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Fed’s Duke Says Investor Interest Rising in California Housing
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By Steve Matthews
Dec. 9 (Bloomberg) -- Federal Reserve Governor Elizabeth Duke said investor interest in vacant housing is rising in some markets in California as speculation mounts that prices have bottomed.
“As investors sense that home prices have bottomed out, they are approaching servicers with cash offers for the bulk purchase of properties,” Duke said today in a speech at National Harbor, Maryland. “Community organizations in areas of California complain that investor interest has heated up to the point that qualified first-time homebuyers and local community organizations are being crowded out of the market.”
The Fed is purchasing $1.25 trillion in mortgage-backed securities to support recovery. Costs on 30-year fixed-rate mortgages fell to 4.71 percent for the week ended Dec. 3, the lowest since mortgage buyer Freddie Mac in McLean, Virginia, began compiling the data in 1971.
The central bank is seeking to assist communities nationwide to counter high foreclosure rates, Duke said. Fed policy makers said Nov. 4 that “lower housing wealth” was among the factors likely to constrain consumer spending.
Home Prices Decline
Foreclosures on prime mortgages and home loans insured by the Federal Housing Administration rose to 30-year highs in the third quarter, the Mortgage Bankers Association said Nov. 19. Home prices in 20 U.S. cities have declined 9.36 percent from September 2008, the S&P/Case-Shiller home-price index reported Nov. 24.
“Even communities with strong underlying economies have not been immune to the destabilizing effects of high foreclosure rates,” Duke said in the text of a speech at a NeighborWorks Training Institute symposium. “Many coastal cities, even those with jobs and growing populations, now are in distress because of high rates of foreclosure,” citing Florida cities of Cape Coral, Miami, Orlando, Tampa, and Sarasota.
Duke didn’t discuss the near-term economic outlook or monetary policy in the text of her remarks.
“The Federal Reserve is committed to continuing to identify ways in which our strengths as a research institution, combined with our network of Community Affairs outreach staff, can be leveraged to help communities recover from high numbers of foreclosures and related economic impacts,” she said.
To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net;
Last Updated: December 9, 2009 08:40 EST
Bernanke Signals Fed Will Maintain Its Outlook for Low Rates
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By Craig Torres
Dec. 8 (Bloomberg) -- The Federal Open Market Committee will probably maintain its outlook for a long period of low interest rates next week as tight credit and high unemployment weigh on the economy, Fed Chairman Ben S. Bernanke signaled.
Fed officials meet for the last time this year Dec. 15-16 after a report last week showing employers cut the fewest jobs in November since the recession began in December 2007. The report prompted some investors to raise bets the Fed would increase rates by the third quarter of 2010.
Treasuries climbed yesterday after Bernanke set back those perceptions, saying the economy faces “formidable headwinds.” He repeated the language of the last Fed statement in November foreseeing an “extended period” of low rates and said inflation might subside while joblessness may fall at a pace that’s “slower than we would like.”
“Despite the positive surprise from last week’s employment report, it is way too early for the Fed to begin exiting,” said Mark Gertler, a professor of economics at New York University who worked with Bernanke on research on the Great Depression before he became Fed chairman. “When the time does come, however, the Fed will be prepared.”
Yields on two-year notes fell 7 basis points to 0.76 percent. The Standard & Poor’s 500 Index fell 0.3 percent to 1,103.25 after rising as much as 0.4 percent.
The FOMC said last month that its benchmark interest rate, which has been close to zero for a year, would remain low as long as inflation is subdued and the unemployment rate fails to decline. Bernanke said yesterday those conditions haven’t changed.
Inflation Expectations
“Right now we are still looking at the extended period given that conditions remain -- low rates of utilization, subdued inflation trends and stable long-term inflation expectations,” the Fed chief said in response to a question after a speech at the Economic Club of Washington. “That remains where we are.”
The consumer price index, minus food and energy, rose at a 1.7 percent annual pace in October, up from 1.5 percent the previous month. The core inflation rate rose at a 1.4 percent pace in August, the lowest rate since February 2004.
“We are going to have to continue to look at the economy,” Bernanke told moderator David Rubenstein, president of the economic club and co-founder of the Carlyle Group, the private equity firm. “Obviously there has been some signs of strength recently, we will want to factor that in as we talk about this next week.”
Dudley Comments
In separate remarks yesterday, New York Fed president William Dudley said the unemployment rate is “much too high.” If labor markets remain weak and inflation low, “it will be appropriate to keep the federal funds target exceptionally low for an extended period,” he told the Columbia University World Leaders Forum in New York.
Bernanke explained why the economy is unlikely to bounce back quickly. The job market “remains weak” while “bank- dependent borrowers” such as households and small business are having difficulty obtaining loans, he said. Consumer spending is “unlikely to grow rapidly” as unemployment weighs on confidence, he said.
Consumer credit in the U.S. fell by $3.51 billion, or 1.7 percent at an annual rate, to $2.48 trillion in October, according to a Fed report released yesterday. Borrowing dropped by $8.77 billion in September, less than previously estimated. Consumer credit has fallen for ninth straight months.
Growth Forecast
U.S. central bankers said last month the economy will expand in a range of 2.5 to 3.5 percent in 2010, according to the central tendency of their outlook, which excludes the three highest and three lowest projections.
That rate of growth will only drive unemployment down to a 9.3 to 9.7 percent range next year, Fed officials forecast. More than 7.2 million jobs have been lost since the start of the recession.
“We still have some way to go before we can be assured that the recovery will be self-sustaining,” the Fed Chairman said. “My best guess at this point is that we will continue to see modest economic growth next year -- sufficient to bring down the unemployment rate, but at a pace slower than we would like.”
Bernanke “certainly hasn’t done a 180 degree turn because of one payroll number,” said Michael Feroli, economist at JPMorgan Chase & Co. in New York. Risks to the economy “don’t seem balanced at all” in Bernanke’s view.
JPMorgan Chase predicts the Fed to leave interest rates unchanged until the second quarter of 2011. Feroli said that an expansion one percentage point faster than the economy’s potential growth rate, which JPMorgan estimates at around 2.25 percent, would lower then unemployment rate by around four tenths of 1 percent in a year.
To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net: Shobhana Chandra in Washington at +1- schandra1@bloomberg.net.
Last Updated: December 8, 2009 00:00 EST
Ron Paul’s Fed-Bashing Wins Over Lawmakers Wary of Bank’s Power
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By Catherine Dodge
Dec. 9 (Bloomberg) -- For U.S. Representative Ron Paul, the ninth time may be the charm.
After fighting for decades to increase scrutiny of the Federal Reserve or abolish it, the Texas Republican’s proposal requiring audits of the central bank’s interest-rate decisions is getting traction.
The long-shot 2008 presidential candidate whose anti-tax, anti-government politics struck a chord with a swath of voters is again channeling public frustration with big government, bailouts and rising federal debt. And as Paul trains his sights on his favorite villain, the Fed, many in Congress are listening.
“We live in the age of the people demanding more transparency, and that came out of the failure of Congress to monitor the bailouts,” Paul, 74, said in an interview. “I was able to tap into that.”
Paul’s message, once delivered mostly from the political margins, has found broader acceptance as many lawmakers blame the Fed for failing to curtail excesses that led to the financial crisis.
These lawmakers say that as the Fed’s role has expanded, it hasn’t sufficiently accounted for putting taxpayers’ money at risk, including aid to companies such as Citigroup Inc. and American International Group Inc., both based in New York.
“He’s ready with an argument that fits the moment,” said Bruce Buchanan, a political scientist at the University of Texas in Austin. “It’s an argument that used to seem extreme, but now seems reasonable given the view the Fed contributed to the financial meltdown by failing to exercise due oversight.”
House Debate
The House is to start debate today on broader legislation overhauling U.S. financial rules. Included in it is Paul’s proposal to remove the shield on congressional audits of monetary policy.
Fed Chairman Ben S. Bernanke, at a Senate hearing Dec. 3, said Paul’s proposal could subject the central bank to political pressure and undermine its credibility.
“My fear is that if we were to take what might be perceived as an unpopular step, that Congress would order an audit, which would be a way, essentially, of applying pressure,” he said.
The Fed also faces scrutiny in the Senate. Banking committee chairman Christopher Dodd, a Connecticut Democrat, is sponsoring legislation to strip it of authority to supervise banks and protect consumers.
White House spokeswoman Jen Psaki declined to comment on Paul’s amendment. More than 300 House lawmakers, a majority of the chamber’s 435 members, have signed on to back it.
Good Timing
Representative Mel Watt, a North Carolina Democrat, said Paul “found a good political time to try to do this because everybody is somewhat disenchanted with the Fed.” Watt was among those opposing Paul’s proposal when it passed the House Financial Services Committee.
Watt said he hopes that if and when the House bill on financial regulation is merged with a Senate version, “we’ll find our way back to a better” approach than Paul’s to dealing with Fed scrutiny.
Paul’s plan faces resistance in the Senate. Senator Judd Gregg, a New Hampshire Republican, vowed to block any measure containing it.
No Debate
During his 11 House terms, Paul has introduced legislation to abolish the Fed six times and to conduct the audits three times. Until now, none was even debated in committee.
“I’ve been speaking and writing on this subject for more than 30 years, but there was a time when hardly anyone cared what I had to say,” Paul wrote in his latest book “End the Fed.” “The economic crisis has changed everything.”
Paul, who ran for president in 1988 as the Libertarian Party candidate, also advocates a return to linking the dollar to gold.
Representative Brad Sherman of California, a Democrat who supported Paul’s amendment in the Financial Services Committee, said his position isn’t an endorsement of Paul’s broader views.
“If you left it up to Ron, he’d convert the Fed building into residential condos.” Sherman said. “His amendment is far less radical than his rhetoric.”
AIG Factor
Financial Services panel chairman Barney Frank, a Massachusetts Democrat, said the Fed’s failure to place compensation restrictions on AIG, the insurer bailed out by the U.S. government and later vilified by Congress over bonus payments, fueled momentum for Paul’s amendment.
Paul’s stance on many issues goes beyond the Republican mainstream. He has proposed scrapping the income tax and sees no federal role in education or health care. He opposed the Iraq war and the Patriot Act, which gave law enforcement greater latitude to investigate terrorism.
“I am very, very confident that the message of freedom and limited government and non-interventionist foreign policy is the right way to go, and I think people like to hear that,” Paul said.
A retired obstetrician, Paul practices what he preaches. He refuses his congressional pension and didn’t allow his five children to take federal student loans.
Paul’s views drew enthusiastic crowds during his 2008 presidential bid, in which his campaign treasury outpaced higher-profile candidates. Paul raised $34.5 million, more than double that collected by now-Vice President Joe Biden in the Democratic presidential race.
Paul said that while his audit proposal has advanced beyond his expectations, he doesn’t see smooth sailing ahead.
“I just can’t imagine the president being allowed to sign a bill like that,” he said. “He would hear too much about it.”
To contact the reporter on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net
Last Updated: December 9, 2009 00:01 EST
China Had ‘Good Reason’ to Depreciate Yuan, Zhu Says (Update2)
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By Bloomberg News
Dec. 9 (Bloomberg) -- China had “good reason” to depreciate its currency during the global financial crisis as exports fell and chose instead to keep the yuan stable, central bank Deputy Governor Zhu Min said.
“We took the same policy as we did in the Asian financial crisis; we decided to stabilize the renminbi exchange rate,” Zhu said at a forum in Beijing today. Exchange rates aren’t likely to play a “key role in rebalancing” the global economy, he said.
The People’s Bank of China has kept the renminbi, or yuan, effectively pegged to the U.S. dollar since July last year and Premier Wen Jiabao last month rebuffed Europe’s calls for the currency to strengthen. David Dollar, the U.S. Treasury’s economic emissary to China, said at the same forum he agrees with the International Monetary Fund that a “stronger Chinese currency makes Chinese people richer and encourages consumption.”
“Policymakers have kept the yuan stable mainly out of consideration for China’s exports and jobs,” said Zhao Qingming, a Beijing-based senior analyst at China Construction Bank Corp., the country’s second-largest lender. “The yuan’s dollar peg will be shifted to a currency-basket link in the second half of next year as China’s economy recovers, and the dollar may rebound.”
Twelve-month non-deliverable forwards fell 0.2 percent to 6.6560 per dollar as of 11:50 a.m. in Hong Kong, indicating traders expect the yuan to strengthen 2.6 percent in a year, according to data compiled by Bloomberg. In the spot market, the yuan traded at 6.8276 from 6.8275 yesterday, according to China Foreign Exchange Trade System.
