past 12 months, according to data from Taipei-based Dramexchange Technology Inc., operator of Asia’s largest spot market for semiconductors. DRAM chips are used in personal computers to help run multiple programs simultaneously.

Global personal-computer shipments will rise 3.8 percent in 2011, less than a previous projection of 9.3 percent, Stamford, Connecticut-based Gartner Inc. said Sept. 8.

The display division, which makes flat panels for TVs and computer monitors, had an operating loss of 90 billion won, compared with a 520 billion profit a year earlier. Sales fell 13 percent to 7.08 trillion won. Analysts predicted a loss of 144.5 billion won.

The average price of Samsung’s liquid-crystal displays for televisions probably fell about 25 percent in the third quarter from a year earlier, Hana Daetoo Securities Co. said in September.

The TV unit posted an operating profit of 240 billion won, compared with a loss of 250 billion won a year earlier, helped by models featuring 3-D functionality and Web-based services. Analysts expected a profit of 330 billion won.

Sales fell 0.4 percent to 14.36 trillion won.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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Bangkok Flood Swamps Grand Palace as Chao Phraya River Reaches Record High

By Daniel Ten Kate and Supunnabul Suwannakij - Oct 28, 2011 3:00 PM GMT+0700

Bangkok’s Chao Phraya river swelled to a record high, swamping nearby tourist spots including the Grand Palace as Prime Minister Yingluck Shinawatra called for fresh ideas to stem the country’s worst floods since 1942.

“The crisis we’re facing today is the most critical natural disaster that ever happened in Thai history,” she told reporters today, adding that she would welcome suggestions from the opposition Democrat party. “I’d like to ask for cooperation from everyone that we don’t have political parties, nor political games. We must not be divided.”

The government is considering cutting channels through five major Bangkok roads to drain floodwaters seeping into northern parts of the capital as a high tide threatens riverside communities. The roads, in the city’s east, are blocking water from reaching canals that drain into the Gulf of Thailand, Transport Minister Sukumpol Suwannatat said.

Uncertainty over the severity of flooding has fueled panic in the capital, leading to shortages of bottled water, eggs and baby formula as the worst floods in more than half a century reach Bangkok. Dikes north of the city are holding back a three- meter-deep wall of water that has inundated about 10,000 factories, disrupting the supply chains of companies including Honda Motor Co. and Western Digital Corp. (WDC)

Thailand’s central bank today cut its forecast for economic growth this year as the floods take a toll on manufacturing and tourism. Southeast Asia’s second-biggest economy may grow 2.6 percent in 2011, down from an earlier forecast of 4.1 percent, and 4.1 percent next year, the Bank of Thailand said today.

Stocks Gain

Stocks rose after European leaders agreed to expand a bailout fund to stem the region’s debt crisis, with the benchmark SET Index up 1.8 percent at 2:40 p.m. The baht was little changed at 30.56 to the dollar.

The floods may cause about 140 billion baht ($4.6 billion) of financial damage to manufacturers in seven industrial estates, according to the government’s insurance regulator. Japan’s casualty insurers may face about 190 billion yen ($2.5 billion) in net payouts to cover damages from Thailand’s floods, Deutsche Bank AG said in a report yesterday.

The Chao Phraya river running through the middle of Bangkok broke a record by swelling to 2.47 meters above the mean sea level, or 33 centimeters below the government’s main barriers. It is expected to climb to 2.57 meters later today, the Bangkok Metropolitan Administration said on its website, and Governor Sukhumbhand Paribatra warned communities in 13 districts to watch for flooding. The tide reached 1.28 meters above the mean sea level and may climb to 1.31 meters tomorrow.

Thailand’s government announced a 5-day holiday through Oct. 31 for 21 northern and central provinces to give people time to prepare for flooding. Banks remain open.

‘No Sign’

"There is no sign that floods will spread all over Bangkok," Sukhumbhand told a group of executives yesterday. “The severity of the problem depends on each area.”

The Grand Palace, about 100 meters (328 feet) from the river, was surrounded by water earlier today, state-run MCOT reported on its website. In 1942 floods, visitors rowed boats past Bangkok landmarks including Democracy Monument, about two kilometers from the palace.

The floods are mainly limited to northern and eastern areas in the capital and low-lying places near canals and rivers. The main business districts of Silom and lower Sukhumvit remained dry, with sandbag barriers protecting many office buildings and shops.

The government may evacuate people in some areas of Bangkok to nearby provinces, Natapanu Nopakun, a spokesman for the government’s Flood Relief Operations Command, said last night. Yingluck has said it could take a month for waters, which have killed 377 people since July, to recede.

‘Indeed Better’

“Too much preparation is indeed better than too little,” Natapanu said in a televised briefing last night, expressing appreciation to those who already left town. “It is hoped these measures will lead to caution.”

Bangkok’s Suvarnabhumi International Airport is operating normally and the company that operates the facility is “confident” that it can be protected from flooding, Somchai Sawasdeepon, senior executive vice president of Airports of Thailand Pcl, said yesterday. Malaysia advised against non- essential travel and Cathay Pacific Airways Ltd. (293) canceled four flights to as the waters deter visitors.

Don Mueang Airport, which is used mostly for domestic flights, closed after floodwaters reached the runways. Yingluck has used the building to direct flood-relief efforts and provide refuge for about 4,000 evacuees who are being transferred to other locations.

Dams Full

Rainfall about 25 percent more than the 30-year average filled upstream dams to capacity, prompting authorities to release large amounts of water earlier this month down a flood plain the size of Florida, with Bangkok at its bottom tip. Authorities are aiming to drain the water around the city and through its 1,682 canals.

Residents in northern Bangkok caught fish in their homes and ate noodles with their feet resting in ankle-deep floodwaters, television images showed. In some areas, they showed residents capturing escaped crocodiles.

“I suggested that clients leave town because of shortages of drinking water and chaos at supermarkets where people are cleaning out the shelves,” said Sanit Nakajitti, a director at PSA Asia, a Bangkok-based security and risk consulting company. “It’s not a life-threatening situation; it’s more just an inconvenience.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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EU Debt Plan May Struggle to Thaw Bank Funding

By Liam Vaughan and Gavin Finch - Oct 28, 2011 4:14 PM GMT+0700

European banks, which need to refinance more than $1 trillion of debt next year, may struggle to fund themselves until policy makers follow through on a pledge to guarantee their bond sales.

