Asian Stocks Fall After Standard & Poor’s Cuts U.S. Banks’ Credit Ratings

By Kana Nishizawa and Norie Kuboyama - Nov 30, 2011 4:03 PM GMT+0700

Asian stocks (MXAP) fell after Standard & Poor’s reduced credit ratings for lenders including Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. as Europe’s debt crisis cuts the global earnings outlook.

Sumitomo Mitsui Financial Group Inc. Japan’s second-biggest bank by market value, fell 1 percent in Tokyo. Nanya Technology Corp. (2408), a Taiwanese memory-chip maker, slumped 6.7 percent after a report DRAM prices for the second half of November fell. Japanese power producers led gains among companies whose earnings are viewed as stable throughout the economic cycle.

The MSCI Asia Pacific Index fell 0.5 percent to 112.63 as of 5:51 p.m. in Tokyo, headed for a 7.5 percent drop for the month. All but three of 10 industry groups on the measure declined, with about five stocks falling for every four that advanced.

“The rating cuts may have a negative impact on investor sentiment,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo. “What investors are really paying attention to is whether policy makers are going to take steps to resolve the European debt situation.”

Japan’s Nikkei 225 Stock Average (NKY) fell 0.5 percent even after industrial production increased more than analysts expected in October.

Australia’s S&P/ASX 200 index rose 0.4 percent. South Korea’s Kospi Index slid 0.5 percent.

Hong Kong’s Hang Seng Index fell 1.5 percent, falling 9.4 percent for the month and set to become the third-worst monthly performer in Asia after benchmark indexes Vietnam and India.

China Monetary Policy

Declines in the region accelerated after Xia Bin, China’s central bank adviser and researcher at the State Council’s Development Research Center, said restructuring of its economy will depend on fiscal policy rather than on a loosening of monetary policies. Inflation is still on a “mild upward” trend due to rising labor costs and resource prices, he said.

The MSCI Asia Pacific Index declined 18 percent this year through yesterday, compared with a 5 percent drop by the S&P 500 and a 16 percent slump by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.6 times estimated earnings on average, compared with 12.1 times for the S&P 500 and 10.1 times for the Stoxx 600.

Measures of consumer staples and utilities were among the biggest gains of the MSCI Asia Pacific Index’s 10 industry groups. Japanese power producers Hokuriku Electric Power Co. (9505) increased 3.6 percent to 1,368 yen, Chugoku Electric Power Co. rose 3.1 percent to 1,309 yen and Kansai Electric Power Co. advanced 2.1 percent to 1,144 yen in Tokyo.

‘Defensive Tilt’

“People who are selling off cyclicals are also positioning themselves in stocks with a defensive tilt, such as utilities and consumer staples,” as global demand is likely to come off with governments around the world running on tight budgets, said Angus Gluskie, who manages about $300 million at White Funds Management in Sydney. “It’s a mixed sentiment out there. People are somewhat polarized and uncertain with little consensus in the outlook.”

Sumitomo Mitsui dropped 1 percent to 2,089 yen in Tokyo, while HSBC Holdings Plc (5), a lender that gets about a fifth of its revenue from North America, retreated 2.1 percent to HK$57.45 in Hong Kong. ICICI Bank Ltd., India’s second-largest lender by assets, slid 3.2 percent to 710.35 rupees in Mumbai.

Bank of America, Goldman Sachs and Citigroup had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the largest global lenders. China Construction Bank Corp. and Bank of China Ltd., the nation’s No. 2 and No. 3 lenders, were upgraded to A from A-, joining Industrial & Commercial Bank of China Ltd., the world’s biggest bank by market value, on higher ratings than their U.S. rivals.

Memory Chips

Chipmakers fell after Digitimes said contract prices for dynamic random-access memory, the most common chip in computers, dropped almost 8 percent in second half of this month due to sluggish demand. The report cited industry sources in Taiwan.

Nanya Technology sank 6.7 percent to NT$2.36 while Powerchip Technology Corp. (5346), a maker of DRAM chips, declined 6.3 percent to NT$1.05 in Taipei. Elpida Memory Inc. (6665), a memory-chip maker, dropped 5.6 percent to 368 yen in Tokyo.

BlueScope Steel Ltd., Australia’s biggest steelmaker, fell 3.8 percent today and dropped 47 percent for the month, the steepest in the MSCI Asia Pacific Index, after saying last week it plans to sell new shares at a 34 percent discount to raise money for debt repayment.

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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China’s Stocks Fall Most in 4 Months After Xia Sees Tight Policies in 2012

By Bloomberg News - Nov 30, 2011 3:03 PM GMT+0700

China’s stocks fell the most in almost four months after a central bank adviser said he sees the nation keeping tight monetary policies next year and Shenyin & Wanguo Securities Co. forecast plunging export growth.

PetroChina Co. slid to a record low and Jiangxi Copper Co. plunged to the lowest in 16 months before a manufacturing report tomorrow that will likely show the first contraction since 2009. China Vanke Co. (000002) and China Citic Bank Corp. led declines for financial stocks after Xia Bin said policy fine-tuning doesn’t mean a loosening of credit or changes in interest rates. Baoshan Iron & Steel Co. (600019) and Anhui Conch Cement Co. lost more than 3 percent after Shenyin & Wanguo estimated the export growth rate almost halved this month while industrial output slowed.

“Investors who expected looser policies have come to realize that’s not going to happen,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “The economy is going to slow down. That’s bad for stocks.”

The Shanghai Composite Index (SHCOMP) tumbled 78.98 points, or 3.3 percent, to 2,333.41 at the close, the most since Aug. 8. The CSI 300 Index (SHSZ300) dropped 3.3 percent to 2,521.52. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, fell 0.8 percent in New York yesterday.

The Shanghai Composite slid 5.5 percent in November on concern growth in China, the world’s second-largest economy, is cooling and Europe’s sovereign debt crisis is deteriorating. The gauge is valued at 11.1 times estimated earnings, compared with a four-year average of 17.3 times, according to weekly data compiled by Bloomberg. It has tumbled 17 percent this year after the central bank raised rates three times and lifted the reserve-requirement ratio to curb inflation.

No RRR Cut

Premier Wen Jiabao said on Oct. 25 that the government will fine-tune economic policies as needed, fanning speculation the central bank will cut the reserve-requirement ratio or interest rates to boost growth amid cash crunch for small companies.

Fine-tuning can refer to tools other than interest rates and reserve requirements, said Xia, also a researcher at the State Council’s Development Research Center, in Beijing today. The restructuring of China’s economy will depend on fiscal policy rather than on a loosening of monetary policies, he said.

Most economists expect the government to loosen some fiscal or monetary policies without cutting interest rates through 2012 as inflation remains elevated, a Bloomberg News survey indicated this month.

A measure of financial stocks on the CSI 300 slid 3 percent today. Vanke, the biggest developer, fell 1.5 percent to 7.06 yuan. Poly Real Estate Group Co. (600048), the second largest, lost 1.1 percent to 9.21 yuan. China Merchants Property Development Co. retreated 1.7 percent to 16.35 yuan.

Export Slump

Citic Bank paced declines for lenders, slumping 3.6 percent to 4.04 yuan. China Construction Bank Corp. (939) eased 0.9 percent to 4.69 yuan even as Standard & Poor’s upgraded the credit ratings of China’s second-biggest lender along with that of Bank of China Ltd. (3988), which slid 1.7 percent to 2.88 yuan.

Industrial output may have increased 12.5 percent in November, down from 13.2 percent a month earlier, while export growth likely slowed to 7.7 percent in November from 15.9 percent in October, Meng Xiangjuan and Li Huiyong, analysts at Shenyin & Wanguo wrote in a report today.

Inflation may have slowed to 4.4 percent this month and the government is unlikely to reverse its economic policies as the inflation rate is still higher than the annual target of 4 percent, according to the securities firm, ranked the country’s most influential brokerage for research by New Fortune magazine last year. The economic figures for November are due on Dec. 9.

Tomorrow’s PMI

Baoshan Steel, the listed unit of China’s second-biggest steelmaker, retreated 3.4 percent to 4.84 yuan. Anhui Conch, the biggest cement maker, lost 5.3 percent to 16.30 yuan. SAIC Motor Corp. (600104), the largest carmaker, dropped 4.6 percent to 13.53 yuan.

A government report due tomorrow may show manufacturing is likely to contract for the first time since February 2009 this month. The Purchasing Managers’ Index may fall to 49.8 from 50.4 in October, according to the median forecast of 16 economists surveyed by Bloomberg. A reading below 50 indicates contraction.

