Olympus’s Woodford Pledges to Work With Board to Avoid Threat of Delisting

By Mariko Yasu, Naoko Fujimura and Chris Cooper - Nov 25, 2011 4:36 PM GMT+0700

Olympus Corp. (7733)’s former president Michael C. Woodford pledged to work with the Japanese camera maker’s board to try and avoid delisting after three executives implicated in a scheme to hide losses resigned.

The company’s priority is to produce accounts by the Dec. 14 deadline set by regulators to avoid being removed from public trading, Woodford told reporters in Tokyo today after his first board meeting since being axed. The stock jumped as much as 25 percent before closing 8.6 percent higher at 1,107 yen in Tokyo as investors bet the scandal would be contained and after Olympus last night promised to put a rescue plan to shareholders and revamp management.

The resignation of former Olympus Chairman Tsuyoshi Kikukawa and two senior aides gives the company an opportunity to add board members untainted by the scandal. Woodford’s exposure of $687 million in fees paid by Olympus to a now- defunct Cayman Islands-based fund rattled investors, prompting Prime Minister Yoshihiko Noda to say the payments could damage the country’s international reputation.

“Funds are buying back as their concerns are easing that the company may get delisted and has more hidden losses,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “Olympus’s image would also improve if Woodford returns.”

While Olympus shareholders including Southeastern Asset Management Inc. have called for the 51-year-old Briton to be reinstated, it wasn’t discussed at today’s board meeting, Woodford told reporters. He has said he would return to the company if shareholders request it, though he added at a later press conference that “he isn’t begging to come back.”

Shares Gain

Shares of the 92-year-old camera and endoscope maker plunged more than 80 percent in the first four weeks after Woodford was fired on concerns about the scale of the losses, the delisting threat and the criminal investigations.

Since Nov. 11, Olympus shares have more than doubled in value and added a fourth straight day of gains today.

The decision to quit by Kikukawa, former Executive Vice President Hisashi Mori and auditor Hideo Yamada avoided a showdown with Woodford, who had been engaged in a feud over their roles in the 2008 takeover of U.K. health care company Gyrus Group Plc. for $2.1 billion. The three colluded to hide losses from investors using inflated takeover costs, Olympus said Nov. 8.

Fraud　　　　　　　　　　

KPMG International LLP, whose audit arm flagged concerns over the valuation of preferred stock granted to the Cayman fund as part of fees on the Gyrus deal, today said fraud was evident at Olympus.

“We were displaced as a result of doing our job,” Michael Andrew, KPMG’s global chairman, said at a press conference in Hong Kong today. “It’s pretty evident to me there was very, very significant fraud and that a number of parties had been complicit in the fraud.”

Official conclusions about Olympus’s accounting practices will come out from investigations by Japanese authorities, he said. Olympus spokesman Yasutoshi Fujiwara said the company is awaiting the result of the independent panel appointed to investigate the company’s accounting when asked for comment on Andrew’s statement.

The board meeting was “constructive,” Woodford said, adding that there was a desire to “be civilized.”

“Japan does need people to challenge, scrutinize,” said Woodford, in white shirt and dark blue tie and watched by hundreds of journalists at the Foreign Correspondents Club of Japan. “In Japan, even the meetings were pre-decided.”

Imminent Crisis

Woodford’s comments today contrast with earlier statements that the responsibility for hiding losses rested with the whole board, which voted unanimously to dismiss him Oct. 14. Southeastern Asset and other investors have also pressed for more executives to step down, including Akihiro Nambu, the current head of investor relations.

“There are some voices demanding the management be replaced right now,” Shuichi Takayama, the newly installed president, said in a statement to the Tokyo Stock Exchange last night. “If we change management and can’t take appropriate measures swiftly, then we won’t be able to overcome this imminent crisis.”

Poison

“The company can draw out all the poison if the board changes,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “Olympus’s businesses, mainly endoscopes, are doing well, so if its finances improve, there’s room for the stock to rise.”

Woodford’s return to Japan is the first since he left the country on the same day as his dismissal, saying he felt unsafe following reports that the payments made by Olympus may be linked to organized-crime groups. He was escorted by armed police to meetings with investigators yesterday.

Woodford said he’s confident prosecutors will fully investigate Olympus.

“I’m very happy with how things went,” he told reporters after visiting police in Tokyo. The police will decide if the company was involved in organized crime, Woodford said, adding there has been no evidence of any links so far.

Woodford went public with queries he raised with Kikukawa and Mori over $687 million in advisory fees in the acquisition of medical company Gyrus, as well as writedowns of stakes in three other takeovers.

Blowing Whistle

Olympus said the money may have been rerouted to the company via offshore funds to help cancel out losses on securities investments dating to the 1990s.

An independent committee set up by Olympus to investigate its accounting said this week that it found no evidence of criminal involvement. Woodford said it wasn’t possible to reach that conclusion without a forensic inspection of accounts.

Olympus was put on watchlist for possible delisting by the Tokyo Stock Exchange earlier this month after the company admitted it hid losses. The endoscope maker missed the Nov. 14 deadline for reporting first-half earnings and has said it plans to release its full earnings by Dec. 14 after the report is reviewed by auditors.

“If Olympus does not hand in the earning report by Dec. 14. then the company is put on notice for delisting in one month, during which investors still can trade Olympus shares,” Yukari Hozumi, a Tokyo Stock Exchange Inc. spokeswoman, said in a phone interview.

“After that Olympus is delisted,” she said, adding that no extension to the deadline will be given.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Chris Cooper in Tokyo at ccooper1@bloomberg.net

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net

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Air France A340 Flew With Missing Screws After Shop Visit

By Andrea Rothman - Nov 25, 2011 5:30 PM GMT+0700

An Airbus (EAD) SAS A340 operated by Air France-KLM (AF) Group was halted in Boston in mid-November after about 30 screws were found to be missing from a protective panel, the airline said.

The long-range plane had undergone maintenance in China, at Taeco-Taikoo Aircraft Engineering and left the facility Nov. 10. It had stopped at Air France’s hub at Charles de Gaulle airport in Paris for three days, and the absence of the screws went unnoticed until several days later in Boston, the carrier said.

The panel concerned is located between the fuselage and wing and serves to reduce drag by smoothing out edges.

“At no moment was the safety of the flight in question,” said spokeswoman Marina Tymen in a telephone interview from Paris, where Air France is based.