‘Tremendous’ Pressure
China’s exports may slide about 16 percent this year, Zhu said. The decline in overseas shipments has put “tremendous pressure” on jobs and production in the world’s third-biggest economy, he said.
In that sense, there had been “good reason for China to depreciate the renminbi,” Zhu said.
Exports rose 1.4 percent in November from a year earlier, the first gain since October 2008, after dropping 13.8 percent the previous month, according to the median estimate of economists surveyed by Bloomberg before a report this week.
A stable yuan is important for the world’s economic recovery, Zhu said, echoing Wen’s comments to European officials on Nov. 30.
To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net
Last Updated: December 9, 2009 01:19 EST
Australia Rates on Hold as Confidence, Exports and Lending Drop
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By Jacob Greber
Dec. 9 (Bloomberg) -- Australian home-loan approvals fell in October, exports tumbled and consumer confidence slid this month, increasing central bank Governor Glenn Stevens’s scope to pause after a record run of interest-rate increases.
Consumer confidence fell 3.8 percent this week, home-loan approvals dropped 1.4 percent in October, and exports of coal and iron ore slumped from September, reports today showed.
Traders are betting the chances of Stevens increasing borrowing costs when his board next meets in February are less than 50 percent, after policy makers boosted the benchmark lending rate last week for an unprecedented third straight month. Still, Australia’s economy looks far better now than at the start of the year, after skirting the global recession, Stevens said yesterday.
“There are signs the three rate rises are taking some heat out of consumer sentiment, but confidence overall remains relatively high,” said Joshua Williamson, an economist at Citigroup Inc. in Sydney. Sentiment is “likely to come under more downward pressure as interest rates normalize.”
The Australian dollar traded at 90.48 U.S. cents at 1:18 p.m. in Sydney from 90.50 cents just before the trade and lending reports were released. The two-year government bond yield rose 2 basis points to 4.39 percent. A basis point is 0.01 percentage point.
Stevens and his board increased Australia’s benchmark lending rate on Dec. 1 by a quarter point to 3.75 percent, citing rising business confidence and a surge in house prices.
Rate Outlook
Investors are betting there is only a 44 percent chance of another quarter-point interest-rate increase in February, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:55 a.m. The central bank doesn’t meet in January.
“At the beginning of the year I would not have expected the economy to be looking as good as it does” now, Governor Stevens told economists said yesterday in Sydney. “I thought things would turn out rather worse than they have. But who’s complaining? Not me.”
The number of loans granted to build or buy houses and apartments dropped 1.4 percent to 63,865 from September, when they gained a revised 3.3 percent, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a 2 percent decline.
By contrast, approvals for the construction of homes surged 9.2 percent in October.
Government Grants
Approvals for home loans may slide further after Prime Minister Kevin Rudd’s government reduced grants to first-time buyers in October.
“Headwinds from rising mortgage rates will take some heat out of the market as affordability deteriorates, with first-home buyers more susceptible to, and deterred by, these rises, said Alex Joiner, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne.
This year’s interest-rate increases have added about A$150 ($136) to monthly repayments on an average A$300,000 home loan, and may prompt consumers to trim spending that surged in the first half of the year after the government distributed more than A$20 billion in cash handouts to households.
An index of consumer confidence dropped 3.8 percent this month, led by waning sentiment among households with mortgages, a report by Westpac Banking Corp. showed today.
Demand for mortgages surged in the first half of the year amid record purchases from first-time buyers after Treasurer Wayne Swan tripled to A$21,000 a grant to buyers of new homes, and doubled to A$14,000 payments for those purchasing existing dwellings. House prices have gained 10 percent this year.
Trade Deficit
In May, Swan extended the increases through to the end of September, when they were partially reduced. The payments will be cut to their original level of A$7,000 at the end of this year.
A separate report today showed Australia’s trade deficit widened in October as exports of coal dropped 12 percent and iron ore slumped 8 percent.
The trade shortfall swelled to A$2.38 billion from a revised A$1.85 billion in September, the Bureau of Statistics said in Sydney. The median estimate in a Bloomberg News survey of 22 economists was for a A$1.81 billion deficit.
“In the near term, the trade deficit is likely to trend higher as imports continue to outstrip export growth,” said Felicity Emmett, an economist at RBS Group Australia Ltd. in Sydney. Next year “however, the trade balance should get a boost from higher contract prices for key commodities.”
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
Last Updated: December 8, 2009 21:57 EST
Hatoyama Stimulus to Avert Recession, Leave Deflation (Update1)
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By Aki Ito and Keiko Ujikane
Dec. 9 (Bloomberg) -- Japanese Prime Minister Yukio Hatoyama’s 7.2 trillion yen ($81 billion) stimulus will help the nation avert another recession next year without overcoming the deflation that threatens the economy’s longer term prospects.
The spending, unveiled ahead of a government report today that showed growth in the third quarter was slower than initially estimated, included employment subsidies, loan guarantees and incentives to buy energy-efficient products.
Hatoyama compiled his first stimulus package since becoming premier in September after the yen surged to a 14-year high against the dollar, threatening the export-led recovery. The plan may keep the economy afloat until the rebound in overseas demand reaches households, according to Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo.
“In the short term, it will help avert a double-dip recession,” Miyazaki said. “This stimulus won’t do enough to fight deflation, and it didn’t include anything to weaken the yen.”
The yen surged to 84.83 on Nov. 27, the highest level since 1995, and has advanced 4 percent against the dollar in the past three months. It traded at 88.56 per dollar at 9:19 a.m. in Tokyo from 88.43 late yesterday.
Slower Growth
The Nikkei 225 Stock Average fell 1.3 percent after the Cabinet Office said the economy expanded at an annual 1.3 percent pace in the three months ended Sept. 30, slower than the 4.8 percent reported in preliminary figures last month. The figure was revised to reflect a Finance Ministry survey that showed companies slashed spending at a record pace in the period.
Economists say Hatoyama’s package will help growth next year. Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo, predicts it will add 0.2 percentage point to gross domestic product, while Yasuo Goto, chief economist at Mitsubishi Research Institute, forecasts it will bolster GDP by 0.5 percentage point. The economy will expand 1.2 percent in 2010, according to the median estimate of 14 economists surveyed by Bloomberg News.
Not everyone says the spending will help the economy. Morgan Stanley Asia Chairman Stephen Roach said Hatoyama needed to be “much more aggressive” with his policies.
Second Lost Decade
“It’s tiny,” Roach said of the stimulus in an interview on Bloomberg Television yesterday. “This is an economy that went into its worst recession, the second lost decade, late last year and is barely coming out. The new government is not off to a good start in formulating policy strategy.”
The stimulus lacked focus on policies that could bolster the nation’s growth prospects in the long term, such as corporate tax reductions and incentives for companies to invest in developing industries, according to Yasukazu Shimizu, a senior market economist at Mizuho Securities Co. in Tokyo.
Mitsubishi’s Goto says the stimulus doesn’t guarantee Japan will be able to shake off falling prices and policy makers must be prepared to take further action.
“Deflationary pressure in the Japanese economy is so strong that the measures unveiled so far won’t be enough to overcome it,” said Goto, a former Bank of Japan official. “The real issue is whether they’re going to be prepared to fire a second or third bullet when the need arises.”
Bank of Japan
The central bank released a 10 trillion yen credit program last week, satisfying calls from government ministers for it to do more to fight declining prices.
Nobuaki Koga, head of Japan’s largest labor union, applauded the government’s efforts to spur growth by saving jobs.
“This is worth praise,” said Koga, head of the Japanese Trade Union Confederation, known as Rengo. “It includes employment measures and I support the main pillars. Bigger would be better, but there are fiscal limitations.”
Recent data indicate the recovery is losing steam. Industrial production grew at its weakest pace in eight months in October and a report yesterday showed merchant sentiment tumbled by a record amount in November. Exports fell for the 13th straight month in part because of the yen’s strength.
Fujio Mitarai, head of the nation’s biggest business lobby and chairman of Canon Inc., said last month the government needs to take “urgent steps” to stem the yen’s gains.
Debt Burden
Hatoyama’s ability to revive the economy has been limited by the nation’s swelling debt burden, which is already the largest in the industrialized world. He said the package was a reflection of the government’s will to spur growth without blowing out growing public debt.
“This reflects our intention to resuscitate the economy,” Hatoyama told reporters in Tokyo yesterday. “There was a sharp debate from differing perspectives on what must be done, on whether the economy or fiscal discipline take priority, and I think that should be recognized.”
The premier’s sliding popularity may hurt his party’s momentum ahead of the July upper house elections in July 2010. His approval rating fell below 60 percent for the first time, declining to 59 percent from last month’s 63 percent, the Yomiuri newspaper reported this week.
Some say the measures, which extended policies inherited by the previous administration, are merely a stop gap to prevent the economy from deteriorating before the election.
“The package doesn’t help the economy much, the DPJ’s just afraid of being blamed if there’s a double-dip slump,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “I don’t think there’s any legitimate logic for implementing these measures except for political reasons.”
To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net
Last Updated: December 8, 2009 19:24 EST
China Said to Plan 8 Trillion Yuan Loans Cap for 2010 (Update2)
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By Bloomberg News
Dec. 9 (Bloomberg) -- China’s banking regulator plans to slow new lending to between 7 trillion yuan ($1 trillion) and 8 trillion yuan next year, a person familiar with the matter said.
The China Banking Regulatory Commission’s recommended range compares with 8.9 trillion yuan of new local-currency loans in the first 10 months of this year. The person spoke on condition of anonymity because he isn’t authorized to discuss the matter publicly.
China is trying to ensure credit flow is enough to support an economic recovery while limiting the risk that this year’s lending boom will lead to bad loans and asset bubbles. The country will maintain a “moderately” loose monetary policy to keep economic growth from slowing, according to a statement from the annual central economic work conference that ended Dec. 7.
“This is pretty much in line with market expectations and should arm the government with enough bullets to maintain an economic recovery,” said She Minhua, a Shanghai-based analyst at Haitong Securities Co.
Phone calls to the CBRC’s press office weren’t answered.
The government’s 4 trillion yuan stimulus package and record bank lending helped ailing exporters refinance debt and provided funding for an acceleration in fixed-asset investment, reigniting economic growth that had fallen to the lowest in more than a decade.
Credit Standards
A debt-fueled increase in investments “may imply additional demand for loans in the future, to complete the underlying project,” the Bank for International Settlements said in a quarterly report published this month. Should China tighten monetary policy, that could “leave projects incomplete and lead to a build-up of bad loans.”
China’s credit boom may erode the quality of bank balance sheets as the jump in lending was “unavoidably” linked to an easing of credit standards, the BIS said.
The nation’s house prices jumped the most in 14 months in October, adding to concern that record lending may create asset bubbles in the world’s fastest-growing major economy. The benchmark Shanghai Composite Index has gained 78 percent this year as the economy recovered.
“History shows that credit growth of 13-14 percent can support fixed-asset expansion of over 20 percent,” She said. “So 7 trillion yuan of new loans will be adequate to keep existing projects floating and add on some new ones.”
The regulator in October said it would tighten regulation of personal loans to ensure that bank credits are not misused and “enter the real economy.” A “significant” part of loans doled out by banks may have flowed into equity and property markets, the BIS said.
Capital Eroded
China’s new loans may slow to 7 trillion yuan next year, UBS AG forecast last month. “We believe slower credit growth in 2010 will be key to avoid a boom-bust scenario in the economy,” UBS economist Wang Tao said in a Nov. 30 report.
China’s five largest banks submitted plans to regulators for raising money after unprecedented lending eroded their capital, four people with knowledge of the matter said last month. Chinese lenders would need as much as a combined 368 billion yuan to keep their capital adequacy ratios at 12 percent, according to BNP Paribas.
The CBRC’s loan target requires approval from the central government, the person said. The 7 trillion yuan to 8 trillion yuan range is similar to one proposed by Tang Shuangning, former vice chairman of the regulator, on Nov. 21.
--Philip Lagerkranser. Editors: Andreea Papuc, Malcolm Scott.
To contact the Bloomberg News staff for this story: Philip Lagerkranser at at lagerkranser@bloomberg.net
Last Updated: December 9, 2009 00:47 EST
Weber Says ECB to Keep Full Allotment Longest in Main Operation
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By Jana Randow and Christian Vits
Dec. 9 (Bloomberg) -- European Central Bank Governing Council member Axel Weber said the ECB’s main refinancing operation will be the last tender to be switched from unlimited funding to its pre-crisis variable-rate allotment procedure.