“There’s a consensus view that economic growth will slow next year and companies related to investment will suffer,” said Dai Ming, fund manager at Shanghai Kingsun Investment Management & Consulting Co. “The key is whether the economy is poised for a soft landing as is expected by the market.”

Jiangxi Copper, China’s biggest producer of the metal, dropped 4.2 percent to 24.84 yuan. Aluminum Corp. of China Ltd. slid 4.1 percent to 7.68 yuan. Yanzhou Coal Mining Co. (600188), the fourth-biggest coal miner, plunged 5.1 percent to 25.66 yuan. Its share estimate was cut 17 percent to 21.84 yuan at BOC International, which kept a “hold” rating. PetroChina, the biggest energy company, fell 3.2 percent to 9.46 yuan.

‘Falling Off a Cliff’

The upside for commodities is likely to be limited in 2012 as “risks to global growth are skewed to the downside,” according to Morgan Stanley. Risk aversion and deleveraging should boost the U.S. dollar, providing “additional headwind” for commodities, analyst Hussein Allidina wrote in a report.

Slumping shipping costs show exports to Europe from China are “falling off a cliff” as the euro-region crisis chokes off consumer spending, according to RS Platou Markets AS, a unit of Norway’s biggest shipbroking group.

“European imports from China will be much, much lower going forward,” said Rahul Kapoor, a Singapore-based analyst at Platou Markets. “If you see falling freight rates, that would imply that European demand is falling off a cliff.”

Cosco Shipping Co. (000428), a unit of China’s biggest shipping company, slumped 6.5 percent to 4.79 yuan. China Shipping Development Co., a unit of China’s second-biggest sea-cargo group, lost 5.5 percent to 6.53 yuan.

Supply Concerns

Europe’s effort to expand its bailout fund is falling short, forcing euro-area finance ministers to consider greater roles for the International Monetary Fund and the European Central Bank to insulate Spain and Italy from the debt crisis. A report showed that U.S. consumer confidence snapped back more than forecast in November as Americans turned less pessimistic on the outlook for jobs.

Europe and the U.S. make up about a total of 35 percent of China’s exports, according to Shenyin & Wanguo.

China’s stocks may face pressure as the lock-up period on about 160 billion yuan ($25.1 billion) of stocks ends in December, Shanghai Securities News reported, citing unidentified analysts.

Zheshang’s Wang said speculation that Shanghai will allow foreign stock listings “soon” also boosted concerns about share oversupply and diversion of funds from existing equities.

“Rumors that international board will be launched soon have also weighed on the market,” he said.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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BofA, Goldman, Citi Credit Ratings Cut by S&P

By Dakin Campbell - Nov 30, 2011 6:32 AM GMT+0700

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Nov. 30 (Bloomberg) -- Tom Quarmby, a Hong Kong-based analyst at Barclays Capital, talks about the U.S. and China's banking industries. Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the world’s biggest lenders. Quarmby speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Nov. 29 (Bloomberg) -- William Cohan, a Bloomberg contributing editor and author of "Money and Power: How Goldman Sachs Came to Rule the World," talks about the move by Standard & Poor's to cut the long term credit grades of Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. to A- from A after the ratings firm revised criteria for dozens of the world's biggest lenders. He speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS) and Citigroup Inc. had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the world’s biggest lenders.

S&P made the same cut to Morgan Stanley and Bank of America’s Merrill Lynch unit today. JPMorgan Chase & Co. (JPM) was reduced one level to A from A+. S&P upgraded Bank of China Ltd. (3988) and China Construction Bank Corp. to A from A- and maintained the A rating on Industrial & Commercial Bank of China Ltd. (1398), giving all three lenders higher grades than most big U.S. banks.

The moves may increase pressure on firms already dealing with weak economies and Europe’s mounting sovereign debt crisis. Lenders including Bank of America, Citigroup and Morgan Stanley have said they may have to post billions of dollars of additional collateral and termination payments on trades because of a one-level downgrade in their credit ratings.

“It’s evident that stress from the European banking system is taking its worldwide toll,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in an e-mail.

The ratings firm also downgraded UBS AG (UBSN) and Barclays Plc (BARC) to A from A+, and HSBC Holdings Plc (HSBA) to A+ from AA-, according to the report.

Change in Technique

S&P, a unit of New York-based McGraw-Hill Cos. (MHP), has been changing the way it looks at debt after its faulty grades contributed to the credit-market seizure that brought down Lehman Brothers Holdings Inc. and Bear Stearns Cos. It started to review the methodology in December 2008, months after the collapse of those two firms.

Most bank stocks were little changed in after-hours trading. Bank of America fell 4 cents to $5.04, while Citigroup dropped 19 cents to $25.05 and Goldman Sachs declined 21 cents to $88.60 as of 6:30 p.m. in New York trading. Citigroup (C) issued a statement disputing S&P’s downgrade.

“I don’t think moving from single A to single A- has much of an economic impact on anyone,” said David Hilder, a New York-based analyst at Susquehanna Financial Group. “Those ratings are at a high level compared to the whole spectrum of ratings and are still well into the territory of investment grade.”

For Bank of America, the bigger impact might have been with when Moody’s Investors Service reduced its grade in September to Baa1, two notches below the prior A2 rating, Hilder said. By contrast “these are relatively minor changes,” he said.

Collateral Triggers

Downgrades “could likely have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical,” Charlotte, North Carolina-based Bank of America said in its quarterly filing.

The company, which noted the risk of downgrades from S&P and Fitch Ratings in the filing, previously said it has prepared by lining up funding for a year.

Citibank NA, the deposit-taking arm of New York-based Citigroup, was downgraded to A from A+. The bank estimated in a quarterly filing that a one-level reduction to the unit’s rating could trigger $4 billion of collateral payments and other cash obligations.

Citigroup Dissents

“We completely disagree with S&P’s change to Citigroup Inc.’s holding company long-term and short-term ratings,” said Jon Diat, a spokesman for the lender, in an e-mailed statement. “Less than 1 percent of Citi’s funding will be affected by the S&P revision.”

Morgan Stanley estimated over-the-counter derivatives counterparties could demand $1.29 billion of collateral or termination payments from the New York-based firm after a one- notch downgrade. In addition, the firm may have to post an additional $323 million to exchanges and clearinghouses. All the estimates were as of Sept. 30.

JPMorgan, the largest and most profitable U.S. lender (BKX), has said the New York-based company may have to post an extra $1.5 billion in collateral against its derivatives and pay additional sums for contract terminations after a one-notch cut.

Mark Lake, a Morgan Stanley spokesman, David Wells, a spokesman for New York-based Goldman Sachs, and JPMorgan’s Joe Evangelisti declined to comment.

Power Shift

S&P analysts wrote earlier this month that the new ratings would reflect “a potential shift in the power balance of global banking.” In August, S&P downgraded the U.S. sovereign credit rating from AAA, citing political failure to reduce record deficits. The ratings company downgraded the six largest U.S. banks while upgrading two Chinese lenders.

S&P analysts wrote in a Nov. 1 research note describing its criteria that developed banking markets in the U.S. and Europe were under pressure, while emerging markets in Latin America and Asia were expanding.

“Leading banks in these regions have benefited from strong economic growth which has supported household and corporate credit quality,” S&P wrote.

S&P, the world’s largest provider of bond ratings, has roiled markets this month with a pair of errors related to sovereign credit ratings. On Nov. 10, the company sent, and then corrected, an erroneous message to subscribers suggesting France’s top credit rating had been downgraded. French 10-year bond yields rose as much as 28 basis points after the mistaken announcement. A week later, it released a statement with an incorrect rating for Brazil in the headline. It later sent a corrected headline.

The following table shows firms that were downgraded by S&P, followed by a list of banks that were upgraded.

Downgraded:  
Banco Bilbao Vizcaya Argentaria S.A.  
Bank of America Corp.  
Bank of New York Mellon Corp.  
Barclays Plc  
Citigroup Inc.  
Rabobank Nederland  
Goldman Sachs Group Inc.  
HSBC Holdings Plc  
JPMorgan Chase & Co.  
Lloyds Banking Group Plc  
Morgan Stanley  
Royal Bank of Scotland Plc  
UBS AG  
Wells Fargo & Co.

Upgraded:  
Bank of China Ltd.  
China Construction Bank Corp. 

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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

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Samsung Defeats Apple-Sought Ban in Australia

By Joe Schneider - Nov 30, 2011 11:32 AM GMT+0700

Samsung Electronics Co. (005930) won a battle in its global fight with Apple Inc. over patents, as an Australian court allowed customers to buy Samsung’s rival to the iPad 2 as early as Dec. 2, pending an appeal.