Taeco is based at Gaoqi International airport in Xiamen, and controlled by Hong Kong Aircraft Engineering Co., or Haeco, with a 58.55 percent stake. Boeing Co. (BA), Cathay Pacific Airways Ltd., Japan Airlines Co. and Xiamen Aviation Industry Co. are also shareholders.

Customers that have their aircraft serviced at Taeco include British Airways, AMR Corp. (AMR)’s American Airlines, Korean Air and Deutsche Lufthansa (LHA) AG, according to Taeco’s website.

“We are in the process of gathering information from our colleagues, which may take some time,” Sharon Lun, a spokeswoman for Haeco, said in an e-mail.

The incident was previously reported by an internal union bulletin.

To contact the reporters on this story: Andrea Rothman in Toulouse, France at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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Italy Borrowing Costs Almost Double as Euro Tumbles

By Andrew Davis and Jeffrey Donovan - Nov 25, 2011 7:32 PM GMT+0700

Italy had to pay almost 7 percent to sell six-month bills at an auction today, fanning investor concern that the world’s fourth-biggest borrower may struggle to finance its debt. The euro fell to a seven-week low.

The Italian Treasury paid 6.504 percent to auction 8 billion euros ($10.6 billion) of the six-month debt, almost twice the 3.535 percent a month ago and the highest since August 1997. Italy’s two-year bonds yielded a euro-era record 7.82 percent, almost 50 basis points more than 10-year notes.

The euro extended declines, shedding 0.9 percent to $1.3231, the lowest since Oct. 3. European stocks declined for a seventh day, the longest losing streak since August, with the Stoxx Europe 600 dropping 0.6 percent to 218.61. Italian banks tumbled with Banca Monte Paschi di Siena SpA (BMPS) losing 5.1 percent.

The sale came as Italy’s new prime minister, Mario Monti, met his Cabinet to advance additional budget measures that aim to cut a debt of 1.9 trillion euros and boost the economy in a country where growth has lagged the euro-region average for more than a decade. Spain is also facing surging costs. The Treasury in Madrid paid 5.11 percent on three-month notes this week, more than twice that previous sale and higher than Greece pays.

‘Damaging Concessions’

“For all the periphery issuers, each auction brings such damaging concessions,” Luca Jellinek, head of European interest- rate strategy at Credit Agricole Corporate & Investment Bank in London, wrote in an e-mail. “Monti and his new Cabinet better engage a faster gear but the periphery and Italy in particular face a very long, very hard road.”

Two years into the region’s debt crisis, European leaders are struggling to stop its spread and prevent contagion from affecting core countries such as France and Germany. The yield difference between French and German 10-year bonds reached an 11-year high on Nov. 17 and Germany failed to sell 35 percent of 10-year bonds on offer at a Nov. 23 auction

Monti joined German Chancellor Angela Merkel and French President Nicolas Sarkozy yesterday at a meeting in Strasbourg, France in calling for greater European fiscal coordination. Merkel again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.

The ECB has been buying Italian and Spanish debt since Aug. 8 in a bid to stem surging borrowing costs. The yield on Italy’s benchmark 10-year bond was 7.3 percent after the auction, up 19 basis points. Spain’s 10-year yield rose 6 basis points 6.689 within 10 basis points of a euro-era record.

The soaring borrowing costs won’t have a lasting impact on Italy’s debt even as the Treasury prepares to sell 440 billion euros of bonds and bills next year, Maria Cannata, director of public debt at the Treasury, said on Nov. 16.

The amount “sounds prohibitive, but it’s not, even if things have gotten more complicated as investors are frightened by the volatility,” Cannata said at a conference in Milan. Italy’s first bond redemption comes on Feb. 1, when it must pay back 26 billion euros for debt sold 10 years ago.

To contact the reporter on this story: Andrew Davis in Rome at abdavis@bloomberg.net; Jeffrey Donovan in Prague at jdonovan26@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net.

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U.S. Stock Futures Fall; S&P 500 Poised for Drop

By Adam Haigh - Nov 25, 2011 7:12 PM GMT+0700

U.S. stock futures declined, indicating the Standard & Poor’s 500 Index will drop for a seventh day, as the euro area’s leaders grappled with how to contain their region’s debt crisis.

Citigroup Inc. (C) lost 1.4 percent and Bank of America Corp. (BAC) slid 0.4 percent in early New York trading.

Futures on the S&P 500 expiring next month slid 0.7 percent to 1,152 at 7:10 a.m. in New York. Dow Jones Industrial Average futures expiring the same month lost 66 points, or 0.6 percent, to 11,168. U.S. equity markets will reopen today after yesterday’s Thanksgiving break. Trading will end at 1 p.m. today. The S&P 500 has declined 4.4 percent so far this week.

“Over the next weeks and months, we are likely to see the future of the euro zone taking shape,” said Thomas Beevers, a fund manager at Newton Investment Management Ltd. in London, which has about $73 billion in client assets. “There is a chance that some countries, such as Greece, may choose to either default on their debts or leave. The remaining countries are likely to be forced, by pressure stemming from Germany, to enact fiscal-austerity measures and implement economic reforms. A much stronger union will emerge from the current crisis.”

German Chancellor Angela Merkel yesterday repeated her opposition to joint euro-area bonds, damping optimism that politicians will agree to use a potential remedy for the region’s woes. The S&P 500 (SPX) has fallen 7.6 percent over the past six trading days, its longest slump since August.

Italian Bond Yields

Yields on two-year Italian notes rose to a euro-era record of 7.88 percent today. Spanish two-year notes slid, pushing the yield to more than 6 percent for the first time since the euro was created in 1999. The rate climbed as high as 6.09 percent.

“Nothing has changed in my position,” Merkel said yesterday at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France.

Fitch Ratings lowered Portugal’s long-term rating to BB+ from BBB- with a negative outlook, while Moody’s Investors Service cut Hungary’s foreign- and local-currency bond ratings to Ba1 from Baa3 yesterday.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB. European Union Economic and Monetary Affairs Commissioner Olli Rehn said it looks like contagion is spreading to core countries. S&P said yesterday Japan hasn’t made progress in tackling its debt load.

Bank Risk Soars

Debt-insurance costs for European financial companies jumped to the highest ever, with the Markit iTraxx Financial Index of default swaps linked to the senior bonds of 25 banks and insurers increasing 14 basis points to 359.

In China, a Dec. 1 report from the statistics bureau and the China Federation of Logistics and Purchasing will probably show manufacturing contracted in November for the first time since February 2009. The median estimate of economists polled by Bloomberg is for a reading of 49.8, compared with 50.4 in October, and below 50 which is the dividing line between expansion and contraction.