The discontinuation of the ECB’s six-month and 12-month tenders “is an unwinding of an ultra-expansionary” liquidity policy, Weber told journalists in Frankfurt last night. “I wouldn’t call this a tightening. We neither wanted to send a restrictive nor an expansionary signal.”
The ECB decided on Dec. 3 to end long-term emergency loans and to tighten the terms of its final 12-month tender as financial markets recover from the worst crisis since the Great Depression. ECB President Jean-Claude Trichet said the move doesn’t signal the ECB intends to raise interest rates. Economists expect the Frankfurt-based central bank to increase borrowing costs in the third quarter of 2010, according to a Bloomberg News survey.
“Continuing non-standard liquidity provision would lead to a more expansionary monetary-policy stance as financial markets improve,” Weber said. “We’ve tried to neutralize this development.”
The changes announced by the ECB nevertheless pave the way for a return to normal refinancing operations, in which the interest rate on its loans is determined by market demand. After the collapse of Lehman Brothers Holdings Inc. in September last year made banks reluctant to lend to each other, the ECB said it would lend them as much cash as they wanted at its benchmark rate.
Financial Markets
The recovery of financial markets allows the ECB to “slowly and step-by-step” reduce the liquidity supply, Weber said. “We’ll have a process of an orderly unwinding.”
With last week’s announcement, the Eonia overnight rate, the interest European banks charge each other for overnight loans, will move from the deposit rate toward the main refinancing rate, Weber said. “But I don’t expect that this will be a fast process. Instead, it will be a very orderly move visible over time.”
The ECB last week decided to index the interest rate on its final tranche of 12-month loans to the benchmark rather than allotting funds at a fixed 1 percent. The risk for the ECB is that any indication it could raise rates sooner than the Federal Reserve may fuel further gains in the euro and undermine the region’s economic recovery.
The ECB also said it will discontinue its six-month loans after March and only guaranteed unlimited funding in its other refinancing operations until April 13.
Medium-Term Goal
The ECB raised its economic outlook, forecasting growth of 0.8 percent next year and 1.2 percent in 2011. Inflation is expected to average 1.3 percent next year and 1.4 percent in 2011, below the bank’s medium-term goal of just less than 2 percent.
“We currently don’t see any noteworthy inflation risks over the policy-relevant horizon,” Weber said. “We’d counter inflation risks resolutely if they arise.”
Weber said the spread between the main refinancing rate and the deposit rate, which was cut from 100 basis points to 75 basis points in May, “will have to be moved into the direction of normalcy with the first interest-rate step.”
To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Christian Vits in Frankfurt at cvits@bloomberg.net.
Last Updated: December 9, 2009 06:00 EST
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Former BOE Official Buiter Says Greece May Be First EU Default
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By Svenja O’Donnell and Elliott Gotkine
Dec. 9 (Bloomberg) -- Former Bank of England policy maker Willem Buiter said Greece may be the first major country in the European Union to default on its debts since the aftermath of World War II.
“It’s five minutes to midnight for Greece,” Buiter, who will join Citigroup Inc. as its chief economist next month, said in a Bloomberg Television interview today. “We could see our first EU 15 sovereign default since Germany had it in 1948.”
The EU’s economic affairs commissioner said late yesterday that officials are ready to help Greece with its budget deficit after concerns about its public finances sparked a rout in Greek government bonds. Fitch Ratings cut its rating on the nation’s debt yesterday to BBB+ and two other major ratings companies are threatening to follow.
“Default is not unavoidable,” Buiter said. “But unless there are radical fiscal actions, lasting cuts in spending and tax increases of at least 7 percent of GDP, the writing is on the wall” for Greece.
There’s “absolutely” no risk Greece will default, Finance Minister George Papaconstantinou said in an interview today with Bloomberg Television. Greek banks are “fundamentally sound” and Greece will not seek an EU aid package, he said.
Greece, the lowest-rated country in the euro region, is struggling to cut a budget deficit of 12.7 percent of gross domestic product.
European Assistance
The European Commission “stands ready to assist the Greek government in setting out the comprehensive consolidation and reform program, in the framework of the treaty provisions for euro-area member states,” said Joaquin Almunia, who is in charge of EU economic and monetary policy. He didn’t say what form any assistance could take.
Greece can expect a bail out from the European Central Bank “only at a price,” Buiter said. “They’ll probably go to the IMF, have a credible standby program and then aid from Brussels and bilateral aid from selected sovereign governments in Europe and the U.S. will be available.”
The benchmark Athens Stock Exchange General Index has fallen more than 11 percent in the last three days. The spread between the Greek and German 10-year benchmark bonds widened to 221 basis points from 130 basis points on Oct.
Buiter, currently a professor of political economy at the London School of Economics, was one of the founding members of the U.K. central bank’s rate-setting panel when he joined in June 1997.
To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; Elliott Gotkine in London at egotkine@bloomberg.net
Last Updated: December 9, 2009 04:42 EST
Ireland to Appease ‘Vigilantes’ as Greece Punished (Update1)
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By Simon Kennedy
Dec. 9 (Bloomberg) -- Ireland is poised to show Greece a way to cut ballooning budget deficits.
Finance Minister Brian Lenihan will today announce plans to cut spending by 6 percent in the face of the worst recession in Ireland’s modern history. On the other side of Europe, the yield on Greece’s two-year note yesterday rose the most since November 2008 as it struggles to convince investors it will be as bold.
Lenihan is trying to shore up confidence in Ireland, once Europe’s most dynamic economy, a day after Fitch Ratings cut Greece by one step to the third-lowest investment grade. A successful strategy may lead investors to reward Ireland and add pressure on Greece to follow.
“The bond vigilantes are back and watching,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “Greece is a worst-case scenario, Ireland’s more solid.”
Lenihan is scheduled to deliver the budget at 3:45 p.m. to the parliament in Dublin, his fifth attempt since July 2008 to fix the public finances. He’s seeking 4 billion euros ($6 billion) in savings to stop the shortfall climbing above 12 percent of gross domestic product.
‘Medicine’
“It is going to be a very difficult budget, but it’s the last of the very difficult budgets,” Lenihan said in an interview with Dublin-based broadcaster RTE late yesterday. “It’s important the public understand this. If we take the medicine now we will bring this economy out of its difficulties.”
While Ireland has lost its top credit rating at Moody’s Investors Service and Standard & Poor’s, Greece is being pushed harder to act after Fitch yesterday cut it one step to BBB+, the third-lowest investment grade. The previous day S&P put the country’s A- rating on watch for a possible downgrade, signaling it may be reduced within two months.
Greek Finance Minister George Papaconstantinou said in an interview with Bloomberg Television today that the country won’t seek a European Union aid package and that there is no risk of default.
“We are doing what’s necessary in order to be out of the woods by ourselves, by our own devices, Papaconstantinou said. “We have no immediate borrowing needs.”
‘Resolve’
While the situation in Ireland remains severe, the government have shown an impressive resolve,” said Goldman Sachs Group Inc. economist Kevin Daly, who favors Irish assets over those from Greece. “This contrasts with the situation in a number of other European countries where, despite similar budget problems, there appears to be a reluctance to acknowledge the problem.”
The difference in yield, or spread, between 10-year Irish bonds and equivalent German bunds was at 172 basis points yesterday. The gap between Greece and Germany reached 225 basis points, the most since April 21.
Ireland’s fiscal problems mounted after a decade-long property boom imploded and the banking system came close to collapse as credit on the international money markets dried up. Greece is suffering after its new government more than doubled the country’s budget deficit forecast to 12.7 percent, exceeding the European Union’s limit more than four times, as revenue fell short of targets and spending increased.
Pay Cuts
Now, Lenihan is planning pay cuts of about 6 percent for government workers, and labor unions are threatening industrial unrest in response.
He also has pledged to slash the deficit to 3 percent of output by 2013, meaning Ireland is facing austerity budgets for the next four years.
“The overriding concern is to cement the financial viability of the Irish state,” said Rossa White, chief economist at Dublin-based broker Davy. “The budget for 2010 is a watershed.”
Greece’s socialist government, elected in October, plans to cut the budget deficit to 9.1 percent of GDP next year from 12.7 percent this year. The plans, including one-off measures and a partial freeze on public-sector pay, “are unlikely by themselves to alter Greece’s medium-term fiscal dynamics” given the prospects of high deficits, debt and sluggish economic growth, S&P said Dec. 7.
“The problems in Dubai and Greece have highlighted that smaller countries with banking and severe fiscal problems will be punished,” White said. “Particularly those that fail to deal with them adequately.”
To contact the reporters on this story: Colm Heatley in Belfast at cheatley@bloomberg.net;
Last Updated: December 9, 2009 04:46 EST
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Greece Finance Minister Says No Risk of Default (Update1)
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By Francine Lacqua and Maria Petrakis
Dec. 9 (Bloomberg) -- Greek Finance Minister George Papaconstantinou said there is “absolutely” no risk the country will default on its debt or seek a European Union bailout after a credit rating cut caused its bonds to plunge.
“We do have a credibility issue,” Papaconstantinou said today in an interview with Bloomberg Television. “As it becomes clear the deficit is coming down, that spending is reined in and that taxation receipts are going up, then confidence will return and there won’t be any problem borrowing in the markets.”
Fitch Ratings cut Greece one step to BBB+, the third-lowest investment grade, a day after Standard & Poor’s put its A- rating on watch for possible downgrade. The ratings companies cited concern the nation may struggle to meet debt commitments as its deficit balloons to a European Union-high 12.7 percent of output and it overtakes Italy as the region’s most indebted country.
The difference in yield, or spread, between Greek 10-year bonds and German bunds widened by 24 basis points to 245, up from 176 points on Dec. 4. Greece’s Athens Stock Exchange General Index declined 2.9 percent to the lowest since July 13, bringing its three-day drop to more than 11 percent.
“It’s five minutes to midnight for Greece,” Former Bank of England policy maker Willem Buiter said in a Bloomberg Television interview. “We could see our first EU 15 sovereign default since Germany in 1948.”
ECB Financing
Even without a default, a further cut in the country’s creditworthiness may make it more difficult for Greek banks to raise funds because government bonds could be excluded as collateral from European Central Bank lending. The ECB currently accepts bonds rated BBB- as collateral for loans after relaxing its rules in response to the financial crisis last year. At the end of 2010, it’s due to revert to the old rules, under which A- is the minimum required rating.
S&P said it will decide about a possible downgrade in the coming months and Moody’s Investors Service lowered its outlook on its A1 rating to “negative” on Oct. 29.
Papaconstantinou said there is no risk to the Greek banking system as the country’s banks hadn’t carried out the type of toxic lending that led to the global credit crisis and their finances are “fundamentally sound.” Still, investors shunned banks today. Piraeus Bank SA fell more than 6 percent and National Bank of Greece SA, the largest lender, lost 5.5 percent, after a 10 percent slide yesterday.
New Plan
ECB Governing Council member Axel Weber predicted Greece will manage to improve its finances over the next year. “We’ll see a consolidation,” Weber told reporters late yesterday in Frankfurt. “Officials are facing a clear necessity to implement concrete budget measures.”
The government will present the European Commission with a new deficit-reduction plan in January, based on its 2010 budget, which calls for cutting the deficit by more than 3 percentage points to 9.1 percent of gross domestic product. Papaconstantinou is seeking to prevent Greece from becoming the first country to be sanctioned under the EU’s excessive deficit procedure and trying to secure a three-year extension to the commission’s 2010 deadline for Greece to bring the shortfall back under the 3 percent ceiling.
The commission “stands ready to assist the Greek government in setting out the comprehensive consolidation and reform program,” Joaquin Almunia, who is in charge of EU economic and monetary affairs, said in a statement late yesterday.
No Bailout
Greece will not seek any kind of bailout from the commission, Papaconstantinou said, and will “do whatever is necessary to get out of the woods by our own devices.”
Under the budget plan “public expenditure is being cut by roughly 10 percent on the operating budget and 25 percent on consumption expenditures,” he said. “We’re freezing hires for 2010 and we’re moving to 5 to 1 ratio in retirement and new hires from 2011,” he said.
The current budget plan, including one-off measures and a partial freeze on public-sector pay, “are unlikely by themselves to alter Greece’s medium-term fiscal dynamics” given the prospects of high deficits, debt and sluggish economic growth, S&P said on Dec. 7. Much of the revenue gains forecast come from a crackdown on tax evasion, a regular promise of Greek governments.