A federal appeals court ruled unanimously today that a lower court judge made a mistake in granting Apple’s request for a ban on the sale of Samsung’s Galaxy Tab 10.1.

Apple must file an emergency request with the country’s top court to extend the injunction past Dec. 2. The Australian dispute is part of a legal battle between the companies in at least four continents that began in April, when Cupertino, California-based Apple sued Samsung in the U.S. and accused it of “slavishly” copying the designs of iPhones and iPads.

“The ruling clearly affirms that Apple’s legal claims lack merit,” said Nam Ki Yung, a spokesman for Samsung. He added that the Suwon, South Korea-based company will make an announcement on the Galaxy’s availability in Australia “shortly.”

The High Court will decide whether to accept Apple’s request to delay the sale of Samsung’s tablet and then may hold a hearing or make a ruling based on written submissions from the two companies.

Apple said “it’s no coincidence that Samsung’s latest products look a lot like the iPhone and iPad.”

“This kind of blatant copying is wrong and, as we’ve said many times before, we need to protect Apple’s intellectual property when companies steal our ideas,” the company said in an e-mail after today’s ruling.

Touch Screen

Apple had won an injunction Oct. 13 barring the sale of the Galaxy until the companies resolve a patent dispute at trial. Cupertino, California-based Apple claims Samsung’s tablet infringes at least two of its patents relating to the operation and interface of a touch screen.

The appeals court today criticized the lower court’s decision to grant the injunction, which cited Samsung’s refusal to accept an early trial on the patent claims.

“We cannot see how Samsung’s conduct in refusing the offer of an early trial could properly be weighed,” the three-judge appeal panel said in today’s decision. “We consider that her honor erred in principle by taking into account that irrelevant consideration.”

Available ‘Shortly’

Samsung had planned to scrap Australian sales of the newest Galaxy tablet if it couldn’t meet the Christmas shopping season because missing that would render the device “dead,” the company’s lawyer Neil Young said at an Oct. 4 hearing.

Samsung is the second-largest component supplier for Apple. The Korean company gets about 7.6 percent of its total revenue from selling memory chips, displays and other components for the iPhone and iPad, according to Bloomberg data.

Samsung then sued Apple in Australia, claiming that iPhones and the iPad 2 infringe its patents on wireless transmissions. Other court actions are ongoing Germany and Japan.

Bennett ordered Nov. 15 that a trial on Samsung’s claims be held in March, against objections from Apple, which had sought a later date.

The case is Samsung Electronics Co. v. Apple Inc. (AAPL) NSD1792/2011. Full Court of the Federal Court of Australia (Sydney).

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Douglas Wong at dwong19@bloomberg.net

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Euro-Area Ministers Agree on Bond Guarantees

By Gregory Viscusi and Rainer Buergin - Nov 30, 2011 2:31 PM GMT+0700

Euro-area finance ministers approved enhancements to their bailout fund while backing off from a target for its firepower and seeking a greater role for the International Monetary Fund in fighting the debt crisis.

The finance chiefs of the 17 nations using the euro agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility, Luxembourg’s Jean-Claude Juncker told reporters late yesterday in Brussels after leading the meeting.

“It’s very important that the IMF globally will increase its resources either by raising its capital or by bilateral loans so that it can lend more money to euro-zone countries in need,” Dutch Finance Minister Jan Kees de Jager said in an interview with Bloomberg Television after the meeting. “If we open the IMF effort, that will be sufficient together with the leverage options in the EFSF.”

After a series of stop-gap accords failed to protect Italy and Spain from surging bond yields, the euro-area ministers are under growing pressure from U.S. leaders and international financial markets to find ways to boost the EFSF’s effectiveness. They agreed on a plan to guarantee up to 30 percent of new bond issues from troubled governments and to develop investment vehicles that would boost the facility’s ability to intervene in primary and secondary bond markets.

Total Firepower

EFSF Chief Executive OfficerKlaus Regling said it is “impossible to give one number” for the total firepower of the fund, backing off an earlier goal of 1 trillion euros ($1.3 trillion). “Market conditions change over time,” he said.

Juncker said the EFSF’s capacity will be “very substantial” and will be supplemented by the IMF. The ministers “agreed to rapidly explore an increase of the resources of the IMF through bilateral loans,” Juncker said, “so that the IMF could adequately match the new firepower of the EFSF and cooperate more closely with it.”

European Union Economic and Monetary Affairs Commissioner Olli Rehn said the issue “needs to be discussed with the IMF and this work is in progress.” Neither Rehn nor Juncker named who might provide the loans. “We are together with the IMF consulting contributors through bilateral loans,” Rehn said.

The Europeans are “not there yet” in terms of fleshing out their plan enough for emerging-market nations to pledge funds to the IMF that would then aid the euro region, said Callum Henderson, global head of foreign-exchange research in Singapore at Standard Chartered Plc. “It does appear that we are making progress -- the question is are we making progress fast enough.”

Investment Vehicles

The EFSF bond guarantees and investment vehicles can run simultaneously and could be functioning by early next year, according to a document released by the fund. “Many investors are interested and will participate if we have a solidly commercial product,” Regling said. “But don’t expect massive inflows immediately. The needs will come over time.”

European heads of government meet on Dec. 9 in Brussels in a summit likely to be dominated by the debt crisis that began in Greece two years ago, spread to Ireland and Portugal, before driving up Italian and Spanish bond yields over the summer, and now is hurting even Germany’s ability to sell debt and threatening France’s top debt rating.

Short-Term Bills

“These decisions have clearly enhanced the capacity and flexibility of the EFSF,” said Charles Dallara, head of the Institute of International Finance, which represents more than 450 financial companies. “The EFSF can now issue short-term bills and use government bonds it may purchase on secondary markets for repo transactions.”

Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said the moves represent “some marginal technical changes regarding intervention in primary and secondary markets, but overall it’s very similar” to previously published documents on the EFSF’s role. “Dec. 9 might have more meat, hopefully, otherwise markets will be yet again disappointed.”

Germany is pushing for governance changes at next week’s summit that would tighten enforcement of budget rules, a move that might make it easier for the European Central Bank to play a bigger part in supporting euro-area nations.

Greater roles for both the ECB and the IMF are “on the table,” Belgian Finance Minister Didier Reynders said as he left yesterday’s meeting.

“The EFSF alone will not be able to solve all the problems,” Luxembourg’s Luc Frieden said. “We have to do so together with the IMF and with the ECB in the framework of its independence.”

Financial Aid

The ministers have started talks on channeling ECB loans to cash-strapped euro nations through the IMF, aiming to bring the central bank on to the front lines without violating its ban on direct lending to governments, according to two officials familiar with the discussions.

Over the opposition of the two Germans on its 23-member council, the ECB has bought 203.5 billion euros of bonds of three countries receiving financial aid -- Greece, Ireland and Portugal -- plus Italy and Spain. Yet yields have continued to climb.

The U.S. and British central banks have been buying their country’s debt in much larger quantities, and that’s one reason their bond yields are at record lows in spite of debt and deficit figures that in some cases are worse than Italy’s and Spain’s.

Bond-Buying Program

Four weeks after taking over from Jean-Claude Trichet, ECB President Mario Draghi hasn’t tipped his hand about a possible role for the central bank, apart from saying the ECB’s 18-month- old bond-buying program is temporary and limited.

“From our perspective, we see how the Bank of England operates, and we see how the Fed operates, but I understand it’s not legally possible for Frankfurt to operate in the same way,” said Irish Finance Minister Michael Noonan as he arrived at yesterday’s meeting. “So we’ll have to see if somebody has come up with a clever formula to allow that.”

The euro-region finance ministers also approved a 5.8 billion-euro loan to Greece under last year’s bailout after eliciting budget-austerity pledges from Greek political leaders backing a unity government.

They agreed to appoint France’s Benoit Coeure to a soon-to- be empty spot on the ECB’s board and presented new Italian Prime Minister Mario Monti with a report outlining measures the country should take to reduce debt and boost economic growth.

Bond Issuance

The euro-area ministers will be joined today by their counterparts from the rest of the 27-nation EU and will seek agreement on how to temporarily guarantee banks’ bond issuance in order to improve funding conditions for lending. EU leaders agreed last month to provide the guarantees as part of a set of measures to restore investor confidence in banks.

The IMF is co-funding the bailouts of Greece, Ireland and Portugal and is preparing to send a team to Italy for an unprecedented audit of that country’s efforts to cut its debt.