European Union leaders promised this week to “urgently” look at ways to guarantee bank debt in a bid to thaw funding markets frozen by the sovereign debt crisis. Lenders have found it hard to sell bonds for the past two years and have increasingly turned to the European Central Bank for unlimited short-term emergency financing.

“The biggest problem at the moment is that banks haven’t been able to fund themselves,” said David Moss, who helps manage about 8.5 billion euros ($12 billion) at F&C Asset Management Plc in London. “If banks can’t fund themselves, they’ll struggle to exist.”

In 2008, the U.S. Federal Deposit Insurance Corp. gave a guarantee on bank bonds, allowing financial institutions to access markets with the backing of the government. For European policy makers to replicate the success of that program any warranty would have to be given at the EU level because the deteriorating public finances of southern states means they would struggle to back their banks, analysts said.

‘Valiant Attempt’

“It’s a valiant attempt to get term funding kick-started again,” said Andrew Stimpson, an analyst at Keefe Bruyette & Woods Inc. in London. “But investors’ concerns are with the sovereigns not the banks, so putting the onus on the sovereigns to guarantee bank issuance does not sound convincing.”

Concern that banks will have to write down their holdings of peripheral sovereign debt has sent bank stocks down 24 percent this year, according to the Bloomberg Europe Banks and Financial Services Index.

Bank stocks rose for a second day today after EU leaders agreed to bolster lenders’ capital, boost the size of the region’s rescue fund and persuaded bondholders to accept a 50 percent loss on their holdings of Greek debt. Yet a gauge of banks’ willingness to lend to each other widened to its most in more than two years yesterday, showing strains in the money markets didn’t ease after the announcement.

The spread between three month dollar Libor and the overnight indexed swap rate -- a barometer for dollar-based bank-to-bank lending markets -- yesterday widened to 34.3 basis points, the most since July 2009.

‘Co-ordinated Approach’

A co-ordinated approach at the EU level is needed to support banks’ access to the funding markets, the European Banking Authority said in a statement.

“The EBA has been asked to work with the EU Commission, the ECB and European Investment Bank to urgently explore options for achieving this objective,” said the group, which oversees the work of regulators in Europe.

Analysts questioned whether the European Financial Stability Facility, which policy makers said would be leveraged to 1 trillion euros, is big enough to take on responsibility for underwriting bank debt.

The European Investment Bank, which is funded by member states including those outside the single currency, today ruled out providing “any kind” of financial support to the bank debt plan, according to an e-mail.

No European Guarantee?

Under plans being considered by policy makers, Europe would only co-ordinate the guarantees rather than provide them, according to a person with knowledge of the matter. The proposal would also be unlikely to require approval by all member states, said the person, who declined to be identified because the talks are private.

“There is talk about Europe-wide bank guarantees, but it is not clear yet how that would work,” Alberto Gallo, head of European credit strategy at Royal Bank of Scotland Group Plc, said in a telephone interview. “What is clear is that the EFSF doesn’t have enough fire-power to support this -- as well as standing behind the sovereigns and any bank recapitalizations.”

European banks were unable to sell senior unsecured bonds for more than two months this summer, the longest period on record without an offering. Deutsche Bank AG (DBK) ended the drought on Sept. 29 with a 1.5 billion-euro offering. The lender priced the notes at a yield of 98 basis points more than the three- month euro interbank offered rate, according to data compiled by Bloomberg. The same lender paid a spread of 40 basis points to issue two-year securities in February.

‘Virtually Closed’

Europe’s banks need to refinance about 800 billion euros of bonds over the coming year, according to Gallo. Most banks typically try to meet some of that funding need months before they require it, a process known as pre-funding.

“Only a small proportion has been pre-funded given that the markets have been virtually closed since July,” Simon Adamson, a London-based analyst at independent research firm CreditSights Inc. said in an Oct. 25 interview.

In all, Western European lenders raised about 80 billion euros of senior unsecured debt denominated in the single currency this year, according to data compiled by Bloomberg. That’s 20 percent less than the 100 billion euros they raised in the same period in 2010.

Some of the slack will be taken up by covered bonds, Gallo said, which are considered safer by investors because they are backed by assets such as mortgages or loans. Banks globally have sold a record 318.1 billion euros of covered bonds, up from 310.1 billion euros in the same period in 2010, Bloomberg data show. The ECB said this month it would buy as much as 40 billion euros of covered bonds from November 2011 to October 2012.

ECB Funding

The extra yield investors demand to hold banks’ senior bonds instead of benchmark government debt soared to a record 360 basis points on Oct. 4, according to Barclays Capital’s Euro Aggregate Banking Senior Index. The spread has since narrowed to 315 basis points, still almost double its average of 178 basis points for the past four years.

Banks that have been unable to tap the bond markets are likely to become more reliant on the ECB for funding. When the Frankfurt-based central bank revived a tool last used at the end of 2009 to ease money-market tensions on Oct. 26, 181 banks borrowed a total of 56.9 billion euros for 12 months. The identities of the borrowers weren’t disclosed.

European governments including France, Spain, the U.K. and Germany guaranteed some bonds issued by their banks to reassure investors after the collapse of Lehman Brothers Holdings Inc. in September 2008. In May 2010, the EU ended the program when it said banks that relied on the pledges would face a review of their long-term viability.

U.S. Program

In the U.S., the Temporary Liquidity Guarantee Program allowed banks to issue bonds with backing from the FDIC for as long as three years. Borrowers paid a fee of 0.5 percent to guarantee debt due in six months or less, 0.75 percent for debt going out one year, or 1 percent for longer-dated maturities, according to terms on the agency’s website. More than 85 percent of U.S. banks participated in the program, including JPMorgan Chase & Co.

About 66 banks had issued $231 billion of FDIC-guaranteed debt as of Aug. 31, according to the FDIC. Sheila Bair, the agency’s former chairman, told Congress in November 2008 that in the month following introduction of the program, “we have seen bank funding rates moderate significantly.”

For the European guarantee to work, it would need to be provided by a pan-European body such as the European Investment Bank, said Philippe Bodereau, head of credit research at Pacific Investment Management Co.