“The jury is still out on whether the cabinet really backs the austerity measures that are necessary,” said Christopher Pryce, one of the London-based analysts at Fitch who cut the rating. “This budget has been put together by a very hard- working, conscientious finance minister, but nothing in it is substantial.”
Revising Statistics
The country’s credibility has also been hurt by repeated revisions of its economic data. Within weeks of winning elections in October, the socialist government raised the deficit forecast to 12.7 percent, about twice the previous government’s forecast and more than four times the EU limit. The EU in 2004 launched an investigation into Greece’s deficit after a revision of budget data revealed that, contrary to previous indications, the shortfall had exceeded the 3 percent ceiling ever since the country switched to the euro.
“Investors can expect in the next weeks and months, days even, to continue seeing signals that the situation is coming under control and fundamentally this is what they’re expecting,” said Papaconstantinou, an economist who studied at the London School of Economics and worked for 10 years at the Organization for Economic Cooperation and Development.
Debt Rising
Investor confidence will return as the government takes action to tackle the deficit and reduce the debt, which the commission predicts will surpass Italy’s to become the EU’s largest next year at 125 percent of GDP. The government has no current financing needs, meaning the wider spread won’t have an immediate impact on debt financing costs, Papaconstantinou said.
The government’s financing needs will ease next year even as the deficit rises. Greece has 17 billion euros ($25 billion) less of bonds coming due in 2010 than this year, trimming total borrowing to about 47 billion euros. Greece’s debt servicing costs will remain manageable, Laurent Bilke, an economist at Nomura in London said in a note to investors today. The country will spend 5 percent of GDP financing debt in 2011, compared with 6 percent for Italy. That’s far below the 10 percent levels of the early 1990s for both countries, Bilke wrote.
To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Francine Lacqua in London at flacqua@bloomberg.net.
Last Updated: December 9, 2009 07:25 EST
SNB’s Hildebrand Sets Sights on ‘Sacred Cows’ of Swiss Banking
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By Simone Meier and Klaus Wille
Dec. 9 (Bloomberg) -- Philipp Hildebrand, hedge fund manager turned central banker, is setting his sights on the dangers posed by UBS AG and Credit Suisse Group AG to the Swiss economy.
Hildebrand, who takes the helm of the Swiss National Bank next month, is pushing what he calls a “no-more-taboos” stance after decades in which Switzerland’s banks were treated more with reverence than regulation. A year after the financial crisis forced a government bailout of UBS, the 46-year-old is signaling a willingness to be tougher than foreign counterparts and that he may go as far as to break up a bank if needed.
“He doesn’t respect any sacred cows,” said Janwillem Acket, chief economist at Julius Baer Holding AG in Zurich, who has known Hildebrand since the 1990s. “His chances of succeeding are very good and should be taken even more seriously as SNB president. He’s got the ideal background, a strong personality and an excellent network.”
Credit Suisse and UBS have assets six times the size of the economy, a source of unease for a country that relies on the perception of stability to attract wealthy investors. While banks have indicated they’ll fight any laws putting them at a disadvantage, Hildebrand has said that the size of the Swiss financial sector doesn’t only call for faster but also stricter rules in the Alpine nation.
“We must accept that not all countries are confronted with the same urgency for reform as Switzerland,” Hildebrand said on Nov. 18. “Agreeing on an international common denominator of regulatory reform may turn out to be insufficient for the Swiss case.”
Policy Meeting
The SNB, which tomorrow holds its last policy meeting under President Jean-Pierre Roth before Hildebrand takes over on Jan. 1, will probably keep its key rate at 0.25 percent, according to all 16 economists in a Bloomberg News survey. The bank will release its decision at 9:30 a.m. in Zurich.
Hildebrand, who previously worked for hedge fund company Moore Capital Management, also faces the challenge of withdrawing unprecedented stimulus measures without derailing an economic recovery from the worst slump in over thirty years or stoking inflation. As the economy recovers, the SNB may phase out its purchases of foreign currencies aimed to keep the franc from appreciating.
“They’ll maintain their pragmatic stance,” said Alexander Krueger, head of capital-market analysis at Bankhaus Lampe KG in Dusseldorf, Germany. “They’ll wait and monitor economic developments while keeping an eye on the franc.”
Outspoken
Hildebrand, a former national swimming champion, has already used his authority to toughen regulation at home. In the weeks following the collapse of Lehman Brothers Holdings Inc. in September 2008, he helped avert a near collapse of UBS and forced the country’s two largest banks to raise capital buffers.
The central bank and the financial-market regulator work jointly on banking stability. As the crisis unfolded, Hildebrand has become the most outspoken advocate of more robust regulation to prevent a further crisis, stressing concerns about banks that are “too big to fail.”
Still, regulators have yet to tackle this issue and Credit Suisse and UBS have voiced resistance.
“The solution can only be a global one” and national approaches “are prone to have negative influences,” UBS Chief Executive Officer Oswald Gruebel said on Nov. 17. Hans-Ulrich Meister, head of Credit Suisse’s Swiss business, said two weeks later that regulators must “slow down” as other countries are just paying “lip service” to regulation.
‘Tooth and Nail’
“The drastic suggestions, such as for example the possible splitting up” of banks “will meet strong resistance,” said Manuel Ammann, a professor of finance at the University of St. Gallen. “They will fight against it tooth and nail.”
Born in Bern, Switzerland, Hildebrand went to school in Zurich and studied in Toronto before getting a doctorate from the University of Oxford in 1994. He narrowly missed qualifying for the Swiss Olympic swimming team in 1984.
“He was a real workhorse,” said Anthony Ulrich, Hildebrand’s former swimming coach. “We used to have training sessions at 6 a.m. and then again in the evening.” Even though he often went back to work after late training, “he never failed to show up the next day.”
As a student, Hildebrand worked as an assistant to executives and policy makers at the World Economic Forum annual conference in Davos, Switzerland, where he is now a regular attendee.
He joined Moore Capital in 1995, where he was first in charge of strategy for Europe and fixed income before being made partner in 1997. He was appointed chief investment officer at Vontobel Holding AG in Zurich in 2000 and joined Union Bancaire Privee the following year, where he led the investment strategy.
“UBS and Credit Suisse would probably prefer to have Hildebrand on their own executive floor rather than at the head of the SNB,” says Hans Geiger, Professor Emeritus of Banking at the University of Zurich. “It would make their life a whole lot easier.”
To contact the reporters on this story: Simone Meier in Zurich at smeier@bloomberg.net; Klaus Wille in Zurich at kwille@bloomberg.net.
Last Updated: December 8, 2009 19:01 EST
Japan Economy Grows 1.3%, Less Than Initial Estimate of 4.8%
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By Keiko Ujikane and Tatsuo Ito
Dec. 9 (Bloomberg) -- Japan’s economy expanded less than a third of the pace initially reported in the three months to September as companies slashed spending.
Gross domestic product rose an annualized 1.3 percent, slower than the 4.8 percent reported last month, the Cabinet Office said today in Tokyo. The revision, which was deeper than the predictions of all but one of the 17 economists surveyed by Bloomberg News, also showed that price declines accelerated.
Stocks fell after the report underscored concern about the sustainability of a recovery that is under threat from deflation and a rising yen. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen ($81 billion) stimulus package yesterday to ensure the economy avoids another recession next year.
“These numbers were weak,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “The stimulus will have a positive effect on the economy. But it’s not, in any way, enough to offset how steeply third-quarter GDP was revised.”
In nominal terms the economy shrank 0.9 percent last quarter, more than the 0.1 percent contraction in the preliminary report. The GDP deflator, the broadest indicator of price declines, slid 0.5 percent, revised from a 0.2 percent increase. The gauge has only risen twice in the past decade.
“This is a reminder of the deflation gap,” said Shuichi Obata, senior economist at Nomura Securities Co. in Tokyo, the only company to forecast a decline in the deflator. “It will be important to see how much Japan can recover while deflation continues.”
Nikkei Slides
The Nikkei 225 Stock Average slid 1.3 percent, led by Honda Motor Co. and Mizuho Financial Group Inc. The yen traded at 88.45 per dollar at 12:56 p.m. in Tokyo from 88.40 before the report. The currency has weakened since climbing to a 14-year high of 84.83 per dollar on Nov. 27. The median estimate of economists surveyed by Bloomberg News was for an annualized 2.8 percent expansion.
Investment by companies drove the downward revision in last quarter’s growth. Capital spending fell 2.8 percent in the three months through September from the previous quarter. That compares with a 1.6 percent increase reported last month.
“The recovery in capital investment will be dull,” said Yasuhiro Onakado, chief economist in Tokyo at Daiwa SB Investments Ltd., whose 1 percent prediction for growth was the most accurate of analysts surveyed. “Capacity utilization levels are still low, meaning that companies are saddled with idle assets and have no room for new investment.”
Record Cuts
The economy expanded 0.3 percent in the third quarter from the previous three months, the Cabinet Office said, slower than the 1.2 percent first reported. The cuts in both quarterly and annualized growth were the biggest since the survey was introduced in 2002, the government said, voicing concern about the size of the revision.
While the initial report gave the impression export growth is spreading to the domestic economy, “we’ll need to reexamine that,” Keisuke Tsumura, a parliamentary secretary at the Cabinet Office told reporters.
Consumer spending, which makes up about 60 percent of the economy, climbed 0.9 percent, compared with a 0.7 percent gain initially reported. Exports increased 6.5 percent from the previous quarter, compared with the 6.4 percent first published.
Some exporters are scaling back their spending plans as the yen’s rise to a 14-year high threatens their profits and market share.
Toyota Cuts Investment
Toyota Motor Corp., Japan’s biggest automaker, aims to cut capital investment by 70 billion yen from its initial plans for the year ending March, the most among major companies, a Nikkei Inc. survey showed on Nov. 30.
Sony Corp., forecasting its first consecutive annual loss since its listing in 1958, said last month that it will eliminate 250 jobs at its information devices unit to reduce costs. The company will close down a factory in Miyagi Prefecture making magnetic heads and transfer some of its touch- panel production to China.
Falling prices have been squeezing profit at home, prompting the government to declare last month that the country is back in deflation and push the Bank of Japan to do more to spur the economy. The central bank released a 10 trillion yen credit program last week, a move that Deputy Prime Minister Naoto Kan said yesterday had a “considerable impact” on weakening the yen.
Yesterday’s stimulus includes employment subsidies, loan guarantees and incentives to buy energy-efficient products. Japan has compiled four spending packages since September 2008 totaling more than 29 trillion yen. Some economists say these measures won’t be enough to support growth.
“Consumer spending will probably start to decelerate in coming quarters,” said Seiji Adachi, a senior economist at Deutsche Securities in Tokyo. “People won’t keep purchasing durable goods just because the government has extended incentives.”
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Tatsuo Ito in Tokyo at tito@bloomberg.net.
Last Updated: December 8, 2009 23:00 EST
Darling Says U.K. Economy Will Recover From Recession Next Year
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By Thomas Penny
Dec. 9 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling said the U.K. economy will recover from its longest recession on record next year as the government’s stimulus measures take hold.
The finance minister forecast growth in 2010 to between 1 percent and 1.5 percent, the same as he estimated in March. He expects growth of about 3.5 percent in 2011 and 2012. For 2009, Darling forecasts the economy will shrink by between 4.75 percent, deeper than his March projection for a contraction between 3.75 percent and 3.25 percent.
Trailing in opinion polls before an election that he must hold by June, Prime Minister Gordon Brown is balancing the need to clamp down on a record budget deficit while extending support to voters struggling in the deepest recession since 1980.
“We must continue to support the economy until the recovery is established,” Darling said in a speech in Parliament in London today. “The choices are between going for growth or putting the recovery at risk. To reduce the deficit while protecting front-line services or cuts, which put these services in danger.”
Darling, delivering his pre-budget statement, will announce his deficit projections later in the speech. In March he expected a shortfall of 175 billion pounds ($285 billion) in the current fiscal year, about 12 percent of gross domestic product and the most in the Group of 20 nations.
Tax Plans
He’s also planning to raise taxes on bonus pay earned by bankers and to maintain spending on health and education programs popular with voters, Treasury officials say.
He confirmed he’d return value added tax to 17.5 percent at the end of this year from 15 percent. He also extended tax relief on empty properties, cut duties on bingo gaming and raised the basic state pension 2.5 percent from April. He also will increase disability benefits by 1.5 percent.