With about $390 billion currently available for lending, the Washington-based IMF may not have enough money to meet demand if the global outlook worsens, Managing Director Christine Lagarde has said.

To contact the reporters on this story: Gregory Viscusi in Brussels at gviscusi@bloomberg.net; Rainer Buergin in Brussels at rbuergin1@bloomberg.net.

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

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Stocks, U.S. Futures Decline on Bank Cuts

By Shiyin Chen - Nov 30, 2011 3:07 PM GMT+0700

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Nov. 30 (Bloomberg) -- Anthony Crescenzi, executive vice president at Pacific Investment Management Co., talks about the global economy and financial markets. Crescenzi also discusses the U.S. and China's banking industries and real estate markets. He speaks from Newport Beach, California, with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Nov. 30 (Bloomberg) -- Ritesh Maheshwari, an analyst at Standard & Poor's in Singapore, talks about Asian banks' credit ratings. S&P upgraded ratings of Bank of China Ltd. and China Construction Bank Corp. to A from A- and maintained the A rating on Industrial & Commercial Bank of China Ltd., giving all three lenders higher grades than most big U.S. banks. Maheshwari speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Global equities (MXAP) fell for the first time in three days and U.S. stock futures slid after Standard & Poor’s cut credit ratings on lenders from Bank of America Corp. to Goldman Sachs Group Inc. Copper and oil declined.

The MSCI All Country World Index lost 0.5 percent at 8:03 a.m. in London, snapping the steepest two-day gain this month, and the Stoxx Europe 600 Index sank 1 percent, the first drop in four days. S&P 500 Index futures dipped 0.8 percent. The euro weakened 0.3 percent against the dollar and decreased 0.2 percent versus the yen. Copper slumped as much as 2.2 percent and oil retreated from a two-week high in New York.

S&P’s downgrade of some of the world’s biggest lenders may pressure firms already grappling with slower economic growth and Europe’s mounting debt crisis. Euro-area finance ministers approved enhancements to the European Financial Stability Facility, while backing off setting a target for its firepower and seeking a greater role for the International Monetary Fund in fighting the debt crisis.

“Major banks are under pressure and this is happening globally because of the funding issues in Europe,” Anthony Crescenzi, executive vice president at Pacific Investment Management Co., said in a Bloomberg Television interview from Newport Beach, California. “Regulators will be sure to keep the fire under the feet of bankers to ensure that their balance sheets are fortress-like. This will keep pressure on earnings.”

An index of bank shares on the Stoxx 600 dropped 1.9 percent, the biggest decline among 19 industry groups. HSBC Holdings Plc (HSBA) retreated 1.5 percent and Barclays Plc dropped 2.3 percent in London, while UBS AG retreated 1.7 percent in Zurich. S&P cut HSBC to A+ from AA- and lowered UBS and Barclays to A from A+.

Bank Ratings

S&P 500 futures expiring in December dropped, signaling the U.S. gauge may halt a two-day rally, after Bank of America, its Merrill Lynch unit, Goldman Sachs, Citigroup Inc., and Morgan Stanley had their long-term credit grades cut to A- from A at S&P. JPMorgan Chase & Co. was also downgraded to A from A+, while Bank of China Ltd. and China Construction Bank Corp. were raised to A from A- by S&P.

Credit-default swaps on Bank of America, which were little changed before yesterday’s announcement, increased 16.9 basis points to 478.8 and those on Merrill Lynch climbed 24.1 to 524.9, according to data provider CMA. Contracts on Goldman Sachs increased 8 to 403.6.

EFSF’s Capacity

The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment climbed, with the Markit iTraxx Australia index rising three basis points to 214, according to Westpac Banking Corp. That’s set for its first increase since Nov. 25, according to data provider CMA, which is owned by CME Group Inc., and compiles prices quoted by dealers in the privately negotiated market.

“The rating cuts may have a negative impact on investor sentiment,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo. “What investors are really paying attention to is whether policy makers are going to take steps to resolve the European debt situation.”

The MSCI Asia Pacific Index dipped 0.5 percent, extending its November drop to 7.5 percent, the third decline in four months. The Shanghai Composite Index sank 3.3 percent, the biggest drop since Aug. 8, after Xia Bin, an adviser to the People’s Bank of China, said the nation’s restructuring of its economy will depend on fiscal policy rather than on a loosening of monetary policies.

EFSF Capacity

The Dollar Index (DXY), which tracks the currency against those of six trading partners, rose 0.4 percent after retreating for two days. The 17-nation euro fell to $1.3270 and traded at 103.53 yen, compared with 103.77 yesterday.

European ministers agreed to expand the bailout fund’s capacity by “introducing sovereign bond practical risk participation and a co-investment approach.” The EFSF has a current lending capacity of 440 billion euros ($586 billion). Without knowing the exact amounts needed, EFSF should be able to leverage its own resources of up to 250 billion euros, the fund statement said. Europe’s finance ministers will meet again in Brussels today.

Economic reports today showed Japan’s industrial production increased more than analysts expected in October, Australia’s capital expenditure surged, and New Zealand home-building approvals climbed. U.S. pending home sales, or contract signings for existing homes, rose 2 percent in October after falling 4.6 percent the prior month, economists surveyed by Bloomberg News forecast the National Association of Realtors will report today.

Oil slipped as much as 0.8 percent to $98.96 a barrel in New York before trading at $99.09. Futures climbed yesterday to the highest level since Nov. 16 and are up 6.4 percent this month. Three-month copper dropped 2 percent to $7,342.25 a metric ton in London. Zinc slid 1.7 percent, nickel dropped 1.2 percent and lead retreated 1.4 percent.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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German Bunds Advance as Euro Leaders Say More Work is Needed on IMF Role

By Paul Dobson - Nov 30, 2011 2:46 PM GMT+0700

German bonds rose for the first time in seven days after euro-area finance ministers said more work was needed to enhance the role of the International Monetary Fund in fighting Europe’s debt crisis.

Ten-year yields dropped from near the highest in three months before reports that economists said will show German unemployment stayed at 7 percent, and euro-area inflation held at a three-year high of 3 percent for the third month. German retail sales rose more than economists forecast in October, the Federal Statistics Office said.

The 10-year bund yield fell four basis points, or 0.04 percentage point, to 2.29 percent at 7:34 a.m. London time, after climbing to 2.37 percent yesterday, the highest since Aug. 9. The 2 percent bond due January 2022 rose 0.35, or 3.50 per 1,000-euro ($1,327) face amount, to 97.40.

Germany’s 10-year breakeven rate, a measure of inflation expectations derived from the difference in yield between conventional and index-linked securities, was at 136 basis points, after narrowing to 128 basis points on Nov. 24.

German government bonds have returned 6.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries gained 9.3 percent.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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Yen Falls as Europe Boosts Bailout Fund

By Shiyin Chen - Nov 30, 2011 10:44 AM GMT+0700

Asian equities (MXAP) dropped for the first time in three days and U.S. stock futures fell after Standard & Poor’s cut credit ratings on lenders from Bank of America Corp. to Goldman Sachs Group Inc. Copper and oil retreated.

The MSCI Asia Pacific Index lost 0.8 percent as of 12:33 p.m. in Tokyo, snapping the steepest two-day gain this month, while S&P 500 Index futures fell 0.7 percent. The yen weakened against 12 of its 16 major peers, while the Australian dollar and South Korea’s won climbed 0.3 percent. Copper dropped as much as 1.7 percent, oil lost 0.6 percent in New York and gold gained for a third day.

S&P’s downgrade of some of the world’s biggest lenders may pressure firms already grappling with slower economic growth and Europe’s mounting debt crisis. Euro-area finance ministers approved enhancements to the European Financial Stability Facility, while backing off setting a target for its firepower and seeking a greater role for the International Monetary Fund in fighting the debt crisis.

“Major banks are under pressure and this is happening globally because of the funding issues in Europe,” Anthony Crescenzi, executive vice president at Pacific Investment Management Co., said in a Bloomberg Television interview from Newport Beach, California. “Regulators will be sure to keep the fire under the feet of bankers to ensure that their balance sheets are fortress-like. This will keep pressure on earnings.”

MSCI’s Asia Pacific Index extended its November drop to 7.8 percent, the third decline in four months. Japan’s Nikkei 225 Stock Average sank 1.2 percent, Hong Kong’s Hang Seng Index fell 1.8 percent and Taiwan’s Taiex index decreased 1.3 percent.