“If guarantees are provided on a pan-European basis, that would be very positive but the track record for these things is that they take time,’” Bodereau said. “This could be the most important aspect of the plan for the banks.”

To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net.

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Europe Looks to IMF, China for Rescue-Fund Cash

By Bloomberg News - Oct 28, 2011 3:46 PM GMT+0700

European officials are studying the idea of an International Monetary Fund channel for money for their enlarged rescue fund, as China said it needed more detail on any potential plan before deciding whether to contribute.

The European Financial Stability Facility may explore setting up a special purpose vehicle with the IMF, Klaus Regling, the EFSF’s chief executive officer, said at a briefing in Beijing today. Separately, Chinese Vice Finance Minister Zhu Guangyao said his government wants to hear about particulars such as the extent of loan guarantees to countries including Italy, and how the senior-debt portion would be structured.

European leaders aim to tap China, holder of the world’s largest foreign-exchange reserves, for help after moving yesterday to contain the crisis by writing down Greek debt and targeting an expansion of the EFSF to about $1.4 trillion. China may seek to increase its influence at the IMF, a global lender of last resort, as a quid pro quo for contributing, said Tomo Kinoshita, an economist at Nomura Holdings Inc.

It may suit China “to contribute to European and global financial stability by injecting funds through an IMF channel,” said Kinoshita, deputy head of Asia economics research at Nomura in Hong Kong. The nation would “try its best politically” to benefit, he added.

Stocks Gain

Asian stocks climbed, extending the best weekly rally since 2009, on renewed confidence in the global economy after better- than-forecast U.S. data added to signs of progress in Europe. The MSCI Asia Pacific Index rose 1.3 percent as of 4:30 p.m. Hong Kong time.

Regling said China hasn’t set any conditions for buying EFSF bonds after being a “good” and “loyal” purchaser of the securities so far.

China’s Zhu told reporters in Beijing that details “are still under discussion” and that his government wants to know more. Zhu said he didn’t expect that information to be available until late November or December at the earliest.

“Of course we must wait for the comprehensive technical structure to be very clear and have serious and specialized discussions before making a decision on investment,” Zhu said.

Sarkozy Outreach

French President Nicolas Sarkozy spoke with Chinese counterpart Hu Jintao by phone yesterday and the two agreed to “cooperate closely” to ensure global growth and stability, Sarkozy’s office said in a statement. Regling said that he didn’t expect a “precise outcome” from talks with Chinese officials during his trip.

Japan plans to support the increase in the fund and is awaiting details, a person familiar with the matter said yesterday. Japan anticipates waiting until November for specifics on how it may be able to help with the European rescue effort, a second person said, with both speaking on condition of anonymity because the discussions are private.

Officials from Brazil, Russia, India, China and South Africa -- the so-called BRICS -- said in a Sept. 22 statement they are “open” to contributing to global financial stability through the IMF or other international financial institutions. Asia has bought 40 percent of EFSF bonds this year, according to Regling.

Not Enough

The IMF said last month that its uncommitted reserves, now about $393 billion, may not be enough to meet all loan requests should global economic prospects worsen. Group of 20 leaders meeting in Cannes, France, next week are scheduled to discuss whether the war chest is sufficient.

Creating a special purpose vehicle within the IMF would require approval by the organization’s executive board.

The IMF has channeled money from selected member countries for specific purposes before. In the 1970s, oil producers contributed to a pool that financed loans to economies hurt by the increase in the price of crude. Currently, some nations chip into a trust fund that helps lend to the poorest nations at lower rates. These pools have been used to lend to countries, not to intervene in financial markets.

Nations such as China or India have enough currency reserves to participate in a fund focused on Europe, said Mohsin Khan, a former IMF department director who is now a senior fellow with the Peterson Institute for International Economics in Washington. Such support may come at a price, Khan said.

Quid Pro Quo

“I think there will be some quid pro quo on this,” he said. “They would like a bigger role in global financial governance and I think they will also see it as they are systemically important and they are doing something good for the world.”

China’s foreign-exchange holdings have topped $3 trillion this year, swelled by the nation’s trade surplus and inflows of speculative capital.

The IMF is involved in programs for Greece, Ireland and Portugal -- nations at the center of the debt crisis -- while China is “an important member” of the organization, Regling said. The possibility of a special vehicle “needs to be explored,” he said.

Regling was due to meet with People’s Bank of China and finance ministry officials today, he said.

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

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European Stocks Rise, U.S. Index Futures Fall

By Adam Haigh - Oct 28, 2011 6:38 PM GMT+0700

European stocks dropped from a 12- week high as investors waited to discover how the euro area plans to fund its enlarged bailout facility. Asian shares increased, while U.S. index futures slid.

Petroleum Geo-Services ASA (PGS) fell 10 percent, leading a slide among oil and gas companies, after reporting a wider-than- estimated loss. Wacker Chemie AG (WCH) slipped 7.9 percent as the German chemicals company reported third-quarter earnings and sales that trailed analysts’ estimates.

The Stoxx Europe 600 Index fell 0.3 percent to 248.57 at 12:35 p.m. in London. The gauge surged 3.6 percent yesterday after the region’s leaders said they will boost their rescue fund’s capacity to 1 trillion euros ($1.4 trillion) in a bid to stem the debt crisis. The Stoxx 600 is headed for a weekly gain of 4 percent, its biggest rally this month.

“The situation is not resolved,” said Monika Rosen, the head of global research at UniCredit SpA in Vienna. There is a need for “political consensus between all these euro nations. That is the difficulty we are trying to solve. It’s a consensus- building process that makes it slow and unclear. Markets are still skeptical.” She spoke in a Bloomberg Radio interview with Ken Prewitt.

Futures contracts on the Standard & Poor’s 500 Index expiring in December slid 0.6 percent and the MSCI Asia Pacific Index advanced 1.3 percent.

European Stock Valuations

The Stoxx 600 has fallen 9.9 percent this year amid concern that the euro area’s sovereign debt crisis will hamper growth. The gauge is trading at 10.8 times the estimated earnings of its companies, compared with the average multiple of 12 during the past five years, according to data compiled by Bloomberg. Almost half of the 139 companies in the Stoxx 600 that have released earnings since Oct. 11 beat analysts’ profit estimates, according to data compiled by Bloomberg.

