Exchange Merger Deals Worth $37B Fail to Close

By Whitney Kisling, Nandini Sukumar and Nina Mehta - Dec 30, 2011 7:01 AM GMT+0700

The biggest wave of takeover offers ever for publicly traded stock and derivatives exchanges has done little for investors in 2011, as more than $21 billion of equity value was erased and only one deal closed.

NYSE Euronext (NYX) shares have fallen 13 percent in 2011 as German stocks plunged and regulators in Europe resisted its combination with Deutsche Boerse AG. (DB1) ASX Ltd. (ASX), the Australian market owner whose agreement with Singapore Exchange Ltd. fell through in April, has lost (BNWEXCH) 19 percent. London Stock Exchange Group (LSE) Plc is down 5.2 percent after owners of Toronto Stock Exchange operator TMX Group Inc. (X) spurned its offer in favor of the bid from a group of Canadian banks and pensions.

Populist outcry, antitrust concern and some of the most volatile markets (SPX) on record have prevented the completion of more than $37 billion in announced transactions, according to data compiled by Bloomberg on deals valued at $1 billion or more. Foundering mergers leave exchanges with the same problems they started with, including lower trading margins and diminishing prospects for sales and profit growth.

“The next time any exchange announces any merger whatsoever, I’m selling the stock instantaneously,” Thomas Caldwell, Toronto-based chief executive officer of Caldwell Securities Ltd., which oversees $1 billion, said in a telephone interview. “Every single deal takes a minimum of one year of dissecting, probing, prodding, X-rays and God knows what else. And while you wait a year, stuff happens and it’s all bad.”

Russian Deal

Six proposed transactions involving public companies totaling $37 billion failed to close in the past year, the most for any 12-month period, data compiled by Bloomberg show. Russia’s Micex Exchange acquired RTS Stock Exchange on Dec. 19 for $1.5 billion, according to data compiled by Bloomberg. Exchanges completed $28.7 billion of deals in 2007 and 2008.

The 25-company Bloomberg World Exchanges Index fell (BNWEXCH) 20 percent this year, twice the loss for the MSCI All-Country World Index. The gauge of market operators has averaged gains of 35 percent a year between 2003 and 2010, falling only in 2008. More than $21 billion was erased from the market value of exchanges worldwide in 2011 as deals were delayed or blocked from Sydney to Toronto and New York, Bloomberg data show.

In the biggest merger, Frankfurt-based Deutsche Boerse has seen the shares it’s offering for NYSE Euronext (NYX) decline to $6.7 billion from $9.5 billion, after Germany’s DAX Index lost 20 percent and European Union regulators sought to curb the combined company’s dominance in derivatives. NYSE Euronext added 1.5 percent on Dec. 22 after the Justice Department cleared the deal.

Antitrust Review

U.S. approval left the merger in the hands of antitrust authorities in Europe, where scrutiny has been greater because it would unite the region’s two biggest derivatives exchanges, NYSE’s Liffe and Deutsche Boerse’s Eurex. EU regulators have a deadline of Feb. 9 to rule on the proposal.

James Dunseath, a spokesman for NYSE Euronext in London, and Heiner Seidel, a spokesman for Deutsche Boerse in Frankfurt, both declined to comment.

“In the 2011 climate, regulators and politicians weren’t disposed to approve these mergers,” Jamie Selway, head of liquidity management at New York-based Investment Technology Group Inc., said in a phone interview. “That surprised a lot of people.”

Executives have embraced consolidation after the number of U.S. and European trading (MVOLUSE) venues increased by about 50 in the past decade, driving down profitability (NYX). NYSE Euronext revenue per European equity trade has dropped 61 percent since 2007 to 64 cents, and in the U.S., the amount per 100 shares is projected to fall 9.8 percent next year, according to Macquarie Group Ltd.

Lower Margins

Shrinking margins have left derivative venues as the world’s largest exchange companies. Hong Kong Exchange & Clearing Ltd., with a market value of $17.3 billion and a price- earnings ratio of 25, is the biggest member of the Bloomberg index, followed by CME Group Inc. at $16.4 billion, with a multiple of 14.4. By comparison (BNWEXCH), Nasdaq OMX Group Inc. (NDAQ) is valued at $4.4 billion and trades for 9.9 times earnings.

“Trading is completely commoditized now,” Bruce Weber, dean of the Lerner College of Business and Economics, who co- wrote “The Equity Trader Course” with Robert Schwartz and Deutsche Boerse CEO Reto Francioni in 2006, said in a telephone interview. “The exchange business is no longer as attractive in margin and growth as it was five years ago.”

Derivatives have been an increasing share (NYX) of NYSE Euronext’s profits. Operating margins at its futures and options businesses were 57 percent in the first three quarters of 2011, compared with 40 percent for equities trading and listings, according to NYSE Euronext.

Japanese Deal

Tokyo Stock Exchange Group Inc. offered this year to merge with Osaka Securities Exchange Co., whose derivatives platform hosts Nikkei 225 Stock Average futures. NYSE Euronext’s deal with Deutsche Boerse would push derivatives to 37 percent of the combined company’s revenue, according to pro forma data for 2010 from the company. Stock trading and listings would shrink to 29 percent from 49 percent of NYSE Euronext’s net revenue for the same year.

Even if the NYSE Euronext takeover collapses, exchange companies will still keep trying to buy each other, according to Macquarie’s Ed Ditmire.

“The underlying rationale for consolidation in the industry is still there,” Ditmire, a New York-based analyst with Macquarie, said in a telephone interview. “‘For NYSE-DB, for example, it’d be hard to imagine easily coming up with a new product over the next decade that would deliver equal cost synergies and bottom-line profit.”

Technology, Services

While the profitability of trades is declining, exchanges have so far found ways to keep earnings growing by expanding into trading technology and related services. Profits rose (BNWEXCH) 25 percent last year for companies in the exchange index. Analysts forecast 2011 earnings will rise 25 percent, compared with 17 percent for the S&P 500, data (BNWEXCH) compiled by Bloomberg show.

Every U.S. and European exchange matched or exceeded third- quarter estimates, except Hellenic Exchanges SA, the operator of the Greek bourse, Bloomberg data show. Nasdaq OMX’s 2012 profit projections have increased (NDAQ) 8.2 percent this year following better-than-estimated results that Chief Executive Officer Robert Greifeld attributed to “redefining what it means to operate in each and every one of our businesses,” according to a third-quarter conference call.

Staying Competitive

Earnings based on today’s business models aren’t sustainable and companies will have to make acquisitions to stay competitive, according to Tim Hoyle, director of research at Radnor, Pennsylvania-based Haverford Trust, which manages $6 billion and owns NYSE Euronext shares.

“In the long run, it’s important that exchanges become global players, and they do that with mergers,” he said in a telephone interview. “That’s the trend.”

Nasdaq OMX shares have fallen 8.5 percent since the company dropped its hostile bid for NYSE Euronext in May after the U.S. Justice Department indicated it would block it. NYSE Euronext’s shares have slumped 36 percent since then. Nasdaq OMX’s partner, IntercontinentalExchange Inc. (ICE), is up 2.5 percent.

Singapore Exchange’s $8.3 billion bid for Sydney-based ASX was blocked in April after lawmakers rejected losing control of the venue to foreigners. London Stock Exchange Group ended its bid for TMX in June after failing to get enough shareholder support for the $3.1 billion deal. That left Maple Group Acquisition Corp., formed by Canadian banks and pensions to bid against LSE, as the only suitor. Canada’s competition watchdog has raised “serious concerns” about that deal.

Restructuring

Deutsche Boerse’s bid for NYSE Euronext may still result in a restructuring of the industry and show whether regulators are ever willing to clear the biggest cross-border mergers. The combined entity would be the world’s largest exchange company, according to the market capitalization of the two stocks.

“On a grand scale, people are watching to see how the merger between the NYSE and Deutsche Boerse does,” Richard Repetto, an analyst at Sandler O’Neill & Partners LP in New York, said in a phone interview. “Momentum will either be gained or lost in the consolidation arena based on what happens there. If you don’t get that deal done, you will likely see consolidation attempts subside.”

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Nandini Sukumar in London at nsukumar@bloomberg.net; Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Andrew Rummer at arummer@bloomberg.net

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Japan to Double Sales Tax by 2015 as Noda Fights Off Ruling Party Revolt

By Sachiko Sakamaki - Dec 30, 2011 10:53 AM GMT+0700

Japan’s ruling party agreed on a plan to double the sales tax by 2015 after weeks of internal debate and a member revolt as Prime Minister Yoshihiko Noda fights to head off another credit-rating downgrade.