China Policies, HSBC

The Shanghai Composite Index sank 2.7 percent after Xia Bin, an adviser to the People’s Bank of China, said the nation’s restructuring of its economy will depend on fiscal policy rather than on a loosening of monetary policies.

HSBC Holdings Plc retreated 2.4 percent in Hong Kong. S&P cut HSBC Holdings Plc to A+ from AA-. It upgraded Bank of China Ltd. and China Construction Bank Corp. to A from A-.

S&P 500 futures expiring in December dropped, signaling the U.S. gauge may halt a two-day rally, after Bank of America, its Merrill Lynch unit, Goldman Sachs, Citigroup Inc., and Morgan Stanley had their long-term credit grades cut to A- from A at S&P. JPMorgan Chase & Co., UBS AG and Barclays Plc were also downgraded to A from A+.

Credit-default swaps on Bank of America, which were little changed before yesterday’s announcement, increased 16.9 basis points to 478.8 and those on Merrill Lynch climbed 24.1 to 524.9, according to data provider CMA. Contracts on Goldman Sachs increased 8 to 403.6.

EFSF’s Capacity

The yen traded at 103.98 against Europe’s 17-nation currency, compared with 103.77 yesterday after European ministers agreed to expand the bailout fund’s capacity by “introducing sovereign bond practical risk participation and a co-investment approach.”

The EFSF has a current lending capacity of 440 billion euros ($586 billion). Without knowing the exact amounts needed, EFSF should be able to leverage its own resources of up to 250 billion euros, the fund statement said. Europe’s finance ministers will meet again in Brussels today.

“Policy makers are taking various measures to contain the crisis,” said Kengo Suzuki, a foreign-exchange analyst in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest bank by market value. “Optimism toward the finance-minister meeting in Europe is resulting in the selling of the yen.”

Dollar Index (DXY)

The Dollar Index, which tracks the currency against those of six trading partners, was little changed after retreating for two days. The euro climbed 0.2 percent to $1.3347, the Aussie rallied to $1.0070 and the won advanced to 1138.95 per dollar.

Economic reports today showed Japan’s industrial production increased more than analysts expected in October, Australia’s capital expenditure surged, and New Zealand home-building approvals climbed. U.S. pending home sales, or contract signings for existing homes, rose 2 percent in October after falling 4.6 percent the prior month, economists surveyed by Bloomberg News forecast the National Association of Realtors will report today.

The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment climbed, with the Markit iTraxx Australia index rising three basis points to 214, according to Westpac Banking Corp. That’s set for its first increase since Nov. 25, according to data provider CMA, which is owned by CME Group Inc., and compiles prices quoted by dealers in the privately negotiated market.

Immediate-delivery gold gained 0.4 percent to $1,722.77 an ounce, set for a third straight day of gains. Oil slipped 0.6 percent to $99.22 a barrel in New York, while copper dropped 1.5 percent to $7,375 a metric ton in London.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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Oil Trims Second Monthly Gain After U.S. Crude, Distillate Stockpiles Rise

By Ben Sharples and Christian Schmollinger - Nov 30, 2011 11:09 AM GMT+0700

Oil fell from the highest price in two weeks, trimming its second monthly gain, as signs of rising U.S. stockpiles countered optimism about the economy of the world’s biggest crude consumer.

Futures slid as much as 0.7 percent after increasing for the past three days. The industry-funded American Petroleum Institute said inventories climbed by 3.44 million barrels last week. Prices rose yesterday after U.S. consumer confidence climbed the most in more than eight years and Iranian protesters vandalized the British Embassy’s compound in Tehran, stoking speculation that tension in the Middle East may escalate and threaten crude supplies.

“We’ve got profit-taking today off the rally driven by the attack on the U.K. embassy,” said Victor Shum, a senior principal at Purvin & Gertz Inc., a consultant in Singapore. “That provided support on top of the good economic data out of the U.S. The API data poured some cold water on that bullish news.”

Crude for January delivery slid as much as 71 cents to $99.08 a barrel in electronic trading on the New York Mercantile. It was at $99.16 at 10:54 a.m. in Singapore. The contract yesterday advanced 1.6 percent to $99.79, the highest level since Nov. 16. Prices are 6.4 percent higher this month and up 18 percent from a year ago.

Brent oil for January settlement was down 38 cents at $110.44 a barrel on the London-based ICE Futures Europe exchange. It closed yesterday up 1.7 percent at $110.82. The European benchmark contract’s premium to New York’s West Texas Intermediate was at $11.28, compared with yesterday’s close of $11.03 and a record $27.88 on Oct. 14.

$100 Brent

Brent may average $100 a barrel next year as Libyan supply returns to the global market and new projects start, Hussein Allidina, an analyst at Morgan Stanley in New York, said in a report yesterday. Prices may be “significantly weaker” in the first half of next year, falling to as low as $85, the note said.

U.S. crude inventories rose to 339.1 million barrels as imports surged 10 percent in the week to Nov. 25, the API report showed. That pushed Gulf Coast stockpiles, where the bulk of the country’s refining is based, higher by 2.49 million barrels to 165.6 million.

An Energy Department report today will probably show oil supplies increased 50,000 barrels, according to the median of response to a Bloomberg News survey.

Gasoline stockpiles slipped 173,000 barrels to 209.3 million in the API report. Distillate fuels, including diesel and heating oil, gained 1.35 million barrels to 139.5 million. Product imports increased 8.5 percent last week, the group said.

Motor fuel supplies probably climbed 1.45 million barrels, the Bloomberg survey showed before the government report. Distillates may have declined 1.25 million, the respondents said. The Energy Department is scheduled to release its inventory report today at 10:30 a.m. in Washington.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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Topix Declines First Time in Four Days After S&P Cuts Banks’ Ratings

By Norie Kuboyama - Nov 30, 2011 10:49 AM GMT+0700

Japanese stocks fell, with the Topix Index headed for its first drop in four days, after Standard & Poor’s cut credit ratings for U.S. lenders including Bank of America Corp. and a European official said the region’s bailout fund may fall short of its goal.

Sumitomo Mitsui Financial Group Inc. (8316), Japan’s No. 2 bank by market value, fell 1.9 percent. Sony Corp., the country’s biggest exporter of consumer electronics, lost 3 percent. Nippon Yusen K.K., Japan’s top shipping line by sales, sank 5.1 percent after Moody’s Investors Service put the company under review for a possible rating cut. Asahi Glass Co. slipped 3.8 percent after industry leader Corning Inc. lowered its earnings forecast.

The Topix lost 0.9 percent to 722.92 as of the 12:42 p.m. in Tokyo, with almost three stocks (TPX) falling for each that gained. The Nikkei 225 Stock Average (NKY) dropped 1.2 percent to 8,379.80. The gauge has declined 6.8 percent this month, erasing October’s gains, as signs emerged that Europe’s debt crisis is spreading to major economies.

“The rating cuts for the banks may have a negative impact on investor sentiment,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo. “What investors are really paying attention to is whether policy makers are going to take steps to resolve the European debt situation.”

To contact the reporter on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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Euro Region’s Boost to Bailout Fund Falls Short of 1 Trillion-Euro Target

By Gregory Viscusi and Rainer Buergin - Nov 30, 2011 9:19 AM GMT+0700

Euro-area finance ministers approved enhancements to their bailout fund while backing off from setting a target for its firepower and seeking a greater role for the International Monetary Fund in fighting the debt crisis.

The finance chiefs of the 17 nations using the euro agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility, Luxembourg’s Jean-Claude Juncker told reporters late yesterday in Brussels after leading the meeting.

“It’s very important that the IMF globally will increase its resources either by raising its capital or by bilateral loans so that it can lend more money to euro-zone countries in need,” Dutch Finance Minister Jan Kees de Jager said in an interview with Bloomberg Television after the meeting. “If we open the IMF effort, that will be sufficient together with the leverage options in the EFSF.”

After a series of stop-gap accords failed to protect Italy and Spain from surging bond yields, the euro-area ministers are under growing pressure from U.S. leaders and international financial markets to find ways to boost the EFSF’s effectiveness. They agreed to a plan to guarantee up to 30 percent of new bond issues from troubled governments and to develop investment vehicles that would boost the facility’s ability to intervene in primary and secondary bond markets.

Total Firepower

EFSF Chief Executive OfficerKlaus Regling said it’s “impossible to give one number” for the total firepower of the fund, backing off an earlier goal of 1 trillion euros ($1.3 trillion). “Market conditions change over time,” he said.

Juncker said the EFSF’s capacity will be “very substantial” and will be supplemented by the IMF. The ministers “agreed to rapidly explore an increase of the resources of the IMF through bilateral loans,” Juncker said, “so that the IMF could adequately match the new firepower of the EFSF and cooperate more closely with it.”

European Union Economic and Monetary Affairs Commissioner Olli Rehn the issue “needs to be discussed with the IMF and this work is in progress.” Neither Rehn nor Juncker named who might provide the loans. “We are together with the IMF consulting contributors through bilateral loans,” Rehn said.

The Europeans are “not there yet” in terms of fleshing out their plan enough for emerging-market nations to pledge funds to the IMF that would then aid the euro region, said Callum Henderson, global head of foreign-exchange research in Singapore at Standard Chartered Plc. “It does appear that we are making progress -- the question is are we making progress fast enough.”

Investment Vehicles

The EFSF bond guarantees and investment vehicles can run simultaneously and could be functioning by early next year, according to a document released by the fund. “Many investors are interested and will participate if we have a solidly commercial product,” Regling said. “But don’t expect massive inflows immediately. The needs will come over time.”

European heads of government meet on Dec. 9 in Brussels, in a summit likely to be dominated by the debt crisis that began in Greece two years ago, spread to Ireland and Portugal, before driving up Italian and Spanish bond yields over the summer, and now is hurting even Germany’s ability to sell debt and threatening France’s top debt rating.

‘Technical Changes’

“There are some marginal technical changes regarding intervention in primary and secondary markets, but overall it’s very similar” to previously published documents on the EFSF’s role, Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said after yesterday’s meeting. “Dec. 9 might have more meat, hopefully, otherwise markets will be yet again disappointed.”

Germany is pushing for governance changes at next week’s summit that would tighten enforcement of budget rules, a move that might make it easier for the European Central Bank to play a bigger part in supporting euro-area nations.

Greater roles for both the ECB and the IMF are “on the table,” Belgian Finance Minister Didier Reynders said as he left yesterday’s meeting.

The ministers have started talks on channeling ECB loans to cash-strapped euro nations through the IMF, aiming to bring the central bank on to the front lines without violating its ban on direct lending to governments, according to two officials familiar with the discussions.

Financial Aid

Over the opposition of the two Germans on its 23-member council, the ECB has bought 203.5 billion euros of bonds of three countries receiving financial aid -- Greece, Ireland and Portugal -- plus Italy and Spain. Yet yields have continued to climb.

The U.S. and British central banks have been buying their country’s debt in much larger quantities, and that’s one reason their bond yields are at record lows in spite of debt and deficit figures that in some cases are worse than Italy’s and Spain’s.

Four weeks after taking over from Jean-Claude Trichet, ECB President Mario Draghi hasn’t tipped his hand about a possible role for the central bank, apart from saying the ECB’s 18-month- old bond-buying program is temporary and limited.

“From our perspective, we see how the Bank of England operates, and we see how the Fed operates, but I understand it’s not legally possible for Frankfurt to operate in the same way,” said Irish Finance Minister Michael Noonan as he arrived at yesterday’s meeting. “So we’ll have to see if somebody has come up with a clever formula to allow that.”

Greece, Ireland

The euro-zone finance ministers also approved the latest tranches of aid to Greece and Ireland, agreed to appoint France’s Benoit Coeure to a soon-to-be empty spot on the ECB’s board, and presented new Italian Prime Minister Mario Monti with a report outlining measures the country should take to reduce debt and boost economic growth.

Juncker singled out Ireland for taking steps to bring its deficit under control. “Ireland is showing that the EU programs can be successful if everyone is doing their part,” he said.

The euro-area finance ministers will be joined today by their counterparts from the rest of the 27-nation EU and will seek agreement on how to temporarily guarantee banks’ bond issuance in order to improve funding conditions for lending. EU leaders agreed last month to provide the guarantees as part of a set of measures to restore investor confidence in banks.

The IMF is co-funding the bailouts of Greece, Ireland and Portugal and is preparing to send a team to Italy for an unprecedented audit of that country’s efforts to cut its debt.

With about $390 billion currently available for lending, the Washington-based IMF may not have enough money to meet demand if the global outlook worsens, Managing Director Christine Lagarde has said.

Speaking from Lima yesterday, Lagarde, a former French finance minister, said Europe needs “a comprehensive, rapid set of proposals that would form part of a comprehensive solution, and the IMF can be a party to that.”

To contact the reporters on this story: Gregory Viscusi in Brussels at gviscusi@bloomberg.net; Rainer Buergin in Brussels at rbuergin1@bloomberg.net.

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

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Facebook Settles U.S. Regulator’s Complaints Over Violations of Privacy

By Sara Forden and Jeff Bliss - Nov 30, 2011 3:56 AM GMT+0700

Facebook Inc., the world’s biggest social networking site, agreed to settle complaints by the Federal Trade Commission that it failed to protect users’ privacy or disclose how their data could be used.

The proposed 20-year agreement would require Palo Alto, California-based Facebook to get clear consent from users before sharing material posted under earlier, more restrictive terms, the FTC said today in a statement. It would also compel independent reviews of Facebook’s privacy practices.

“Companies must live up to their promises about privacy,” FTC Chairman Jon Leibowitz said on a conference call with reporters. The settlement “will protect consumer choices and ensure they have full and truthful information about their data.”

The settlement is part of an effort to resolve legal issues that could be a distraction as Facebook moves toward an initial public offering, said Francis Gaskins, president of Los Angeles- based IPODesktop.com, a Web site that tracks IPOs. Facebook is considering an IPO that would raise $10 billion and value the company at more than $100 billion, a person familiar with the matter said.

‘Clear the Decks’

“They’re obviously trying to clear the decks to take off,” Gaskins said in an interview, adding that the settlement “should give some comfort” to potential investors.

In a blog posting, Facebook Chief Executive Officer Mark Zuckerberg said the company should have been more vigilant in protecting users’ privacy.

“I’m the first to admit that we’ve made a bunch of mistakes,” he said.

The FTC is stepping up enforcement of privacy requirements at Internet companies and this year has settled complaints with Google Inc. (GOOG) and Twitter Inc.

Marc Rotenberg, executive director of the Electronic Privacy Information Center, a Washington-based advocacy group that filed a complaint against Facebook over privacy issues in 2009, said today’s settlement “is a sweeping order that will prevent Facebook from disregarding the privacy interests of its users in the future.”

It should also should send a message to the Internet industry at large, Maneesha Mithal, associate director of the FTC’s Division of Privacy and Identity Protection, said in an interview.

‘Good Practices’

“The provisions of the order are good practices for all companies to follow,” Mithal said. “Companies should seek permission from consumers before they make changes to how they treat personal information.”

Zuckerberg said the company already has addressed many of the FTC’s concerns. Today he appointed Erin Egan, a former partner at Covington & Burling who specialized in data security, as chief privacy officer, policy, and Michael Richter, the company’s head privacy counsel, as chief privacy officer, products, Zuckerberg said.

The settlement, which the FTC’s commissioners approved 4-0, requires Facebook to establish a “comprehensive privacy program” and block access to a user’s account within 30 days of it being deleted, according to the FTC’s statement. The company also is barred from making any deceptive claims about its privacy practices.

Independent Audits

Audits by an independent third party will help build faith in Facebook’s efforts, said Elliot Schrage, a Facebook spokesman.

“Oversight fosters trust by providing users with additional assurances that the commitments we make are being upheld,” he said in an e-mail.

Michael Gartenberg, an analyst at Gartner Inc., a Stamford, Connecticut technology research company, said, “There’s no doubt Facebook and privacy have not gone well together in the past.”

The FTC said Facebook shared users’ personal information with advertisers after promising it wouldn’t. Facebook also pledged it would restrict sharing of information to designated “friends” of users while the data also was accessible to third-party applications used by the friends, the FTC said in the statement.

Facebook assured users that third-party applications only had access to data required for them to function, while, in fact, the applications had access to almost all of a user’s personal information, according to the agency.

’Verified Apps’

The company’s “Verified Apps” program to certify the security of applications didn’t work, the FTC said.

In other FTC actions on Internet privacy, Google Inc. agreed in March to settle claims that the Mountain View, California-based company used deceptive tactics and violated its own privacy policies when it introduced its Buzz social- networking service last year.

That same month, the agency accepted a settlement with Twitter, resolving charges that the San Francisco-based company deceived consumers and put their privacy at risk.

The regulator has said the online-advertising industry’s self-policing effort allowing Internet users to block ads based on their web browsing fails to protect consumers.

To contact the reporters on this story: Sara Forden in Washington at sforden@bloomberg.net; Jeff Bliss in Washington at jbliss@bloomberg.net.

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Mark Silva at msilva34@bloomberg.net.

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HP Denies Hackers Can Set Printers on Fire

By Nick Turner - Nov 30, 2011 4:18 AM GMT+0700

Hewlett-Packard Co. (HPQ), responding to a report that hackers could take control of laser printers and make them catch fire, said those concerns aren’t valid.

“No customer has reported unauthorized access,” the company said today in a statement. Hackers can’t circumvent the thermal breaker, which is set up to prevent overheating or combustion, by manipulating a printer’s so-called firmware, Hewlett-Packard said. “Speculation regarding potential for devices to catch fire due to a firmware change is false.”

The MSNBC.com news site, citing researchers at Columbia University, said some Hewlett-Packard LaserJet printers were vulnerable to attack. It’s likely that hackers could seize control of the devices and make them catch fire or use them to penetrate otherwise-secure networks, MSNBC said.

Hewlett-Packard said today that some LaserJet printers have a “potential security vulnerability,” which it’s working to fix. Firmware refers to the fixed software functions in a device.

“HP is building a firmware upgrade to mitigate this issue and will be communicating this proactively to customers and partners who may be impacted,” the Palo Alto, California-based company said in the statement. “In the meantime, HP reiterates its recommendation to follow best practices for securing devices by placing printers behind a firewall and, where possible, disabling remote firmware upload on exposed printers.”

Hewlett-Packard shares rose 1.4 percent to $26.90 at the close today in New York. The shares have tumbled 36 percent this year, dragged down by sluggish sales and a failed turnaround effort by Chief Executive Officer Leo Apotheker. He was replaced as CEO by Meg Whitman in September.

To contact the reporter on this story: Nick Turner in San Francisco at nturner7@bloomberg.net

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

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US Airways Seen as Possible Partner for AMR

By Mark Clothier and Thomas Black - Nov 30, 2011 4:20 AM GMT+0700

The bankruptcy filing today by AMR Corp. (AMR), the parent of American Airlines, may prepare the runway for a merger with US Airways Group Inc. (LCC) as the two seek to become more competitive on size and costs, analysts said.

US Airways, the fifth-largest U.S. carrier, failed in a 2006 hostile bid for Delta Air Lines Inc. (DAL) and in two rounds of merger talks with United Airlines. Chief Executive Officer Doug Parker said in April he saw “one big deal left” in the industry, one involving US Airways, after the purchase by Delta of Northwest Airlines Corp. and the merger of United and Continental Airlines.

“American potentially needs a partner to achieve more scale,” Kevin Crissey, an analyst with UBS Securities LLC in New York, wrote in a note today. US Airways, based in Tempe, Arizona, “may provide that avenue.”

The consolidation of Fort Worth, Texas-based American Airlines and US Airways, whose stock symbol is “LCC,” would be the “final step” in the industry’s transformation to larger companies that seek to maximize profits instead of market share, Jamie Baker, an analyst with JPMorgan Chase & Co., said in a note today. American Airlines dropped from the world’s biggest airline to No. 3 in the U.S. after industry mergers.

“As indicated by the company, LCC wants a deal,” Baker wrote.

Andrew Christie, a spokesman for US Airways, declined to comment.

Andrea Huguely, a spokeswoman for American Airlines, said in an e-mail that the company doesn’t “comment on rumors.”

Court Protection

AMR filed for court protection from creditors today after failing to win cost-cutting labor accords and being left out of mergers. American will continue normal operations as it restructures to trim costs, new Chief Executive Officer Thomas Horton said today in a news conference.

AMR was determined to avoid bankruptcy proceedings in the years after the 2001 terrorist attacks, as peers used court protection to shed pension and retiree benefit plans and restructure debt. As other carriers combined, they gained route networks that were larger than American’s and more attractive to business travelers, who generally pay higher fares than other passengers.

United Continental Holdings Inc. and Delta “are likely immediate and longer-term beneficiaries of today’s actions by AMR on the capacity front and on the cost front,” Gary Chase, a Barclays Plc analyst in New York, said in a research note.

“Both contributed to this outcome for AMR by becoming more cost competitive and amassing larger, more powerful networks that eroded some of AMR’s historical revenue premiums,” said Chase, who rates United and Delta “overweight.”

Stock Trading

The shares (UAL) of Chicago-based United advanced 6.3 percent to $17.63 at the close in New York, while Atlanta-based Delta advanced 5 percent to $7.80. AMR tumbled 84 percent to 26 cents.

US Airways rose 4.4 percent $4.46 and JetBlue Airways Corp. (JBLU) climbed 10 percent to $4.06. The Bloomberg U.S. Airlines Index (BUSAIRL), which comprises AMR and 10 other companies, increased 1.7 percent.

AMR’s filing makes American the last of the large U.S. full-fare airlines to seek bankruptcy protection, after Delta, Northwest and United. Delta acquired Northwest in 2008, while United and Continental merged in 2010.

Management Change

Horton, 50, takes over the posts of chairman and CEO from Gerard Arpey, 53, who retired from AMR and is becoming a partner at Emerald Creek Group, a Houston-based private equity firm. Horton also keeps the president title.

American accounted for about 15 percent of U.S. carriers’ October passenger traffic, compared with 21 percent for United and 20 percent for Delta, according to data compiled by Bloomberg.

The AMR filing should be “good for the entire industry” and “especially good” for JetBlue and Alaska Air Group Inc. (ALK), which have code-sharing and passenger-connecting agreements with American, James Higgins, an analyst at New York-based Ticonderoga Securities LLC, said in a note today.

Crissey of UBS said in his report that investors should buy shares of major airlines such as Delta.

American has been in contract talks with unions for all of its major work groups since as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.

To contact the reporter on this story: Mark Clothier in Southfield, Michigan at mclothier@bloomberg.net and Thomas Black in Dallas at tblack@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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Euro Nations Renew Talk of IMF Role

By James G. Neuger and Gregory Viscusi - Nov 30, 2011 3:35 AM GMT+0700

Europe’s effort to expand its bailout fund is falling short, forcing euro-area finance ministers to consider greater roles for the International Monetary Fund and the European Central Bank to insulate Spain and Italy from the debt crisis.

A plan hammered out last month to expand the European Financial Stability Facility’s firepower to 1 trillion euros ($1.3 trillion) with leveraging will be “very difficult to reach,” Luxembourg Finance Minister Luc Frieden told reporters today before euro-area finance chiefs met in Brussels.

With prodding from the U.S. after a series of stop-gap accords failed to protect Italy and Spain from market turmoil, the ministers started talks on channeling ECB loans to cash- strapped euro nations through the IMF, aiming to bring the central bank on to the front lines without violating its ban on direct lending to governments.

“We envisage a larger role for the IMF,” said Dutch Finance Minister Jan Kees de Jager. “It could be through a general increase of resources. It could be through new arrangements to borrow. And it should come from both Europe and non-European countries. The situation is quite urgent and we need solutions.”

‘Comprehensive’ Fix

Any new plan would be a fifth “comprehensive” fix after an October blueprint didn’t stop a widening rout in Italian markets or quell speculation that France will lose its top credit rating. Germany is pushing for governance changes at a summit next week that would tighten enforcement of budget rules, a move that might make it easier for the ECB to step in.

The rescue fund “alone will not be able to solve all the problems,” Frieden said. “We have to do so together with the IMF and with the ECB in the framework of its independence.”

While the 17 euro-area finance ministers should meet tonight’s self-set deadline of working out how to leverage the rescue fund, the method is unlikely to unleash the targeted 1 trillion euros.

De Jager spoke of bulking up the EFSF by a multiple of 2 to 2.5. With roughly 270 billion euros of EFSF funds uncommitted, that would put the enhanced EFSF in the neighborhood of 675 billion euros at most.

The first leveraging option, using the EFSF to insure 20 percent to 30 percent of new bond sales, faces a credibility test in the markets and may not be ready until January. It also might splinter the Italian and Spanish bond markets, by creating insured bonds that are more attractive than bonds currently trading, two officials familiar with the discussions said.

Last Meeting

Spanish Finance Minister Elena Salgado, attending her last meeting after her government lost Spain’s Nov. 20 election, said it’s best not to set a target for the EFSF.

“Setting a strict quantified limit means markets will always bet on such a limit,” Salgado told reporters. “I think it’s a better option not to set a limit and simply to say it must be as much as possible.”

Italian Prime Minister Mario Monti, who also serves as finance minister, is attending his first euro gathering since heading a cabinet of technocrats that replaced the government of Silvio Berlusconi. Monti met separately with Luxembourg’s Jean- Claude Juncker and French Finance Minister Francois Baroin today.

The IMF is co-funding the bailouts of Greece, Ireland and Portugal and is preparing to send a team to Italy for an unprecedented audit of that country’s efforts to cut its debt.

Enough Money

With about $390 billion currently available for lending, the Washington-based IMF may not have enough money to meet demand if the global outlook worsens, Managing Director Christine Lagarde has said.

Group of 20 leaders earlier this month discussed a possible increase in IMF resources as a way to channel loans from the rest of the world. They failed to agree on a number and demanded more details of Europe’s plans to stem the debt crisis before committing fresh cash.

Lagarde has since continued meeting with officials about potential contributions. She has recently traveled to China, Russia and Japan and this week she is in Mexico and Brazil, which have said they are willing to do their part provided Europe boosted its own rescue efforts.

Speaking from Lima yesterday, Lagarde, a former French finance minister, said Europe needs “a comprehensive, rapid set of proposals that would form part of a comprehensive solution, and the IMF can be a party to that.”

‘Endgame’

Europe’s debt crisis is entering its “endgame,” according to Nomura Holdings Inc.’s Jens Nordvig, who expects a tighter fiscal union and steps by the ECB to reduce borrowing costs.

“We’re now heading into a very final phase of this crisis where we are at a crossroad, where we either have to have a proper backstop or we’re going to face a breakup,” Nordvig, managing director for currency research in New York, said today in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene. “The most likely scenario is one where the ECB provides a backstop in the next couple of months.”

At a bond auction today, Italy was again forced to pay above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts when it sold 7.5 billion euros of bonds, short of the 8 billion-euro target. Italy, whose debt amounts to 1.9 trillion euros, has to refinance about 200 billion euros of maturing bonds next year and more than 100 billion euros of bills.

Financial Aid

Over the opposition of the two Germans on its 23-member council, the ECB has bought 203.5 billion euros of bonds of three countries receiving financial aid -- Greece, Ireland and Portugal -- plus Italy and Spain. Yet yields have continued to climb.

The U.S. and British central banks have been buying their country’s debt in much larger quantities, and that’s one reason their bond yields are at record lows in spite of debt and deficit figures that in some cases are worse than Italy’s and Spain’s.

“From our perspective, we see how the Bank of England operates, and we see how the Fed operates, but I understand it’s not legally possible for Frankfurt to operate in the same way,” said Irish Finance Minister Michael Noonan. “So we’ll have to say if somebody has come up with a clever formula to allow that.”

Merkel, Sarkozy

An agreement last week between German Chancellor Angela Merkel and French President Nicolas Sarkozy to stop telling the politically independent ECB what to do lasted just a few days, with French officials renewing their call for more ECB action and German officials arguing against expanding the bank’s debt purchases.

Four weeks after taking over from Jean-Claude Trichet, ECB President Mario Draghi hasn’t tipped his hand about a possible role for the central bank, apart from saying the ECB’s 18-month- old bond-buying program is temporary and limited.

“The ECB has to save the euro,” Holger Schmieding, chief economist of Joh. Berenberg Gossler & Co., said in an e-mailed note. “ECB members and Berlin may be starting to realize this.”

The finance ministers backed France’s Benoit Coeure to succeed Italy’s Lorenzo Bini Smaghi on the ECB’s Executive Board, according to a person familiar with the matter. They also approved the disbursement of a sixth rescue loan to Greece.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Gregory Viscusi in Brussels at gviscusi@bloomberg.net.

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

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Germans’ Righteous Stand Fans Flames in Euro Crisis: Clive Crook

By Clive Crook Nov 30, 2011 7:00 AM GMT+0700

Radoslaw Sikorski made a striking comment in Berlin on Monday night. “I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity.”

I see his point, though “inactivity” doesn’t quite do justice to Germany’s impressive dedication to deepening the euro area’s crisis. This isn’t mere inactivity. This is zeal in pursuit of catastrophe.

The German government sees itself as standing up for fiscal and monetary rectitude. The euro area’s problems, it believes, have been brought on by lack of discipline in countries with lower standards. This is true, of course -- yet one wonders how much scorched earth Germany thinks is needed to drive the point home.

Let’s put it another way: Germany owns the biggest house -- fully insured and with the best fire prevention money can buy -- in a tight cluster of dwellings in the European subdivision. One of those houses caught fire because the owner, despite repeated warnings, refused to fix a broken heater. Conditions are parched, and a hot, dry wind is picking up. The flames have spread, and several other houses are burning.

A rational person might say, “Call the fire department.” Germany says, “Hang on. Didn’t we tell you this would happen? Let’s get clear on how it started before we start spraying water everywhere. You can do a lot of damage that way. Plus, what’s the rush? If we put fires out the instant they start, then why would anyone take fire prevention seriously in the first place?

“Also, we’ll need a joint insurance policy (watch out for that flaming debris over there) with a tough inspection system to avoid any future free riding.

“Actually, maybe we can use this fire to improve the neighborhood. Honestly, it’s the only way to get anything done around here.”

Germany’s thinking would be easier to understand if it were narrowly self-serving. But it isn’t. If the euro comes apart, and with it most likely the European Union itself, Germany will see its export markets collapse and be a principal loser. None of the houses in this subdivision is fireproof. Germany’s struggle to sell bonds last week was a gentle reminder that, if the worst happens, it will not emerge unscathed.

There’s no mystery about the steps needed to stop the crisis -- if it’s not already too late. To cut the risk of bank failures, the danger of sovereign default needs to be contained. Default in Greece is pretty much unavoidable, so acknowledge the fact and get on with it. But the debts of Italy, Spain and other countries in jeopardy are perfectly manageable so long as the current scare subsides. If it doesn’t subside, no country in the euro area is safe.

Collective Steps

Two main things are needed to stop the panic. Europe’s governments must collectively underwrite an impressive proportion of euro-area sovereign debt, through the issuance of euro bonds or otherwise, and the European Central Bank must step forward as lender of last resort to distressed governments.

Would that work? Remember that the euro-area countries are not as a group dangerously over-indebted. Taken together they are creditworthy, which is why the impending catastrophe was easily avoidable. It can still be avoided -- though no longer as easily -- so long as Germany relaxes its determination to make a point.

Germany is right that the design of the EU needs to be looked at afresh, but first things first, for heaven’s sake. Proper debate and consultation about closer fiscal union, which Germany wants to see, will take time, which the EU does not have. Constitutional innovation as a species of crisis management -- for too long the EU’s preferred method of advance -- doesn’t guarantee good results. If you question that, look around.

Moreover, Germany is hopelessly confused over what it wants. It seeks closer fiscal union for the purpose of tightening fiscal discipline. But the loss of sovereignty entailed by closer fiscal union will not be confined, as Germany seems to think, to the others. Greater formal pooling of political power has the potential to diminish the clout Germany derives from its economic and financial might. In other words, closer fiscal union does not guarantee greater fiscal rectitude. Everything depends on the details.

What’s more, new fiscal rules are only part of the longer- term reform that Europe needs. Greece’s debt crisis has become an EU-wide emergency because of the risk of contagion through banks. If Europe’s banks had been adequately capitalized, a Greek default would have been less threatening. The best cure for moral hazard in sovereign debt is a financial system strong enough to let a fraudulent overborrower go bust.

Misplaced Emphasis

Europe needs both new fiscal rules and a stricter, more coherent system of EU-wide bank regulation. The first is getting too much emphasis, the second too little.

The deepest contradiction in Germany’s approach to Europe’s future, though, is not economic or financial but political. Its government calls for closer political union just as the crisis has exposed how little sense of shared purpose and identity the EU has yet developed. And the worse the crisis gets -- thanks to Germany’s reckless inflexibility -- the further this sense of shared purpose, such as it is, will be eroded.

You must agree, the German government’s logic is perplexing. Its citizens are understandably furious at the thought that their taxes might bail out profligate governments elsewhere in the euro area. Therefore, let’s move to closer political union. (a) There’s nothing you can do with those people; they’re hopeless, so don’t ask us to help. (b) Let’s be one big happy family.

My watchword for the next European constitution -- if it’s not too late to undergo such mending -- would be: greater political integration where necessary, less where possible. But that is a debate for another time. Right now the neighborhood is on fire.

(Clive Crook is a Bloomberg View columnist. The opinions expressed are his own.)

To contact the author of this article: Clive Crook at clive.crook@gmail.com.

To contact the editor responsible for this article: David Shipley at djshipley@bloomberg.net.

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