In the U.S., reports today will probably show increases in income and spending as well as an upward revision to consumer confidence, Bloomberg surveys of economists indicate.

Petroleum Geo-Services fell 10 percent to 63.90 kroner, the biggest slide on the Stoxx 600, after reporting third-quarter net income of $13.4 million, compared with a loss of $40.4 million a year earlier. That missed the $32.6 million average of analysts’ estimates compiled by Bloomberg.

Wacker Chemie sank 7.9 percent to 77.62 euros. The Munich- based chemicals company reported third-quarter sales that trailed analysts’ estimates and forecast lower revenue in the fourth quarter.

YIT Oyj (YTY1V), Finland’s biggest builder, plunged 11 percent to 12.65 euros after posting third-quarter net income of 18.6 million euros. That missed the 38.1 million-euro mean estimate of eight analysts surveyed by Bloomberg.

Renault, Electrolux Rally

Renault SA (RNO), France’s second-biggest carmaker, jumped 2.5 percent to 31.06 euros. The carmaker said revenue increased to 9.75 billion euros from 8.71 billion euros a year earlier. That beat the 9.63 billion-euro average of four analyst estimates compiled by Bloomberg. Societe Generale SA upgraded its stance on the shares to “buy” from “hold.”

Electrolux SA rallied 3.2 percent to 122.30 kronor. The Swedish maker of household appliances said third-quarter net income fell to 826 million kronor ($130 million) from 1.38 billion kronor a year earlier. Sales dropped to 25.65 billion kronor from 26.33 billion kronor. Both profit and sales exceeded analysts’ estimates in a Bloomberg survey.

Linde AG (LIN), the world’s second-biggest maker of industrial gases, climbed 2.2 percent to 118.55 euros after reporting third-quarter earnings that beat analysts’ estimates, helped by cost savings and higher demand from emerging markets.

SSAB AB (SSABA) surged 5.8 percent to 66.50 kronor after posting third-quarter net income and sales that topped estimates.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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

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Samsung Overtakes Apple in Smartphone Sales

By Tim Culpan - Oct 28, 2011 2:10 PM GMT+0700

Samsung Electronics Co. overtook Apple Inc. (AAPL) in the last quarter to become the world’s largest smartphone vendor amid a widening technology and legal battle between the two companies.

Samsung shipped 27.8 million smartphones in the last quarter, taking 23.8 percent of the market, Milton Keynes, U.K.- based Strategy Analytics said in an e-mailed statement today. Apple’s 17.1 million shipments, comprising 14.6 percent of the market, pushed the Cupertino, California-based company to second place. Nokia Oyj (NOK1V) maintained its third position, it said.

Apple, which released its iPhone 4S this month, held the top spot for only one quarter after dislodging Espoo, Finland- based Nokia earlier this year. Samsung, based in Suwon, South Korea, has turned to Google Inc. (GOOG)’s Android software to boost sales of its Galaxy smartphones and tablet computers.

“Samsung has come out with products that appeal to all the different form factors and specifications out there,” said T.Z. Wong, a Beijing-based analyst at researcher IDC. “That is a strategy they have executed very well.”

Natalie Kerris, a spokeswoman for Apple, wasn’t immediately available for comment after normal business hours. Nam Ki Yung, a Seoul-based spokesman for Samsung, declined to comment on the research company’s estimate.

Smartphone Sales

“Samsung’s rise has been driven by a blend of elegant hardware designs, popular Android services, memorable sub-brands and extensive global distribution,” Strategy Analytics wrote. “Samsung has demonstrated that it is possible, at least in the short term, to differentiate and grow by using the Android ecosystem.”

The global smartphone market climbed 44 percent from a year earlier to 117 million units, Strategy Analytics said. Nokia dropped to 14.4 percent from 32.7 percent a year earlier.

In the wider mobile-phone market that includes lower-cost devices, Nokia maintained its top spot even after losing 5 percentage points of share, the researcher said in a separate statement. Its 27.3 percent kept it ahead of Samsung’s 22.6 percent, with LG Electronics Inc. (066570) third.

Chinese phone maker ZTE Corp.’s cheaper handsets helped it take 4.7 percent and overtake Apple for fourth place. Global market shipments climbed 14 percent to 390 million units, according to the researcher.

Samsung, also the world’s largest manufacturer of televisions, today reported record revenue from its phone division that helped mask a slump in earnings from computer- memory chips and panels.

Legal Battles

Samsung rose 2.3 percent to 945,000 won at the close of trading in Seoul today. The shares have declined 0.4 percent this year, compared with a 25 percent jump for Apple.

Apple and Samsung have accused each other of infringing patents for technology used in handsets and tablets, with court cases still pending in Milan and Sydney. Legal battles between the two companies intensified after Apple claimed in an April lawsuit in the U.S. that Samsung’s Galaxy devices “slavishly” copied the iPhone and the iPad.

Apple’s profit last quarter missed analysts’ estimates for the first time in at least six years after customers delayed handset purchases in anticipation of its new phone. Sales of the new model, iPhone 4S, surpassed 4 million in the first weekend of sales that began Oct. 14, topping Apple’s previous sales record for its handsets.

Samsung and Nokia also released new handsets this month as consumers increasingly use mobile phones to surf the Internet, play videos and access social-networking sites.

Samsung and Google pit the talk-to-type technology of Android Ice Cream Sandwich against Apple’s Siri voice-command digital assistant. Nokia, which has a partnership with Microsoft Corp. (MSFT), this week unveiled its Windows-based handset called Lumia 800.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.

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Merkel Asserts Leadership, Seeks to Win Voters

By Leon Mangasarian and Patrick Donahue - Oct 28, 2011 3:23 PM GMT+0700

Chancellor Angela Merkel emerged from 10 hours of negotiations in Brussels with a plan to stem the debt crisis that might as well have been written in Berlin.

The German leader forced French President Nicolas Sarkozy to bend to her will on using the European rescue fund only as a last resort, ruled out an automatic crisis-fighting role for the European Central Bank and dragged banks back to the table to take greater losses on Greek debt. She even wrung further budget concessions out of Italian Prime Minister Silvio Berlusconi.