The proposal decided on late yesterday would raise the sales tax from 5 percent to 8 percent in April 2014 and to 10 percent in October 2015. The details must be approved by a government panel led by Finance Minister Jun Azumi before discussion with an opposition whose Liberal Democratic Party has already hinted it may not back them.

“It will be very tough,” Jun Okumura, a former Japanese trade ministry official and a consultant at the Eurasia Group risk consulting firm in Tokyo, said today by telephone. “The bill may not pass parliament as the LDP may oppose the Democratic Party of Japan bill for political reasons.”

Noda is staking his job on raising the sales tax, a stance that already contributed to his predecessor’s resignation. Standard & Poor’s said last month it was considering lowering the country’s sovereign rating, already cut in January to AA-, as Noda’s government makes little progress at tackling the country’s debt burden.

With an aging population and two decades of low growth fueling the world’s largest public debt, the burden is projected to exceed 1 quadrillion yen ($13 trillion) in the current fiscal year. Still, Noda faces dissent within his own party as he pushes to raise the sales tax, with at least nine members citing the party’s failure to keep campaign promises for resigning two days ago.

Election Call

After the defection, LDP leader Sadakazu Tanigaki said Noda should call an election.

“The DPJ promised not to raise the sales tax and they’re going to raise it,” Tanigaki told reporters on Dec. 28. “Noda is staking his job on this, so he should call an election to ask the public.”

Noda’s approval rating dropped to 31 percent from 40 percent last month, according to an Asahi newspaper telephone survey of 1,655 voters taken Dec. 10-11. The same survey showed the public divided on doubling the sales tax by 2015, with 45 percent in favor and 45 percent opposed. Asahi didn’t give an error margin.

“Unless we send a message that we’ll maintain social security and fiscal discipline, we could find ourselves in a crisis,” Noda told party members yesterday.

Tax Pledges

Japan introduced a sales tax in 1989 and raised it to 5 percent in 1997, a decision blamed for pushing the nation into a 20-month recession that caused then Prime Minister Ryutaro Hashimoto’s LDP to lose a majority in the lower house of parliament for the first time.

When the DPJ took power in 2009, former Prime Minister Yukio Hatoyama pledged not to alter the 5 percent tax during the current lower house term, which ends in August 2013. Naoto Kan, who would follow Hatoyama as premier, began pushing for a debate on raising while he was still finance minister.

While Kan cited his response to the March earthquake and tsunami for stepping down, his support within the party had waned after it lost an upper house election in July 2010 as he signaled he aimed to raise the consumption levy.

“Prime Minister Noda will work on implementing the plan no matter what happens,” Yoshikiyo Shimamine, chief economist at Dai-Ichi Life Research Institute in Tokyo, said by telephone. “As long as Japan maintains the stance to raise taxes, the risk of a downgrade will be eased to some degree for now.”

To contact the reporter on this story: Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net

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

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Slowing China Manufacturing Calls for Easing

By Bloomberg News - Dec 30, 2011 11:49 AM GMT+0700

China’s manufacturing (EC11CHPM) contracted for a second month in December as Europe’s debt crisis cut export demand, fueling speculation that the central bank may cut lenders’ reserve requirements within days.

A purchasing managers’ index was at 48.7 in December from 47.7 in November, HSBC Holdings Plc and Markit Economics said today. A reading below 50 indicates a contraction.

Export orders (CNFREXPY) fell in December for the first time in three months and domestic demand was “sluggish,” today’s report said. Demand for cash ahead of the week-long Chinese Lunar New Year holiday starting Jan. 23 may give officials an additional reason to cut banks’ reserve ratios after a reduction last month that was the first since 2008.

“A reserve ratio cut is likely to happen by Jan. 3, before markets resume trading,” said Li Wei, a Shanghai-based economist with Standard Chartered Bank. China’s exports are under threat because “the euro area is slipping into a recession and the U.S. is also expected to slow down in early 2012,” Li said.

A deeper slowdown in China, the world’s second-biggest economy, would impair a global expansion that is already faltering because of Europe’s austerity measures. Asian stocks rose today, paring the regional index’s first annual decline in three years, on signs of strength in the U.S. economy, where a report yesterday showed stronger-than-forecast home sales.

‘Starting to Bite’

The MSCI Asia Pacific Index added 0.2 percent at 12:42 p.m. in Tokyo, heading for an 18 percent drop this year.

In China, “weakening external demand is starting to bite,” said Qu Hongbin, a Hong Kong-based economist for HSBC. Policy easing may enable China’s economy to avoid a “hard landing,” he said.

Elsewhere in Asia, data from South Korea showed the government wrestling with elevated inflation even as threats to growth mount. The leadership handover in North Korea as Kim Jong Un takes control after the death of Kim Jong Il may undermine confidence in the South by adding to the risk of instability on the Korean peninsula.

South Korea’s inflation exceeded the central bank’s target and all forecasts in a Bloomberg News survey (KOCPIYOY), limiting the scope for an interest-rate cut in January to support growth. Consumer prices rose 4.2 percent from a year earlier, matching November’s gain, Statistics Korea said. The median estimate of 12 analysts was 4 percent, and the central bank targets inflation of 2 percent to 4 percent.

Australian Lending

In Australia earlier, a central bank report showed private lending by banks and other financial companies rose 0.3 percent in November from the prior month, matching the median of nine economists’ forecasts.

In Europe today, reports may show house prices in the U.K. were unchanged in December from a month ago and German retail sales rose 0.2 percent in November from the prior month, according to the median estimates of economists surveyed by Bloomberg.

In Spain, a report may show consumer prices advanced 2.5 percent in December from a year ago, while figures on Italian producer prices may show a 0.1 percent gain in November from the month before, surveys showed.

The Chinese manufacturing index released today is based on answers to questionnaires sent to purchasing executives at over 400 manufacturing companies. The statistics bureau and the China Federation of Logistics and Purchasing will release a separate manufacturing index (CPMINDX) on Jan. 1. Last month, that gauge showed the first contraction since February 2009.

Property Crackdown

In November, China’s export growth was the weakest since 2009, excluding seasonal distortions at the start of each year.

Hitachi Construction Machinery Co. (6305), Japan’s second-largest heavy-equipment maker, said this month that Chinese demand for excavators will decline in the first half of next year, as the government prolongs a crackdown on property speculation.

Developer China Vanke Co.’s contract sales dropped 36 percent last month from a year earlier, while new home prices in Shanghai, Beijing, Shenzhen and Guangzhou slid from the previous month.

China’s inflation slowed to 4.2 percent in November, the slowest pace in 14 months. Third-quarter economic growth of 9.1 percent was the least in two years.

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

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

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HP Ex-CEO Pursued Sex With Jodie Fisher: Letter

By Aaron Ricadela - Dec 30, 2011 12:01 PM GMT+0700
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Jodie Fisher, right, with lawyer Gloria Allred in New York on August 11, 2010. Photographer: Bryan Bedder/Getty Images

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Dec. 29 (Bloomberg) -- Bloomberg's Cory Johnson talks about new details surrounding the scandal that ousted former Hewlett-Packard Co. Chief Executive Officer Mark Hurd. Hurd tried to persuade Jodie Fisher to have sex and kissed and touched her inappropriately while she was a company events contractor, according to a much-contested letter that was ordered to be released by a court today. Johnson speaks with Jon Erlichman on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Former Hewlett-Packard Co. (HPQ) Chief Executive Officer Mark Hurd tried to persuade Jodie Fisher to have sex and kissed and touched her inappropriately while she was a company events contractor, according to a much-contested letter that was ordered to be released by a court yesterday.

During dinners, hotel-room visits and other meetings in cities such as Los Angeles, Atlanta, St. Louis and Madrid between 2007 and 2009, Hurd kissed and embraced Fisher, brushed his hand against her breast and attempted to initiate an affair, according to the letter sent to Hurd on June 24, 2010, by Fisher’s lawyer, Gloria Allred. Hurd, who is now a president at Oracle Corp. (ORCL), wasn’t found to have committed sexual harassment by Hewlett-Packard, and Fisher herself later said the document contained inaccuracies.

“You had designs to make her your lover from the onset using your status and authority as CEO of HP,” Allred said in the letter to Hurd, the contents of which were first reported by Bloomberg News. “At times you would behave professionally seemingly ‘getting’ that she was not going to have sex with you. At other times, not, and you would relentlessly attempt to cajole her into having sex with you.”