Brown’s Labour government and David Cameron’s Conservatives both have promised measures to bonus payments in the City, London’s financial district. Where the two parties diverge is on just how quickly the government should curb the deficit.
“We can’t solve the problem of the deficit straight away, but what there’s an absence of is a credible plan,” Conservative leader David Cameron said yesterday. “I don’t think anyone’s going to be impressed with a plan that doesn’t at least have some early action in it.”
To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net
Last Updated: December 9, 2009 07:51 EST
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Dubai World Unit Loses Control of W Union Square (Update4)
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By Nadja Brandt and Jonathan Keehner
Dec. 8 (Bloomberg) -- Dubai World’s Istithmar unit lost control of the W New York Union Square hotel in a foreclosure auction after investing in the property near the top of the real estate market.
LEM, an affiliate of Lubert-Adler Real Estate Funds, won an auction for the mezzanine debt on the luxury Manhattan hotel, which was purchased by Istithmar in 2006 for $285 million. LEM bid $2 million for the debt.
“We are pleased to have completed this step to assume ownership of the W New York Union Square,” the acquirers said in a statement today. “Despite the recent downturn of the hotel industry, and the defaults that led to today’s foreclosure auction, we are optimistic about the future. Our intention is to ensure a seamless transition of ownership.”
State-owned Dubai World is seeking a “standstill” agreement with lenders as it attempts to restructure $26 billion of debt. Istithmar shelled out $665 million for two New York hotels, the W Union Square and the Mandarin Oriental, whose sale prices each broke a local record of $1 million per guest room, according to Real Capital Analytics Inc. Dubai World amassed more than $4 billion in debt buying trophy hotels and office buildings in the U.S., Real Capital data show.
The mezzanine debt of $117 million on the W New York, named by Conde Nast Traveler as one of the world’s top 500 hotels in 2005, was divided into three parts, with LEM holding one portion, according to Ben Thypin, senior market analyst at Real Capital, a New York-based research firm.
Switching Places
LEM assumed the debt on the two mezzanine notes as well as the mortgage payments on hotel and will “essentially switch places with Istithmar,” Thypin said.
Mezzanine loans are intended to make up the gap between a first mortgage and the borrower’s equity. Unlike a mortgage, where the bank has a lien on the actual property, a mezzanine loan is secured by a pledge of equity ownership in the borrowing entity that bought the property.
LEM Mezzanine, based in Philadelphia, is a series of private equity funds with $450 million of equity, according to its Web site.
“LEM has very little equity in the deal, so essentially the property is just moving into different hands,” Thypin said after the auction. “They may be more willing to recapitalize it or somehow improve operations, but it’s not moving out of trouble. The hotel still has to improve its performance.”
LEM spokesman Rick Matthews said the company can’t comment on its plans for the property.
Travel Cuts
“Until they had a chance to take a closer look, it’s too soon to indicate what their plans are going forward,” he said after the auction.
Luxury hotels have been hurt by a decline in business and leisure travel during the recession. A drop in room rates at the W Union Square has cut its net cash flow, according to data compiled by credit-rating company Realpoint LLC.
The average daily rate among hotel chains with the costliest rooms fell 17 percent in January to October from a year earlier, to $241.72. Occupancy is down to 63 percent from 70 percent, according to Hendersonville, Tennessee-based Smith Travel Research. In New York, rates for all hotel types slid 24 percent to $207.11, a record drop among the top 25 U.S. markets.
Lenders have poured more than $100 billion into Dubai, at least $34 billion of which went to Dubai World, according to Moody’s Investors Service. Dubai World said on Nov. 30 that it is considering selling off assets as part of a restructuring.
Starwood
“As Istithmar World has demonstrated repeatedly throughout the financial crisis, we have stood by the investments in our portfolio,” Istithmar spokesman Abdelaziz Al Mazam said Nov. 18 in response to questions about debt on the W Union Square. “As signs have begun that the global economy is recovering, we expect to continue to do so with increased confidence.”
The W New York Union Square, which features Rande Gerber’s Underbar, is operated by White Plains, New York-based Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company.
Starwood spokeswoman K.C. Kavanagh didn’t immediately return e-mails and phone calls seeking comment.
The results were announced at the auction in Manhattan.
To contact the reporters on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net.
Last Updated: December 8, 2009 15:03 EST
Houses Make Comeback as British Reject ‘Little Box’ Apartments
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By Tim Barwell
Dec. 9 (Bloomberg) -- Houses are making a comeback in the U.K. as buyers reject “little box” apartments and investor demand for rentals evaporates.
Single-family attached homes accounted for about 24 percent of all residences started in England in the first nine months, the highest proportion since 1992, according to the National House-Building Council. Semi-detached homes made up 17 percent of all starts, a level not seen since 1999.
“Most people dream of having a front garden and a back garden, with a little bit of security around them,” said Alistair Leitch, finance director at Bellway Plc in Newcastle, England. “They don’t want to have to park their car 50 yards from home.”
U.K. homebuilders that once rushed to build flats are now trying to meet demand for private homes. The reversal is occurring as banks restrict lending to buy-to-let apartment investors. That helped push prices down by almost a quarter from the 2007 peak through March of this year, the most of any type of British residential property, according to the Nationwide Building Society, the country’s biggest mortgage lender.
In the first nine months of this year, apartments accounted for around 40 percent of all starts in England, the least in six years, according to the House-Building Council, the U.K.’s biggest insurer for new homes. About 60 percent of the properties Bellway plans to build next year will be houses, compared with just over 50 percent in the fiscal year through July, Leitch said. The company sold 4,380 homes in the year.
Revamping Urban Sites
The proliferation in apartments was fueled by a government policy to emphasize high-density development on disused urban sites. The goal was to preserve the limited supply of undeveloped land while increasing the number of dwellings in England. In July 2007, the government announced a target of 3 million new homes by 2020.
The policy worked. As apartment blocks rose, detached houses fell to 12 percent of the total last year from 44 percent in 1997. The proportion of apartments rose to 51 percent from 15 percent in that period.
“The industry gets blamed for building little boxes, but we take our lead from the planners,” Redrow Plc founder and Chairman Steve Morgan said in an interview. “The industry was guided by the government toward a high increase in density.” The rules also created pent-up demand for family housing, he said.
A decade of soaring home prices, coupled with TV programs such as “Location, Location, Location” aimed at amateur property buyers, spurred a 19-fold increase in the buy-to-rent market to 190 billion pounds ($309 billion) from 1997 to 2007, said London-based property broker Savills Plc.
Investor Demand
Investors helped spur development of high-rise apartment blocks in cities such as Birmingham and Leeds that outpaced demand. Leeds City Council said in April that about 13 percent of center apartments are were empty, citing local tax returns.
“With investor demand largely gone, it’s a question of selling new flats to occupiers,” the bulk of whom will be first-time buyers requiring larger mortgages, said Richard Donnell, director of research at London-based property research company Hometrack Ltd.
Apartment prices dropped 22 percent from the peak through March to about 109,708 pounds, compared with a 16 percent decline for detached houses to 211,595 pounds, according to Nationwide.
Apartments became “significantly harder to sell” through 2008, Peter Redfern, chief executive officer of house builder Taylor Wimpey Plc, said in an interview. Prices fell about 30 percent at the low point of the market earlier this year, twice as much as houses, he said.
New Policy
In 2000, the price difference between a newly built apartment and its resale value was 55 percent, according Hometrack. That new-build premium has now vanished for apartments while it remains at about 15 percent for new houses.
To reduce risk, builders are focusing on houses and smaller developments that require less investment upfront.
Lenders and new government policies are also helping promote house construction. In April 2007, the government created new zoning guidance to promote a greater mixture of housing types, sizes and values, easing some of the emphasis on higher density.
Barclays Plc, Britain’s second-largest lender, is now offering five-year fixed-rate mortgages at 5.49 percent with a 30 percent down payment. That compares with 6.39 percent and a 40 percent down payment for a buy-to-rent investor.
Reformed System
“We have reformed the planning system to help local authorities deliver more and better homes,” Communities and Local Government, the department responsible for planning, said in an e-mail. “Changes to the planning policy in 2007 require councils to do more to ensure the right mix of housing is built.”
Taylor Wimpey, the U.K.’s second-largest homebuilder by volume, got around 40 percent of its sales from apartments at the top of the market in 2007. About 23 percent of its land is now slated for flats. The company sold 4,702 properties in the U.K. in the first half of this year.
Clover Bank, a 23-house Taylor Wimpey development near Birmingham in central England, has almost sold out since the first unit was purchased in February. Two properties remained as of Nov. 17, according to the company.
That contrasts with its Latitude project, a 189-apartment block about 13 miles away. A total of 67 apartments, first marketed in 2006, were still for sale the development’s estate agents, Knight Frank LLP said last month. Construction was temporarily halted after the property market stalled, before the work was completed earlier this year.
Bigger Spaces
A 1,289 square-foot free-standing house at Clover Bank costs 259,995 pounds and includes a garden of a similar size, a garage and a driveway. By contrast, a two-bedroom flat in Latitude costs 195,000 pounds for 677 square feet, a communal garden area, and storage area, an open-plan living room and kitchen and a concierge at the entrance to the block.
Barratt Developments Plc, Britain’s biggest homebuilder, sold the largest proportion of flats among the national builders in its last fiscal year through June, at 54 percent, slightly more than competitors Bellway and Redrow. Persimmon Plc has the lowest share of apartments among the U.K.’s seven biggest homebuilders at about 20 percent, according to the company.
Barratt expects to sell around 12,000 homes in its current financial year, with 40 percent to 45 percent being apartments, the company said on Nov. 17. Persimmon expects about 9,000 completions in the year through December.
Apartment Demand
Bellway’s Leitch said flats will remain a substantial part of the London market, where space is limited, but doesn’t expect such a boom in apartments in other town centers and rural areas to return.
“We had a government that wanted more apartments on a piazza, with everyone pouring out in the evenings to have a drink,” Leitch said. “It didn’t happen, did it?”
Builders are too quick to blame the government, and the opportunity to profit was equally responsible for the market’s surge, said Hometrack’s Donnell and Alastair Stewart, an analyst at Investec Securities.
“Housebuilders have been merrily building bad properties for the last five years, and they try to put it at the government’s feet,” Stewart said in an interview. “There was a bit of planning involved, but they thought they could flog houses more profitably by stacking small rooms on top of each other.”
Saving Space
Taylor Wimpey is designing a new range of houses, with models that save space and minimize the amount of land needed. They will feature fewer hallways and more open-plan kitchens, Redfern said on Nov. 4. They will be ready next year.
Redrow plans to introduce its own collection of traditional family housing starting in January, having reduced the number of models it sells to 32 from 80.
The return to houses is “a good move” said Chris Millington, an analyst at Numis Securities in London. “There is a shortage of land in the U.K. so we can’t concrete over it, but the consumer wants a driveway and a garden, and clearly when the market got weaker the flats were the ones hit hardest.”
To contact the reporter on this story: Tim Barwell in London at tbarwell@bloomberg.net
Last Updated: December 8, 2009 19:00 EST
Allianz, Deutsche Bank, Goldman May Raise Vattenfall Grid Offer
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By Aaron Kirchfeld and Nicholas Comfort
Dec. 8 (Bloomberg) -- Allianz SE, Deutsche Bank AG’s RREEF investment fund and Goldman Sachs Group Inc. may raise their bid for Vattenfall AB’s German power grid after earlier talks failed to yield an agreement, said a person familiar with the matter.
The group’s last offer was valued at about 515 million euros ($760 million), said the person, who declined to be identified because the talks are private.
Vattenfall is soliciting new bids after competitor E.ON AG got double the price for its German power grid. The Stockholm- based power company, seeking to reduce debt amassed from the purchase of Nuon NV, is holding talks with more than one bidder after determining a previous offer was too low, spokesman Steffen Herrmann said today.
“E.ON made an example with their sale and got a good price,” said Reiner Haier, a credit analyst with Landesbank Baden-Wuerttemberg in Stuttgart. “If Vattenfall management has a new target and there are new bidders, then it makes sense to start afresh.”
Dusseldorf-based E.ON, Germany’s largest energy supplier, agreed last month to sell its high-voltage power lines to Dutch grid operator Tennet BV for 1.1 billion euros.
The Swedish utility had been holding exclusive talks with Allianz, Deutsche Bank and Goldman, the person said. Herrmann declined to comment on details of the sale or identify companies that made up the bidding group. Officials at Allianz, Goldman and Deutsche Bank’s RREEF unit declined to comment.
Vattenfall, Germany’s fourth-largest power supplier, owns 9,700 kilometers (6,028 miles) of power lines in eastern Germany, according to the company’s Web site. That’s shorter than E.ON’s network, which runs almost 11,000 kilometers from north to south.
To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.netAaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net
Last Updated: December 8, 2009 13:06 EST
AIG General Counsel May Depart After Protesting Pay (Update2)
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By Hugh Son
Dec. 8 (Bloomberg) -- Anastasia Kelly, the general counsel of American International Group Inc. who threatened to quit over government-imposed pay limits, may depart as early as this month, said three people familiar with the matter.
Kelly, 60, said in a Dec. 1 letter she was prepared to leave AIG by yearend because of impending compensation restrictions, and the insurer hasn’t sought to keep her, said the people, who declined to be identified because an announcement hasn’t been made. Michael Leahy, a lawyer who works at AIG’s New York headquarters, is among candidates being considered to succeed Kelly, said one of the people.
AIG was rescued last year in a U.S. bailout that has swelled to $182.3 billion, placing the company under the jurisdiction of Kenneth Feinberg, the Obama administration’s special master for executive compensation. Kelly hired Washington-based law firm Dickstein Shapiro LLP to represent her and four AIG managers concerned that Feinberg would impose limits on severance pay, said one of the people.
“If people aren’t seeing a long-term future there, maybe they’re blaming the pay,” said Bill Bergman, an analyst at Morningstar Inc. in Chicago.
The executives’ severance awards may equal as much as two years of salary and bonuses, AIG said in a June regulatory filing. Leahy and Mark Herr, a spokesman for AIG, declined to comment. Kelly didn’t immediately return a phone call and e-mail seeking comment.
Persuaded to Stay
Kelly joined AIG in 2006 to help the insurer recover from regulatory probes that led to the retirement of former Chief Executive Officer Maurice “Hank” Greenberg. Kelly, former general counsel at MCI/WorldCom and Fannie Mae, didn’t endear herself to AIG’s current CEO, Robert Benmosche, who took over in August, the people said.
Kelly was among managers in a September 2008 e-mail listing people who should be dismissed over AIG’s near-collapse, according to Fortune magazine. The so-called “kill list” was written by then-controller David Herzog, now chief financial officer. He urged former CEO Robert Willumstad to “clean the slate” for his government-appointed successor, Edward Liddy, the magazine reported.
The five executives who said they may resign are Kelly; Rodney Martin, who heads a non-U.S. life unit; William Dooley, a senior vice president in charge of the financial-products division; Nicholas Walsh, head of the non-U.S. property casualty operations, and John Doyle, who is in charge of the U.S. property casualty unit, the people said.
Threats Retracted
AIG persuaded two of the four managers to retract their threat to leave, one of the people said. Walsh and Doyle rescinded the notices, the Wall Street Journal said yesterday.
Feinberg may issue a ruling as early as next week allowing some AIG executives to earn more than a $500,000 salary cap he announced in October, according to one of the people. Treasury Department and Federal Reserve officials have urged him to strike a balance between curbing excessive pay and retaining key employees.
The $500,000 limit has so far applied to everyone at AIG except Benmosche, who has a $7 million salary.
More than 50 managers including Vice Chairman Matthew Winter and property-casualty executive Kevin Kelley left AIG to join rivals since the bailout. Benmosche threatened to resign last month, saying limits on compensation hurt the insurer’s ability to retain staff. He reassured employees in a Nov. 11 memo that he was committed to leading AIG.
To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net.
Last Updated: December 8, 2009 17:45 EST
Tofu, Soy Diet Linked to Lower Death in Breast Cancer Survivors
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By Nicole Ostrow
Dec. 8 (Bloomberg) -- Breast cancer survivors in China who ate tofu, soy milk and fresh beans as part of a diet rich in soy protein had a lower risk of dying and less chance their cancer would return, a study found.
Those who ate the most soy protein had a 29 percent lower risk of dying and a 32 percent lower rate of their breast cancer returning than those who had the lowest intake of soy, research showed today in the Journal of the American Medical Association. The foods included in the study were tofu, soy milk and fresh soy beans, all common choices in Asian meals.
The study, which followed women for an average of about four years, is the largest to examine the influence of soy intake on breast cancer survival and recurrence, the authors said. More than 192,000 women in the U.S. will be diagnosed with breast cancer this year, according to the National Cancer Institute.
“Women with breast cancer can be assured that consumption of moderate amounts of soy food is safe and may be associated with better outcomes,” said the study’s lead author Xiao-Ou Shu, a professor of medicine at Vanderbilt University in Nashville, Tennessee, in a Dec. 4 e-mail. The researchers will follow the women to watch “the long-term effects of soy food intake on health among breast cancer survivors, including bone density, fracture and coronary heart disease,” she said.
Rich in Isoflavones
Soy foods are rich in isoflavones, which are estrogen-like compounds that occur naturally in plant foods. Soy isoflavones may compete with the body’s estrogen in binding to cell receptors, reducing the amount of estrogen in the body and hindering the ability of cancers to grow. The most common types of breast cancer depend on estrogen to grow, Shu said.
The researchers said the results eased previous concern that isoflavones might interfere with tamoxifen, a cancer drug designed to block estrogen. The study found higher soy food consumption was beneficial regardless of whether a patient was taking tamoxifen, she said.
The researchers analyzed data from women in the Shanghai Breast Cancer Survival Study in China. The women had been diagnosed with breast cancer from March 2002 to April 2006. They were followed for an average of four years through June 2009.
At that time, there were 444 total deaths and 534 breast cancer recurrences or breast cancer-related deaths among 5,033 women in the study.
Death Rate Lower
The four-year mortality rate was 7.4 percent for women with the highest consumption of soy protein compared with 10.3 percent for those with the lowest intake. The four-year breast cancer recurrence rates were 8 percent for those in the highest soy group and 11.2 percent for those in the lowest group, the researchers found.
Eating soy food that is the equivalent to 11 grams (0.39 ounces) of soy protein or 40 milligrams of soy isoflavone a day was enough to see a benefit, Shu said. In the study, the women consumed an average of 47 milligrams a day of isoflavone compared with the average U.S. intake of 1 milligram to 6 milligrams a day, the researchers said.
The U.S. Food and Drug Administration recommends people consume 25 grams of soy protein a day, which contains about 50 milligrams of isoflavone, as part of a diet low in saturated fat and cholesterol that may help reduce the risk of heart disease. One cup of fortified soy milk contains 10 grams of soy protein, or 43 milligrams of isoflavone, while a half cup of a firm soybean patty called tempeh contains 16 grams, or 53 milligrams of isoflavone. A half-cup of tofu or about 1.5 cups of edamame, a green vegetable, also each contain 10 grams of soy protein.
Survival Benefits
Other ingredients in soy foods including folate, protein, calcium or fiber may also be responsible for the survival benefits, Shu said.
More soy foods are consumed in China than in the U.S., according to an editorial written in the same journal by Rachel Ballard-Barbash at the National Cancer Institute in Bethesda, Maryland, and Marian Neuhouser at the Fred Hutchinson Cancer Research Center in Seattle.
Ballard-Barbash and Neuhouser said most soy in the U.S. is consumed through supplements and processed foods, including meat substitutes made with soy, that may contain lower amounts of isoflavones. Future studies should look at whether isoflavone supplements have similar results as those seen with soy food, Shu said.
More studies are needed in larger numbers of people among more diverse populations to fully understand the effects of soy on breast cancer survivors, Ballard-Barbash and Neuhouser wrote.
“In the meantime, clinicians can advise their patients with breast cancer that soy foods are safe to eat and that these foods may offer some protective benefit for long-term health,” they wrote. “Patients with breast cancer can be assured that enjoying a soy latte or indulging in a pad thai with tofu causes no harm and, when consumed in plentiful amounts, may reduce risk of disease recurrence.”
To contact the reporter on this story: Nicole Ostrow in New York at nostrow1@bloomberg.net.
Last Updated: December 8, 2009 16:00 EST
Nelson Fails to Add Abortion Limits to Health Bill (Update2)
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By Nicole Gaouette and Laura Litvan
Dec. 8 (Bloomberg) -- The U.S. Senate refused to add stricter limits on abortion funding to health-care legislation, jeopardizing Nebraska Democrat Ben Nelson’s support for the overall plan.
The Senate voted 54-45 to reject Nelson’s amendment. While he said his proposal would simply preserve the prohibition on federal funding of abortion, opponents argued it would discourage insurance companies from covering the procedure.
The loss means Senate Majority Leader Harry Reid may have to find a compromise to gain Nelson’s backing for the overall legislation, which is intended to cover 31 million uninsured Americans and curb rising medical costs. Reid needs all 60 votes controlled by Democrats to pass the measure unless he can win a convert among Republicans.
“This is not the right place for this debate,” Reid said before lawmakers voted to take the amendment from consideration on the Senate floor. “We have to get on with the larger issue at hand” and work on the health-care plan, he said.
Reid, an antiabortion Democrat himself, said he believes the current Senate bill does enough to prevent federal dollars from paying for the procedure.
‘No Plan B’
After the vote, Nelson said the amendment’s defeat makes it harder for him to support the legislation, although he’ll listen to compromises on abortion if someone offers them.
“We’ll just have to see what develops,” Nelson told reporters. “I don’t have a Plan B. I don’t know if anyone else has a Plan B. But I don’t see much room for compromise.”
Anti-abortion activists criticized the vote and called on Democrats who oppose abortion to vote against the larger bill.
“The vote reflects a callous disregard for the protection of innocent human life,” said Jay Sekulow, chief counsel of the American Center for Law & Justice, a Washington-based group that describes itself as focusing on constitutional law.
Senator Dianne Feinstein, a California Democrat, called the vote a victory for women’s health and said it sent a message to lawmakers who supported Nelson’s amendment.
“This is the first thing we’ve won in years,” Feinstein said, referring to battles over abortion. “The march has been to continue pressure to make it more difficult in every way, shape and form to get access to abortion. Bit by bit by bit they’ve been chipping away.”
Unacceptable to Republicans
Republican Senator Michael Enzi of Wyoming said he didn’t expect any abortion language that gets into the final bill to be acceptable to his party or pass the House, which accepted the tougher language that Nelson couldn’t get through the Senate.
Earlier in the day, Reid said he would keep consulting with Nelson in a search for a compromise.
“I’m happy to continue work with Senator Nelson,” Reid, a Nevada Democrat, told reporters. “If in fact he doesn’t succeed here, we’ll try something else.”
Reid is pushing the Senate to pass the 10-year, $848 billion bill before the end of the month. That would clear the way for crafting a House-Senate compromise early next year.
Like the $1 trillion measure passed by the House on Nov. 7, the Senate plan would require all Americans to get health coverage or pay a penalty. It would expand the Medicaid health program for the poor and provide subsidies for those who need help buying policies.
‘Sends a Message’
Republican Senator Orrin Hatch of Utah, one of Nelson’s co- sponsors on the abortion amendment, said the amendment’s failure would make it harder for Democrats to get support for the underlying bill.
“I think there’s going to be a lot more people opposed to it now,” Hatch said to reporters. He pointed to the Democrats who backed Nelson’s amendment and said “that sends a message.”
The Democratic senators who voted to keep Nelson’s amendment were co-sponsor Robert Casey of Pennsylvania, Byron Dorgan of North Dakota, Mark Pryor of Arkansas, Kent Conrad of North Dakota, Ted Kaufman of Delaware and Evan Bayh of Indiana.
Two Republicans voted against Nelson’s amendment, Olympia Snowe and Susan Collins, the two senators from Maine. The White House has been wooing the two moderates who are considered potential supporters of the larger bill.
Crowding Out Insurers
Other Republicans say the bill might crowd out private insurers, raise taxes and explode the federal budget deficit. They also object to a provision that would create a government- backed insurer to compete with private companies, a measure also disliked by centrist Democrats, including Nelson.
Nelson left the floor after the abortion vote and returned to talks with nine other Senate Democrats about a possible compromise on the public option. He added that all senators in the public option talks understand that even if they get a deal on that aspect he might vote against the bill.
He said he will continue to see if he can work with other senators to find a way to take the public option out of the bill, adding that he wants to see the overhaul “get enough votes to pass.”
He said it was unlikely that compromise language on abortion could be found. “I can’t honestly see how anything could be satisfactory,” he said.
To contact the reporters on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net; Kristin Jensen in Washington at kjensen@bloomberg.net
Last Updated: December 8, 2009 19:43 EST
Australian Firms to Tap Equity Market for M&A Funds, UBS Says
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By Angus Whitley
Dec. 9 (Bloomberg) -- Australian companies seeking cash for takeovers will account for a bigger share of local equity fundraising next year as firms emerging from the financial crisis step up acquisitions, UBS AG said.
Initial public offerings will also pick up after slumping to a 16-year low in 2009, said Simon Cox, head of equity capital markets syndication at UBS, Australia’s biggest arranger of share sales since 2006. Myer Holdings Ltd. went public last month in the country’s largest IPO since April 2007.
National Australia Bank Ltd. and Lihir Gold Ltd. were among local companies that raised A$86 billion ($78 billion) selling shares in the 10 months through October to strengthen capital as economies weakened, stock-exchange data show. Australia’s economy is rebounding faster than the U.S. and Europe and the currency has rallied this year, making companies more confident about expansion.
“This year was largely about raising capital to repair balance sheets and survive the financial crisis,” Cox said in an interview in Sydney. “In 2010, we’ll see a more resurgent IPO market and the return of cross-border mergers and acquisitions.”
The value of share sales may fall to about A$50 billion next year, a return to “normal” levels, according to Cox. IPOs will account for a larger share of the total than the 3 percent they made up so far in 2009, he said.
Australia’s Queensland state said yesterday it plans to list its coal and rail freight network next year, a business the local government has valued at A$7 billion.
‘Recapitalization Complete’
Mergers and acquisitions by Australia-based companies are poised to fall to the lowest since 1999 this year, with $25.4 billion of transactions announced, according to Bloomberg data.
Australian companies raised A$83.5 billion in secondary share sales and A$2.65 billion in IPOs in the first 10 months of 2009, the stock exchange said. Forty-five companies went public in the 12 months ended June 30, the fewest since 1993.
“The recapitalization process of corporate Australia is essentially complete,” said David Gray, head of equity capital and derivative markets for JPMorgan Chase & Co.’s Australian business. “Issuance in 2010 is likely to be driven by M&A financing, funding-project growth and IPOs.”
It’s easier to fund overseas acquisitions with cash than equity, so Australian businesses are more likely to tap share markets for financing, said Cox at UBS. The 31 percent rally in the local currency against the U.S. dollar this year has helped make foreign purchases cheaper.
Confident Boards
Sims Metal Management Ltd., the world’s biggest recycler of scrap metal, said Nov. 20 it planned to sell A$475 million of shares to help fund takeovers and repay debt. GrainCorp Ltd., the nation’s biggest grain handler, in October agreed to buy United Malt Holdings Ltd. for $655 million, partly funded by a A$589 million share sale.
“Corporates now have the capacity to pay for takeovers,” said Tom Story, a partner at law firm Allens Arthur Robinson in Sydney who specializes in mergers and acquisitions and equity- capital fundraising. “Boards are now more confident and actively looking for opportunities.”
The country’s benchmark stock index, the S&P/ASX 200, ended six straight quarters of declines in the three months to June 30 and has surged 48 percent from a March 6 low. The equities recovery presents an opportunity for companies seeking to go public.
An IPO of outdoor equipment retailer Kathmandu Holdings Ltd. by co-owners Goldman Sachs JBWere Pty and Quadrant Private Equity last month valued the company at A$340 million. German builder Bilfinger Berger AG plans to list its Australian unit in an IPO that analysts say may value it at about $890 million.
Valuation Pressure
Ascendia Retail, owned by buyout firm Archer Capital, may raise A$800 million as early as February, the Australian Financial Review said Dec. 7. Australian pallet-hire company Loscam Ltd. is also planning an IPO, the Review said.
“There’s a mix of businesses coming through,” said Cox at UBS. “It’s not only private equity-owned retailers. The total will be way up on 2009.”
Still, valuations for private-equity led IPOs may come under pressure, Cox said. Shares of Myer, Australia’s largest department-store chain, fell on the first day of trading in Sydney after its A$2.1 billion offering and remain below the IPO price.
UBS is the top-ranked underwriter of equity offerings in Australia and New Zealand this year with 24 percent market share, Bloomberg data show. Macquarie Group Ltd. is second with 15 percent, followed by Goldman Sachs JBWere at 13 percent.
To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net
Last Updated: December 8, 2009 20:12 EST
Morgan Stanley Ousts Petrick as Trading Chief, Promotes Porat
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By Christine Harper
Dec. 9 (Bloomberg) -- Morgan Stanley ousted sales and trading chief Mitch Petrick after his division’s revenue fell short of rivals and promoted Ruth Porat, head of the financial institutions group, to become chief financial officer.
Porat, 52, is taking a role held by Colm Kelleher, who will become co-president of Morgan Stanley’s institutional securities business with Paul Taubman, the 48-year-old chief of investment banking. Kelleher, 52, will focus on sales and trading, while Taubman will manage investment banking, with both overseeing capital markets. The changes take effect on Jan. 1, the New York-based firm said in a statement.
“This is an attempt to groom the next generation of senior management and re-initiate a partnership culture at the top,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York. “The risk is that the co-heads are unable to work together, but that is the challenge of any partnership.”
Petrick, 47, has been Morgan Stanley’s head of sales and trading for two years. Revenue from the business was $6.87 billion for the first nine months of this year, down from $21.4 billion in the same period a year earlier, according to a company filing. Trading revenue this year was damped by $4.9 billion in writedowns on the firm’s own liabilities as credit spreads narrowed, while 2008 results included $11.8 billion in gains as the spreads widened.
James Gorman, the firm’s co-president, is scheduled to succeed John Mack as chief executive officer at year-end. Gorman’s expertise is in managing retail brokerage and asset- management divisions, not the securities businesses that traditionally constituted Morgan Stanley’s core. Mack, who has been chairman and CEO since 2005, is remaining as chairman.
Results at Rivals
Goldman Sachs Group Inc.’s sales and trading revenue surged to $27.3 billion from $13.7 billion a year earlier and JPMorgan Chase & Co.’s trading division generated $17.9 billion, up from $6.6 billion, according to company filings. Morgan Stanley has said it plans to hire 400 employees to bolster the sales-and- trading division.
Petrick, who has a background in distressed debt and principal investments, is considering other roles at Morgan Stanley.
“The firm is in ongoing discussions with Mr. Petrick about other opportunities,” said Jeanmarie McFadden, a spokeswoman at Morgan Stanley, without elaborating. Petrick didn’t respond to a phone message and e-mail seeking comment.
Other executives to lose their jobs in recent years because of the performance of the sales-and-trading division include Roberto Hoornweg, who was global head of interest rates and currencies until he left in July, when the firm hired Jack DiMaio to replace him.
Mack’s Moves
In November 2007, Mack ousted Zoe Cruz, the co-president who oversaw trading, and demoted trading chief Neal Shear because of bad trades that resulted in the first quarterly loss as a publicly traded company. Shear, who accepted a lesser role as chairman of the commodities business before leaving Morgan Stanley in March 2008, was succeeded in the trading job by Petrick.
Morgan Stanley, up 88 percent this year, closed in New York Stock Exchange composite trading yesterday at $30.15.
Porat, who’ll be the first female CFO in firm history, has been global head of the financial institutions group since 2006. She joined Morgan Stanley in 1986 as a member of the mergers and acquisitions department and went on to help establish the firm’s efforts to provide corporate finance services to buyout firms. She was also co-head of the global technology group and helped lead the equity capital markets business.
‘She’s Strategic’
“She’ll make an excellent CFO,” said Blackstone Group LP President Tony James, who said in an interview that he’s known Porat for about 20 years and once tried to hire her to work at Donaldson Lufkin & Jenrette Inc. “She knows financing markets, she’s strategic in terms of areas of growth, she has a great way with people.”
Porat was a key adviser to Blackstone, when it became the first major buyout firm to go public in June 2007. The IPO raised $4.75 billion.
“She helped us make the right calls in terms of the right way to position the firm,” James said. “She keeps a cool head when people get stressed out and tense.”
Porat holds an MBA from the Wharton School at the University of Pennsylvania, according to a statement from Morgan Stanley. She has a master’s in economics from the London School of Economics and a bachelor’s degree from Stanford University.
Thomas Nides, chief administrative officer and a long-time colleague of Mack’s, will take on additional responsibility as chief operating officer, the company said. He will take over operations and technology from Jim Rosenthal, who will become head of corporate strategy and chief operating officer of the Morgan Stanley Smith Barney retail joint venture.
Walid Chammah, the 55-year-old co-president with Gorman, 51, said in September he will give up that role and keep his other position of chairman of Morgan Stanley International in London. In yesterday’s announcement, the firm said Chammah will be chairman of a new international operating committee comprising the regional heads in Europe, Latin America and Asia.
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.
Last Updated: December 8, 2009 19:00 EST
Oil Markets Definitely Oversupplied, Algeria’s Khelil Says
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By Ayesha Daya
Dec. 8 (Bloomberg) -- Oil markets are “definitely” oversupplied and the Organization of Petroleum Exporting Countries will likely maintain production when it meets in Angola, Algerian Oil Minister Chakib Khelil said.
To contact the reporter on this story: Ayesha Daya in Dubai at adaya1@bloomberg.net
Last Updated: December 8, 2009 04:23 EST
Lukoil Cuts Production Growth Targets on U.S. Shale Gas, Demand
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By Stephen Bierman and Anna Shiryaevskaya
Dec. 8 (Bloomberg) -- OAO Lukoil cut its 10-year output targets as Russia’s biggest non-state crude producer postponed some natural-gas projects on a decrease in European fuel demand and unconventional gas developments in the U.S.
“It looks like our country will face serious problems with gas exports as early as the next decade,” Deputy Chief Executive Officer Leonid Fedun said in Moscow today.
An “acute glut” of gas may arise in the next few years because of rising production of so-called unconventional fuel in the U.S. and Canada, the International Energy Agency said last month. Lukoil plans to boost gas production to about 26 percent of total output by 2019, from about 10 percent now. Its previous 10-year plan to 2016 had targeted 33 percent.
Lukoil will focus on developing new deposits and more profitable projects, Fedun said, while presenting the new strategy. The company cut planned capital expenditure, and seeks to boost accumulated free cash flow fourfold by 2019, he said.
“There were many apparently contradictory statements,” Alexander Korneev, a Moscow-based oil analyst at Citigroup Inc., said in a note to investors. It was “a disappointing strategy yet to be reflected in the share price.”
Lukoil shares fell 2.8 percent to 1643.77 rubles a share on Moscow’s Micex stock exchange.
The focus of acquisitions will shift to adding reserves, Fedun said. The company spent more than $4 billion on refineries and retail networks in the past two years.
Iraq, Kazakhstan, West Africa
Lukoil will seek production assets in Kazakhstan and West Africa, and bid for the West Qurna-2 field in Iraq, Fedun said. Lukoil had sought to have a contract for the project, which was signed and terminated under Saddam Hussein, recognized by the country’s government.
Gas production is expected to lead Lukoil’s planned output gains. The company plans to produce 2.7 million barrels of oil equivalent a day by 2019, compared with 2.2 million barrels a day now, according to the presentation on Lukoil’s Web site. The previous 10-year plan to 2016 targeted 4 million barrels a day.
Of that amount, crude and gas condensate output may rise to about 2 million barrels a day, Fedun said. Third-quarter output was 1.97 million barrels a day, according to Lukoil’s Web site.
Lukoil postponed some of its gas projects as demand slipped and the U.S. made “dynamic” developments in shale gas, Fedun said. Some existing projects boast cheaper costs than liquefied natural gas and unconventional gas projects and would provide free cash flow of over $6 billion through 2019, Fedun said. Lukoil’s largest natural gas projects are in Siberia, the Caspian Sea region and Uzbekistan in Central Asia.
Spending Cuts
Capital expenditures in exploration and production may reach $60 billion, 20 percent less than under the previous plan, according to the presentation. Investments in refining may reach $25 billion. The new strategy is based on oil at $64 per barrel.
Under the new strategy, Lukoil plans to boost refining capacity by about 3.6 percent to 72.6 million metric tons a year, or 1.46 million barrels a day, through upgrading refineries and increasing the proportion of high value products, Fedun said. The Moscow-based company had aimed to refine 2 million barrels a day under the previous plan.
Output of gasoline and diesel that meet European quality standards will increase by 39 percent in the period, Fedun told reporters in Moscow today. Fuel oil production will be cut by 14 percent, he said.
Disappointed
The presentation showed a target for accumulated free cash flow of between $45 billion and $50 billion during the 10-year period. The dividend payout ratio may increase by over 30 percent through 2019, according to the presentation.
Investors were looking for a 40 percent dividend payout ratio, Korneev said.
“I was disappointed in the lack of clarity on distribution of cash among shareholders, dividends and buybacks in the near future,” Maria Radina, a Moscow-based analyst at Nomura International Plc, said at the presentation in Moscow.
Lukoil’s third-quarter profit slumped 41 percent to $2.06 billion after world crude prices declined, missing the $2.18 billion median estimate of eight analysts surveyed by Bloomberg, the company said.
To contact the reporter on this story: Stephen Bierman in Moscow at sbierman1@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net
Last Updated: December 8, 2009 13:21 EST
Natural Gas Exporters Seek to Keep Oil-Price Link as Glut Grows
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By Robert Tuttle
Dec. 9 (Bloomberg) -- Natural gas exporters, meeting today in Qatar, may discuss how to maintain the link to oil prices that’s supported revenue this year amid a glut in supply.
The connection between prices for the two fossil fuels is essential to attract investment in gas export projects, Algerian Oil Minister Chakib Khelil said yesterday after arriving in Doha for the Gas Exporting Countries Forum.
Natural gas prices in the U.K., Europe’s largest consumer, have dropped 49 percent this year as production and inventories grow, while Brent crude oil gained 65 percent on expectations for a rebound in demand. E.ON AG and other European utilities like GDF Suez SA are trying to buy more lower-cost gas in spot markets and renegotiate longer term contracts linked to oil that stipulate higher prices.
“What the buyers are saying is look, we’ve signed these contracts but we’ve got a problem,” Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, said in a telephone interview. “That problem is that there is an awful lot of gas at half the price to our long-term contracts.”
The global recession cut demand for natural gas at a time when the development of so-called shale gas in North America is increasing production, causing a global oversupply that’s sent spot prices for the fuel tumbling. Asian buyers also use multi- year contracts for liquefied gas purchases.
‘Acute Glut’
The International Energy Agency warned last month of an “acute glut” of natural gas worldwide in the next few years because of rising production in the U.S. and Canada. Supply is set to outpace annual demand growth of 2.5 percent between 2010 and 2015, the IEA said in its annual World Energy Outlook.
E.ON recorded “some success” in delaying natural-gas supplies from Russia and Norway under long-term contracts as it seeks to take advantage of cheaper spot-market prices, Chief Executive Officer Wulf Bernotat said on Nov 11.
“Not much can be done to support prices in the short- term,” Ibrahim Ibrahim, economic advisor to Qatar’s ruler, said in an interview in Doha yesterday. “We are not talking about using production itself to lift the price.
“We are hoping the linkage is still there” between oil and gas, he said.
The Forum, established in Tehran in 2001, has 11 members; Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad & Tobago and Venezuela. Its Web site also lists Kazakhstan and Norway as having “observer” status, as does the Netherlands.
Secretary-General
The gas exporters group, dubbed “Gas OPEC” by some analysts for its potential similarity to the Organization of Petroleum Exporting Countries, will elect a secretary-general today. Russia and Iran have proposed candidates.
Qatari Energy Minister Abdullah bin Hamad al-Attiyah, who’s hosting today’s meeting, and Alexander Medvedev, deputy chief executive of Russia’s export monopoly OAO Gazprom, both said last month the oil-price link needed to stay. The group’s 11 members control more than 35 percent of world gas supply.
Russian Energy Minister Sergei Shmatko said he was content with the current level of oil prices, when he arrived yesterday in Doha. Asked about natural gas prices, he said that was “difficult to say.”
GECF members have held eight previous ministerial meetings to discuss markets and share technology, though unlike OPEC the gas exporters group has never set price targets or production quotas. The tenth meeting is scheduled for April in Algeria.
‘Preserve the Link’
Gas exporters “would like to preserve the price linkage between gas and oil which is currently under attack by market forces,” Morten Frisch, senior partner at Morten Frisch Consulting in East Horsley, southwest of London, said in a telephone interview. “This subject will be on the agenda, I can guarantee.”
IEA Executive Director Nobuo Tanaka, whose agency advises energy-consuming countries, said yesterday that he’s against the formation of a “gas OPEC” that sought to control global supply of the fuel.
Russia alone accounts for about 19 percent of world gas production and holds 23 percent of global reserves, according to statistics compiles by BP Plc.
“We are against cartelization,” Tanaka told reporters at the organization’s headquarters in Paris. “If a gas OPEC were created to control production or investment it could create problems for the future functioning of the gas market.”
To contact the reporter on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net
Last Updated: December 8, 2009 19:01 EST
Oil Snaps Five-Day Decline After Report Shows Drop in Supplies
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By Ben Sharples
Dec. 9 (Bloomberg) -- Crude oil climbed above $73 a barrel in New York after an industry report showed U.S. supplies dropped, bolstering optimism that fuel demand in the biggest energy-consuming nation will increase.
Oil rose for the first time in six days after the American Petroleum Institute said crude inventories fell by 5.82 million barrels. Futures fell to an eight-week low yesterday as the dollar gained against the euro. The U.S. Energy Department will release its weekly report today in Washington. Inventories are forecast to rise, according to a Bloomberg News survey.
“If we see a number of that magnitude in the Department of Energy numbers, that might provide some support to prices,” Toby Hassall, research analyst with CWA Global Markets Pty in Sydney, said by telephone today.
Crude oil for January delivery gained as much as 57 cents, or 0.8 percent, to $73.19 a barrel in electronic trading on the New York Mercantile Exchange. It was at $73.15 at 11:16 a.m. in Sydney. Yesterday, the contract fell $1.31 to $72.62 a barrel, the lowest settlement since Oct. 9. Futures are up 64 percent this year.
The Energy Department report is forecast to show that crude inventories increased 250,000 barrels, according to the survey. Oil-supply totals from the API and Energy Department moved in the same direction 75 percent of the time in the past four years, according to data compiled by Bloomberg.
Dollar Strength
The euro fell to a one-month low against the dollar on speculation credit ratings of more European nations will be cut after Greece’s debt ranking was lowered by Fitch Ratings. The dollar traded at $1.4688 per euro at 11:07 a.m. in Sydney, the strongest level since Nov. 3, from $1.4704 yesterday.
“The dollar has been a very supportive element for oil in recent months,” Hassall said. “If you pull that support away, it exposes a bit of downside.”
Gasoline supplies fell 753,000 barrels last week, according to the API report. Inventories of distillate fuel, a category that includes heating oil and diesel, rose 1.01 million barrels from 168.9 million, the report showed.
The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.
Brent crude oil for January settlement on the London-based ICE Futures Europe exchange fell $1.24, or 1.6 percent, to $75.19 a barrel yesterday.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net
Last Updated: December 8, 2009 19:42 EST
McDonald’s Sales Trail Estimates as Asia Results Drop (Update4)
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By Courtney Dentch
Dec. 8 (Bloomberg) -- McDonald’s Corp. fell the most in more than four months after global November sales showed the smallest monthly gain in at least five years, missing analysts’ estimates.
McDonald’s fell $1.32, or 2.1 percent, to $60.61 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest drop since July 23. The shares have lost 2.5 percent this year.
Sales at global stores open at least 13 months rose 0.7 percent. U.S. sales declined 0.6 percent, while Europe climbed 2.5 percent, the Oak Brook, Illinois-based company said in a statement today. Sales in Asia, the Middle East and Africa fell 1 percent.
It was the second straight month of declines in U.S. sales as consumers curbed spending and as high unemployment rates trimmed sales at breakfast and lunch. Orders off the company’s dollar menu have been hurt by rivals’ offers, such as Burger King Holdings Inc.’s $1 double cheeseburger. The Asia region posted its first decline since August as Japan and China sales slowed.
“They’re sequentially slowing from a year ago,” said Matt DiFrisco, a restaurant analyst with Oppenheimer & Co. in New York. He has a “market perform” rating on the stock. “They’ve really been feeling the pinch from Burger King’s double cheeseburger offer.”
Projected Gains
Global sales were expected to rise 2.2 percent, the average of estimates from analysts at Oppenheimer, Janney Montgomery Scott LLP and Robert W. Baird & Co. U.S. sales were predicted to fall 0.4 percent. The analysts projected gains of 5.3 percent in Europe and 2 percent in Asia, the Middle East and Africa.
The restaurant chain is facing “tough comparisons” in the year-earlier period, said Steve West, an analyst with Stifel Nicolaus & Co. in St. Louis. McDonald’s posted worldwide sales gains of 7.7 percent a year ago, led by a 13.2 increase in Asia, the Middle East and Africa.
“On a two-year basis they’re still very strong and they’re not going to get credit for that in today’s stock movement,” said West, who recommends buying shares. “They’re decelerating, but they’re still in pretty good shape.”
To contact the reporter on this story: Courtney Dentch in New York at cdentch1@bloomberg.net.
Last Updated: December 8, 2009 16:29 EST
Casino Billionaire Stanley Ho Is Recovering, Son Says (Update1)
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By Bernard Lo and Chia-Peck Wong
Dec. 9 (Bloomberg) -- Macau casino billionaire Stanley Ho, who’s been hospitalized for the past four months, is “recovering nicely” and may be discharged soon, his son Lawrence said in a Bloomberg Television interview.
“Hopefully some time soon he can come out of the hospital,” Lawrence Ho, 32, said. “It’s been a few months since his accident. He had two pretty big surgeries.” The son didn’t specify what the operations were for.
Ho, 88, controls SJM Holdings Ltd., the casino operator with the biggest market share in Macau, the world’s largest gambling hub. He has never announced a successor and neither SJM nor Shun Tak Holdings Ltd., the ferry operator and property developer he chairs, has made a statement to the Hong Kong stock exchange on his condition.
“It’s quite abnormal for Dr. Ho to stay behind the scenes for such a long time,” Steven Leung, director of institutional sales at UOB-Kay Hian Ltd. in Hong Kong, said in a phone interview.
The billionaire had said in a June e-mail to Bloomberg News he was healthy and had no plans to retire. Janet Wong, his spokeswoman, didn’t return earlier calls or e-mails seeking an update on his condition since she said in an Aug. 13 e-mailed statement that reports of Ho having had a stroke were “unfounded.”
SJM fell 2 percent to HK$4.26 in Hong Kong trading yesterday, trimming its gain this year to 152 percent. Melco International Holdings Ltd., controlled by Lawrence Ho, declined 2 percent to HK$4.01, paring its 2009 climb to 56 percent.
Macau Casino Revenue
Casino gambling revenue in Macau may rise 8 percent this year as global economies recover, Lawrence Ho said in the Dec. 4 interview aired today. “Macau is back on track,” he said, after official figures showed third-quarter casino gambling revenue increased 22 percent to 32 billion patacas ($4 billion), the first growth in a year.
The city’s casino revenue climbed more than 6 percent in the first 11 months of this year, compared with the same period in 2008, Portuguese news agency Lusa reported Dec. 1, citing data from the operators.
Gross revenue in November was higher than 12 billion patacas ($1.5 billion), with full-year earnings likely to reach a record of more than 120 billion patacas, Lusa said.
Ho’s four-decade casino monopoly in Macau ended after the government in 2001 accepted bids for rival operators. Six casino companies, including SJM, Las Vegas Sands Corp. and Wynn Resorts Ltd. eventually won permission to operate in the former Portuguese colony, the only place in China where casinos are legal.
Ho has fathered 17 children by four women. Lawrence Ho, his oldest surviving son, is chief executive officer of Melco Crown Entertainment Ltd., a joint venture between his company and with Australian billionaire James Packer that is one of the operators permitted to run casinos in Macau.
Melco Crown opened its $2.1 billion City of Dreams casino in June across from Las Vegas Sands Corp.’s Venetian on Macau’s Cotai Strip.
The company has another piece of land where it could build another 1 million-square-foot hotel or apartments, with more space for casinos, Ho said. That would be the third phase for the City of Dreams, which opened in two phases. The property consists of a 420,000-square-foot casino and 1,400 hotel rooms.
To contact the reporters on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloomberg.net
Last Updated: December 8, 2009 19:21 EST
nice day here. looking forward to tomorrow. I see this going higher because no one has been selling. Not much volume here but it's picking up daily..:)