“Merkel got what she wanted,” Shada Islam, an analyst at the Friends of Europe policy-advisory group in Brussels, said by phone yesterday after the summit ended. “This has confirmed Germany’s role as the make-or-break player not only in the euro- zone crisis but in European Union affairs beyond Europe.”

Two years after the debt crisis came to light in Greece, Merkel is finally translating her status as leader of Europe’s biggest economy and biggest contributor to euro-area bailouts into international clout. It may come too late to change opinion at home, where voters punished her coalition for flip-flops over tackling the crisis at seven state elections this year.

“Confidence in this government has suffered a lot,” Peter Matuschek, an analyst at the Berlin-based Forsa polling group, said by phone. “As a voter, you look for orientation, so it’s good that she’s at least able to give the impression of being decisive.” The chancellor has “gained some breathing room.”

Bundestag Backing

Seventy-six percent of German voters in a poll taken on the eve of the summit said they were unhappy with the government’s handling of the crisis and 20 percent said they were satisfied. The Infratest poll of 1,001 voters was conducted Oct. 25-26 for ARD television and released today.

Merkel traveled to Brussels on Oct. 26 bolstered by a parliament vote in Berlin that allowed her to negotiate to raise the capacity of the 440 billion-euro ($618 billion) rescue fund. She won cross-party support after pledging that German guarantees wouldn’t be raised from the existing level of 211 billion euros and the ECB shouldn’t be relied upon to continue its bond-buying program to staunch the crisis. No mention of the ECB’s bond-purchase program was made in the summit’s 15-page statement.

Addressing lawmakers before she left Berlin, Merkel said that the summit’s main goal would be to cut Greece’s debt to 120 percent of gross domestic product by 2020, a level that international creditors said last week could be achieved if bondholders accepted voluntary 50 percent losses. Banks bowed to pressure yesterday to accept a 50 percent haircut on Greek debt after Merkel made clear it was European leaders’ “last word.”

‘German Handwriting’

Sarkozy had wanted the rescue fund to be used to bail out distressed banks. Merkel stipulated that the fund should be used only as a backstop of last resort. Taken together, the decisions clearly display “German handwriting,” Deputy Finance Minister Joerg Asmussen, who attended the summit, said later in Berlin.

Merkel’s domestic allies praised her Brussels performance. The summit was a “breakthrough” in fighting the crisis and a “great success for the chancellor,” Volker Kauder, the floor leader of her Christian Democratic Union, said in an interview with Focus magazine. Otto Fricke, budget spokesman in parliament for her Free Democratic Party coalition partner, which has flirted with an anti-bailout stance, told broadcaster Phoenix that the outcome was a “big step forward.” Even Carsten Schneider, Fricke’s opposition counterpart from the Social Democratic Party, said the 50 percent reduction in Greek debt was “okay,” though it “ought to have come far sooner.”

Bild’s Verdict

“Merkel’s euro rescue,” Germany’s best-selling Bild newspaper said on its front page today. “It was an all-night poker session -- and Chancellor Angela Merkel the winner.”

Since October 2009, when Merkel formed her second-term government and Greece’s debt burden began to emerge with the arrival of George Papandreou as Greek prime minister, the German government parties have lost ground to the opposition.

Merkel’s coalition trails the opposition Social Democrats and Greens by 34 percent to 43 percent, a Forsa poll for Stern magazine showed Oct. 26. That’s down from the 48.4 percent won by Merkel’s Christian Democrats and Free Democrats at the 2009 election. The SPD and Greens, traditional allies which governed together from 1998 to 2005, took 33.7 percent in 2009. The next federal election is due in the fall of 2013.

After a positive EU summit, Merkel “could take advantage of it to stabilize the situation,” said Forsa’s Matuschek.

At least until next week, when Merkel will press global leaders at a Group of 20 meeting in Cannes, France, on a financial transaction tax and measures to tackle banks deemed “too big to fail.” She will also present Europe’s plan to leaders including President Barack Obama, who has repeatedly prodded Merkel and her euro colleagues to stamp out the crisis.

“We’ve achieved some things,” Merkel told lawmakers on Oct. 26. “A more important step will be taken in Cannes.”

To contact the reporters on this story: Leon Mangasarian in Berlin at lmangasarian@bloomberg.net; Patrick Donahue in Berlin at pdonahue1@bloomberg.net

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

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Saving Euro Produced Sarkozy Rage as Merkel Bent Banks in Six-Day Marathon

By Tony Czuczka and Helene Fouquet - Oct 28, 2011 5:00 AM GMT+0700

The guardians of the euro arrived in Brussels last week knowing their efforts to quell the Greek debt crisis over the past two years had failed to build confidence.

Europe’s image is “disastrous,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro finance chiefs, said Oct. 21 as the six-day meeting marathon began.

By the time everyone headed home in the wee hours yesterday, Europe had its revamped plan to prevent a Greek default, safeguard banks and shield Italy from the contagion. In the meantime, tempers flared, threats were made and French President Nicolas Sarkozy’s simmering resentments toward his British and Italian counterparts boiled over.

“We have found a durable solution to the Greece crisis,” said Sarkozy at about 3:55 a.m. yesterday, hustling to the podium to hold the first post-summit press conference.

Even so, the timeline was defined by Germany, where lawmakers demanded the right to ratify the crisis plan, requiring both an Oct. 23 meeting and the gathering that started on Oct. 26.

German Chancellor Angela Merkel, shuttling between lawmakers in Berlin, conference rooms and her hotel in the cobblestoned center of Brussels, set the tone while en route. After receiving a flower bouquet from the women’s caucus of her Christian Democratic party in Wiesbaden, Germany on Oct. 22, she delivered a speech singling out Italy for its debt load, saying investors weren’t wrong to demand higher yields on debt from Prime Minister Silvio Berlusconi’s government.

Garden Party

That evening, she and Berlusconi huddled at a botanic garden outside Brussels, where she pressed the message that he had to do more to cut the EU’s second-highest debt after Greece.

Later that night, Merkel joined Sarkozy for a sitdown with European Central Bank President Jean-Claude Trichet, EU President Herman Van Rompuy, European Commission President Jose Barroso and EU Economic and Monetary Affairs Commissioner Olli Rehn. International Monetary Fund Managing Director Christine Lagarde was also there.

When it was over, Merkel sipped wine with aides including Deputy Finance Minister Joerg Asmussen, one of the negotiators on the Greek debt writedown, and spokesman Steffen Seibert in the bar of the Amigo Hotel past 1 a.m. Xavier Musca, Sarkozy’s chief economic adviser, stopped for a chat without sitting down.

Sunday Jog

Sarkozy began the next day with a run at 8 a.m. in the city’s Royal Park, texting on his cell phone as he jogged with four bodyguards in tow on the crisp fall Sunday.

French-German togetherness followed as Merkel gave Sarkozy a brown teddy bear by German stuffed-toy maker Margarete Steiff GmbH for Giulia, his newborn daughter. News photos showed Sarkozy talking on his cell phone while unwrapping the gift.

Berlusconi, faced with pressure from investors for budget cuts and from France to remove Lorenzo Bini Smaghi from the executive board of the ECB, wasn’t feeling much love.

The Italian premier, though, had previously declined to name Bini Smaghi to replace Italian Mario Draghi as head of the Bank of Italy.

“What should I do, should I kill him?” Berlusconi said he told Sarkozy when pressed about Bini Smaghi, whom France wants to replace with one of its own on the ECB board. Bini Smaghi must understand he can’t be a “cause of war” with France and will quit by the end of the year, Berlusconi said.

Smiling Leaders

By 5 p.m., Merkel and Sarkozy were having a laugh at Berlusconi’s expense at a Franco-German news conference. Asked by reporters whether the Italian leader reassured them, Sarkozy smiled and looked at Merkel, who broke into a grin. It was a talk “among friends” and she expected Berlusconi to deliver, Merkel said.

The incident was splashed across the front pages of Italian newspapers, with many running color photos of the French and German leaders smirking. The papers’ websites carried links of the video, which was played throughout the day on most of the country’s news programs.

Berlusconi said Merkel had apologized for the laughter at the press conference. Merkel spokesman Seibert denied the contrition and in a Twitter post said there was “no apology from the Chancellor because there was nothing to apologize for.”

Inside the meetings, British Prime Minister David Cameron felt Sarkozy’s wrath after pressing euro-area leaders to finally swat away the crisis. Sarkozy, his voice rising, replied that if the U.K. wanted to be involved it should have joined the euro, said two people familiar with the encounter over lunch.

Rising Anger

As policy makers left the building named after 16th-century Flemish philosopher Justus Lipsius with most of their business unfinished, they knew they were coming back on Oct. 26. The reason: Merkel needed lawmakers to approve options agreed to by the 17 euro-area leaders for boosting the effectiveness of the region’s rescue fund. It was part of the new master plan to avoid a Greek default, fortify banks and stop the crisis from engulfing Italy.

Hemmed in by Germany’s constitutional court and with voters fed up with bailouts for weaker euro countries, Merkel has made her concern for domestic sentiment a hallmark of Europe’s crisis response.

With the U.S. and other global partners pressing Europe to contain the debt crisis, Merkel lined up cross-party support for boosting the firepower of the European Financial Stability Facility after persuading the main opposition Social Democrats and Greens to back a motion that caps German guarantees.

“The world is watching Europe and Germany,” she said before lawmakers backed the plan.

Longest Day

Heading back to Brussels on Oct. 26, Seibert posted on Twitter, “it’s going to be a long day.”

He was right.

With the outlines of a deal set, Europe’s leaders summoned bankers at midnight to nail it down. Gathered in Van Rompuy’s office, the bankers, represented by Charles Dallara, managing director of the Institute of International Finance, were given the ultimatum: Take the package that involved a 50 percent writedown of Greek debt or face worse consequences.

The politicians had their answer two hours later.

“It was the fiercely delivered wish by Merkel, Sarkozy, Juncker, that if a voluntary agreement with the banks was not possible, we wouldn’t resist one second to move toward a scenario of the total insolvency of Greece,” Juncker told reporters. That “would have cost states a lot of money and would have ruined the banks.”

When markets in Europe and the U.S. opened a few hours later, leaders got the endorsement they were struggling for, with stocks and the euro soaring.

“We Europeans showed tonight that we reached the right conclusions,” Merkel said.

To contact the reporters on this story: Tony Czuczka in Brussels at aczuczka@bloomberg.net; Helene Fouquet in Brussels at hfouquet1@bloomberg.net

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

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Greece Will Leave Euro Even With Pact: Rogoff

By John Detrixhe and Michael McKee - Oct 28, 2011 6:49 AM GMT+0700

European leaders’ agreement to expand a bailout fund to stem the region’s debt crisis only buys time as Greece will likely still leave the euro in the next decade, Harvard University economist Kenneth Rogoff said.

“It feels at its root to me like more of the same, where they’ve figured how to buy a couple of months,” Rogoff said as a compensated speaker at the Bloomberg FX11 Summit in New York yesterday. “It’s pretty darn clear the euro does not work, that it’s not a stable equilibrium.”

European leaders bolstered their crisis-fighting toolbox by boosting the heft of their rescue fund to 1 trillion euros ($1.4 trillion) and persuading bondholders to take 50 percent losses on Greek debt. Measures also included a recapitalization of European banks and a potentially bigger role for the International Monetary Fund in strengthening the bailout fund.

Stocks surged after the agreement, extending the biggest monthly rally for the Standard & Poor’s 500 Index since 1974. Treasuries sank, while the euro strengthened and metals and oil led a rally in commodities.

The euro appreciated as much as 2.5 percent, more than 3 cents, to $1.4247, the highest since Sept. 6, before closing at $1.4189 yesterday in New York. It was the biggest rally on an intraday basis since July 2010.

“My read of this is that the markets are cheered that they’re still alive,” said Rogoff, 58, a former International Monetary Fund chief economist. “Even in a fairly short period, doubts will start to grow again.”

Debt to GDP

Still to be worked out in negotiations, which may fall prey to fresh bouts of political infighting and investor revolt, is just how the firepower of the 440 billion-euro rescue facility will be leveraged and what banks will get in return for accepting the Greek haircut. As next week’s Group of 20 summit looms, nations from Greece to Italy remain under pressure to restore fiscal order and the onus is on a Mario Draghi-run European Central Bank to keep buying bonds.

One goal of the agreement is to lower Greece’s debt as a percentage of gross domestic product to 120 percent. Nations historically have run into trouble when public debt exceeds about 90 percent of GDP, according to Rogoff.

“I don’t think there’s any doubt that we’ll see more defaults beyond Greece,” Rogoff said. “The interesting question is will all the countries in the euro still be in the euro? My answer to that is no.”

Yields Decline

There’s at least as much as an 80 percent chance that Greece will leave the 17-nation common currency in the next 10 years, he said.

Even after yesterday’s gains, the bonds of some of Europe’s most-indebted countries are still trading near their historical lows. Greece’s two-year yield slid 285 basis points to 76.9 percent yesterday, compared with an average of 27 percent in the past year. Italy’s 10-year yield, which averaged 4.93 percent in the past 12 months, fell five basis points to 5.87 percent yesterday.

“There’s just too many inconsistencies,” Rogoff said. That multiple independent countries are using a common currency “is missing some big things and it’s just not in equilibrium.”

“This Time Is Different,” a book he co-wrote with Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics in Washington, said that a recovery after a financial crisis is especially protracted and that higher levels of debt tend accompany slower growth.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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

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Bangkok Prepares to Evacuate Some Residents as High Tide Worsens Flooding

By Daniel Ten Kate and Anuchit Nguyen - Oct 28, 2011 12:03 AM GMT+0700

Thailand’s government prepared to evacuate more people from Bangkok as a high tide starting today may exacerbate flooding that has killed 373 people and swamped factories north of the capital.

“Too much preparation is indeed better than too little,” Natapanu Nopakun, a spokesman for the government’s Flood Relief Operations Command, said in a televised briefing last night, expressing appreciation to those who already left town. “It is hoped these measures will lead to caution.”

The government may evacuate people in some areas of Bangkok to nearby provinces, he said, adding that residents in one-story houses near rivers and canals are most at risk. Prime Minister Yingluck Shinawatra has said it could take a month for waters to drain to the Gulf of Thailand.

Uncertainty over the severity of flooding has fueled panic in the capital, leading to shortages of bottled water, eggs and baby formula as the worst floods in more than half a century reach Bangkok. Dikes north of the city are holding back a three- meter-deep wall of water that has inundated about 10,000 factories, disrupting the supply chains of companies including Toyota Motor Corp. and Apple Inc.

“I suggested that clients leave town because of shortages of drinking water and chaos at supermarkets where people are cleaning out the shelves,” said Sanit Nakajitti, a director at PSA Asia, a Bangkok-based security and risk consulting company. “It’s not a life-threatening situation; it’s more just an inconvenience.”

Chao Phraya River

Bangkok Governor Sukhumbhand Paribatra warned communities in 13 districts to watch for flooding as the Chao Phraya river is expected to swell to a record. Severe flooding was limited to a handful of Bangkok’s 50 districts so far, he said.

“There is no sign that floods will spread all over Bangkok,” Sukhumbhand told a group of executives yesterday. “The severity of the problem depends on each area.”

Thailand’s government announced a 5-day holiday through Oct. 31 for 21 northern and central provinces to give people time to prepare for flooding. Commercial banks and financial markets will remain open.

The nation’s benchmark SET Index gained 2.3 percent as stocks surged around the globe after European leaders agreed to expand a bailout fund to stem the region’s debt crisis. The baht rose 0.4 percent to 30.67 per dollar, its strongest level in a week as international investors boosted equity holdings.

Credit Suisse Group AG cut its forecast for Thailand’s economic growth this year to 2.7 percent from 3.5 percent, it said in a report yesterday. The forecast for average inflation for 2012 was raised to 3.8 percent from 3.4 percent as supply shortages because of flooding drives up product prices, it said.

Insurers

Thailand’s floods may cause about 140 billion baht of financial damage to manufacturers in seven industrial estates, according to the government’s insurance regulator. Japan’s casualty insurers may face about 190 billion yen ($2.5 billion) in net payouts to cover damages from Thailand’s floods, Deutsche Bank AG said in a report yesterday.

Bangkok’s Suvarnabhumi International Airport is operating normally and the company that operates the facility is “confident” that it can be protected from flooding, Somchai Sawasdeepon, senior executive vice president of Airports of Thailand Pcl, said yesterday. Malaysia advised against non- essential travel and Cathay Pacific Airways Ltd. (293) canceled four flights to Bangkok as the waters deter visitors.

Power Cuts

Don Mueang Airport, which is used mostly for domestic flights, closed after floodwaters reached the runways and has experienced electricity outages. Yingluck has used the building to direct flood-relief efforts and provide refuge for about 4,000 evacuees who are being transferred to other locations.

“Power blackouts are normal when water gets access to the system,” Yingluck told reporters yesterday. “We will reconsider moving again after all the flood victims here move out.”

Rainfall about 25 percent more than the 30-year average filled upstream dams to capacity, prompting authorities to release large amounts of water earlier this month down a flood plain the size of Florida, with Bangkok at its bottom tip. Authorities are aiming to drain the water around Bangkok and through the city’s 1,682 canals.

Residents in northern Bangkok caught fish in their homes and ate noodles with their feet resting in ankle-deep floodwaters, television images showed. In some areas, they showed residents capturing escaped crocodiles.

The government plans to open evacuation centers in provinces including Chon Buri and Kanchanaburi that will be able to house 120,000 people, said Pracha Promnog, a Cabinet member who heads flood relief efforts.

“For people who choose to stay in Bangkok, we have a plan for a food-storage center,” he said. “Electricity and water should not be a problem.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Hewlett-Packard Will Keep PC Business

By Aaron Ricadela - Oct 28, 2011 11:01 AM GMT+0700

Hewlett-Packard Co. (HPQ) Chief Executive Officer Meg Whitman, by abandoning a proposal to spin off the company’s market-leading personal-computer unit, took a step toward unwinding the moves that led to her predecessor’s ouster.

In her first major move since taking over on Sept. 22, Whitman backed away from a proposition made by Leo Apotheker a month before he was fired. She said in an interview she may also resurrect a push into tablet computers, an effort that languished under the former CEO, and in another break with the past, Whitman is sharing management with Chairman Ray Lane.

“HP has been a comedy of errors, and selling a third of their revenue right now is probably not sound,” said Brian Marshall, an analyst at ISI Group in San Francisco. “This is obviously a pretty big reversal of the strategy Leo put into place.”

Hewlett-Packard, based in Palo Alto, follows Netflix Inc. (NFLX), another Silicon Valley technology company, in changing tack on policies that displeased investors. Netflix abandoned a plan this month to split into two businesses, a move that would have made subscribers choose between different services for DVDs and streaming video.

Whitman is keeping PCs to maintain a diverse product lineup and to help Hewlett-Packard drive bigger bargains when purchasing components. Her aim is to step up growth and avoid the management missteps that rankled shareholders and led the company to cut sales forecasts three times under Apotheker.

Costly Sale

The decision on PCs followed a review that found Hewlett- Packard’s role as the largest PC seller was too valuable to its brand, procurement power and customer relationships, the company said yesterday.

“If you try to hive a division off, it’s really hard because you almost have to recreate the whole thing,” Whitman said in the interview.

Offloading the division also would have rung up $1.5 billion in one-time expenses and $1 billion a year in ongoing costs related to replicating functions, Whitman said. And the spun-off company might have ended up competing with its parent in servers and other markets, she said.

Holding on to PCs affords the company purchasing advantages, giving it the clout to negotiate better prices for chips and hard drives, which are used in both PCs and servers. That’s especially useful with memory chips, given their volatile prices, said Richard Shim, an analyst at market research firm DisplaySearch, part of NPD Group.

‘Like Jet Fuel’

“If you can ensure a certain volume then you can get a consistent price; it’s like jet fuel to airlines,” he said. Computer companies also benefit from packaging PCs, servers and other gear in the same sale, Shim said.

While Whitman has taken charge of computer hardware and corporate functions, Lane is focused on software and technology services, she said. That lets the executives “cover more ground,” Whitman said. Lane, a partner at venture firm Kleiner Perkins Caufield & Byers, is spending 30 percent of his time working on Hewlett-Packard business, she said.

When Whitman agreed to become Hewlett-Packard’s CEO in September, it was on the condition that Lane be executive chairman, according to a person close to the company. The two executives compare notes on a daily basis and hold a more detailed meeting once a week, Whitman said yesterday.

Apotheker was ousted a month after announcing the spinoff idea, dogged by a slump that forced him to cut sales forecasts three times in less than a year.

Tablet Revival?

He also undermined investors’ confidence with a $10.3 billion agreement to buy software company Autonomy Corp., announced the same day as the PC group review, and by killing the company’s TouchPad tablet computer less than two months after its high-profile debut.

The next test for Whitman will be the company’s Nov. 21 fourth-quarter earnings report, when she’ll give guidance for the current fiscal year, which ends next October, and detail her strategic plans for next year. Whitman and Chief Financial Officer Cathie Lesjak are working on those plans now, Whitman told analysts during a conference call yesterday.

“We confused the market pretty dramatically,” Whitman told analysts. “No matter where I go, the first question I get is, ’What is HP?’”

While she wouldn’t get into details, the CEO reiterated plans to steer clear of large acquisitions and work on positioning the company to deliver cloud-computing services and capitalize on the merging of consumer and business technology in a way that companies’ information-technology departments can support.

Whitman also isn’t giving up on tablets, despite the dominance of Apple Inc. (AAPL)’s iPad, she said yesterday. The company is working with Microsoft Corp. to use the pending Windows 8 operating system on tablet computers, and Hewlett-Packard may come back to market with a tablet running its own WebOS software, she said.

“The market was created by Apple,” she said. “That doesn’t mean there couldn’t be a strong No. 2 player.”

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net.

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

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Sprint Said Near Deal With Clearwire for New Multiyear Agreement

By Olga Kharif and Scott Moritz - Oct 28, 2011 11:00 AM GMT+0700

Sprint Nextel Corp. (S) and Clearwire Corp. (CLWR) are near an agreement to extend their existing network- sharing agreement for three to five years, said three people with direct knowledge of the matter.

The deal would allow Overland Park, Kansas-based Sprint to use Clearwire’s network to provide services to its customers after the current pact expires at the end of 2012, said the people, who wouldn’t be identified because the matter isn’t public. Though details are still being negotiated and a final accord isn’t certain, the price Sprint pays for Clearwire to handle its traffic is likely to fall, the people said.

A new wholesale agreement would put Clearwire, the money- losing wireless broadband provider, on more stable financial ground. The company has said it needs about $1 billion to shift its network to Long-Term Evolution, or LTE, wireless technology and finance its operations. Sprint, the third-largest U.S. wireless operator, owns a majority of Clearwire and is its largest wholesale customer.

“Assuming that Sprint and Clearwire sign a new agreement, it provides Clearwire with an ongoing source of revenue,” Michael Nelson, an analyst at Mizuho Securities USA Inc., said in an interview. “This would likely help them get funding, because it would provide increased visibility into revenue- getting opportunities and reduce the risk profile.”

No Sprint Financing

Sprint won’t provide financing to Kirkland, Washington- based Clearwire under the new pact, two of the people said. Clearwire had previously said it is looking at additional wholesale agreements and spectrum sales as potential sources of funds.

When Sprint said Oct. 7 that it would stop selling devices that use WiMax, Clearwire’s existing wireless technology, signaling the partnership may end next year, Clearwire’s stock fell 32 percent. Sprint CEO Dan Hesse said on an Oct. 26 conference call that the companies are negotiating a possible contract extension, lifting Clearwire shares 20 percent.

Sprint would benefit from lower pricing, as well as additional network capacity, which it may need as more of the company’s customers use smartphones to watch mobile videos, check e-mail and browse the Web. The company recently began selling Apple Inc. (AAPL)’s popular iPhone.

Sprint rose 4.8 percent to $2.63 yesterday at the close in New York and was little changed in extended trading. The company has dropped 38 percent this year. Clearwire fell 2.6 percent to $1.91 yesterday at the close and gained as much as 11 percent to $2.12 in late trading. Clearwire has lost 63 percent in the last 12 months.

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

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

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