The letter, which sought a settlement for sexual harassment, was obtained after a ruling by the Delaware Supreme Court that it should be unsealed as part of the evidence in a shareholder lawsuit against the Palo Alto, California-based company. Hurd’s relationship with Fisher led to his resignation as CEO on Aug. 6, 2010, after a company investigation found he had violated its standards of business conduct. Hurd settled with Fisher the week he resigned.

Hurd’s Aftermath

Since Hurd’s departure, Hewlett-Packard has struggled to revive sales and seen its stock tumble 45 percent. He was replaced last year by Leo Apotheker, who himself was ousted on Sept. 22 and replaced by Meg Whitman.

Allred and Michael Thacker, a Hewlett-Packard spokesman, declined to comment.

In settling with Hurd last year, Fisher and Allred said there was no romantic or sexual affair between the two. Hewlett- Packard’s investigation found that he didn’t violate the sexual- harassment policy.

Fisher told Hurd in a 2010 letter, also obtained by Bloomberg News, that the Allred document had “many inaccuracies in the details” and that the CEO’s behavior didn’t hurt Hewlett-Packard or its reputation.

Contrasting Views

The Allred “letter was recanted by Ms. Fisher,” said Ken Glueck, a senior vice president for Redwood City, California- based Oracle. “She admitted it was full of inaccuracies.”

Allred’s letter portrays Fisher as being nervous in Hurd’s presence because of his advances. In contrast, e-mails from Fisher to Hurd show her enthusiastically discussing her job. The messages, also obtained by Bloomberg News, depict her politely inquiring about Hurd’s family and describing him as “fun” to work with.

The eight-page letter from Allred to Hurd portrays a two- year romantic pursuit of Fisher, an actress and former contestant on the reality show “Age of Love.” She worked as a greeter at Hewlett-Packard events around the world. Her job was to introduce key customers to Hurd at the events.

According to Allred’s letter, Hurd, who is married with two daughters, made sexual advances toward Fisher during dinners and other meetings. During an October 2007 visit to her hotel room at the Ritz Carlton in Atlanta, Hurd twice touched Fisher’s breast and asked her to stay in his room for the night, the letter said. Two months later in a hotel room in St. Louis, he embraced her and quickly kissed her on the lips.

‘Major Strings Attached’

At another meeting, Hurd told Fisher he had girlfriends in New York and San Francisco, according to the letter. He also told her that many women were “crazy about” him, including singer Sheryl Crow, the document said. Jay Cooper, a lawyer at Greenberg Traurig LLP who represents Crow, said he’d never heard her name in connection with Hurd.

At a final meeting in Boise, Idaho, in October 2009, Hurd “grabbed and kissed” Fisher, the letter said. The meetings made her nervous and worried about her employment status, according to the document.

“She felt tired, irritated and depressed, sad and mad with the growing unbending realization that her great new job had some major strings attached,” said Allred, who works at Allred Maroko & Goldberg in Los Angeles.

EDS Deal

Hurd also told Fisher of plans to buy technology services company Electronic Data Systems Corp., a deal that was ultimately completed in 2008 for $13.9 billion, according to the letter. During a meeting in Madrid in March 2008, Hurd walked Fisher to an ATM and showed her his checking account balance of more than $1 million to impress her, the document said.

Amy Wintersheimer, an employment attorney for Hurd at the firm Allen Matkins, said in an e-mailed statement that she sought to keep the letter confidential because it is “filled with inaccuracies.”

“The truth is, there never was any sexual harassment, which HP’s investigation confirmed, and there never was any sexual relationship, which Ms. Fisher has confirmed,” Wintersheimer said.

Hewlett-Packard shareholder (HPQ) Ernesto Espinoza sought the letter, along with company books and records, in a suit aimed at investigating possible corporate wrongdoing in conjunction with the payment of Hurd’s severance package of as much as $40 million, according to court papers.

After Hurd received Allred’s letter, he turned it over to Hewlett-Packard’s general counsel. Espinoza’s lawyer has said publicizing the letter would help “air out” details of Hurd’s departure from the company.

This week’s court decision followed Oct. 12 arguments in Dover challenging a ruling in March by Delaware Chancery Court Judge Donald Parsons Jr. that most of the letter should be released.

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

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

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Elpida Memory Falls in Tokyo on Report of Delay of Public Funds Repayment

By Yuki Yamaguchi - Dec 29, 2011 1:36 PM GMT+0700

Elpida Memory Inc. (6665), the Japanese computer-chip maker being reorganized with government support, fell in Tokyo trading after the Asahi newspaper said it may seek a delay in repaying public funds. 　　Elpida, the nation’s largest maker of dynamic random access memory, dropped 5.1 percent to 351 yen at the 3 p.m. close of trading, the biggest decline since Dec. 19. The company, whose shares have tumbled 63 percent this year, declined to comment in an e-mailed statement to Bloomberg News. 　　“If the report is true, the thought that Elpida is having difficulty with financial arrangements led investors to sell,” said Yuichi Ishida, an analyst at Mizuho Investors Securities Co. in Tokyo. 　　Elpida received 30 billion yen ($386 million) of public funds through the state-run Development Bank of Japan to restructure its business, in addition to 100 billion yen in loans from private banks. The company will consider asking the Ministry of Economy, Trade and Industry to extend the timeline for repayment of the public funds, Asahi reported today, without citing anyone. 　　“We don’t comment on rumors or speculation,” Elpida said in the e-mailed statement. 　　Tetsuro Okita, a spokesman at the Development Bank, declined to comment, citing the bank’s policy not to discuss individual company matters.

Yield Spread

　　The extra yield investors demand to own Elpida’s convertible bonds due October 2015 over the yen swap rate jumped 418.3 basis points to 1,498 today on the Tokyo Stock Exchange. Elpida has about 240 billion yen of debt due next year, according to Bloomberg data. 　　The company reported a net loss of 56.8 billion yen in the six months ended September, compared with a profit of 39.9 billion yen a year earlier, partly due to the worsening market for DRAM chips and the stronger yen, which reduces the value of repatriated earnings from overseas. 　　The price of the benchmark DDR3 2-gigabit DRAM fell 52 percent this year to 88 cents, according to data from Taipei- based Dramexchange Technology Inc.

To contact the reporter on this story: Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy in Singapore at anandk@bloomberg.net

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Siano Sets Sights on U.S. Mobile-Television Market, Possible IPO

By Olga Kharif - Dec 29, 2011 9:39 AM GMT+0700

Siano Mobile Silicon Ltd., an Israeli maker of TV chips for mobile devices, is planning a push into the U.S. next year, presaging an initial public offering filing as early as 2012.

Siano, whose chips let gadgets receive digital TV signals, has had conversations with bankers and is weighing a U.S. filing next year or in 2013, Chief Executive Officer Alon Ironi said in an interview. The company hasn’t set a date for the move, and the timing may depend on how quickly digital mobile TV takes off with Americans, he said.

Siano, the largest provider of digital mobile-TV receiver chips in China and Latin America, is preparing to make inroads in the U.S. in 2012. The effort will get a boost from broadcasters, which are planning to introduce a service that lets consumers watch shows on phones and tablets, as well as in cars. Siano aims to overcome a dim perception of the technology in the U.S., hurt by Qualcomm Inc. (QCOM)’s failed Flo TV service.

“We need to see the creation of a positive perception of the mobile-TV market in the eyes of the financial community,” Ironi said. “It’s almost a condition for going public. Right now, if you talk to an average analyst, all they know about mobile TV is it failed.”

The global market for mobile-TV receiver chips may reach 159.4 million units in 2015, up from 99 million chips this year, according to research firm Forward Concepts Co. While Asia currently leads in mobile-TV adoption, success in the U.S. is key for holding an IPO here, Ironi said.

Small Number

After years of companies promoting the idea, only 24.7 million Americans watch video on mobile devices, according to IE Market Research Corp. Qualcomm’s Flo service, which required a subscription, was shuttered earlier this year.

Still, other companies look to re-energize the market. MobiTV Inc., a maker of software that lets smartphone users watch live television, filed for an IPO in August. The Emeryville, California-based company posted a sales gain of 24 percent in the first nine months of 2011 to $59.9 million. Its loss in the period narrowed to $10.9 million from $13 million.

“For MobiTV to do well would be a huge positive for the industry,” Tom Taulli, an independent IPO analyst, said in an interview. The introduction of new services also would help, Taulli said.

Broadcaster Alliance

The Mobile500 Alliance -- an organization of 48 broadcasting groups, including McGraw-Hill Cos. and Gray Television Inc. -- will begin testing mobile TV technology in Seattle early next year, Executive Director John Lawson said. Trial participants will be able to access TV broadcasts by attaching a special gadget, with Siano’s chip, to their mobile devices, he said. Consumers will be able to watch free, local programming without having to pay for a wireless data plan.

The Mobile Content Venture -- an industry alliance comprised of about a dozen broadcasting groups, including Fox Entertainment and NBC Universal -- has its own effort. The group has encouraged TV stations blanketing half the country to add mobile TV transmitters. It will start rolling out devices that can receive the signals next year, said Salil Dalvi, a co- general manager at Mobile Content Venture.

The question is whether Siano can succeed in a market where Qualcomm failed, said Will Strauss, president of Forward Concepts. Qualcomm, based in San Diego, is the world’s largest maker of mobile-phone chips and the Flo service was a bid to get Americans to use their devices in new ways. Qualcomm even promoted Flo TV during the Super Bowl in 2010.

‘A Skeptic’

“I am a skeptic,” Strauss said. “Qualcomm got out of it -- it may be a clue.”

In May, Siano raised $20 million in funding, led by Israeli venture firm Jerusalem Venture Partners. The money was aimed at helping the company gain traction in North America.

The startup isn’t alone in supplying chips for mobile TV. Its competitors include Telegent Systems Inc., which was purchased by Spreadtrum Communications Inc. (SPRD) earlier this year.

Siano has sought to build market share by teaming up with many of the largest device manufacturers. It works with Motorola Mobility Holdings Inc., Samsung Electronics Co., LG Electronics Inc. (066570), ZTE Corp. (000063), Dell Inc. (DELL) and Huawei Technologies Co.

Customers may show prototypes of their consumer gadgets at next month’s Consumer Electronics Show in Las Vegas, with products becoming available in the first quarter, Ironi said.

Siano expects to gauge whether the U.S. market is gaining traction by mid-2012, Ironi said. The company has annual sales of about $40 million, he said. Revenue quadrupled in 2010 and doubled in each year between 2007 and 2009, Ironi said, declining to elaborate further on Siano’s finances.

New mobile-TV services won’t require a wireless data plan, helping sidestep a weakness of Qualcomm’s Flo TV, Ironi said.

Broadcasters also can put their marketing muscle behind promoting the new service, said Mobile Content Venture’s Dalvi.

“We got access to a pretty big megaphone to promote mobile TV,” Dalvi said.

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U.S. Stock-Index Futures Gain on Italy Bond Sale

By Rita Nazareth - Dec 29, 2011 8:52 PM GMT+0700

U.S. stock futures rose, after yesterday’s slump, as concern about Europe’s debt crisis eased after Italian borrowing costs declined at an auction.

Yahoo (YHOO)! Inc., the U.S. Web portal exploring strategic options after firing Chief Executive Officer Carol Bartz, rallied 1.4 percent. Bank of America Corp. (BAC) added 0.7 percent, following a two-day drop. Newmont Mining Corp. (NEM) retreated 0.7 percent as extended gains in the U.S. dollar heightened speculation of slowing demand for precious metals. Mosaic Co. (MOS) slumped 4 percent on plans to cut output.

Standard & Poor’s 500 Index futures expiring in March rose 0.3 percent to 1,248.20 at 8:51 a.m. New York time. The benchmark gauge yesterday erased its 2011 gain and fell below its average price of the past 200 days (SPX). Dow Jones Industrial Average futures added 27 points, or 0.2 percent, to 12,108.

“What will continue to drive the market is the situation in Europe,” said Louis de Fels, a Paris-based money manager at Raymond James Asset Management International, which oversees $30 billion worldwide. “We could have a bit of a gain, but volume is low. Investors are cautious.”

Since 1986 (SPX), the S&P 500 has gained an average 0.3 percent on the second-to-last trading day of the year, according to data compiled by Bespoke Investment Group. On the last trading day, the index has fallen 0.2 percent on average, the data showed. The measure was down 0.6 percent this year (SPX) through yesterday, poised to snap a two-year rally.

Italian Auction

Stock futures rose as Italy auctioned 7.02 billion euros ($9 billion) of bonds, falling short of the target, as borrowing costs declined in its final debt sale of the year. Italian Prime Minister Mario Monti said a package of measures that aim to spur growth will be ready before a meeting of European finance ministers on January 23. He said his government will first focus on making Italy’s debt sustainable and doesn’t “rule out” more aggressive efforts to reduce existing debt.

Fewer Americans filed applications for unemployment benefits over the past month than at any time in the past three years, a sign the U.S. labor market is on the mend heading into the new year. Still, applications (INJCJC) rose for the first time in a month during the week ended Dec. 24, climbing by a more-than- forecast 15,000 to 381,000.

Yahoo (YHOO) was among the highlights within the biggest American companies today. The shares rose 1.4 percent to $16. Bank of America, which dropped 5.6 percent over the previous (BAC) two days, gained 0.7 percent to $5.32.

Chesapeake Energy Corp. (CHK) rose 0.8 percent to $22.84. The most active U.S. oil and natural-gas driller agreed to sell a pipeline subsidiary to an affiliated partnership for $865 million.

Gold Producers

Gold producers (NEM) fell as the metal sank today. Gold is still poised to complete its 11th consecutive annual gain, the longest winning streak in at least nine decades, on the brink of a bear market. Newmont Mining, the largest U.S. gold producer, retreated 0.7 percent to $59.

Mosaic sank 4 percent to $48.30. The world’s largest producer of phosphate fertilizer said it will cut output by as much as 250,000 metric tons through the first quarter of 2012.

Trading of a new class of contracts that expire a week after they’re listed pushed U.S. options volume to a ninth- straight annual record as investors turned to shorter maturities to hedge risk.

About 4.5 billion contracts changed hands through Dec. 27, beating last year by 16 percent, according to data from Chicago- based OCC, which clears and settles equity derivatives. Weekly equity options, which didn’t exist before last year, accounted for 9.3 percent of industry volume for options tied to stocks and exchange-traded funds this year through November, Steve Crutchfield, chief executive officer of NYSE Amex Options, said in a telephone interview Dec. 22.

Exclusive License

One-week contracts on individual equities began trading in June 2010 when NYSE Amex, an exchange owned by NYSE Euronext (NYX), listed them on the PowerShares QQQ Trust (QQQQ), SPDR S&P 500 ETF Trust (SPY), SPDR Dow Jones Industrial Average ETF Trust (DIA) and iShares Russell 2000 Index Fund. CBOE Holdings Inc. (CBOE)’s Chicago Board Options Exchange began short-dated options on the Standard & Poor’s 500 Index (SPX) and other benchmark gauges in 2005. Those trade only on the CBOE because of an exclusive license, while weekly options on equities can trade on all nine U.S. exchanges.

“They took off much quicker than we expected,” Randy Frederick, the Austin, Texas-based director of trading and derivatives for Charles Schwab Corp., said in a phone interview Dec. 21. The firm has $1.68 trillion in 8.5 million client accounts. “A good portion of the growth in weeklys has been in the retail segment. It has definitely contributed to volume.”

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

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

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Euro Falls to 10-Year Low Against Yen

By Andrew Rummer - Dec 29, 2011 8:38 PM GMT+0700

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Dec. 28 (Bloomberg) -- Michael Woolfolk, managing director at Bank of New York Mellon Corp., and William Rhodes, author of "Banker to the World: Leadership Lessons From the Front Lines of Global Finance," talk about the outlook for the dollar, yuan and euro. They speak with Pimm Fox on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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The euro slid for a fifth day against the yen and earlier reached 100.36, the weakest level since June 2001. Photographer: Jock Fistick/Bloomberg

The euro slid to a decade low against the yen and a 15-month low versus the dollar as Italian bonds fell after the nation raised less than its maximum target at a debt auction. U.S. equity futures rose while gold fell.

The euro decreased as much as 0.8 percent to 100.06 yen as of 8:35 a.m. in New York and retreated to as low as $1.2858. The yield on Italian 10-year bonds climbed four basis points to 7.04 percent. Standard & Poor’s 500 Index futures rose 0.2 percent and the Stoxx Europe 600 Index increased 0.1 percent. Gold declined to a five-month low.

Italy sold bonds due in 2022 to yield 6.98 percent, compared with 7.56 percent at the last sale on Nov. 29. The European Central Bank said overnight deposits from financial institutions declined from a record high yesterday. U.S. data showed fewer Americans filed applications for unemployment benefits over the past month than at any time in the past three years, a sign the U.S. labor market is on the mend.

“Yield levels around 7 percent are absolutely not sustainable,” said Michael Markovic, a senior fixed-income strategist at Credit Suisse Group AG in Zurich. “They could not sell the entire size they planned. It’s not positive news for the stressed sovereign-debt markets in the euro zone.”

The euro slid for a fifth day against the yen, falling to the weakest level since June 2001. The 17-nation currency was at the lowest since September 2010 against the dollar.

Italian Debt

Italy also sold 2.5 billion euros of bonds due in 2014 to yield 5.62 percent, down from 7.89 percent at the previous sale. That was less than the 3 billion-euro maximum target. Today’s auctions also included about 2 billion euros of notes due 2021 and a floating-rate security due 2018, and came after the nation sold 9 billion euros in treasury bills for 3.251 percent yesterday, about half the rate from the prior auction.

The yield on Italy’s 10-year bonds climbed to 7.14 percent on Dec. 27, the highest since Nov. 30. Spanish 10-year yields advanced eight basis points to 5.23 percent today, and the rate on similar-maturity French securities increased five basis points to 3.06 percent.

The ECB last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending. Overnight deposits at the central bank decreased from an all- time high yesterday, with euro-area banks parking 437 billion euros compared with 452 billion euros a day earlier.

“The ECB, for the foreseeable future, will not drain liquidity once per month as it always has done,” said Robert Rennie, Sydney-based chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. “It gives you greater confidence that this is more formal quantitative easing. Both on an outright and a cross basis, the risks still do lie to the downside for the euro.”

Merkel, Sarkozy Meeting

German Chancellor Angela Merkel and French President Nicolas Sarkozy may meet on Jan. 9 in Berlin to discuss the debt crisis, the Wall Street Journal reported, citing an unidentified European Union official familiar with the situation.

The Stoxx 600 has dropped 13 percent this year, compared (MXAP) with an 18 percent slump in the MSCI Asia Pacific Index and a 0.6 percent fall in the S&P 500.

The MSCI Asian index was little changed today. Gauges of energy and raw-material producers posted the largest drops among its 10 industry groups. Lynas Corp. (LYC), an Australian rare earths developer, retreated 5.3 percent after the Chinese government said on Dec. 27 it will keep 2012 export quotas of rare earth virtually unchanged.

U.S. Stocks

The gain in S&P 500 futures indicated the measure will rebound from yesterday’s 1.3 percent decline. Treasury 10-year yields (USGG10YR) were little changed at 1.92 percent.

The four-week moving average for jobless claims, a less volatile measure than the weekly figures, dropped to 375,000 last week, the lowest level since June 2008, Labor Department figures showed. Applications rose for the first time in a month in the week ended Dec. 24, climbing by a more-than- forecast 15,000 to 381,000.

Figures from the National Association of Realtors may say pending sales of previously owned homes rose 1.5 percent in November after a 10 percent jump the previous month. The Institute for Supply Management-Chicago Inc. will release its business barometer for December at 9:45 a.m. New York time.

Gold futures fell as much as 2.6 percent to $1,523.90 an ounce, the lowest price since July. Oil in New York rebounded 0.4 percent to $99.76 a barrel after falling 2 percent yesterday. Cotton jumped 0.6 percent to 91.22 cents a pound, the third consecutive advance.

The MSCI Emerging Markets Index dropped 0.3 percent, extending this week’s losses to 1.8 percent. Russia’s Micex fell 0.6 percent as oil declined. Indian stocks dropped for a third day, with the Sensex sliding 1.2 percent. China’s Shanghai Composite Index advanced 0.2 percent, a second straight day of gains.

To contact the reporter on this story: Andrew Rummer in London at arummer@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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European Stocks Little Changed After U.S. Jobless Data, Italy Bond Auction

By Adam Haigh and Corinne Gretler - Dec 29, 2011 9:03 PM GMT+0700

European (SXXP) stocks were little changed after a U.S. report showed initial jobless claims rose more than estimated in the world’s largest economy last week and as Italy missed its fundraising target at a bond auction.

Petroplus Holdings AG, Europe’s largest independent refiner, rose 1.8 percent after France said it’s ready to help the company in its efforts to win back credit. Axa SA led a decline among insurers, losing 2.8 percent. Fiat SpA retreated 1.4 percent after Banca IMI SpA cut its recommendation on the shares. Mining companies followed a drop in copper.

The Stoxx Europe 600 Index (SXXP) gained 0.2 percent to 240.72 at 2:01 p.m. in London. The gauge has rallied 12 percent (SXXP) from this year’s low on Sept. 22 amid better-than-estimated U.S. economic data and optimism that policy makers will contain the debt crisis.

A U.S. Labor Department report showed that first applications for unemployment benefits increased (USURTOT) to 381,000 last week, after falling to the lowest since April 2008 in the previous period. The median forecast of 32 economists surveyed by Bloomberg News had called for 375,000 claims.

The four-week moving average for claims, a less volatile measure than weekly figures, dropped to 375,000 last week, the lowest level since June 2008.

Investors awaited a report from the National Association of Realtors at 10:00 a.m. New York time that may show pending sales of previously owned homes in the U.S. rose 1.5 percent in November after a 10 percent jump in the prior month, according to economists’ estimates.

Italian Bond Auction

In Europe, Italy missed its fundraising target at the auction of debt maturing between 2014 and 2022, while its borrowing costs eased.

“The yield on Italian 10-year bonds auctioned coming at just under 7 percent shouldn’t be classified as a success,” said Manish Singh, the London-based head of investment at Crossbridge Capital, which has more than $2 billion under management. “Lingering doubts and the expected slowdown in euro-zone growth in 2012 means investors remain on the edge.”

The Treasury in Rome sold 6 percent bonds due in 2014 to yield 5.62 percent, down from 7.89 percent at the previous sale on Nov. 29 and priced its 5 percent 2022 bond to yield 6.98 percent, compared with 7.56 percent on Nov. 29. The Treasury also sold bonds due in 2021 and a floating-rate security due 2018. Italy’s bond sale followed yesterday’s auction of bills, where yields fell.

Italy Credit Risk

“Although distorted by thin holiday trading, today’s sale is a more accurate gauge of underlying confidence in Italian debt,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, wrote in an e-mail. “Buying 10-year Italian bonds is a leap of faith which investors are prepared to take only at very high interest rates. There are simply too many risks and uncertainties surrounding Italy.”

The nation expects to raise almost 450 billion euros from debt sales next year, enough to cover 202 billion euros of maturing bonds and finance a 23.6 billion-euro deficit, Maria Cannata, director of public debt, said in a Dec. 24 interview with newspaper Il Sole 24 Ore.

The Stoxx 600 has retreated 13 percent in 2011 as the debt crisis spread across the major economies of the euro area.

Post-Christmas trading has been low, with average daily volume (SXXPVOLC) in the Stoxx 600 in the last two sessions dipping to 31 percent of this year’s average.

National benchmark indexes advanced in 9 of the 18 western European (SXXP) markets today. Germany’s DAX rose 0.4 percent, while France’s CAC 40 added 0.2 percent. The Swiss Market Index lost 0.3 percent.

Petroplus Rebounds

Petroplus gained 1.8 percent to 1.68 Swiss francs, paring some of its 52 percent loss in the previous two sessions. The French government is “fully mobilized” in helping Europe’s largest independent refiner in discussions with its banks, Finance Minister Francois Baroin and Industry Minister Eric Besson said in a statement yesterday after the markets closed.

PNE Wind AG (PNE3), the German wind company, jumped 7.3 percent to 1.88 euros after it sold its shares in a planned North Sea offshore project to a fund managed by Ventizz Capital Partners AG.

Axa, Europe’s second-biggest insurer, declined 2.8 percent to 9.71 euros and Ageas dropped 1.3 percent to 1.18 euros. Insurers were the worst performing group (SXXP)of all 19 industry segments on the Stoxx 600.

Fiat retreated 1.4 percent to 3.48 euros after Monica Bosio, a Banca IMI analyst, cut the stock to “hold” from “add.”

Mining shares dropped as copper declined for a second day on the London Metal Exchange. Petropavlovsk Plc slid 2.6 percent to 602 pence and Voestalpine AG lost 1.7 percent to 20.95 euros, while Vedanta Resources Plc dropped 1.9 percent to 992 pence.

Raiffeisen Bank International AG (RBI) led losses in a gauge of European banks (SX7P), slumping 3.2 percent to 19.70 euros. Banca Popolare dell’Emilia Romagna Scrl (BPE) lost 3.2 percent to 5.54 euros. Banco Espirito Santo SA declined 2.2 percent to 1.30 euros.

To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Corinne Gretler in Zurich at cgretler1@bloomberg.net

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

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Italy Sells 7 Billion Euros of Bonds as Yields Fall

By Alessandra Migliaccio - Dec 29, 2011 8:25 PM GMT+0700

Italy auctioned 7.02 billion euros ($9 billion) of bonds, short of the target, as borrowing costs declined, underscoring investor concerns over its ability to finance the world’s fourth-biggest debt load.

The euro fell to its lowest against the dollar since September 2010 and 10-year Italian notes slid after the sale, keeping their yield above 7 percent. Short-term securities rose.

“This is not a bad result at all, particularly given that the yield on the three-year note fell markedly,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in a telephone interview from London. Still, “market pressure is unlikely to abate” amid “underlying concerns about creditworthiness.”

With an economy sinking into its fourth recession since 2001, Prime Minister Mario Monti’s government expects to raise almost 450 billion euros from bond and bill sales next year. It has to repay about 53 billion euros in debt in the first quarter from the region’s total maturing debt of 157 billion euros, according to Swiss lender UBS AG.

At a year-end press conference in Rome today, Monti said Italy’s borrowing costs -- more than triple Germany’s for 10 years -- were unjustified. He said he is preparing measures aimed at cushioning the economic slump, including deregulating labor markets and lowering fuel prices.

Auction Results

In today’s auction, the Treasury sold 2.5 billion euros of securities due in 2014, less than the 3 billion euro maximum for the sale, to yield 5.62 percent. That was down from 7.89 percent at the previous sale on Nov. 29. The Treasury priced 2.5 billion euros of its 5 percent 2022 bond to yield 6.98 percent, compared with 7.56 percent on Nov. 29. Italy also sold about 2 billion euros of bonds due 2021 and a floating-rate security due 2018.

The sale, which aimed to raise 8.5 billion euros, came one day after Italy auctioned 9 billion euros in treasury bills for 3.251 percent. That was about half the rate from the previous auction on Nov. 25 after the European Central Bank last week offered euro-area banks unlimited funds for three years.

Italian 10-year bonds (.IT10) stayed lower after the auction. The 10-year yield was 7.05 percent at 1:10 p.m. London time. Three- year yields pared declines, dropping 7 basis points to 5.81 percent. They earlier fell to 5.68 percent.

Yesterday’s auction was Italy’s first since the ECB loaned 489 billion euros to European banks in a bid to keep credit flowing to the 17-nation economy while lawmakers tackle the sovereign debt crisis. Italian lenders borrowed 116 billion euros as part of the tender on Dec. 21, according to a person with direct knowledge of the loans.

To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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Banker Who Fled Kim Jong Il Says New Leader May Open North Korean Economy

By Jiyeun Lee and Eunkyung Seo - Dec 29, 2011 12:16 PM GMT+0700

Kim Jong Un may relax state controls over North Korea’s economy and ease the isolation entrenched by his late father’s nuclear weapons program, according to a banker who fled the communist state after years working for the regime.

Kim’s Swiss education and his reported fondness for basketball -- a sign he’s a team player -- may make him more open to change than his late father, Choi Se Woong, former deputy governor of the North’s Korea Reunification Development Bank, said in an interview in Seoul this week.

“It’s better for North Korea to have Kim Jong Un as their leader than anyone else,” said Choi, 50, who defected to the South in 1995 and is the son of a former North Korean finance minister. “Kim Jong Un will seek to start a market economy but it will be uniquely North Korean-style, different from China, South Korea or any other capitalist country.”

Choi joins the growing number of people saying Kim will push for a more open North Korea as he takes over from his father Kim Jong Il, who passed away this month after a 17-year reign. Templeton Emerging Markets Group Executive Chairman Mark Mobius said last week he expects the North to adopt China-style deregulation, and a poll of South Koreans this month showed almost half expect the North to become more open under new leadership.

‘Exquisite Toys’

North Korea’s gross domestic product, about one-fortieth that of the South, shrank in four of the past five years after attempts to liberalize the economy failed under its stated policy of self-reliance. Still, it sits on deposits of minerals estimated at almost 7,000 trillion won ($6 trillion), according to South Korea’s state-run Korea Resources Corp.

“It’s a country with undiscovered minerals and the technique to make missiles,” Choi said. ``Have you seen the exquisite toys they make, like helicopters? Just think what it would be like if these skills were applied to manufacturing.’’

Kim may pursue more projects such as in Gaeseong, home to a joint industrial complex where South Korean-built factories employ workers from the North, said Choi, now a managing director at Eugene Investment & Futures Co. in Seoul.

Any economic opening in North Korea would follow Myanmar, also known as Burma, another undemocratic Asian nation subject to sanctions. Secretary of State Hillary Clinton this month became the highest level U.S. official to visit Myanmar in more than five decades as the nation moved to release political prisoners. Clinton pledged to upgrade relations if Myanmar takes further steps to ease repression.

‘Last Stalinist Regime’

North Korea and Myanmar are among the few countries remaining largely disconnected from international commerce in a region that’s leading global economic growth.

“The sustainability of the world’s last Stalinist regime will ultimately be under greater pressure following a transfer of power and within the broader global context of political change, with nascent political reforms in Burma evidence that change is not limited to the Middle East,” Citigroup Inc. analyst Tina Fordham in London wrote in a note this month.

The South’s Bank of Korea said today it will monitor changes in the North because escalating geopolitical risks may unnerve financial markets, which could cause consumption and investment in the South to contract “severely.”

‘Knock-on Effects’

“The bank will keep a close eye on the evolution and knock- on effects of risk factors such as the situation in North Korea,” the South Korean central bank said in a statement.

Kim, who’s thought to be 28 or 29, isn’t too young to lead the nation because his father also had decision-making responsibilities in his 20s, Choi said. Though Kim Jong Il formally began to assume the nation’s highest posts three years after North Korean founder Kim Il Sung died, he had been groomed for decades.

The younger Kim may have attended the Liebefeld Steinhoelzli school in Berne, Switzerland during the 1990s under the alias Pak Un. Joao Micaelo, who attended the school at the time, told the Daily Telegraph last year he and Pak Un bonded over the difficulties of learning German, and their passion for NBA basketball and Michael Jordan.

North Korea, which refuses to abandon its nuclear weapons program in the face of global sanctions, has depended on economic handouts since the mid-1990s. Food aid is currently needed for about 5 million people, with one in three children physically stunted from a lack of nutrition, according to a report from the United Nations and World Food Programme.

North Korea’s Elite

Previous attempts to liberalize the North’s economy have backfired. In 2002, North Korea started its “most drastic” effort by letting prices and wages fluctuate, resulting in the spread of the black market, said Bahng Tae Seop, a senior fellow at the Samsung Economic Research Institute. That led to a widening gap between the poor and elite, Bahng said.

Choi was one of the elite. The second son of Choi Hee Byeok, who was finance minister during the 1980s, he attended the nation’s top college in Kim Il Sung University. Then he was a currency and gold dealer at Daesong Bank in charge of foreign- currency management for the North’s Workers’ Party before rising to the deputy governorship at the KRDB.

Though he fled 16 years ago to seek a better life, Choi said he’s still in touch with North Korean mentality and expects a smooth transition.

“North Koreans think it’s a ‘must’ that political power be inherited to the heir,” he said. “Kim will probably open up gradually and selectively, while tightening internal grip to keep his power.”

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

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North Korea Ends Mourning of Kim Jong Il

By Sangwon Yoon - Dec 29, 2011 10:07 AM GMT+0700

Kim Jong Un, North Korea’s new leader, stood on a balcony overlooking Kim Il Sung Square in Pyongyang where tens of thousands of people gathered today to hear eulogies that bring to an end a period of national mourning for his father.

State television broadcast Kim Ki Nam, secretary of the Central Committee of the ruling Workers’ Party, delivering a eulogy today for Kim Jong Il, and images of a smiling portrait of the dictator erected in the square. Red banners adorned the square with the words: “Let’s serve the idea and leadership of respected Kim Jong Un with steadfast loyalty!”

The memorial services, which featured silent prayers and artillery salutes, are designed to bolster the standing of Kim Jong Un. The stability of North Korea, which has the world’s fourth-largest army and 70 submarines, may depend on the younger Kim’s ability to establish a firm grip on the regime.

State media have sketched the image of the younger Kim, thought to be 28 or 29, solidifying his hold on succession, referring to him as “supreme leader of the revolutionary armed forces” and “great successor” to his late father and grandfather.

Kim Jong Un yesterday walked beside the hearse carrying his father’s body though snow-covered streets. He was surrounded by members of the North Korean ruling elite during yesterday’s funeral and at today’s ceremony.

“Authorities are trying to indirectly communicate to the people that the transition is stable, that the new leader is stable,” Kim Yong Hyun, a professor of North Korea studies at Dongguk University in Seoul, said after yesterday’s funeral.

Observers around the world are scrutinizing images from the memorial and yesterday’s funeral for signs of changes in the regime’s power hierarchy under its new leader.

It is difficult to tell whether a regency-type system will develop, led by Kim Jong Un’s uncle Jang Song Thaek, who walked behind his nephew in the motorcade yesterday, Kim said. “For now, it’s evident that the system is being centered around Kim Jong Un,” he said.

To contact the reporters on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net;

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

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S&P 500 Snaps Five-Day Rally Amid Concern About Europe’s Crisis

By Rita Nazareth - Dec 29, 2011 4:50 AM GMT+0700

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Dec. 28 (Bloomberg) -- Pat Dorsey, director of research and strategy at Sanibel Captiva Trust Co., discusses his recommendation of Kinder Morgan Inc., CME Group Inc., Express Scripts Inc., National Oilwell Varco Inc. and Oracle Corp. He speaks from Chicago with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

U.S. stocks declined, halting a five-day advance in the Standard & Poor’s 500 Index, as the European Central Bank’s balance sheet increased to a record after a surge of bank lending to stem the region’s debt crisis.

Alcoa Inc. (AA) and Chevron Corp. (CVX) dropped at least 1.8 percent as the euro tumbled to the lowest level since January against the U.S. dollar, curbing demand for commodities. The Morgan Stanley (MS) Cyclical Index sank 1.9 percent as Caterpillar (CAT) Inc. and Ford Motor Co. (F) slid more than 2.3 percent. Bank of America Corp. (BAC) slumped 3.6 percent, extending yesterday’s decline.

The S&P 500 retreated 1.3 percent to 1,249.64 at 4 p.m. New York time. The benchmark gauge erased its 2011 gain and fell below its average price of the past 200 days. (SPX) The Dow Jones Industrial Average slid 139.94 points, or 1.1 percent, to 12,151.41 today. The Russell 2000 Index of small companies dropped 2.1 percent. About 4.4 billion shares changed hands on U.S. exchanges, or 42 percent below the three-month average.

“The economy is not benefiting from the ECB lending to banks,” Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. “With Europe likely to lapse into a recession, banks are reluctant to actually lend.”

Equities slumped as the ECB’s balance sheet soared to a record 2.73 trillion euros ($3.55 trillion). The ECB last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending. So far, banks are parking the money back at the ECB. Overnight deposits at the central bank increased to an all-time high of 452 billion euros yesterday.

Strategists’ Forecast

With two more trading days left in 2011, the S&P 500 would need to rise 2.6 percent to reach the year-end forecast of Wall Street strategists. Their mean estimate of 1,282 is lower than the 1,371 predicted in January, according to data compiled by Bloomberg. Today’s decline sent the S&P 500 down 0.6 percent for the year. Still, a 10.5 percent rally since the end of September put the gauge on pace for the best fourth-quarter since 2003.

Earlier today, stock-futures rose as Italy sold 9 billion euros ($11.8 billion) of six-month Treasury bills and borrowing costs fell from the previous auction. A bigger test of the ECB’s lending on demand for European bonds comes tomorrow when Italy sells as much as 8.5 billion euros of longer-maturity debt.

“I hope tomorrow’s auction will also be successful because that could be a positive for the markets,” Brian Jacobsen, who helps oversee about $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview. “It’s going to be critical for people to see whether or not there’s enough investor interest in the Italian debt to stave off any further crisis.”

Economic Concern

Companies most dependent on the economy led (SPXL1) the losses in the S&P 500 as concern grew that Europe’s crisis would hamper global growth. The Dow Jones Transportation Average, a proxy for the economy, erased 1.6 percent. Caterpillar, the world’s largest construction and mining-equipment maker, dropped 2.4 percent to $89.37. Ford retreated 2.7 percent to $10.52.

Gauges of commodity shares had the biggest declines among 10 groups in the S&P 500, falling at least 1.8 percent. Metal prices sank as gold futures retreated for a fifth day, the longest slump since 2009. Oil declined for the first time in seven days, in part because of reduced concern that Iran will block the Strait of Hormuz.

Alcoa, the largest U.S. aluminum producer, retreated 3.1 percent to $8.52. Chevron fell 1.9 percent to $105.96. Freeport- McMoRan Copper & Gold Inc., the world’s largest publicly traded copper miner, dropped 4.1 percent to $36.31.

Banks Tumble

The KBW Bank Index (BKX) declined 1.8 percent as all of its 24 stocks fell. Bank of America lost 3.6 percent, the most in the Dow, to $5.29. Citigroup Inc. (C) erased 2.9 percent to $26.13.

Molycorp Inc. (MCP) slumped 14 percent, the biggest decline in the Russell 1000 Index, to $24.04. The price estimate for the owner of the largest rare-earth deposit outside China was cut to $39 a share from $57 by JPMorgan Chase & Co., which cited pressure on rare earth prices.

Mead Johnson Nutrition Co. (MJN) lost 1.6 percent to $67.98. U.S. regulators have spent today and yesterday inspecting a Mead Johnson factory as part of an investigation into whether a Missouri child’s death this month was due to tainted infant formula. The leading maker of child formula had its biggest gain in five months yesterday after announcing that its tests had shown the batch of formula used by the infant was not contaminated with the bacteria blamed for the death.

Traders pushed bearish options on Pharmasset Inc. to the highest level in the Russell 1000 Index, locking in gains before Gilead Sciences Inc. (GILD)’s $10.8 billion offer for the drugmaker is scheduled to close.

Implied Volatility

Implied volatility for 30-day puts to sell Pharmasset shares are 60.41 points higher than the level for calls, compared with the 18-month average of 8.12, according to data compiled by Bloomberg. The price measurement known as skew (VRUS) is 10 times higher for Pharmasset than it is for the average Russell 1000 company, the data show.

Pharmasset shares closed at $123.02 last week, the lowest price since Gilead bid for the Princeton, New Jersey-based company in November to gain its experimental hepatitis C treatment. MKM Partners LP and Tullett Prebon Plc say that while there’s about a 90 percent chance the deal will succeed, investors are buying options in case the transaction fails.

“The deal not closing is a low-probability event, but a high-impact one,” Walter Todd, who oversees $925 million including Gilead shares as chief investment officer at Greenwood Capital in Greenwood, South Carolina, said yesterday in a phone interview. “The downside if the deal falls apart is pretty significant for Pharmasset. People want to pay up for protection.”

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

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

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Li’s Cheung Kong Loses S&P Credit Rating

By Kelvin Wong - Dec 29, 2011 11:13 AM GMT+0700

Cheung Kong (Holdings) Ltd. (1), controlled by billionaire Li Ka-shing, had its long-term corporate credit rating withdrawn by Standard & Poor’s, which said it hasn’t been able to “accurately assess” the credit quality of the Hong Kong developer.

The ratings company withdrew the A- “unsolicited” rating, which was based on publicly available information because it had “no access to the company management for the past three years,” S&P said in a statement yesterday.

“We can’t evaluate Cheung Kong’s liquidity accurately due to recent revisions to our liquidity criteria as the company has made material acquisitions in the past 12 months and continues to be active on the acquisition trail,” analysts Christopher Lee and Bei Fu wrote in the statement.

Hong Kong’s second-biggest builder by market value has spent more than HK$22 billion ($2.83 billion) buying land in the city this year, the company’s interim report shows. It’s seeking acquisitions in China as the country’s liquidity crunch make it a “golden time” for Cheung Kong, Executive Director Justin Chiu said in November.

“Of course if you can’t get access to management for three years, you won’t be getting a very clear picture of the company,” said Lee Wee Liat, Hong Kong-based property analyst at Samsung Securities Ltd. “They have done a bit of acquisitions lately but that didn’t materially weaken their balance sheet. They still have one of the strongest balance sheets among Hong Kong developers.”

Conservative Profile

Cheung Kong had a debt-to-common-equity ratio of 11 percent at the end of June, according to data compiled by Bloomberg. That compares with 20 percent for Sun Hung Kai Properties Ltd., the biggest developer in Hong Kong, and 15 percent for Hang Lung Properties Ltd., the third largest.

Cheung Kong’s S$730 million ($561 million) of 5.125 perpetual notes, sold to investors at par in September, were little changed today, yielding 5.098 percent compared with 5.021 percent on Sept. 23, Nomura Holdings Inc. prices show. Its S$180 million of 2.585 percent, five-year bonds due July 2016 are yielding 3.122 percent today versus 3.134 percent as of yesterday’s close, DBS Group Holdings Ltd. prices on Bloomberg show.

Cheung Kong discontinued S&P’s ratings services in 2009 because its “conservative financial profile” meant it didn’t need a rating, Wendy Tong Barnes, a spokeswoman for the company, said in a statement yesterday. The company was barred by regulation from meeting with S&P to provide them with privileged information and S&P never approached Cheung Kong for such information, Barnes said.

Bilateral Loans

“Cheung Kong’s financing is predominately done through bilateral loans,” said Andrew Lawrence, Hong Kong-based head of property research at Barclays Capital Asia Ltd. “There’s less need for Standard & Poor’s ratings because they’re done directly between the developer and the banks.”

S&P also withdrew the cnAA Greater China credit scale rating on Cheung Kong. It maintained the A- rating and stable outlook on Hutchison Whampoa Ltd. (13), which is 49.9 percent owned by Cheung Kong, according to the statement. A- at S&P is the seventh-highest investment-grade rating, or four levels above junk, or speculative, grade.

‘Financial Flexibility’

The A- rating on Cheung Kong was supported by the company’s “strong financial flexibility,” according to the statement.

“At the time of the withdrawal, the stable outlook reflected our expectation that CKH will generate satisfactory cash flows and maintain conservative financial management over the next two years,” Lee and Fu wrote.

Cheung Kong has the equivalent of $1.78 billion in bonds and $771.6 million in loans outstanding, according to data compiled by Bloomberg. Of that, $939 million matures before the end of 2013, the data show. The company last sold bonds in November when it issued HK$300 million of 3.35 percent notes due 2012. Its S$730 million of 5.125 perpetual notes, sold to investors at par in September, have fallen to yield 5.098 percent and reached 5.021 percent on Sept. 23, Nomura prices show.

Shares Decline

The developer’s shares have declined 23 percent this year, compared with the 24 percent drop in the Hang Seng Property Index (HSP), which tracks the city’s seven biggest builders including Cheung Kong. The stock fell 1.7 percent to HK$91.85 at the midday break in Hong Kong today.

Home prices in Hong Kong have fallen to a near six-month low after climbing about 70 percent since the beginning of 2009, according to an index compiled by Centaline Property Agency Ltd. It’s more expensive to buy a home in the city than in London, Moscow or New York, Savills Plc said in a report in January that compared London with the other cities.

Li, 83, nicknamed “Superman” by the local media for his investing prowess, opened a plastic flower factory after World War II and began investing in Hong Kong real estate in 1967 after riots from China’s Cultural Revolution depressed prices.

Hong Kong’s richest man also was ranked the world’s 11th wealthiest by Forbes magazine in March after his net worth increased $5 billion to $26 billion. He forecast in 2007 that China’s stock-market bubble would burst and in 2009 predicted the rally in Hong Kong home prices. The Shanghai Composite Index (SHCOMP) lost 65 percent in 2008, the most among the world’s 10 biggest stock markets.

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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Euro Drops to 10-Year Low Against Yen

By Shiyin Chen and Mariko Ishikawa - Dec 29, 2011 1:02 PM GMT+0700

The euro weakened to a decade low against the yen and bond risk rose on concern Europe’s debt crisis will slow the global economy. U.S. equity-index futures climbed before data on home sales and initial jobless claims.

The 17-nation euro weakened as much as 0.5 percent versus the yen before trading at 100.53 yen as of 3 p.m. in Tokyo. The Markit iTraxx Japan index tracking debt-default risk added three basis points to 187. The MSCI Asia Pacific Index pared earlier losses of as much as 0.8 percent, while Standard & Poor’s 500 Index futures rose 0.4 percent after the gauge sank 1.3 percent yesterday. Gold futures declined for a sixth day.

Italy will sell as much as 8.5 billion euros ($11 billion) in notes due from 2014 to 2022, a day after borrowing costs fell at a bill auction. The European Central Bank said yesterday its balance sheet soared to a record 2.73 trillion euros after lending to banks last week. Data today may show U.S. pending sales of previously owned homes rose for a second month, while initial jobless claims increased.

“The European problem is going to continue to cause spooks in the market and some spikes in risk aversion,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “The moves are exaggerated by the lack of liquidity.”

The euro slid for a fifth day against the yen and earlier reached 100.36, the weakest level since June 2001. The 17-nation currency slipped 0.1 percent to $1.2928 after earlier touching $1.2888, the least since Jan. 10.

ECB Lending

The ECB last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending. So far, banks are parking the money back at the ECB. Overnight deposits at the central bank increased to an all-time high of 452 billion euros yesterday.

“The ECB, for the foreseeable future, will not drain liquidity once per month as it always has done,” said Robert Rennie, Sydney-based chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. “It gives you greater confidence that this is more formal quantitative easing. Both on an outright and a cross basis, the risks still do lie to the downside for the euro.”

Italian 10-year yields were little changed at 7 percent yesterday after the Treasury sold 9 billion euros of 179-day bills at a rate of 3.251 percent, down from 6.504 percent at the previous auction on Nov. 25.

German Chancellor Angela Merkel and French President Nicolas Sarkozy may meet on Jan. 9 in Berlin to discuss the debt crisis, the Wall Street Journal reported, citing an unidentified European Union official familiar with the situation.

Taiwan, Singapore

Taiwan’s dollar was little changed at NT$30.286 against its U.S. counterpart before the central bank decides on interest rates today. Eleven of the 15 economists surveyed by Bloomberg News forecast that policy makers will keep borrowing costs unchanged. Four predict a cut.

The Singapore dollar declined 0.6 percent to S$1.3026 per dollar and the Malaysian ringgit fell 0.4 percent to 3.1763 per dollar. Singapore’s gross domestic product rose 4 percent in the fourth quarter after increasing 6.1 percent in the three months through September, the government will say on Jan. 3, according to a Bloomberg survey of economists.

The cost of insuring corporate bonds against non-payment rose in Japan, with the Markit iTraxx Japan index headed for its highest close since Dec. 20, according to data provider CMA. The Markit iTraxx Australia index rose one basis point to 181.5, Westpac Banking Corp. prices show.

Lynas, Molycorp

MSCI’s Asia Pacific Index was little changed after having slumped 18 percent this year. The index’s 2011 drop compares (MXAP) with a 13 percent loss in the Stoxx Europe 600 Index and a 0.6 percent fall in the S&P 500. Japan’s Nikkei 225 Stock Average slid 0.3 percent, Australia’s S&P/ASX 200 Index dipped 0.4 percent and Hong Kong’s Hang Seng Index sank 0.8 percent.

A gauge of raw material producers posted the largest drop among the MSCI regional index’s 10 industry groups. Lynas Corp. (LYC), an Australian rare earths developer, slid 5.3 percent after the Chinese government said on Dec. 27 it will keep 2012 export quotas of rare earth virtually unchanged. That, coupled with planned increases in production by Lynas and Greenwood Village, Colorado-based Molycorp Inc., “will put additional downward pressure on rare-earth prices,” JPMorgan Chase & Co. wrote in a note. Molycorp sank 14 percent in New York yesterday.

Treasury 10-year yields were little changed at 1.92 percent before today’s economic reports. Initial jobless claims may have climbed to 375,000 last week after falling to the lowest since April 2008 in the previous period, according to economists surveyed by Bloomberg before today’s report. Separate figures from the National Association of Realtors today may say pending sales of previously owned homes rose 1.5 percent in November after a 10 percent jump the previous month.

Gold, Oil

Gold for February delivery fell as much as 0.8 percent to $1,551 an ounce before trading at $1,555.30. It is set for the longest losing streak since March 2009. Silver for immediate delivery slid 0.7 percent to $26.9125 an ounce, a fourth day of losses.

Oil rose 0.2 percent to $99.56 a barrel in New York, following a 2 percent slide yesterday. U.S. inventories increased 9.57 million barrels last week, according to the industry-funded American Petroleum Institute. An Energy Department report today was forecast to show supplies fell 2.5 million in a Bloomberg News survey.

To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Nick Gentle at ngentle2@bloomberg.net

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