JPMorgan Chase & Co. strategist Thomas J. Lee yesterday lowered his estimate for where the S&P 500 will end the year by 8.5 percent, citing the recent decline in stocks. The median forecast still calls for an 8.9 percent climb to 1,265 from Nov. 23’s close, according to 12 strategists surveyed by Bloomberg News.

Barton Biggs, the hedge fund manager who reduced U.S. equity investments in September before the biggest monthly rally since 1991, said this week that he has cut bullish bets again on concern that the likelihood of a U.S. recession has increased.

Citigroup slid 1.4 percent to $23.18. Bank of America lost 0.4 percent to $5.12. Morgan Stanley (MS) slipped 0.6 percent to $12.95 in early New York trading.

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

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

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European Stocks Resume Decline on Concern Sovereign-Debt Crisis Worsening

By Peter Levring - Nov 25, 2011 5:36 PM GMT+0700

European stocks declined for a seventh day after Italy’s borrowing costs rose to a euro-era record and the cost of insuring against default on financial- company debt climbed to a record. U.S. index futures and Asian shares fell.

Swedish banks retreated after their capital adequacy norms were raised. Blacks Leisure Group Plc (BSLA), the U.K. outdoor-clothing retailer, sank 26 percent after saying it will need more funding to execute a turnaround. Nokian Renkaat Oyj dropped 3.2 percent after saying its heavy tires unit will reduce output because of weaker demand.

The Stoxx Europe 600 Index dropped 0.6 percent to 218.61 at 10:32 a.m. in London for its longest losing streak since August. The benchmark gauge is headed for a weekly slump of 5.9 percent, the biggest slump since September, as policy makers differed on how to tackle the debt crisis. Standard & Poor’s 500 Index futures expiring in December retreated 0.8 percent. U.S. markets will open for half a day’s trading today until 1:00 p.m. in New York. The MSCI Asia Pacific Index (MXAP) fell 1.1 percent.

“The crisis is no longer about an individual country’s debt issues. It’s about confidence in the euro itself,” said Frank Velling, chief strategist at BankInvest Asset Management A/S in Copenhagen, which manages $17 billion. “Investors from outside the euro zone have begun dumping euro-denominated assets as long as European politicians keep squabbling and cannot agree on anything.”

Borrowing Costs

Italy sold 8 billion euros of six-month Treasury bills, the maximum target. The Rome-based Treasury sold the 183-day bills to yield6.504 percent, up from 3.535 percent at the last auction on Oct. 26. Demand was 1.47 times the amount on offer, compared with 1.57 times last month. The country’s bonds extended their decline after the sale.

Earlier, Spanish two-year notes slid, pushing the yield to more than 6 percent for the first time since the euro was created in 1999. The rate climbed as high as 6.01 percent and was at 5.97 percent.

German two-year debt rose for the first time in three days as Belgium’s de Tijd newspaper reported European Central Bank Governing Council member Luc Coene as saying the central bank may cut interest rates given the current situation.

The cost of insuring against default on European financial- company debt rose to a record, according to traders of credit- default swaps.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased five basis points to 350 and the subordinated gauge gained six basis points at 601, according to JPMorgan Chase & Co. An increase signals worsening perceptions of credit quality.

Bailout Fund

The European Financial Stability Facility may fail to raise enough funds to increase its capacity to more than 1 trillion euros as planned because of a deterioration in market conditions over the past month, the Financial Times reported, citing three unnamed senior euro-area officials.

Even a lower target suggested this month by Klaus Regling, head of the EFSF, might be difficult to reach and the funds’ eventual capacity is expected to fall “well short of its billing,” FT said, citing one of the officials.

Hungary lost its investment-grade rating at Moody’s Investors Service after 15 years as the Cabinet seeks International Monetary Fund help to boost confidence in the European Union’s most-indebted eastern member.

The foreign- and local-currency bond ratings were cut one step to Ba1, the highest junk-level score, from Baa3, the company said today in a statement.

ECB’s Role

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB.

“Governments cannot expect the ECB to finance public deficits,” Gonzalez-Paramo said in a speech in Oxford, England yesterday. “It is now a time for politicians to be bold and courageous” and “complete as soon as possible the great project begun 60 years ago towards ever closer union,” he said.

Sweden’s four biggest banks, Nordea Bank AB (NDA), SEB AB, Swedbank AB (SWEDA) and Svenska Handelsbanken AB (SHBA) will be required to target common equity Tier 1 capital of at least 10 percent of their risk-weighted assets from January 2013, according to a joint statement today by the Stockholm-based Riksbank, Financial Supervisory Authority and Finance Ministry. The required ratio will rise to 12 percent in 2015, they said.

Nordea Bank fell 2.8 percent to 47.33 kronor. SEB slid 1.7 percent to 34.43 kronor. Swedbank lost 1.2 percent to 76.75 kronor.

Blacks Leisure

Blacks Leisure sank 26 percent to 3.25 pence. The company said full-year profits will be lower than expected as lower consumer spending continued to heap pressure on the outdoor clothing group.

The owner of the Blacks and Millets brands, which more than doubled pretax losses in the six months to August 27, said it continued to seek additional funding and other financing options to execute turnaround plan. The shares earlier fell as much as 63 percent, its lowest price since August 1989. Analysts said they see “little equity value left” in the company.

Nokian Renkaat Oyj (NRE1V), the Nordic region’s biggest tiremaker, lost 4.1 percent to 20.98 euros after saying its heavy tires unit will reduce production to reflect weaker demand.

Nokian Renkaat will reduce shifts, cutting the work of about 100 employees through temporary layoffs and potential job cuts, the Nokia, Finland-based company said in a statement today. The measures will continue indefinitely, it said.

To contact the reporter on this story: Peter Levring in Copenhagen at Plevring1@bloomberg.net or

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

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Stocks Extend Longest Drop Since 2008 on Debt Burden; Futures, Euro Fall

By Stephen Kirkland Shiyin Chen - Nov 25, 2011 7:42 PM GMT+0700

Play Video

Nov. 25 (Bloomberg) -- Nick Maroutsos, co-founder of Sydney-based Kapstream Capital, talks about Europe's sovereign debt crisis and its implications for global financial markets. Maroutsos also discusses the U.S. economy and the nation's budget deficit. He speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

Nov. 25 (Bloomberg) -- Marc Ostwald, a fixed income strategist at Monument Securities Ltd., discusses the International Monetary Fund's role in rescuing debt-laden euro-zone nations. He talks with Owen Thomas and Linda Yueh on Bloomberg Television's "Countdown." (Source: Bloomberg)

Stocks fell for a 10th day, the longest losing streak since July 2008, and the euro extended losses as the burden of government debt grew around the world. The cost of insuring European sovereign bonds against default rose to a record.

The MSCI All-Country World Index sank 0.5 percent at 7:35 a.m. in New York. Standard & Poor’s 500 futures slid 0.7 percent, signaling the index will drop for a seventh day when U.S. markets resume trading after the Thanksgiving break. The euro depreciated 0.7 percent to $1.3252, set for a fourth weekly decline. Hungary’s five-year yield climbed to a two-year high, while Japan’s 10-year yield rose above 1 percent for the first time in more than three weeks. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbed four basis points to an all-time high of 384.5.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB. European Union Economic and Monetary Affairs Commissioner Olli Rehn said it looks like contagion is spreading to core countries. Moody’s Investors Service cut Hungary’s debt to junk after S&P said yesterday Japan hasn’t made progress in tackling its debt load.

“We need to see more action out of Europe before any sort of rebound happens,” Nick Maroutsos, who oversees the equivalent of about $3 billion as co-founder of Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “Greece, Ireland, Portugal are becoming after-thoughts as the crisis is now unfolding at the footsteps of Italy, France and Germany. These are the larger countries and these would have the largest knock-on effects.”

Banks Slide

The Stoxx Europe 600 Index dropped 0.3 percent, with more than three stocks falling for every one that rose. The gauge has lost 5.5 percent this week, its worst performance in two months. Banca Monte dei Paschi di Siena SpA of Italy, Erste Group Bank AG of Austria and Banco Comercial Portugues SA sank at least 4 percent.

Debt-insurance costs for European financial companies jumped to the highest ever, with the Markit iTraxx Financial Index of default swaps linked to the senior bonds of 25 banks and insurers increasing eight basis points to 353.

S&P 500 futures indicate U.S. stocks may extend a six-day, 7.6 percent slump that dragged the benchmark index down to the lowest level since Oct. 7. Trading will end at 1 p.m. today. The yield on the 10-year U.S. Treasury note jumped 4 basis points to 1.93 percent after the market was closed yesterday.

The euro declined 0.3 percent versus the yen, and 0.8 percent against the pound. The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, climbed 0.4 percent.

Euro-Era Record

Italian five- and 10-year bonds extended declines after borrowing costs increased at a bill sale. The Rome-based Treasury sold 8 billion euros ($10.6 billion) of 183-day bills to yield 6.504 percent, up from 3.535 percent at the previous auction on Oct. 26. Five-year yields rose 28 basis points to 7.81 percent and 10-year yields climbed 22 basis points to 7.33 percent.

The Spanish two-year note yield exceeded 6 percent for the first time since the euro was created in 1999. Portugal’s 10- year bond yield rose 11 basis points to 12.32 percent, a day after the nation’s credit ranking was lowered to below investment grade by Fitch Ratings.

Largest Debt Burden

Japan’s benchmark bond yields completed the biggest weekly gain since January on concern the government will fail to rein in the world’s largest debt burden. Ten-year yields added 3.5 basis points to 1.03 percent at the 6:05 p.m. close at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The last time the rate rose above 1 percent was Nov. 1. Yields have climbed 8.5 basis points this week, the most since the period ended Jan. 7.

The MSCI Emerging Markets Index slid 1.4 percent. Hungary’s BUX Index lost 4.3 percent, the most in two months. Benchmark gauges in Poland and the Czech Republic sank at least 1.3 percent. Hong Kong’s Hang Seng China Enterprises Index slid 1.8 percent.

Gold fell 0.9 percent to $1,679.77 an ounce, heading for a second weekly decline. Oil slipped 0.8 percent to $95.37 a barrel. Soybean futures dropped as much as 1.5 percent to the lowest level since October 2010, and wheat futures slid 1 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Mark Gilbert at magilbert@bloomberg.net

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Euro Weakens on Falling French Confidence, Italy Auction; Dollar Advance

By Lukanyo Mnyanda - Nov 25, 2011 7:40 PM GMT+0700

The euro declined to a seven-week low against the dollar as French consumer confidence dropped to the least since 2009 and Italian borrowing costs increased at a sale of six-month bills.

The shared currency extended a third weekly drop versus the yen after European Union Economic and Monetary Affairs Commissioner Olli Rehn said contagion was likely spreading to the core nations. The dollar rose versus all its major peers as stock losses spurred demand for safer assets. Sweden’s krona fell as regulators told the nation’s largest banks to target tougher capital standards.

“It looks a bit grim for the euro,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “There are very nervous European bond markets. We have a negative euro environment and we have global risk aversion that’s positive for the dollar.”

The euro fell 0.8 percent to $1.3244 at 7:36 a.m. in New York, after dropping to $1.3226, the weakest since Oct. 4. It has fallen 2.1 percent against the dollar this week. The shared currency lost 0.3 percent to 102.60 yen, having depreciated 1.4 percent this week. The dollar gained 0.4 percent to 77.46 yen.

An index (SXXP) of consumer sentiment in France, the euro area’s second-largest economy, slid to 79 this month from 82 in October, according to Insee, the national statistics office. That was the lowest since February 2009. Rehn, speaking in Rome today, said Italy faces “formidable challenges.”

Italy Auction

Italy sold 8 billion euros ($10.6 billion) of 183-day bills at a rate of 6.504 percent, the highest since August 1997, and up from 3.535 percent at the prior auction on Oct. 26. Demand dropped to 1.47 times the amount on offer from 1.57 times last month.

“Risk sentiment is still pretty poor as there doesn’t seem to be one clear solution that will be swift for Europe,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The U.S. dollar would get some support in this environment particularly, as the euro is out of favor.”

The Dollar Index (DXY) gained for a third day as stock declines boosted demand for safer assets.

The Stoxx Europe 600 Index dropped 0.4 percent, and the U.K.’s FTSE 100 Index slid for a 10th day, losing 0.3 percent. Futures on the Standard and Poor’s 500 Index fell 0.6 percent.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major U.S. trading partners, advanced 0.5 percent to 79.497.

Currency moves may be exaggerated by smaller than usual volumes as many traders probably took holidays today after U.S. Thanksgiving yesterday, Nordea Bank’s Christensen said.

Weekly Gain

The dollar was boosted this week as Germany failed to sell its maximum amount at a bund auction and German Chancellor Angela Merkel ruled out the issuance of joint euro-area bonds.

“The key events this week were the poor German bund auction and the subsequent press conference yesterday,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “On the euro bond story, we know Germany’s view on this and Merkel made that very clear yesterday.”

The krona weakened for a fifth day as the Riksbank, the Financial Supervisory Authority and Finance Ministry said they want the country’s largest banks to target common equity Tier 1 capital of at least 10 percent from January 2013.

The nation is targeting tougher rules than those set by the Basel Committee on Banking Supervision to “create more stable banks, prevent future crises and thus reduce the risk of costs for taxpayers,” they said in a joint statement today.

The krona declined 0.7 percent to 6.9874 per dollar, extending its weekly decline to 2.9 percent. It was little changed at 9.2476 per euro.

Pound Falls

The pound dropped for a fifth day versus the dollar as an industry group reduced its outlook for U.K. house prices.

Home values will rise 1.6 percent in 2012 after falling 1 percent this year, the Centre for Economics and Business Research said in a statement today. The group, which previously forecast that prices would increase 2.4 percent next year, cut its annual projections through 2015.

Sterling slipped 0.1 percent to $1.5476, set for its second weekly decline.

Options traders are betting on more euro weakness as leaders squabble over the best way to deal with the sovereign- debt crisis.

The three-month so-called 25-delta risk reversal rate against the dollar was at minus 3.95 percent, signaling greater demand for euro puts that give the right to sell the currency versus calls, which grant the right to purchase it. The rate was at minus 4.39 percent on Nov. 17, the most since at least 2003 based on data compiled by Bloomberg News.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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

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ECB’s Paramo Urges ‘Bold’ Steps on Fiscal Union

By Gabi Thesing - Nov 25, 2011 7:01 AM GMT+0700

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB.

“Governments cannot expect the ECB to finance public deficits,” Gonzalez-Paramo said in a speech in Oxford, England, yesterday. “It is now a time for politicians to be bold and courageous” and “complete as soon as possible the great project begun 60 years ago towards ever closer union,” he said.

The ECB has rebuffed calls from politicians and investors to use its unlimited firepower to backstop euro-area bond markets as the debt crisis spreads to Italy and Spain. Backed by Germany, the ECB says asking it to rescue governments would compromise its independence and cause long-term damage to the 17-nation monetary union.

Gonzalez-Paramo said it is an advantage for the euro area that the ECB is prohibited by its founding treaty from printing money to finance member states, known as monetary financing.

“They must be commensurately more ambitious in their economic policies and more disciplined in their management of public finances to support their debt levels,” he said. “By forcing policy makers to focus their reform efforts on the right priorities, the monetary financing prohibition offers an incentive to closer economic and financial union.”

‘Transfer of Sovereignty’

Germany and France said yesterday they will make proposals to amend European treaties in coming days to impose greater fiscal discipline on euro-area countries as they struggle to win back investor confidence. French President Nicolas Sarkozy also agreed to stop pressuring the ECB to do more after resistance from German Chancellor Angela Merkel.

Gonzalez-Paramo said there is a need for “more economic and financial integration for the euro area, with a significant transfer of sovereignty to the EMU level over fiscal, structural and financial policies.”

He said the ECB’s role is to preserve price stability and the purchasing power of the euro, not to be a lender of last resort for governments.

Market participants who call for that “may care only about the nominal value of their assets and the need to avoid losses,” Gonzalez-Paramo said. “Whether or not the underlying asset -- our currency as store of value -- has been depreciated seems unimportant to them. But survey after survey shows that the people, the citizens of the euro area, want price stability.”

In questions after his speech, Gonzalez-Paramo said that common bonds for the region will exist in future even if “at this point in time they would not be commensurate with the degree of integration in the euro area.”

“If you have a euro bond without a common budget, you are offering an easy way out for countries,” he said.

To contact the reporter on this story: Gabi Thesing in Oxford at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Black Friday Lures ‘Extreme Couponing’ Buyers

By Matt Townsend and Ashley Lutz - Nov 25, 2011 8:31 PM GMT+0700

Molly Jones, a 31-year-old mother of two from Cincinnati, didn’t have a job a year ago, forcing her to cut back on holiday shopping. That has changed after recently being hired by an insurance company.

“Because last year was so hard I want to do some extra shopping for my kids,” said Jones, who started her shopping spree at Gap Inc.’s (GPS) Old Navy chain yesterday and then camped outside a Target Corp. (TGT) store to buy a television. “It’s on.”

From Mall of America in Bloomington, Minnesota, to The Galleria in Houston, retailers unleashed a blizzard of deals as Black Friday -- the biggest shopping day of the year -- got off to its earliest start ever. The discounting has been more widespread than last year as retailers tried to woo shoppers spooked by global economic uncertainty and stagnant job growth.

“It’s a good sign that the consumer is coming out, and that all the distractions didn’t sway the consumer from having a good holiday,” said Marshal Cohen, an analyst at Port Washington, New York-based NPD Group. Shoppers were spending about the same as last year, said Cohen, who visited stores in New York, Connecticut and New Jersey.

Black Friday arrived with consumer sentiment at levels previously reached during recessions, as a record share of households said this is a bad time to spend, according to the Bloomberg Consumer Comfort Index. The measure has reached minus 50 or less in nine of the past 10 weeks, an unprecedented performance in its 26-year history.

Shoppers’ Resilience

Sales at brick-and-mortar stores may rise 2.8 percent -- compared with 5.2 percent last year -- to $465.6 billion this holiday season, according to the National Retail Federation. Online revenue may advance 15 percent to $37.6 billion, according to ComScore Inc. (SCOR)

Those forecasts reflect shoppers’ resilience so far this year. Consumer spending, which accounts for about 70 percent of the U.S. economy, has increased for 16 consecutive months through October as the economy added jobs and avoided slipping into another recession.

Industrywide monthly same-store sales, a key indicator for retailers because new and closed locations are excluded, have gained for more than two years and missed analysts’ projections once this year, according to Retail Metrics.

Black Friday -- so named because that’s when many stores become profitable -- continued to bite into Thanksgiving this year. Many chains ignored complaints that it was unfair to have employees work on the holiday and opened their doors earlier. Online retailers, such as Amazon.com Inc. (AMZN), joined in too and began advertising “Black Friday” deals well before today.

The earlier start brought a lot of first-time Black Friday shoppers and that will boost sales for retailers that pushed up openings, Cohen said.

Black Friday Rookies

“It’s amazing how many people said they normally wouldn’t be in these lines, but because of these hours they are new to the Black Friday shopping frenzy,” Cohen said. “There were a lot of rookies.”

Gap, based in San Francisco, boosted the number of stores open on Thanksgiving to about 1,000, most of them Old Navy locations, which were offering women’s coats for as little as $14.75, or about 50 percent off, and scarves of red and blue for $5, down from $7.94.

An Old Navy store in Greensboro opened at 9 a.m. on Thanksgiving, attracting Paula Pile, a marriage counselor. She shopped for socks, pajamas pants and a $19 vest for her granddaughter, before heading to dinner with family.

By opening on Thanksgiving, Old Navy “is picking up my business,” said Pile, 57. “I am not one to get up in the middle of the night and go stand in line.”

Early Openings

Toys “R” Us Inc. opened at 10 p.m. last year, and it pushed that up one hour. Wal-Mart Stores Inc. (WMT), which has been open on Thanksgiving for years, moved its opening forward two hours to 10 p.m. Among the Bentonville, Arkansas-based retailer’s deals: Mattel Inc. (MAT) Barbie dolls for $5. Best Buy, based in Richfield, Minnesota, opened five hours earlier than last year.

“I don’t think you can have a scenario where major retailers you’re competitive with are open and you are not,” Mike Vitelli, co-president of Best Buy’s North American division, said in an interview on Nov. 23.

Top-selling items this weekend may be Apple Inc. (AAPL)’s iPod Touch, jackets from VF Corp. (VFC)’s North Face brand and Leapfrog Enterprises Inc. (LF)’s LeapPad Explorer, according to comparison shopping website Pricegrabber.com.

As many as 152 million people will shop at stores and websites on Black Friday, up 10 percent from last year, according to the Washington-based NRF. Last year Americans spent $19.3 billion on Black Friday and may break the $20 billion mark this year, owing to the longer opening hours and more online promotions, according to Purchase, New York-based MasterCard Spending Pulse.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; Ashley Lutz in New York at alutz8@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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Hungary Credit Rating Cut to Junk at Moody’s

By Zoltan Simon - Nov 25, 2011 4:21 PM GMT+0700

Hungary, which last week turned to the International Monetary Fund for help, lost its investment- grade rating at Moody’s Investors Service, which cited risks to budget-deficit and public debt targets.

The foreign- and local-currency bond ratings were cut one step to Ba1 from Baa3, the company said in a statement yesterday. Moody’s, which awarded Hungary its investment grade in 1996, assigned a negative outlook. The country is rated the lowest investment grade at Standard & Poor’s and Fitch Ratings.

The government reversed a policy of shunning IMF assistance after the forint fell to a record low this month against the euro and government bond yields soared. Prime Minister Viktor Orban said he doesn’t want conditions attached to any new credit line, a sign that Hungary isn’t prepared to step away from its “unorthodox’ policies that included forcing banks to swallow exchange-rate losses on foreign-currency mortgage loans.

‘‘Hungary’s attempts last week to voice readiness to cooperate with IMF was a ‘show,’ which was meant to prevent the rating agency action, yet it didn’t help, given Hungary’s unwillingness to compromise,” Aurelija Augulyte, a Copenhagen- based economist at Nordea Bank AB (NDA), said in an e-mail today. “Moody’s interpreted the Hungarian attempt to seek assistance from the IMF as a desperate move.”

Forint, Stocks, Bonds

The forint, the world’s worst-performing currency against the euro over the past six months with a 15 percent drop, plunged to a record-low 317.92 per euro on Nov. 14. It lost 1.5 percent today to trade at 316.25 per euro at 9:56 a.m. in Budapest. The central bank on Nov. 15 warned it may need to raise interest rates to support the currency. OTP Bank Nyrt., Hungary’s largest lender, dropped 5 percent to 2,894 forint.

The yield on Hungary’s benchmark 10-year bonds rose 55 basis points, or 0.55 percentage point, to 9.6 percent, the highest since the security was first sold in January. That compares with 10-year yields near 12 percent for Portugal and more than 26 percent for Greece, according to generic prices compiled by Bloomberg.

Yields for similar-maturity bonds were at 6 percent for Poland and about 4 percent for the Czech Republic. German yields were traded for about 2 percent, data compiled by Bloomberg shows.

‘Financial Attack’

Orban has relied on one-off measures, including the nationalization of $14 billion of mandatory private pension funds and extraordinary industry taxes to mask a swelling budget, whose deficit reached 193 percent of the Cabinet’s annual goal through October. The Cabinet’s plans to cut spending in the next three years face “rising uncertainty” as growth slows, Moody’s said.

“Since Moody’s decision has no realistic basis, the Hungarian government can only interpret this as being part of a financial attack against Hungary,” the Budapest-based Economy Ministry said in an e-mail today.

Hungary’s economy may expand 0.5 percent in 2012 as tax increases next year and spending cuts will probably slow growth, the European Commission, the EU’s executive arm, said on Nov. 10.

The debt level may drop to 75.9 percent of GDP this year from 81 percent last year because of one-off revenue from nationalized pension assets before rising to 76.5 percent next year, partly as a result of a weakening forint, the commission said. The government targets a budget gap of 2.5 of GDP in 2012.

‘Funding Challenges’

“The first driver of today’s downgrade is the uncertainty surrounding the Hungarian government’s ability to meet its targets on fiscal consolidation and public-sector debt reduction,” Moody’s said in its statement. “Hungary’s recent requests for assistance from the IMF and the EU illustrate the funding challenges facing the country.”

Investors are shunning riskier bonds as Italy, which has a bigger debt load than Spain, Greece, Ireland and Portugal combined, struggles to ward off contagion from the euro area’s debt crisis that started in Greece more than two years ago and threatens to infect weaker economies.

Portugal’s credit rating was cut to below investment grade by Fitch Ratings yesterday due to the country’s rising debt level and weakening economy.

The Hungarian government has scrapped two debt sales and reduced the size of another eight auctions in the last three months as the euro region’s debt crisis deepened.

First EU Bailout

Hungary was the first EU member to obtain an IMF-led bailout in 2008. Since winning elections last year, Orban had rejected seeking IMF help, saying he wanted more freedom to pursue “unorthodox” policies aimed at cutting Hungary’s debt level, while trying to meet a campaign pledge to end years of austerity measures. Asking the IMF for help would be “a sign of weakness,” Economy Minister Gyorgy Matolcsy told Heti Valasz in its Oct. 27 issue.

Orban’s steps included levying extraordinary taxes on the banking, energy, retail and telecommunication industries and forcing banks to swallow exchange-rate losses exceeding 40 percent on foreign-currency mortgages. Hungarian loan defaults are rising as borrowers struggle to repay foreign-currency mortgages, which account for more than two-thirds of housing loans, after a slump in the forint boosted repayments.

The Constitutional Court was stripped of its right to rule in most economic issues. An independent Fiscal Council was dismantled and a new one set up dominated by Orban’s allies.

‘No Limit’

The government is also carrying out spending cuts, reducing drug subsidies, and increasing taxes to meet budget goals. The Cabinet announced plans to cut outlays by as much as $4 billion a year by 2013. The government also plans to raise taxes next year, including the value-added tax and excises.

Hungary may reach an agreement with the IMF and the EU “in the first months of next year,” the Economy Ministry said in a Nov. 18 e-mail. “No one can limit Hungary’s economic sovereignty,” Orban said the same day.

S&P said yesterday it’s keeping Hungary’s sovereign-debt rating on “CreditWatch with negative implications” for longer than the one-month period it originally planned after the country approached the IMF for assistance. S&P said it may make a decision by February 2012.

Fitch Ratings on Nov. 18 said an IMF agreement would reduce pressure on Hungary’s credit rating, adding that a deal remained a “long way” off and would carry “strict conditionality.”

“We give a high chance for further downgrades to come in the upcoming months,” Zoltan Torok, a Budapest-based economist at Raiffeisen Bank International AG (RBI), said in an e-mail.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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China’s Stocks Drop, Set for Third Weekly Loss, as Banks, Vanke Decline

By Bloomberg News - Nov 25, 2011 2:11 PM GMT+0700

China stocks (SHCOMP) fell, dragging the benchmark index to a third weekly loss, after Industrial & Commercial Bank of China Ltd. (601398)’s chairman said he expects the central bank to keep tight monetary policies.

ICBC declined 1.4 percent, pacing losses by banks, after its Chairman Jiang Jianqing said “very high” inflationary pressure means monetary policy will remain prudent. China Vanke Co. (000002) dropped among property companies after the China Securities Journal said land purchases by the nation’s top 10 developers slumped this year.

“Liquidity is still tight in the real economy and the capital market because the current fine-tuning of monetary policies isn’t enough to ease companies’ cash crunch,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Earnings are the other risk to investors and they will be uglier this year.”

The Shanghai Composite Index dropped 17.33 points, or 0.7 percent, to 2,380.22 at the close, capping a seventh day of losses out of eight and reaching the lowest level since Oct. 24. The CSI 300 Index (SHSZ300) slid 0.7 percent to 2,569.97.

--Zhang Shidong. Editors: Richard Frost, Darren Boey

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

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

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Asian Stocks Drop as Dollar, Bond Risk Climb

By Shiyin Chen - Nov 25, 2011 2:01 PM GMT+0700

Play Video

Nov. 25 (Bloomberg) -- Adrian Mowat, JPMorgan Chase & Co.'s Hong Kong-based chief Asia and emerging-market strategist, talks about the outlook for the region's stock markets, China' economy and his investment strategy. Mowat speaks with John Dawson and Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

Nov. 25 (Bloomberg) -- Nick Maroutsos, co-founder of Sydney-based Kapstream Capital, talks about Europe's sovereign debt crisis and its implications for global financial markets. Maroutsos also discusses the U.S. economy and the nation's budget deficit. He speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

Asian stocks (MXAP) declined, dragging the region’s benchmark index to a fourth straight weekly loss, while the dollar gained and bond risk increased on concern European leaders are struggling to contain a sovereign-debt crisis.

The MSCI Asia Pacific Index sank 0.9 percent as of 4 p.m. in Tokyo. Euro Stoxx 50 futures lost 0.4 percent. Standard & Poor’s 500 futures declined 0.3 percent, signaling the index may drop for a seventh day when U.S. markets resume trading after the Thanksgiving break. Japan’s benchmark bond yields climbed above 1 percent for the first time in three weeks. The dollar rose against 12 of its 16 major peers. The Markit iTraxx Asia index of debt-default risk headed toward a seven-week high.

German Chancellor Angela Merkel again ruled out joint euro- area borrowing and an expanded role for the European Central Bank in fighting the crisis. Italy prepares to sell bills today after the country’s two-year yield soared to a 14-year high yesterday. Portugal’s sovereign debt rating was cut to so-called junk by Fitch Ratings yesterday, while Hungary also lost its investment grade at Moody’s Investors Service.

“We need to see more action out of Europe before any sort of rebound happens,” Nick Maroutsos, who oversees the equivalent of about $3 billion as co-founder of Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “Greece, Ireland, Portugal are becoming after-thoughts as the crisis is now unfolding at the footsteps of Italy, France and Germany. These are the larger countries and these would have the largest knock-on effects.”

Stocks Slump

MSCI’s Asia Pacific Index headed for a 4.4 percent weekly loss, the most since the five days ended Sept. 23. The gauge was poised for the lowest close since Oct. 5. Australia’s S&P/ASX 200 Index fell 1.5 percent, South Korea’s Kospi index declined 1 percent and Japan’s Nikkei 225 Stock Average slid 0.1 percent to close at the lowest level since March 2009.

Woodside Petroleum Ltd. (WPL) dropped 5.8 percent in Sydney after the oil and gas producer predicted a smaller-than-expected increase in output for 2012. HTC Corp. (2498), the smartphone maker that this week cut revenue forecasts, plunged 6.9 percent after Citigroup Inc. and Barclays Plc cut their ratings on the stock.

Taiwan’s Taiex index (TWSE) fell 1.2 percent, after earlier gaining as much as 1.3 percent. The island’s Financial Supervisory Commission called insurers to remind them that lending securities to short sellers may result in the reduction of value of their own stocks, said Lee Jih-Chu, a spokesman for the regulator. It didn’t ask insurers to stop lending, she said.

S&P 500 futures expiring in December signal U.S. stocks may extend a six-day, 7.6 percent slump that dragged the benchmark index down to the lowest level since Oct. 7. Trading will end at 1 p.m. today. Treasury 10-year notes fell for the first time this week, sending yields four basis points higher to 1.93 percent.

Exercising ‘Caution’

The dollar traded at $1.3316 per euro after earlier reaching $1.3298, a seven-week high. Joint euro bonds would immediately lead to a convergence of interest rates in the region, Merkel said yesterday at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France.

“We are likely to see investors continue to exercise caution in the market,” said Stan Shamu, a strategist at IG Markets in Melbourne. “There’s a feeling Germany is no longer immune to this whole situation and they may act further, which is obviously why everyone is calling for common euro bonds.”

Italy will auction 8 billion euros ($10.7 billion) of bills today, after the country’s two-year yield climbed 20 basis points yesterday to 7.32 percent, the highest since 1997.

South Korea’s won dropped 0.5 percent to 1,164.20 per dollar, a sixth day of losses. Taiwan’s currency declined as much as 0.2 percent after the island’s statistics bureau yesterday cut its economic growth forecasts for this year and next after gross domestic product rose in the third quarter at the slowest pace since 2009.

Japan’s Outlook

The yen slid against 15 of its 16 most actively traded counterparts. Japanese Finance Minister Jun Azumi said today he’s cautiously watching the foreign-exchange market and is prepared to act should he see moves driven by speculation. Consumer prices fell for the first time in four months, data showed today.

Japan’s 10-year yields increased three basis points to 1.025 percent after Standard & Poor’s said yesterday Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the nation’s public debt burden. Twenty-year yields climbed 5.5 basis points to 1.785 percent, the highest rate since Nov. 2, while 30-year yields added five basis points to 1.96 percent.

Bond Risk

The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment rose, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increasing seven basis points to 236 basis points, according to Royal Bank of Scotland Group Plc prices. That’s set for the highest close since Oct. 6, according to data provider CMA.

Brent oil declined 0.3 percent to $107.44 a barrel, wiping out its gains for the week. Losses today were capped by concern violence in Saudi Arabia may destabilize the world’s biggest oil exporter. West Texas crude traded at $96.49 a barrel in New York, compared with the settlement price of $96.17 on Nov. 23. The January contract has dropped 1.2 percent this week.

Soybean futures dropped as much as 1.2 percent to $11.09 a bushel, the lowest level since Oct. 8 last year. Wheat slipped 0.6 percent to $5.91 a bushel, near the lowest since July 2010.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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Smugglers Toast Apple in India on Late 4S Debut

By Kartikay Mehrotra - Nov 25, 2011 1:31 AM GMT+0700

New Delhi shopkeeper Fari Khan is one of Apple Inc. (AAPL)’s biggest fans. Still, he won’t be celebrating today when the company starts selling the iPhone 4S in India.

“Apple is the greatest company in the world,” said Khan, sitting behind a counter at his store in New Delhi’s Ghaffar Market. “But I hope they never open a store in India because it will put me out of business.”

Khan, 27, makes his living selling smuggled Apple products and earns a premium in the time between the official release of a new device in the U.S. and its Indian debut. His 10-foot-wide shop, located in a lane behind a Hindu temple devoted to the goddess Durga, the protector of good against evil, carries an Apple logo and the words ‘genuine reseller’ above its glass front.

Apple is cutting the time it takes to unveil its gadgets in India: the iPhone 4S is hitting the market just over a month after the U.S., compared with 11 months for the previous model. Even so, the lag is enough to persuade punters to pay as much as 80,000 rupees ($1,536) for a phone smuggled from abroad and the thriving market for bootlegged iPhones, iPads and MacBooks in India takes the shine off product releases that are such crowd- pullers for the Cupertino, California-based company back home.

Tapping India

Even as rivals Nokia Oyj (NOK1V) and Research in Motion Ltd. (RIM) are tapping India to compensate for market-share losses in the U.S. and Europe, Apple doesn’t have one of its trademark stores in the country. Instead, it serves demand through 25 ‘Premium Reseller’ outlets scattered across the country’s six largest cities, according to the company’s website.

Nokia has more than 200,000 outlets in India and offers 13 smartphone models. Samsung Electronics Co. (005930) depends on the Asian nation for 3.3 percent of its smartphone sales, compared with Apple’s 0.2 percent, according to Framingham, Massachusetts- based researcher IDC.

“India could be significant, but Apple seems to be focusing on one emerging market at a time, China, Brazil, the Middle East and then others,” said Kulbinder Garcha, an analyst with Credit Suisse in New York. “They tend to apply the retail lessons learned, one country at a time.”

Steve Dowling, an Apple spokesman in Cupertino, declined to comment on the company’s India plans.

iPhone Vigils

The slow progress of Apple in India was on show at the official Apple reseller store in New Delhi’s DLF Place mall on Oct. 5, the day that the company’s founder Steve Jobs died. As mourning fans held iPhone-lit vigils outside Apple stores from New York to Hong Kong, workers at the New Delhi shop seemed unaware of his identity.

“You are asking about a job?” shop worker Suresh Kohli, 25, said when asked if more customers had visited the store to pay homage to Jobs. “I can check.”

Indians who did wait until today to get their hands on the 4S will pay service providers Bharti Airtel Ltd. (BHARTI) and Aircel Ltd. 44,500 rupees for the phone, or 32 percent more than the $649 charged for the 16-gigabyte, unlocked and contract-free phone in the U.S. Unlike many global providers, Indian phone companies do not offer deep discounts on handsets in return for a monthly contract.

Switching Tactics

The 8-gigabyte version of the iPhone 4 costs 37,900 rupees in India, or more than the 34,500 rupees that the discontinued 16-gigabyte version cost before the 4S was announced. The lower capacity iPhone 4 costs $549 contract-free in the U.S.

Now that the prices of the phones in India are known, Khan is switching tactics to undercut the official sellers by 5,000 rupees.

“When a smart Apple fan sees them charging 50,000 rupees while we sell for 45,000 rupees, where do you think he will go?” he said.

Indian Apple fanatic Guldeep Singh bought his iPhone 4S from Khan’s shop where the device was available 24 hours after its Oct. 14 debut in the U.S. Singh said he paid 80,000 rupees for the phone. The average annual salary of New Delhi residents was 117,000 rupees in the year to March 2010, Chief Minister Sheila Dixit said in her budget address this year.

“Apple doesn’t launch phones on time here so I figured out my own way to get the 4S,” said Singh, 36, a garment trader. “Why would I want dated technology in my pocket if I can afford the latest?”

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net

To contact the editor responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net

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Alibaba Third-Quarter Profit Rises After Price Increase, