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BL: Police Seek Person Seen Near Times Square Car Bomb (Update2)
By Henry Goldman and Allison Bennett
May 3 (Bloomberg) -- New York detectives sought to identify a person seen in Times Square around the hour of this weekend’s attempted car bombing, while police and building owners stepped up security in midtown Manhattan.
Police Commissioner Raymond Kelly said investigators are looking for a man caught on a video camera walking away from the site near Times Square where they found a Nissan Pathfinder SUV on May 1 with an explosive device inside. Police plan to make the video public, Kelly said.
As forensic experts examined the car, gathering fingerprints and its owner history through a recovered vehicle identification number, Kelly said he intends to deploy more officers than usual in midtown Manhattan and elsewhere to help ease tourists’ minds.
“It wasn’t an accident; it was someone who brought this to the area to send a message,” Kelly told reporters, defining the crime as terrorism. “If this had detonated, it would have caused casualties, a significant fireball, and would have ripped the vehicle in half.”
Transit agency officials said they expected the morning commute to be normal. They and some building owners said they had already upgraded security in the aftermath of the Sept. 11, 2001, terrorist attack on the World Trade Center.
“NYC Transit has remained at the highest state of alert since 9/11, reminding employees to report any suspicious activity,” said Paul Fleuranges, a spokesman for New York City Transit, which operates the subways and buses.
Heightened Awareness
He cited an April 30 incident in which track workers spotted someone in a tunnel near Bowling Green in lower Manhattan and turned the individual in to police as “an example of that heightened state of awareness.”
In response to the bombing attempt, the Transportation Security Administration began conducting operations at East Coast airports to find explosives in vehicles, a Department of Homeland Security official said.
Authorities also are doing more random screenings as passengers go through security checkpoints and at departure gates, said the official, who requested anonymity.
“The past five weeks there’s been a noticeable increase in military and police,” said Scott Froseth, 30, a business consultant who travels from Hartford through Manhattan’s Penn Station to Brooklyn every Monday. “Guys in fatigues with their hands on their guns. It’s the same as usual today.”
Searching for Answers
New York City “should increase video surveillance,” said cabdriver Nana Sarfo, 41, a Bronx resident and Ghana native. Interviewed along Eighth Avenue in midtown Manhattan, Sarfo said he hadn’t seen police searching cars today.
“I haven’t been stopped yet,” Sarfo said. “I am so offended. Why would anyone want to do this.”
Kelly said the person police are looking for, described as about 40 years old, was seen on a neighborhood surveillance camera as he hurried through Shubert Alley, a pedestrian walkway between 44th and 45th Street, steps from where the explosive- laden car was parked.
The person can be seen on the video removing his dark shirt and placing it in a bag, and while dressed in a red T-shirt, he walked from the scene “in a furtive manner,” Kelly said.
Tourist Video
Police were also on their way to Pennsylvania, where a tourist reported that he may have unintentionally photographed the person while taking snapshots of Times Square, Kelly said.
Investigators have “no evidence” that a group of Pakistani Taliban sympathizers were responsible for the attempt, although a self-described group took credit for it, Kelly said. He noted authorities have ruled out the group’s involvement in other attempted and successful attacks around the world after receiving similar messages in the past.
“Cops aren’t going to make me feel any safer because we’re not addressing the source of the problem: what motivates these people,” said Pepe Palikis, 55, a cattle trader for Australian Agriculture Co. who travels from New York to Philadelphia via Penn Station three times a week. “Right now I’m more concerned with the U.S. dollar going down.”
National Security
President Barack Obama, speaking in Louisiana where he had gone to inspect damage from the Gulf of Mexico oil spill, praised the city’s police and fire departments, the FBI, and the street vendor who alerted police to the smoking car.
“My national security team has been taking every step necessary to ensure that our state and local partners have the full support and cooperation of the federal government,” Obama said. “We’re going to do what is necessary to protect the American people to determine who’s behind this potentially deadly act and to see that justice is done.”
U.S. Homeland Security Secretary Janet Napolitano, in an interview on NBC’s “Today” show, said its “premature to rule in or out” that the bombing attempt is linked to international terrorism.
Plans to host foreign ministers in New York at a United Nations conference on nuclear non-proliferation won’t be disrupted, said U.S. State Department spokesman Philip Crowley. The gathering, which will draw participants from Europe, the Middle East and Asia, starts May 4.
Businesses Respond
Among businesses stepping up security was Bank of America Corp., whose 54-story tower is about two blocks from where the vehicle was parked.
“Our corporate security team has increased uniform presence at One Bryant Park,” spokesman T.J. Crawford said in an e-mail.
The building “was built with 9/11 in mind,” said its owner, Douglas Durst, co-president of The Durst Organization, in a phone interview.
Completed in 2008, the structure “has extra-wide staircases, it has pressurized stairs to keep smoke out, and it’s surrounded by bollards,” or protective traffic guards, he said.
Durst, whose properties also include the Conde Nast building at 4 Times Square, said his company had installed security cameras and refitted buildings with blast-resistant glass and traffic buffers to protect against car bombs.
Marriott Marquis
At the 1,949-room Marriott Marquis Hotel, where 800 to 1,000 people were evacuated to ballrooms for about seven hours, “everything returned to normal” after guests were permitted to return to their rooms at about 2 a.m., said Kathleen Duffy, a spokeswoman for the hotel chain’s New York operations. The hotel is across the street from where the car was parked.
“Guests were all very cooperative,” she said. “They understood why this was happening and we received no complaints.”
Investigators have examined bags of a granular material found in a gun box in the car, which they believe might be fertilizer, Kelly said. Timothy McVeigh used about 5,000 pounds of ammonium nitrate fertilizer ingredient in the improvised explosive device in the 1995 truck bombing of a federal building in Oklahoma City.
The intended detonator of the Times Square bomb, Kelly said, was a 16-ounce can filled with consumer-grade fireworks. The car also held two five-gallon containers of gasoline and three propane tanks, wired with two clocks, the commissioner said.
‘Crossroads of the World’
Kelly said officials have identified the owner of the vehicle and are trying to find and talk to the individual.
New York Mayor Michael Bloomberg, speaking to reporters last night in Times Square as a crowd of tourists watched, thanked the federal government for assistance from the FBI and Homeland Security. Relations between the city and federal authorities “have never been tighter,” said the mayor, founder and majority owner of Bloomberg News parent Bloomberg LP.
“This is the crossroads of the world and people will continue to come here,” Bloomberg said before escorting Wayne Rhatigan, the police officer who was first on the scene, and his wife to dinner a few blocks from where the incident occurred.
To contact the reporter on this story: Henry Goldman in New York City Hall at hgoldman@bloomberg.net
Last Updated: May 3, 2010 08:27 EDT
NYP: DOJ, FTC Talk About Antritrust Inquiry for Apple
Apple may be in the eye of regulatory storm
By JOSH KOSMAN
Last Updated: 4:33 AM, May 3, 2010
Posted: 1:36 AM, May 3, 2010
After years of being the little guy who used Washington to fend off Goliaths like Microsoft, Apple CEO Steve Jobs is about to learn what life is like when the shoe's on the other foot.
According to a person familiar with the matter, the Department of Justice and Federal Trade Commission are locked in negotiations over which of the watchdogs will begin an antitrust inquiry into Apple's new policy of requiring software developers who devise applications for devices such as the iPhone and iPad to use only Apple's programming tools.
Regulators, this person said, are days away from making a decision about which agency will launch the inquiry. It will focus on whether the policy, which took effect last month, kills competition by forcing programmers to choose between developing apps that can run only on Apple gizmos or come up with apps that are platform neutral, and can be used on a variety of operating systems, such as those from rivals Google, Microsoft and Research In Motion.
An inquiry doesn't necessarily mean action will be taken against Apple, which argues the rule is in place to ensure the quality of the apps it sells to customers. Typically, regulators initiate inquiries to determine whether a full-fledged investigation ought to be launched. If the inquiry escalates to an investigation, the agency handling the matter would issue Apple a subpoena seeking information about the policy.
Officials at both the Justice Department and FTC declined comment. Apple did not return calls seeking comment.
The threat of Apple being the subject of an investigation would be a remarkable turnabout for a company that has long seen itself as being outside the establishment, and one that has egged on antitrust officials to blunt the momentum of larger rivals.
However, thanks to the popularity of the iPod and iPhone, Apple is having a tough time continuing to play the role of David fighting against Goliath. Indeed, its market cap of $237.6 billion exceeds that of the world's largest retailer, Wal-Mart, whose market cap is $201.7 billion.
Apple put its might on full display last week when Jobs wrote a scathing explanation for why Adobe's Flash programming language was unfit to be used on Apple products. The day his missive was released, Adobe shares fell 2 percent.
In forcing computer programmers to choose developing an Apple-exclusive app over one that can be used on Apple and rival devices simultaneously, critics say Apple is hampering competition since the expense involved in creating an app will lead developers with limited budgets to focus on one format, not two. Generally, app developers are paid from a cut of the revenue generated when consumers buy the app.
Shaun Meredith, a former Apple employee who runs software development company InfoBridge, said that as a result of Apple's rule change, some of his customers are choosing to finance apps that are compatible with all of Apple's competitors instead of those that work only with the iPhone or iPad.
Indeed, though Apple has the most applications, it is a distant second in terms of operating system market share. According to comScore, RIM, which makes the BlackBerry, has a 42 percent share, while Apple's take is 25 percent. Microsoft has 15 percent and Google's Android software has 9 percent. j
osh.kosman@nypost.com
Read more: http://www.nypost.com/p/news/business/an_antitrust_app_buvCWcJdjFoLD5vBSkguGO#ixzz0ms9Sedpu
BL: Asia Stocks, Copper Drop on China Loan Curbs, Mining Tax; Euro Falls
By James Regan and Shani Raja
May 3 (Bloomberg) -- Stocks fell, led by mining companies, and copper declined after China ordered banks to set aside more funds as reserves and Australia boosted taxes on commodities producers. The euro weakened as the $146 billion rescue plan for Greece failed to calm concerns about sovereign debt in Europe.
The MSCI Asia Pacific excluding Japan Index slid 1.1 percent, with raw-materials and financials accounting for about half of the loss. BHP Billiton Ltd. dropped the most in three months and copper touched a seven-week low. The euro fell 0.5 percent to $1.3226 and Greek bonds advanced. The Dow Jones Euro Stoxx 600 was 0.2 percent lower as of 8:04 a.m. in London, while futures on the Standard & Poor’s 500 Index gained 0.4 percent.
“The Greek rescue package hasn’t curbed speculation that more countries will require similar bailouts,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “The new Australian resources tax is an unwelcome burden and Chinese demand may cool.”
While the bailout by the European Union and International Monetary Fund reduces the risk Greece will default, investors remain skittish after Standard & Poor’s downgraded the credit ratings of Portugal and Spain last week. China raised bank reserve ratios for the third time this year to cool speculative real estate purchases, while the Australian government imposed a 40 percent tax on resource companies’ profits.
The MSCI Asia Pacific excluding Japan Index declined to 422.94, set for its lowest close since March, and a measure of raw-materials shares dropped 2.4 percent. With the exception of Indonesia, benchmark stock gauges fell across regional markets that were open for trading, led by a 1.2 percent slide in Hong Kong’s Hang Seng Index. Markets are closed today in Japan, China, Thailand and the Philippines.
Higher Taxes
BHP, the world’s biggest mining company, slumped 3 percent to A$39.53 and Rio Tinto Ltd., the third-largest, tumbled 4.3 percent to A$69. Australia’s new tax will start from 2012 and raise A$12 billion ($11.1 billion) in its first two years. BHP estimates the tax rate on its Australian earnings will increase to 57 percent in 2013 from 43 percent now.
“The mining tax is disappointing because the goal posts are being moved out by a greedy government, which is never good for future investment,” said Prasad Patkar, who helps oversee about $1.9 billion at Platypus Asset Management in Sydney.
Lending Restrictions
Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, sank 1.6 percent to HK$5.68 and China Construction Bank Corp. fell 1.3 percent to HK$6.34. The reserve requirement for the nation’s biggest banks will increase by 50 basis points to 17 percent effective May 10, the People’s Bank of China said yesterday.
Most of Asia’s emerging-market currencies weakened and copper declined on concern monetary tightening will damp expansion in the world’s third-largest economy. China, including Hong Kong, is the No. 1 export destination for Korea, Taiwan and Malaysia and the world’s biggest copper user. The won slid 0.9 percent to 1,118.40 per dollar and copper for July delivery dropped as much as 1.5 percent to $3.3050 per pound.
The euro fell versus 12 of its 16 major counterparts before European leaders meet on May 7 to discuss the timeline of parliamentary approval for loans to Greece and as Germany plans to debate the plan on the same day. The yield on Greece’s benchmark two-year bonds dropped 169 basis points, or. 1.69 percentage points, to a one-week low of 11.88 percent.
“It is still too early to conclude that the worst is over for the single currency,” said Philip Wee, senior currency economist at DBS Group Holdings Ltd. in Singapore. “The EU nations now need their parliaments to approve the aid, and markets remain skeptical over Greece’s resolve to implement tough reforms.”
Rating Cuts
Greece’s three-year financial lifeline requires the nation to cut its budget deficit below the European Union’s limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The shortfall was 13.6 percent last year, the region’s second-biggest, after Ireland.
Standard & Poor’s last week cut Greece’s credit rating to junk, lowered Spain by one level to AA and cut Portugal by two steps to A-. The downgrades helped drive the yield premium on Portugal’s 10-year bonds over similar-maturity German notes to the highest level since at least 1997 and that for Spain’s debt to the most since March 2009.
“The euro will remain weak, and there’ll be more bailouts,” Marc Faber, publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong. “They’ll all default or they’ll all print money but the outcome won’t be pretty, that I assure you.”
To contact the reporter for this story: James Regan in Hong Kong Jregan19@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
Last Updated: May 3, 2010 03:08 EDT
BL: China May ‘Crash’ in Next 9 to 12 Months, Faber Says
By Shiyin Chen and Haslinda Amin
May 3 (Bloomberg) -- Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.
The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy,” Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen,” he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.
“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”
An index tracking Chinese stocks traded in Hong Kong dropped 1.8 percent today, the most in two weeks, after the central bank raised reserve requirements for the third time this year. The Shanghai Composite has slumped 12 percent this year, Asia’s worst performer, as policy makers seek to rein in a lending boom that’s spurred record gains in property prices. China’s markets are shut for a holiday today.
Copper touched a seven-week low and BHP Billiton Ltd., the world’s biggest mining company, fell the most since February on concern spending in the world’s third-largest economy will slow and after Australia boosted taxes on commodities producers. Rio Tinto Ltd., the third-largest, slid as much as 6 percent.
Chanos, Rogoff
Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.
China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.
The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7 percent across 70 cities in March from a year earlier, the most since data began in 2005.
The government has stopped short of raising interest rates to contain property prices. Within an hour of the central bank announcement on reserve ratios, Finance Minister Xie Xuren said that officials remained committed to expansionary policies to cement the nation’s recovery.
Stocks ‘Fully Priced’
The nation’s economy grew 11.9 percent in the first quarter, the fastest pace in almost three years. The government projects gross domestic product growth for the year of about 8 percent.
The clampdown on property speculation may prompt investors to turn to the nation’s stock market, Faber said. Still, shares are “fully priced” and Chinese investors may instead become “big buyers” of gold, he said.
BlackRock Inc. is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked. The BlackRock Emerging Markets Fund has widened its “underweight” position for China versus the MSCI Emerging Markets Index to about 7.5 percent from 4.6 percent at the end of March, the fund’s London-based co-manager Dan Tubbs said.
Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd, the nation’s three largest banks, are trading near their lowest valuations on record as rising profits are eclipsed by concern bad loans will increase.
Local Governments
Citigroup Inc. warned in March that in a “worst case scenario,” the non-performing loans of local-government investment vehicles, used to channel money to stimulus projects, could swell to 2.4 trillion yuan by 2011.
Housing prices nationwide may fall as much as 20 percent in the second half of the year on government measures to curb speculation, BNP Paribas said April 23. Under a stress test conducted by the Shanghai branch of the China Banking Regulatory Commission in February, local banks’ ratio of delinquent mortgages would triple should home prices in the country’s commercial center decline 10 percent.
Shanghai is projecting as many as 70 million visitors to the $44 billion World Expo, more than 10 times the number who traveled to the 2008 Beijing Olympics. More than 433,000 people visited the 5.3 square-kilometer (3.3 square-mile) park on its first weekend.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
Last Updated: May 3, 2010 01:42 EDT
(BHP, RTP): BHP, Rio Shares Drop on Australian Mine ‘Super’ Tax (Update3)
By Gemma Daley and Rebecca Keenan
May 3 (Bloomberg) -- BHP Billiton Ltd. and Rio Tinto Group, led declines in mining stocks in Sydney trading on concern Australia’s plans to impose the world’s heaviest tax regime on resource companies will cut billions from profits.
BHP and Rio fell the most in 3 months after Australia announced the so-called super tax yesterday. The 40 percent tax on resource profits will start from 2012 and raise A$12 billion ($11 billion) in its first two years. BHP, with 51 percent of its assets in Australia, said taxes on its operations there will increase to 57 percent in 2013 from 43 percent now.
“These proposals seriously threaten Australia’s competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians,” Marius Kloppers, chief executive officer of BHP, the world’s largest mining company, said in an e-mailed statement.
Australia, the world’s biggest iron ore and coal exporter, is now the most highly taxed mining nation, reducing its competitiveness, Citigroup Inc. said. The move may reduce BHP’s earnings by 17 percent and Rio’s by 21 percent in 2013, UBS AG said today in a report.
BHP traded 3 percent lower at A$39.53, its biggest decline since Feb. 5, at the 4:10 p.m. Sydney time close. Rio, the third-biggest, declined 4.3 percent to A$69.00., also its biggest fall since Feb. 5.
Credit Swaps
The cost of protecting Rio Tinto and BHP bonds against default surged to the highest in almost two months. Credit- default swaps on Rio Tinto jumped 7 basis points to 83 basis points as of 4:34 p.m. in Sydney, the highest since March 5, according to Nomura Holdings Inc. and CMA DataVision in New York. Swaps on BHP rose 4 basis points to 64 basis points, the highest since March 8, Nomura and CMA prices showed.
Fortescue Metals Group Ltd. slipped 4.2 percent and Newcrest Mining Ltd., the largest Australian gold mining company, fell 3.1 percent. Morgan Stanley said the tax may cut its valuation of Fortescue by 36 percent.
“It’s a worst-case scenario,” Citigroup mining analyst Craig Sainsbury said. Mining companies will be taxed about 58 cents for every dollar of earnings, compared with 35 cents before the new regime, he said. The resource profits tax is on top of corporate tax and companies payments of state royalties will be rebated.
Mergers and acquisitions may “dry up” because of the uncertainty created by the proposed changes, Sainsbury said. This is “bad news for mid-cap Aussie miners,” he said.
Peabody’s Bid
Peabody Energy Corp., which has provisionally offered A$4.1 billion for Macarthur Coal Ltd., is assessing the likely effect of the tax changes on the bid, spokeswoman Jennifer Morgans said by phone. Macarthur declined 9.5 percent to A$14.00, 13 percent less than Peabody’s offer of A$16 a share.
Peabody may reduce its bid because the proposal may affect its valuation of Macarthur, Macquarie Group Ltd. said today.
The government runs the risk of “taking away from Australia the strongest industry we have and the one that saved us from the global financial crisis,” Keith De Lacy, chairman of Brisbane-based Macarthur, the largest producer of pulverized coal, said yesterday. “Always 50 percent of our net profits went into development and exploration and so much of that is going now so obviously we’ll grow slower.”
Government Spending
Taxing resources companies to help fund government spending is designed to give Australia’s 20 million population a greater share in a China-fueled boom for iron ore and coal. Prime Minister Kevin Rudd, preparing for an election within a year, said the changes will help the government pay for hospitals, retirement benefits and company tax reductions.
“The royalties regime was outdated,” Treasurer Wayne Swan said in an interview with Bloomberg Television today. “It certainly did not extract for the Australian people a fair share of those very big profits that are coming through on the back of the mining boom.”
Resources companies make up 9 percent of the economy and last week warned that a 40 percent levy and double taxation with payments to states would threaten $108 billion of planned investment. The government yesterday said it will compensate companies for the state royalties they have paid.
“It is not the right solution and will ensure Australian commodity exports become less competitive globally and investment in Australia is reduced,” Charlie Aitken, director of Southern Cross Equities Ltd., said today in a report.
‘Curtail Investment’
The changes to taxation will “erode Australia’s competitiveness, severely curtail investment and limit jobs growth”, Rio Tinto, which has 35 percent of its assets in Australia and New Zealand, said in a statement. Xstrata Plc, with coal, copper, zinc and nickel mines in the country, said the tax may curb investment.
Xstrata, which has 33 percent of its assets in Australia and New Zealand according to data compiled by Bloomberg, declined 4.1 percent in London on April 30. Glencore International AG, the world’s largest commodity trader, is studying a merger with Xstrata as a way to restructure its ownership and improve access to capital, according to two people familiar with the matter.
“Australia will have the highest taxed mining industry in the world,” Minerals Council of Australia Chief Executive Officer Mitch Hooke said in an e-mailed statement. “Australia’s hard-earned reputation as a stable investment environment will be dramatically undermined.”
Slower Growth
“Some will undoubtedly be paying some more tax,” Swan said. “But what Australia needs as we go forward is an efficient tax. We need one which gives to the Australian people the fair value they deserve for their resources and also recognizes the very substantial investments that are made in mining ventures.”
Chinese and Indian demand for resources from Australia helped the A$1.2 trillion economy skirt recession during the financial crisis.
Rudd’s Labor government, which has led the opposition Liberal-National coalition in opinion polls, commissioned the tax review two years ago.
“It is like standing on quicksand, relying on a resources rent tax,” Opposition Treasurer Joe Hockey said yesterday. “This is a cowardly response to a very substantial report.”
The government will use the resource tax revenue to create a A$5.6 billion infrastructure fund, cut company taxes to 28 percent from 30 percent and boost retirement funds, now worth A$1.3 trillion. It will also give a tax concession for resource exploration, including geothermal power, affecting 4,300 companies, Swan said yesterday.
Small Businesses
The corporate tax rate, reduced to 30 percent from 36 percent by the previous Liberal-National government, will be cut by mid-2014, with 720,000 small businesses getting a one-year head-start. The government may decrease the rate further.
The government will also increase the amount companies have to pay into people’s retirement funds to 12 percent from 9 percent of their gross salary in mid-2019. Australia will make it more attractive for some 8.4 million workers to increase their own contributions to the pool, and the changes will add A$85 billion to the A$1.34 trillion funds, Swan said.
In total, the government said its tax policy changes will add 0.7 percent a year to the economy.
To contact the reporters on this story: Gemma Daley in Canberra at gdaley@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net
Last Updated: May 3, 2010 04:02 EDT
BL: Glencore Said to Be Considering Merger With Xstrata (Update1)
By Brett Foley and Jacqueline Simmons
May 3 (Bloomberg) -- Glencore International AG, the world’s largest commodity trader, is studying a merger with Xstrata Plc as a way to restructure its ownership and improve access to capital, according to two people familiar with the matter.
Glencore, which already owns 34 percent of Xstrata, is also considering an initial public offering, said the people who declined to be identified because the talks are confidential and no decision has been reached. No agreement is imminent, the people said. Marc Ocskay, a spokesman for Glencore, and Xstrata spokeswoman Claire Divver both declined to comment.
A deal would help Baar, Switzerland-based Glencore to fund its activities and ease liquidity constraints, while providing some of the closely held group’s partners with the ability to exit their stakes in the company. Glencore, led by Chief Executive Officer Ivan Glasenberg, had its credit rating cut by Standard & Poor’s to the lowest investment grade in December 2008 after commodity prices tumbled.
“There is growing pressure on Glencore partners, both from within the company and outside, to lay out the plan for the restructure and how they propose to provide the greater liquidity which is needed,” said John Meyer, head of natural resources at investment bank Fairfax I.S. Plc in London, who has a “buy” recommendation on Xstrata shares. “Backing into Xstrata is one very clear way of providing that liquidity and also providing an exit for some of those partners.”
Xstrata shares gained 6.2 percent to 19 Swiss francs at 9:22 a.m. in Zurich trading.
‘Qualifying Events’
Glencore, which trades metals and oil and controls mines and smelters, in December sold as much as $2.2 billion of bonds to investors including BlackRock Inc. and Government of Singapore Investment Corp. The bonds convert upon an IPO or “other pre-determined qualifying events.” Glencore said.
The trader is facing pressure on how it will deliver equity to investors, one of the people familiar with the matter said. The terms of the bonds gave Glencore a pre-conversion equity value of $35 billion, the company said in December.
Advisers are working on a two-stage proposal in which Glencore would merge with Xstrata in a “reverse takeover” and then reduce its stake in the enlarged group to below 40 percent, the Sunday Telegraph said yesterday, without saying where it got the information. Xstrata management would retain control of the combined company, the newspaper said.
Rival to BHP
Xstrata, led by Chief Executive Officer Mick Davis, is the largest producer of coal burned by power stations and fourth- largest producer of copper and nickel. For the Zug, Switzerland- based company, which has a market value of 31.9 billion pounds ($49 billion), a merger would create a mining group rivaling BHP Billiton Ltd., the world’s largest, with operations from Peru to Kazakhstan.
Davis expanded Xstrata through more than $35 billion of acquisitions since it sold shares in an IPO in London in 2002.
Glencore’s senior staff agreed to defer their first termination payment in the event of their departure until at least 2012 in an attempt to strengthen the company’s finances, the trader told bondholders in March 2009,
Commodity prices have recovered since then. Copper rebounded 64 percent on the London Metal Exchange in the past year, aluminum gained 46 percent and nickel more than doubled.
‘Big Question’
“The big question is whether this transaction calls the top of the commodities market,” Meyer said. “It may be several years away, but the Glencore partners may be preparing their exit now in the event the top of the market comes.”
BHP, which is based in Melbourne, had a market value of A$210.7 billion ($194 billion) at the close of trading on April 30. It had sales in the year to June 30, 2009 of $50.2 billion, according to data compiled by Bloomberg. Glencore’s sales in 2009 were $106.4 billion, the company said March 10.
Morgan Stanley and Citigroup Inc. are working with Glencore, while Xstrata is advised by Deutsche Bank AG and JPMorgan Cazenove Ltd.
As well as trading commodities, Glencore owns 8.7 percent of Moscow-based United Co. Rusal, the world’s largest aluminum producer, controls zinc mines in Peru and Kazakhstan, coal mines in South Africa, and smelts copper in the Philippines.
To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net
Last Updated: May 3, 2010 03:23 EDT
BL: Euro Short Bets at Record as Traders Look Past Greece (Update3)
By Liz Capo McCormick
May 3 (Bloomberg) -- Futures traders are more bearish than ever on the euro as Greece’s fiscal crisis spreads, suggesting further declines ahead for Europe’s shared currency.
Hedge funds and other large speculators raised net wagers on a euro drop by 25 percent to 89,013 contracts in the week ended April 27, Commodity Futures Trading Commission data shows. The euro weakened to $1.3231 at 6:56 a.m. in New York after falling to a one-year low of $1.3115 on April 28 as Standard & Poor’s lowered Greece’s debt to junk and cut Portugal and Spain.
While Greece accepted a bailout from the European Union and International Monetary Fund valued at 110 billion euros ($146 billion) to prevent default, futures-market bets show traders expect any gains to be short-lived. The euro has depreciated 7.6 percent against the dollar this year, including last week’s 0.7 percent loss, as concern the sovereign debt crisis will slow Europe’s economy reduced confidence in a region whose $13.6 trillion gross domestic product is exceeded only by the U.S.
“Greece is a Lehman Brothers for the sovereign world,” Robin Marshall, who helps oversee $20 billion as director of fixed income at Smith & Williamson Asset Management in London, said yesterday. “A 100 billion euro package is a big amount and it might help to buy Greece some breathing space, but as an investor I’m still cautious. Policy makers can promise what they like, I still have doubts that the Greeks will have the stomach to take these tough measures.”
Extra Yield
The extra yield investors demand to hold Greek debt over German bunds surged to 826 basis points on April 28 after Standard & Poor’s cut its rating to junk. It shrank to 594 points April 30 as signs of an agreement emerged. The Portuguese spread jumped to the most since at least 1997 last week and the premium on Spain climbed to the highest since March 2009.
“I would expect a relief rally concentrated at the short end of the curve as the risk of a near-term debt restructuring will be substantially reduced,” said Marco Annunziata, chief economist at UniCredit Group in London. “Beyond the immediate impact, I still believe Portugal and Spain will need to put on a table stronger measures” to “avoid coming under renewed pressure in the coming weeks and months.”
Strategists have lowered euro targets on speculation the region’s worsening government finances will keep the European Central Bank from raising interest rates this year, while futures traders bet the Federal Reserve will increase borrowing costs, making dollar-denominated assets more appealing.
‘Main Risk’
“The main risk flowing from the sovereign stress is that European banks will curtail credit to each other and to private borrowers in a way similar to the post-Lehman bankruptcy fallout,” Bruce Kasman, the chief economist at New York-based JPMorgan Chase & Co., wrote in an April 30 report.
The budget measures Greece agreed to implement are worth 30 billion euros, or 13 percent of gross domestic product, and include wage cuts and a three-year freeze on pensions, Finance Minister George Papaconstantinou said in Athens. Greece’s main sales tax rate will rise to 23 percent from 21 percent.
Policy makers are trying to prevent a Greek default as its fiscal crisis shows signs of spreading through the euro region. The agreement, following 10 days of talks and protests, comes after a surge in Greek borrowing costs left the government struggling to finance its debt and investors speculating that Portugal and Spain may suffer the same fate.
‘Color Us Skeptical’
“It is difficult to see how the European/IMF package is scalable or how it really gets ahead of the curve of expectations or shows any appreciation for the fact that underlying the debt/deficit issues is really a competitive issue,” currency strategists at Brothers Harriman & Co. in New York, wrote in a note to clients on April 30. “There is a small reprieve, but color us skeptical about real closure.
The euro advanced in the final three days of last week on signs Greece may reach an agreement on budget cuts needed to win financial assistance.
Greece’s Prime Minister George Papandreou said April 30 that the nation’s survival was at stake in talks to win an EU-led bailout including budget cuts denounced by unions as “savage.” Signs of agreement on an accord ended a bond-market sell-off across Europe last week.
‘Grind Lower’
The shift in futures bets, topping the previous high set on April 2, may indicate the euro gets a short-term reprieve as traders trim bearish positions.
“The euro will grind lower, unless we get really major additional bad news given that much is already priced in,” Geoffrey Yu, a strategist in London at UBS AG, said in an interview April 26. “It is going to be three steps down, two steps up for the euro for now but net, net in six months time we are going to see it lower.”
The euro’s one-month option risk-reversal rate increased to minus 1.7000 today from minus 1.9375 percent on April 28, the lowest level since Nov. 4, 2008, signaling a relative decrease in demand for puts, which grant traders the right to sell the currency.
The bailout of Greece will allow the nation to borrow at lower rates than it can get in the bond market, which may improve investor sentiment, according to Thomas Sowanick, chief investment officer for Omnivest Group LLC, which manages $1 billion in Princeton, New Jersey.
‘Not Negative’
“I am not negative the euro, even though I understand why it has been doing what it’s doing,” Sowanick said. “We need to be very respectful that the U.S. is not in too dissimilar of a position as far as having high levels of debt. The euro should find support.”
The median forecast of 32 strategists compiled by Bloomberg is for the currency to end the year at $1.31. In February, the estimate was $1.43. The range spans from $1.22 to $1.55.
ECB policy makers will keep their target rate unchanged at 1 percent through at least the end of this year, according to the median estimate of economists surveyed by Bloomberg News. The Fed’s target rate for overnight loans between banks, which has held in a range of zero to 0.25 percent since December 2008, may rise to 0.75 percent, a separate survey shows.
U.S. GDP grew at a 3.2 percent annual rate in the first quarter as household spending climbed at the fastest pace in three years, figures from the Commerce Department in Washington showed April 3. America’s economy will likely expand 3 percent this year, compared with 1 percent for the EU, according to the median estimate of economists in separate surveys by Bloomberg.
Large speculative euro currency derivative positions were on average net long 17,349 contracts since the euro was formed in 1999, reaching a record 119,538 in May 2007, just before the collapse of the subprime mortgage market triggered a global financial crisis.
The trading volume of foreign-exchange products rose on April 28 to a record for Chicago-based CME Group Inc., the world’s largest futures market. Turnover in euro currency futures and options combined was an all-time high of 694,369 contracts, representing a notional value of $114.5 billion. That topped the previous high of 594,648 set on April 27.
To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net
Last Updated: May 3, 2010 07:00 EDT
>>CASINOs running PM: LVS +2.05%, MGM +1.70%, WYNN +0.86%
BL: Euro, Stocks Fall on Greece Bailout, China Curbs; Futures Gain
By Justin Carrigan
May 3 (Bloomberg) -- The euro weakened, snapping three days of gains, and European shares dropped as the rescue plan for Greece failed to calm concern about the region’s sovereign debt. U.S. stock futures rose.
The euro declined against 13 of its 16 most-traded counterparts as of 7:16 a.m. in New York, giving up all the gains from the end of last week. The extra yield investors demand to hold Greek 10-year notes instead of benchmark German bunds narrowed 47 basis points, while Spain and Portugal’s were little changed. The Stoxx Europe 600 Index fell 0.3 percent. Futures on the Standard & Poor’s 500 Index advanced 0.5 percent before a U.S. report that may show manufacturing expanded at the fastest pace since 2004.
“The fear of contagion is still present in the market,” said Glenn Marci, a fixed-income strategist in Frankfurt at DZ Bank AG, Germany’s biggest cooperative lender. “People have been skeptical about the euro zone and it will take weeks for that to unwind.”
Investors are concerned the $146 billion Greek bailout by the European Union and International Monetary Fund will fail to stem market contagion in Portugal and Spain, even if it succeeds in preventing Prime Minister George Papandreou’s government from defaulting.
Euro Weakens
The euro fell 0.5 percent versus the dollar, erasing a similar gain on April 30 and bringing its decline this year to 7.6 percent. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, rose for the first time in three days, adding 0.4 percent.
Greece’s two-year note slid 224 basis points to 11.32 percent. That’s still more than double the level of April 1. The spread between the country’s 10-year bonds and similar-maturity German notes narrowed to 547 basis points from 595 basis points.
The Portuguese two-year yield dropped 6 basis points and the spread between the 10-year bonds and German notes fell to 209 basis points from 212 basis points. Spain’s yield rose to 2.07 percent and the gap with bunds remained at 101 basis points.
The MSCI World Index of 23 developed nations’ stocks fell 0.3 percent. TGS Nopec Geophysical Co. ASA sank 2.2 percent after saying the oil spill in the Gulf of Mexico is located within its survey boundary. TNT NA slipped 1.2 percent after forecasting lower mail volumes.
Greek Stocks
Greece’s ASE Index declined 1.3 percent. National Bank of Greece SA, the nation’s biggest lender, gained 0.4 percent.
The MSCI Asia Pacific excluding Japan Index slipped 1.4 percent. BHP Billiton Ltd., the world’s biggest mining company, sank 3 percent in Sydney. Stock exchanges in London, Tokyo and China were closed for holidays.
Industrial & Commercial Bank of China Ltd., the nation’s biggest bank by market value, fell 1.2 percent in Hong Kong after the People’s Bank of China said at the weekend it will raise the reserve requirement by 50 basis points effective May 10.
The MSCI Emerging Markets Index declined 1 percent, snapping two days of gains, as financial shares dropped. South Korea’s Shinhan Financial Group Co. slid 1.2 percent as the Kospi Index dropped 1.2 percent. The won weakened against all 16 most-traded currencies.
U.S. Futures
The gain in U.S. futures indicated the S&P 500 may rally after tumbling 1.7 percent on April 30, more than the 0.7 percent drop in the Stoxx 600. Goldman Sachs Group Inc. rallied 1.4 percent in early trading in New York after billionaire Warren Buffett said the bank shouldn’t be blamed for losses sustained by clients who invested in mortgage bets.
Manufacturing probably expanded in April at the fastest pace since 2004, propelling a U.S. recovery that’s getting a bigger lift from consumer spending, economists said before a report from the Institute for Supply Management due at 10 a.m. in New York. A separate report from the Commerce Department may show personal spending rose in March by the most in five months, according to economists surveyed by Bloomberg News.
Mergers boosted U.S. stocks as UAL Corp. and Continental Airlines Inc. agreed to combine and Buffett said he is looking for new deals.
Copper fell to a seven-week low in New York, snapping three days of gains, and crude oil slipped after China raised bank reserve ratios for the third time this year to cool speculative real-estate purchases, damping demand for raw materials. Copper for July delivery lost 3.2 cents to $3.3215 a pound on the Comex division of the New York Mercantile Exchange. June crude oil rose 0.5 percent to $86.55 a barrel on the Nymex.
Credit Downgrades
Greece’s three-year financial lifeline requires the nation to cut its budget deficit to below the EU limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. The deficit was 13.6 percent last year, the region’s second-biggest, after Ireland.
Standard & Poor’s last week cut Greece’s credit rating to the junk level of BB+, lowered Spain by one level to AA and cut Portugal by two steps to A-. The downgrades last week helped drive the yield premium on Portugal’s 10-year bonds over similar-maturity German notes to the highest level since at least 1997 and that for Spain’s debt to the most since March 2009.
To contact the reporter for this story: Justin Carrigan in London at Jcarrigan@bloomberg.net
Last Updated: May 3, 2010 07:25 EDT
BL: Shorting Profits Fade as Bets Against Banks Backfire (Update1)
By Lynn Thomasson
May 3 (Bloomberg) -- The biggest U.S. equity rally in seven decades is wiping out profits for stock-market bears who have yet to capitulate on bets against banks, retailers and casinos.
Hedge funds that profit from falling shares have seen 34 percent of their value evaporate since February 2009, according to Chicago-based Hedge Fund Research Inc. Zions Bancorp., Sears Holdings Corp. and Wynn Resorts Ltd., among the favorites of so- called short-sellers, caused the biggest losses as their shares more than tripled.
“Certainly there are things that we look at and, in retrospect, wish we had not been short,” said Doug Burtnick, who runs a long-short fund for Aberdeen, Scotland-based Aberdeen Asset Management Plc, which oversees about $240 billion. “There were a handful of companies that looked in early 2009 like they could very well be out of business, and those were also the ones where the stock prices rebounded very dramatically.”
The combination of record-low interest rates, first-quarter economic growth of 3.2 percent and analyst estimates for the fastest profit gains in 14 years erased 94 percent of the HFRI EH Short Bias Index’s advance from June 2007 to February 2009. The better news for bulls is that the percentage of New York Stock Exchange shares that remain shorted is higher than any time before 2008, providing more grist for gains should speculators be forced to retreat.
‘Face Ripped Off’
The 10 stocks with the most bearish wagers in April 2009 rallied an average 22 percent this year, data compiled by Bloomberg show.
“If you were short this market, you’ve had your face ripped off,” said Dan Veru, who helps oversee $3.1 billion as co-chief investment officer at Palisade Capital Management in Fort Lee, New Jersey. “Some investors clearly held onto their shorts too long.”
HFR data show funds focusing on both bullish and bearish equity speculation have gained 29 percent on average since March 2009, trailing the Standard & Poor’s 500 Index’s 47 percent surge. Long-short strategies made up 32 percent of hedge fund assets in the fourth quarter, an April 8 report from the research firm showed.
Those funds hold up better during retreats, helping them beat the market over time, said Charles Gradante, co-founder of advisory firm Hennessee Group LLC in New York. The HFR measure of long-short funds lost 29 percent in the last bear market, compared with the S&P 500’s 49 percent slump, monthly data show.
Downside Protection
“The market is due for a correction, and when the correction takes place, hedge funds will end up outperforming,” Gradante said. “The worst market for a hedge fund is a market that’s going straight up, and that’s what’s happening now.”
The S&P 500 remains 24 percent below its record 1,565.15 from October 2007. The gauge fell 2.5 percent to 1,186.69 last week, the most since January, as credit downgrades fueled concern Greece and Portugal will default. June futures on the index gained 0.3 percent to 1,186.60 as of 6:19 a.m. New York time.
Greece outlawed short selling on the Athens Stock Exchange until June 28 after the benchmark stock index fell as much as 18 percent this month. When the U.S. Securities and Exchange Commission banned those sales in almost 1,000 financial stocks from Sept. 19 to Oct. 8, 2008, banks, brokers and insurers in the S&P 500 fell 31 percent.
About 3.7 percent of NYSE shares have been borrowed and sold by traders hoping to profit by buying the stock back at a lower price, data from the exchange shows. Short interest fell 24 percent from the July 2008 peak as equities gained and investors repurchased shares.
“I haven’t really seen anyone looking to put on new short positions,” said William Byrne, director of trading for Conifer Securities LLC, which executes orders for more than 100 hedge funds in San Francisco. “You’d think there’d have to be some air to come out, but there’s still an underlying bid to the market.”
Bailing Out
Customers withdrew $177.5 million from funds that specialize in short strategies since March 2009, according to Morningstar Inc. They added $582.5 million during the bear market, data from the Chicago-based research firm show.
Investors speculated most against financial firms, retailers and restaurant operators, betting the highest unemployment rate in 26 years would hold down profits. More than 6 percent of shares in those S&P 500 industries were sold short, according to data compiled by Bloomberg.
That backfired as the economy recovered and the shares more than tripled. Gross domestic product may expand 3 percent this year and 3 percent in 2011, the median estimate of 64 economists surveyed by Bloomberg show.
‘Upside Down’
“It’s been tough because things are shorted upside down -- the worse the company is, the more it’s gone up,” said Harry Rady, who oversees $270 million and runs a long-short fund as chief executive officer of Rady Asset Management LLC in La Jolla, California. “I wouldn’t want to be a pure short seller.” Zions was the S&P 500’s 11th most shorted stock in April 2009 after losses in construction and commercial loans drove the shares down 93 percent in two years. The Salt Lake City-based lender reduced credit losses, spurring a 124 percent rally this year, the biggest in the index.
Bearish bets account for 19 percent of the bank’s shares available for trading, making it the seventh-most-shorted stock in the S&P 500, according to exchange data from April 15. Zions, which operates in 10 western U.S. states, posted its sixth straight quarterly loss on April 19. Analysts estimate it won’t be profitable until 2011.
Loaded for Bear
“The administration, the Congress and the Fed did everything they could to rescue the economy and helped the most the worst companies,” said John Burbank III, the chief investment officer of Passport Capital, a $2.8 billion hedge- fund firm in San Francisco. “It doesn’t make for a positive market” for short sellers, he said.
Investors are sticking to bearish bets on Sears, the largest U.S. department store operator, after the stock more than quadrupled since its November 2008 low. About 20 percent of shares in the Hoffman Estates, Illinois-based company were sold short on April 15, the fifth-most in the S&P 500. That compares with 27 percent a year ago, data compiled by Bloomberg show.
U.S. retail sales increased 1.6 percent in March, the most in four months, the Commerce Department in Washington said on April 14. A group of retailers, auto companies and hotel operators in the S&P 500 has beaten first-quarter profit estimates by an average 20 percent, the second-biggest margin among the 10 main industries.
Blackjack
Wynn was the eighth-most-shorted stock in the S&P 500 in April 2009 after plunging 91 percent during the credit crisis, according to data compiled by Bloomberg. The Las Vegas-based casino company founded by Steve Wynn has risen 473 percent since then, reducing the proportion of bearish bets to 9.9 percent of those available to trading. That cut its ranking to 50th.
“Big short interest is always a bullish indicator,” said Barton Biggs, who helps oversee $1.4 billion at New York-based hedge fund Traxis Partners LP and said he was buying stocks when the market bottomed. “There’s been bursts of short covering in the junk. By definition, in a big rally, short sellers are going to lose money. It’s really not much more complicated than that.”
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
Last Updated: May 3, 2010 06:36 EDT
BL: Biggest Sugar Buyer to Turn Exporter as Supply Gains (Update1)
By Prabhudatta Mishra and Pratik Parija
May 3 (Bloomberg) -- India, the biggest sugar buyer, may become a net exporter next year as output is likely to exceed demand for the first time in three years, pressuring prices.
“Forget about imports, we will be in a position to export next year,” Farm Minister Sharad Pawar said in an interview today. Production “may exceed” annual demand of about 23 million metric tons, he said.
India became a net buyer of the commodity since 2008 after sugar cane growers switched to planting wheat and oilseeds, and last year’s drought ravaged crops, pushing prices in New York to a 29-year high in February. Increased production from the Asian country may weigh on prices that have plunged 43 percent this year on bets that rising supplies will erase a global deficit.
Raw sugar for July delivery rose 0.4 percent to 15.21 cents a pound in after-hours trading on ICE Futures U.S. Futures lost 8.7 percent in April for a third straight monthly decline, the longest slump since 2008, amid bets global output will rebound.
Global sugar production may exceed demand by 6 million tons in 2010-11, the first surplus in three years, Sucres et Denrees SA said April 30. The International Sugar Organization forecasts an 8 million-ton shortfall in the 12 months ending September.
Cane plantings in the nation’s main growing states of Uttar Pradesh, Maharashtra and Karnataka have been “very good,” said Pawar at his office in New Delhi.
India, the biggest producer after Brazil, may halt imports as output this year may top an industry forecast, Vivek Saraogi, managing director at Balrampur Chini Mills Ltd., the nation’s second-biggest producer, told analysts today.
Imports Double
Mills and traders have imported about 3.5 million tons in the season that started Oct. 1, more than twice the amount from a year ago, Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd., India’s top refiner, said in an interview April 29. Purchases in the next six months may not exceed 1 million tons as traders hold off imports amid falling local prices, he said.
Prices in Mumbai, India’s biggest wholesale market for the commodity, have fallen 29 percent from a record 4,050 rupees per 100 kilograms on Jan. 8 after the government extended duty-free imports of white sugar until Dec. 31.
The government will consider reinstating the tax only after assessing cane production, Pawar said today.
To contact the reporters on this story: Prabhudatta Mishra in Mumbai at pmishra8@bloomberg.netPratik Parija in New Delhi at pparija@bloomberg.net
Last Updated: May 3, 2010 07:54 EDT
BL: UAL, Continental Unite ‘Fried-Chicken Era’ Carriers (Update1)
By Mary Jane Credeur and Mary Schlangenstein
May 3 (Bloomberg) -- The United Airlines and Continental Airlines Inc. merger reconnects corporate bloodlines that date to aviation’s “fried-chicken era” in the 1920s and 1930s.
Walter T. Varney, an entrepreneur, former World War I pilot and daredevil who once flew a biplane so low a motorcyclist could snatch a rope ladder, started the airlines’ predecessors eight years apart.
The companies went on to outlast contemporaries such as Trans World Airlines, Eastern Airlines and Pan American World Airways, and will be combined in an all-stock deal. Based on April 30 closing prices, the tie-up announced today values Continental at about $3.17 billion.
“They’re essentially merging back into themselves and bringing it full circle,” said Henry M. Holden, an aviation historian and author in Newton, New Jersey. “It’s a true coming together again for companies separated for almost a century.”
Five years after Varney began flying air mail in 1926, he hooked up with a precursor to Boeing Co. to form United, now a unit of UAL Corp. In 1934, a 530-mile (853-kilometer) flight from Colorado to El Paso, Texas, marked the debut of Varney Speed Lines, the airline that would become Continental.
Chips, Tomato
“This was aviation’s fried-chicken era,” according to “The Age of Flight,” a 2002 history of United. The poultry was an entree, accompanied by potato chips and a tomato, served on airliners that included Ford Motor Co.’s Tri-Motors.
Airlines were rushing at the time to take advantage of the speed and improving safety of air travel to build their fledgling industry. United sold Boeing, now the biggest U.S. planemaker, and in 1936 opened the first kitchen dedicated to preparing on-board meals.
Varney wasn’t around for many of those changes. He had left United by the time he founded Varney Speed Lines. He was gone from his eponymous carrier when new part-owner Bob Six adopted the Continental name in 1937, and died in 1967 at age 78.
“Varney was a serial entrepreneur with serial bad luck, and he was a millionaire after the Boeing sale, but ended up as a truck driver,” said Randy Johnson, a co-author of the 2002 book about United and a former editor of Hemispheres, the airline’s in-flight magazine. “So much of modern aviation traces to Varney, but he’s barely a footnote in history because the Varney brand didn’t survive.”
To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net.
Last Updated: May 3, 2010 06:49 EDT
U.S. Stock-Index Futures Advance Before Manufacturing Report
By Julie Cruz
May 3 (Bloomberg) -- U.S. stock-index futures rose, indicating the Standard & Poor’s 500 Index may rebound from the biggest weekly drop since January, before a report that will probably show manufacturing expanded at the fastest pace in almost six years.
Goldman Sachs Group Inc. rallied 1.7 percent in early trading in New York after billionaire Warren Buffett said the bank shouldn’t be blamed for losses sustained by clients who invested in mortgage bets. Pozen Inc. surged as the drugmaker won U.S. clearance to sell an arthritis drug that combines a painkiller with an ulcer medication. Mergers boosted stocks as United Airlines parent UAL Corp. and Continental Airlines Inc. agreed to combine and Buffett said he is looking for new deals.
Futures on the Standard & Poor’s 500 Index expiring in June rose 0.4 percent to 1,188.5 as of 7:55 a.m. in New York. Dow Jones Industrial Average futures gained 0.3 percent to 10,993 and Nasdaq-100 Index futures advanced 0.4 percent to 2,006.50.
“The manufacturing data this afternoon will show that the improvement of the U.S. economy is in good shape,” said Andreas Lipkow, an equity trader at MWB Fairtrade Wertpapierhandelsbank AG in Frankfurt. “Investors see that the U.S. is going towards a very good direction right now and they make the decision to invest more in the region as there is a currency risk in Europe.”
U.S. stocks fell on April 30, breaking the Dow Jones Industrial Average’s longest winning streak since 2004, after credit downgrades for Greece, Portugal and Spain spurred concern that global economic growth will slow and prosecutors considered filing fraud charges against Goldman Sachs Group Inc. European stocks fell today on concern a 110 billion-euro ($146 billion) rescue package for Greece will fail to contain the region’s debt crisis.
Manufacturing Growth
The Institute for Supply Management’s factory index rose to 60 last month, the highest level since July 2004, from 59.6, according to the median estimate in a Bloomberg News survey of 62 economists. Readings greater than 50 signal expansion. Another report may show personal spending rose in March by the most in five months.
About 83 percent of S&P 500 companies that have reported since April 12 have topped the average analyst estimate for net income, according to data compiled by Bloomberg.
Mortgage Bets
Goldman Sachs, Wall Street’s most profitable firm, rose 1.7 percent to $147.74 in early New York trading. Buffett, who invested $5 billion in the bank in 2008, praised Goldman Sachs Chief Executive Officer Lloyd Blankfein and said the company shouldn’t be blamed for losses suffered by clients who invested in mortgage bets at the center of a fraud lawsuit filed by regulators.
“He’s done a great job running that firm,” Buffett said in a Bloomberg Television interview before the annual shareholders meeting of his Berkshire Hathaway Inc. on May 1. “My choice would be to have Lloyd running it this year, next year and 10 years from now.”
Goldman Sachs is among the counterparties on derivative trades that contributed to a first-quarter loss at Buffett’s Berkshire Hathaway Inc., he said yesterday at a press conference in Omaha, Nebraska. Berkshire Hathaway shares were little changed in German trading.
Pozen surged 18 percent to $12.80 in early trading. The Food and Drug Administration approved the medicine, called Vimovo, for use in arthritis patients who are at risk of developing gastric ulcers, the agency said today in an e-mail.
Ulcer Medicine
The drug, developed with Pozen’s technology, combines the over-the-counter pain reliever naproxen with esomeprazole, the main ingredient in London-based AstraZeneca’s Nexium ulcer medicine. Vimovo may generate $500 million in sales in 2014, Gbola Amusa, an analyst at UBS AG in London, said yesterday in an e-mail.
UAL rose 2.4 percent to $22.11 in Germany, while Continental Airlines gained 1 percent to $22.58. The airlines said they see net annual synergies from their merger of $1 billion to $1.2 billion by 2013, “including between $800 million and $900 million of incremental annual revenues.”
Chevron Corp. rose 0.7 percent to 82.04 in German trading. Brent crude for June settlement rose 30 cents to $87.74 a barrel on the ICE Futures Europe exchange in London, after rising as much as 34 cents to $87.78 a barrel, the highest price since October 2008.
To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net;
Last Updated: May 3, 2010 07:57 EDT
AP: Moody's downgrades ratings of 9 Greek banks
http://www.ajc.com/business/moodys-downgrades-ratings-of-508203.html
The Associated Press
LONDON — Moody's Investor Services has downgraded its ratings on nine Greek banks as the country's debt crisis takes a toll on their finances.
In a note Friday, Moody's lowered the banks' deposit, debt and financial strength ratings and said the debt and deposit ratines may be downgraded again — these would come alongside Moody's ongoing review of the country's sovereign debt rating.
On Thursday, the agency confirmed that it is awaiting to see details of an EU-IMF rescue package before a possible revision of Greece's government credit rating, but that a "multi-notch downgrade" remained likely.
The banks downgraded include the National Bank of Greece, Alpha Bank and Emporiki Bank.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
ATHENS, Greece (AP) — Facing a dire choice of additional pain or bankruptcy, Greece on Friday heralded drastic new belt-tightening measures to win vital rescue cash from its European partners and the International Monetary Fund to avoid a disastrous debt default.
Prime Minister George Papandreou said cuts are inevitable if the country is to keep afloat.
"The measures we must take, which are economic measures, are necessary for the protection of our country. For our survival, for our future. So we can stand firmly on our feet," Papandreou said in Parliament.
Greece, the EU and the IMF are expected to complete talks this weekend over what extra steps Athens must take as part of the rescue, which will provide €45 billion in loans this year and up to a reported €120 billion over three years.
Papandreou is widely expected to detail the cuts on Sunday, the day after a mass protest rally planned by the country's biggest labor unions to mark May Day. Officials briefed on the negotiations say the measures will include a further slash in civil service pay, as well as state and private sector pensions, and a new hike in indirect taxes, including a 2 percentage point increase in sales tax.
"It is a patriotic duty to undertake this, with whatever political cost, which is tiny faced with the national cost of inaction ... and indecision," Papandreou said.
Once an agreement is in place, Germany — which, as the largest EU contributor, has insisted on strict conditions for releasing the aid — is expected to quickly push the issue through parliament so funds can be approved before Greece faces a May 19 debt payment date.
German Finance Ministry spokesman Michael Offer said Friday Athens was expected to present the austerity plan by Sunday. He said once the plan is distributed, Germany will review it and then consult with eurozone finance ministers in a conference call expected on the same day.
Germany has stressed it needs to review the Greek plan before it can move ahead with legislation deemed necessary to free up the €8.4 ($11.1) billion loan it is pitching in to help bail out Greece.
Signs that the help will soon be approved have calmed markets, which previously pushed Greece's cost of borrowing to untenably high levels high as EU and German officials showed little urgency in addressing the problem.
On Friday the interest rate gap, or spread, between Greek 10-year bonds and their benchmark German equivalent narrowed to 6.20 percentage points, from a staggering 10 points Wednesday.
Standard & Poor's ratings agency downgraded Greek bonds to junk status this week, and another agency, Moody's, warned a "multi-notch downgrade" remains likely.
Citigroup chief economist Willem Buiter said the rescue cash would give Greece breathing space, but an eventual debt restructuring — a lengthening of repayment deadlines and cuts in the capital to be returned — appeared inevitable.
"In my view, sooner or later there will have to be a restructuring of the public debt," he told a conference in Athens. "It won't happen here anytime soon now thanks to the three years of financial support that have been added ... so the immediacy of the solvency crisis has been kicked over a three-year horizon."
He said the problems would probably last for a decade.
"In Greece there is two options, pain or default, or what I call a slight combination of the two, pain and restructuring with external support from your European partners and your friends in Washington," Buiter said.
Papandreou's government is already implementing a €4.8 billion austerity package that has trimmed civil servants' income, frozen pensions and hiked taxes which has already drawn the ire of labor unions.
Union leaders who met with Papandreou Thursday to discuss the further measures said new cuts would be harsh.
Ilias Iliopoulos, general secretary of Greece's public servants' union who attended the meeting, said he was told more sweeping cuts are expected through 2012, and that EU and IMF negotiators were pressing Athens to further increase consumer taxes, relax rules about layoffs, slash pensions, and extend pay cuts to the private sector.
Apart from Saturday's Labor Day protests, unions have already called a nationwide general strike on May 5.
Citigroup's Buiter castigated what he called "dithering and shameful brinkmanship" by Greece's EU allies, which if repeated, could lead to "a nasty, unintended default."
"But if we use collective brains we won't," he added, and expressed optimism that the 16-member eurozone will weather the storm.
"I don't think that any of this threatens the eurozone, except possibly the risk of what I call a soft bailout, that conditionality is not enforced and the Germanies of this world after 5 or 10 years of filling a black hole — in Greece and possibly elsewhere as well — will walk out in disgust," Buiter said. "I don't think that is going to happen."
____
Associated Press writer Elena Becatoros in Athens contributed.
___
April 30, 2010 08:56 AM EDT
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Hey dude, not sure I know that one. What's the story?
BL: Stocks, Oil Rise on Economy; Emerging Market Currencies Gain
By Rita Nazareth and Gavin Serkin
April 29 (Bloomberg) -- Stocks rallied the most in almost two months as companies from Motorola Inc. to Unilever NV posted better-than-estimated profit and European leaders moved closer to rescuing Greece. Higher-yielding currencies gained after the Federal Reserve pledged to keep interest rates at a record low.
The Standard & Poor’s 500 Index climbed 1.3 percent and the MSCI World Index of stocks in 23 developed nations gained 1.2 percent at 11 a.m. in New York, the most since March 5 for both. The ASE Index jumped 7.1 percent in Athens, the biggest rally this year, as the European Union said it’s close to agreeing on a bailout to prevent a Greek default. The extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds narrowed 97 basis points to 596 basis points. South Africa’s rand rose 0.9 percent against the dollar, while oil and tin led gains in commodities.
Investor confidence is recovering after almost three- quarters of companies in the MSCI World Index and S&P 500 that reported earnings topped analysts’ estimates. European confidence in the economic outlook improved to the highest in more than two years, while U.S. jobless claims fell to a one- month low and German unemployment plunged. Fed policy makers restated a pledge yesterday to keep interest rates near zero for an extended period even as the labor market begins to improve.
‘Great So Far’
“The earnings season has been great so far,” said Hayes Miller, a Boston-based money manager at Baring Asset Management Inc., which oversees $46.1 billion. “That’s a good indication for the economy. 2010 looks pretty solid right now. In Europe, things are still on the table.”
The S&P 500 has recovered three-quarters of its 2.3 percent plunge on April 27 when S&P cut Greece’s credit rating to junk and lowered Portugal by two steps. With the first-quarter earnings season past the half-way point, S&P 500 companies have beaten analysts’ estimates by an average of 17 percent on a per- share basis, according to data compiled by Bloomberg.
Motorola, the largest U.S. mobile-phone maker, rallied 4.3 percent after forecasting second-quarter earnings that topped analysts’ estimates amid growing demand for models like the Droid. Aetna Inc. and Starwood Hotels & Resorts Worldwide Inc. were also among companies that climbed after reporting better- than-estimated earnings.
Initial jobless claims fell by 11,000 to 448,000 in the week ended April 24, in line with the median forecast of economists surveyed by Bloomberg News and the lowest level in a month, Labor Department figures showed. The number of people receiving unemployment insurance and those getting extended payments decreased.
Global Advance
The Stoxx Europe 600 Index rallied 1.5 percent, with food and beverage companies leading gains. Unilever, the world’s second-largest food and detergent company, rallied 3.7 percent in Amsterdam after saying profit rose 33 percent. Pernod Ricard SA, the maker of Absolut vodka, climbed 2.9 percent in Paris after raising its forecast for full-year earnings. Siemens AG, Europe’s largest engineering company, advanced 1.7 percent in Frankfurt after profit topped estimates.
The rand and Brazilian real rose at least 0.9 percent to lead gains among 14 of 16 major currencies against the dollar as investors bought currencies in countries with higher interest rates. Only the yen and Taiwanese dollar retreated. Brighter economic prospects in Asia and widening interest-rate differentials are likely to attract more capital, while bets for exchange-rate appreciation in the region may boost so-called carry trades, the IMF said in a report today.
Euro Rebounds
The euro strengthened 0.2 percent to $1.3249, after trading at $1.3115 yesterday, the lowest level in a year. Investors demanded an extra 5.96 percentage points in yield to buy Greece’s 10-year bonds rather than benchmark German bunds, after the difference in yield, or spread, widened to more than 8 percentage points yesterday.
Greek Prime Minister George Papandreou began trying to persuade labor unions to accept further austerity measures as the nation tried to qualify for a rescue package worth as much as 120 billion euros ($159 billion).
German Chancellor Angela Merkel said yesterday that the “stability of the euro zone” was at stake if a loan package for Greece can’t be delivered quickly. President Nicolas Sarkozy said France is “determined” to support the euro and Greece, while European Union Economic and Monetary Affairs Commissioner Olli Rehn today told reporters in Brussels that he is confident discussions on the aid package for Greece will conclude “in the next days.”
Default Swaps
The cost of insuring against default on European corporate bonds fell for the first time in four days. The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly high-yield companies fell 18 basis points to 438 as of 3:02 p.m. in London, after yesterday climbing to the highest level since March 22, according to Markit Group Ltd. Contracts tied to Greece’s government debt dropped 97.5 basis points to 657, CMA DataVision prices show.
Germany’s DAX Index jumped 1 percent as unemployment declined at the fastest pace in more than two years in April, the Nuremberg-based Federal Labor Agency said today. An index of executive and consumer sentiment in the 16 euro nations rose to 100.6 in April from a revised 97.9 in March, the European Commission in Brussels said today.
Spanish 10-year bonds rose, cutting the yield by 6 basis points to 4.05 percent. The Italian 10-year bond yield fell 4 basis points to 4.06 percent even as the nation sold 8 billion euros ($11 billion) of securities due in 2012, 2017 and 2020.
Tin for delivery in three months added 2.3 percent to $18,415 a metric ton on the London Metal Exchange, the steepest advance since February. Aluminum gained 1 percent, while gold fluctuated and crude oil added 2.6 percent to $85.38 a barrel in New York.
To contact the reporters for this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net.
Last Updated: April 29, 2010 11:05 EDT
BL: More Than a Million May Lose Jobless Aid as Congress Seeks Spending Curbs
By Brian Faler
April 29 (Bloomberg) -- Since the U.S. recession began in December 2007, Congress has extended the duration of weekly unemployment benefits for the jobless three times. Now, the lawmakers may have reached their limit.
They are quietly drawing the line at 99 weeks of aid, a mark that hundreds of thousands of Americans have already reached. In coming months, the number of those who will receive their final government check is projected to top 1 million.
It’s a deadline that has rarely been mentioned in recent debates over jobless benefits, in which Republicans have delayed aid because of cost concerns. The deadline hasn’t been lost on Teauna Stephney, a 39-year-old single mother from Bothell, Washington, who said she could become homeless once her $407 weekly checks stop in June.
“What are people like me supposed to do?” said Stephney, who said almost two years of benefits haven’t proved long enough for her to find work after she lost her last job in August 2008. Referring to lawmakers, she said, “I would like them to come and talk to me and spend a day in my shoes.”
Democrats who have pushed through the past extensions agree there’s insufficient backing to go beyond 99 weeks, largely because of mounting concern over the federal deficit, projected to reach $1.5 trillion this year.
“You can’t go on forever,” said Senate Finance Committee Chairman Max Baucus, of Montana, whose panel oversees the benefits program. “I think 99 weeks is sufficient,” he said.
“There’s just been no discussion to go beyond that,” said Senator Byron Dorgan, a North Dakota Democrat.
‘Damned If They Do’
Allowing the ranks of those who lose their aid to swell carries risks for Democrats in November’s elections.
“They’re damned if they do and damned if they don’t,” said Stuart Rothenberg, publisher of the Rothenberg Political Report. Voters are “sensitive these days to spending and deficit issues and yet there are going to be people who need help, and if the administration ignores them, they’ll look rather callous.”
Baucus said extension legislation would fail in the Senate because of both the deficit and the negative “atmospherics” of lengthening the weeks of aid into triple digits.
“The best thing to do is get this economy turned around” to create jobs, said Baucus.
Unemployment aid has become one of the federal budget’s fastest-growing components, with costs this year likely to reach $200 billion. That’s six times what was typically spent before the recession.
Previous Extensions
Since the recession began, aid extensions added 53 weeks of assistance to the 46 weeks that had been in place. About 11 million Americans, roughly 70 percent of the nation’s jobless, in March received unemployment checks averaging $320 per week.
The challenge for lawmakers is that while benefits have reached record lengths, so has long-term unemployment. According to the Bureau of Labor Statistics, 44 percent of the jobless have been out of work for at least six months, the biggest share since the government began keeping track in 1948.
About 3.4 million Americans have been out of work for more than a year, according to a study by the Pew Fiscal Analysis Initiative.
The states, not the federal government, track how many exhaust their unemployment benefits, said U.S. Labor Department spokesman Matthew Wald.
State Figures
Interviews with state officials found that in New York, 57,000 people have received their last check. In Florida, 130,000 are no longer eligible as are about 30,000 Ohioans.
Those numbers will grow, according to Goldman Sachs Group Inc., which projects that more than 400,000 may soon begin losing benefits every month.
“The political climate is not as conducive to additional expansions as it had been last year,” a Goldman analysis said. “The result is likely to be a greater share of unemployed workers not receiving unemployment compensation.”
Democrats have struggled to pass legislation just to maintain current benefits over Republican objections about adding to the deficit. Benefits have been interrupted twice because of efforts by Republican Senators Jim Bunning, of Kentucky, and Tom Coburn, of Oklahoma.
Some Republicans say cutting off aid will spur people to find work.
“We have study after study that shows people are more anxious to get a job after they run out of benefits,” said Representative John Linder of Georgia, the top Republican on the Ways and Means subcommittee with jurisdiction over the unemployment program. “Continuing to extend this isn’t helping them or us.”
Eligibility Issue
President Barack Obama signed into law this month a measure extending until June the date by which individuals can qualify for 99 weeks of aid, a move designed to buy lawmakers time while negotiating a bill that would continue such eligibility through year’s end.
That won’t help people like Stephney. And Representative Jim McDermott, a Washington Democrat who supports another extension of benefits, said there’s so little support for the idea that he hasn’t bothered to introduce legislation.
“What happens to these families when they have no money for food, no money for their rent and no money for their health care?” said McDermott. “It’s a problem that nobody around here wants to talk about.”
To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net
Last Updated: April 29, 2010 00:00 EDT
BL: Motorola Jumps as Forecast Signals Demand for Mobile Phones Is Picking Up
By Hugo Miller
April 29 (Bloomberg) -- Motorola Inc., the largest U.S. mobile-phone maker, jumped as much as 8.5 percent in New York trading after its earnings forecast signaled demand for models like the Droid is helping to reverse a three-year sales slump.
The company projected second-quarter earnings, excluding some costs, of as much as 9 cents a share, exceeding analysts’ projections. Motorola also posted its smallest revenue decline in three years.
Sales of the touch-screen Droid, a smartphone running Google Inc.’s Android software, were “very strong” last quarter, co-Chief Executive Officer Sanjay Jha said. The challenge for Motorola is to follow up with other attractive handsets to win users from Apple Inc.’s iPhone and Research In Motion Ltd.’s BlackBerry, said Tavis McCourt, an analyst at Morgan Keegan & Co. in Nashville, Tennessee.
“The success of the Droid has got them back in the game and given them great marketing support from Verizon,” said McCourt, referring to Verizon Wireless, the largest U.S. wireless carrier. McCourt has an “outperform” rating on the stock. “They need more than one hit to get the scale to be profitable.”
Motorola, based in Schaumburg, Illinois, rose 32 cents, or 4.6 percent, to $7.24 at 9:51 a.m. in New York Stock Exchange composite trading, and climbed as high as $7.51 earlier. The gain was the largest in more than two months.
‘Dramatic’ Change
Motorola said it shipped 2.3 million smartphones, up from 2 million in the previous three months. Total handset shipments were 8.5 million. McCourt estimated 1.7 million smartphones and 10.3 million devices in total.
“Smartphone shipments were better than expected and that’s a positive,” said Matt Thornton, an analyst at Avian Securities LLC in Boston with an “outperform” rating on the stock. Motorola has succeeded in winding down sales of basic phones and ramping up smartphone shipments, he said. “It’s happened in a dramatic fashion.”
Motorola is focusing on phones that can surf the Web and play video, a segment that’s outpacing the rest of the handset market. Sales of smartphones may climb 46 percent this year worldwide, more than triple the pace of the overall market, according to researcher Gartner Inc. “Droid sell-through was very strong in the first quarter and I anticipate we’ll get further traction with Droid in the marketplace,” Jha said a conference call with analysts. He said he expects Motorola to gain market share this quarter.
Still, Jha’s also facing intensifying rivalry. Yesterday, Hewlett-Packard Co. said it would buy Palm Inc., maker of the Pre and Pixi smartphones, in a $1.2 billion deal.
Handset Spinoff
Motorola is counting on a sales recovery as it prepares to split off its handset business. The company said in February the wireless unit will be merged with its unit that makes cable TV set-top boxes and be headed by co-Chief Executive Officer Sanjay Jha. Co-CEO Greg Brown will oversee the remaining units that make two-way radios, bar-code scanners and wireless networks.
Motorola is making “excellent progress” toward the split, which is on track for the first quarter of next year, Brown said on the call. Motorola will file a report this summer with more details, he said, declining to be more specific.
Second-quarter earnings will be 7 cents to 9 cents a share, Motorola said. Analysts projected 4 cents, according to the average of estimates compiled by Bloomberg.
Motorola said its forecast excludes expenses of 4 cents a share for stock compensation and amortization. Including those costs, the forecast was in line with estimates, Thornton said.
Division Sales
First-quarter net income was $69 million, or 3 cents a share, compared with a loss of $231 million, or 10 cents, a year earlier. Profit, excluding some items, was 2 cents a share. Analysts had predicted a loss of 1 cent on average.
Sales fell 6.1 percent to $5.04 billion. Analysts projected sales of $5.12 billion.
The loss at the mobile-phone unit narrowed to $192 million from $545 million a year earlier, while revenue dropped 8.9 percent to $1.64 billion. The division’s loss should narrow in the third quarter and the unit should be profitable in the fourth, Jha said.
Jha said he’s “comfortable” Motorola can reach a sales target of 12 million to 14 million smartphones this year. Last quarter, the company’s goal for this year was 11 million to 14 million.
Sales at the set-top-box unit fell 18 percent to $838 million. The division making scanners and two-way radios boosted revenue 5.9 percent to $1.69 billion, and sales at the network unit fell 7.2 percent to $896 million.
To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net
Last Updated: April 29, 2010 09:56 EDT
BL: `Strategic' Home-Mortgage Defaults in U.S. Reach 12%, Morgan Stanley Says
By Jody Shenn
April 29 (Bloomberg) -- Decisions by homeowners to walk away from mortgages they can afford are accounting for more defaults, according to Morgan Stanley.
About 12 percent of all mortgage defaults in February were “strategic,” up from about 4 percent in the middle of 2007, New York-based Morgan Stanley analysts led by Vishwanath Tirupattur wrote in a report today.
Borrowers with higher credit scores and larger loans are more likely to stop paying their mortgages even while staying current on other consumer debt of at least $10,000, the analysts wrote, based on analysis of data from Transunion LLC.
Strategic defaults also increase based on how much more borrowers owe in housing debt than their homes are worth, they said.
To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net
Last Updated: April 29, 2010 10:13 EDT
BL: Euro Slide Leaves U.S. CEOs Wringing Hands With Profit Forecasts at Risk
By Rachel Layne and Carol Wolf
April 29 (Bloomberg) -- United Technologies Corp. finance chief Greg Hayes sets aside some wiggle room in his profit forecast every year for swings in the euro. By March, half his safety net had already evaporated.
The maker of Otis elevators and Pratt & Whitney jet engines, which gets about a quarter of its sales from Europe, started 2010 assuming a $1.48 euro exchange rate. Hayes cut it to $1.37 last month as concern mounted that Greece would default on its debt. This week, the euro dropped below $1.32 for the first time since April 2009.
“It’s one of those things that you can’t control,” Hayes said in an interview April 23. “In fact, I think our stock is actually down the last couple of days because of this Greece crisis.”
Terex Corp., DuPont Co., McDonald’s Corp. and Johnson & Johnson also said in the past two weeks that the euro’s slide is affecting profit or may hold back growth. The 8.2 percent decline in the currency so far this year makes U.S. exports more expensive and lowers overseas sales when euros are translated to dollars, threatening a potential rebound in revenue and a lift to the economy.
Analysts, who have cut their second-quarter forecast for Europe’s common currency every month this year, expect it to trade at $1.35 in June and $1.32 by December. The euro will weaken to $1.30 by the first quarter of 2011, according to the median of economists’ estimates compiled by Bloomberg.
‘Hand-Wringing’
“U.S. CEOs are going to be doing a lot of hand-wringing over the next couple of quarters,” said Thomas Laming, a money manager with Scout Investment Advisors in Kansas City, Missouri, which manages $10 billion in assets. “There is going to be an impact on U.S. multinationals. It may cause some companies to miss the earnings estimates that are out there.”
DuPont, the third-biggest U.S. chemical maker, is expecting the euro to average $1.34 this year, Chief Financial Officer Nicholas Fanandakis said. Currency exchange added 10 cents to per-share earnings in the Wilmington, Delaware-based company’s first quarter, and that may deteriorate to as little as 5 cents for the year, he said.
“As the dollar strengthens, for us it is a headwind,” Fanandakis said this week in a telephone interview.
More Expensive Goods
McDonald’s recorded a 5 cent benefit to earnings per share in the first quarter. That was at the low end of a 5 cent to 6 cent forecast the company gave in January because of the strengthening U.S. dollar against the euro and the pound.
Currency fluctuations will hurt earnings in the second half of the year, based on current exchange rates and McDonald’s business outlook, Chief Financial Officer Peter Bensen said on an April 21 conference call with analysts. For the year, the company still anticipates exchange rates will add to earnings, he said. Bensen said his outlook could change.
“We recognize this estimate becomes outdated within days,” Bensen said.
McDonald’s, based in Oak Brook, Illinois, got about 40 percent of its $5.61 billion in revenue from Europe in the first quarter. Lizzie Roscoe, a spokeswoman for McDonald’s, declined to comment beyond Bensen’s statements.
“McDonald’s sells more hamburgers overseas than they do in the U.S.,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, said in a April 27 phone interview. “That will have a notable impact, especially when you couple that with the fact that the euro has been falling for the better part of six months.”
Air Conditioners, Helicopters
At Hartford, Connecticut-based United Technologies, Hayes had a “contingency plan” -- a cushion in his forecast -- of $250 million because he was concerned about the euro. In March, he told investors he cut it in half, to $125 million, with the euro at a rate of $1.35.
He says that by controlling costs he can still make the profit forecast -- for $4.50 to $4.65 a share this year -- if the euro were to drop to $1.25. Because most of its goods, which also include Carrier air conditioners and Sikorsky helicopters, are made or assembled in the countries where they are sold, the unknown is the quarterly reconciliation to translate sales back to dollars.
“The dollar ought to weaken over time versus the euro just because of the deficit spending we have in the U.S.,” Hayes said in the interview, barring a financial meltdown in Portugal, Ireland, Greece and Spain. “So the view long-term is bearish on the dollar. The problem is, on a quarter-to-quarter basis, it gets bumped around a little.”
Spain had its credit rating lowered one step to AA by Standard & Poor’s yesterday as Greece’s debt crisis spread through the euro region. The ratings company cut its rankings on Portugal and Greece earlier this week as European policy makers pushed to speed distribution of emergency aid.
Smaller Benefit
Johnson & Johnson, the world’s biggest health-products company, said last week its sales growth for 2010 would have a positive currency benefit of about 1 percent based on where the euro is now, below its previous projection. The company said a weaker euro was the primary reason for its lower forecast.
The New Brunswick, New Jersey-based company also reduced its annual earnings forecast to as much as $4.90 a share, adjusted for some items, from a January projection of as much as $4.95. Bill Price, a spokesman for Johnson & Johnson, declined to comment beyond last week’s predictions.
Terex, the maker of heavy-duty trucks and cranes, has a forecast for revenue to rise to about $5 billion this year from $4.04 billion last year, when 38 percent of sales came from Western Europe.
“Our net sales outlook will be slightly reduced due to lower anticipated benefits coming from currency translation,” Chief Executive Officer Ronald DeFeo said during a conference call April 22. DeFeo wasn’t available for an interview.
Net sales at Terex fell 3.1 percent to $935.9 million in the first quarter, the Westport, Connecticut-based company said in a statement April 21. The decline was 17 percent excluding about $56 million from the favorable impact of foreign currency rate changes and sales from a port equipment business.
“For right now, on a year-over-year basis, the euro is about flat,” Scout Investment’s Laming said. “Earnings reports for this quarter and next won’t be hugely impacted. The real impact will show up in the third and fourth quarters.”
To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net; Carol Wolf in Washington at cwolf@bloomberg.net
Last Updated: April 29, 2010 00:01 EDT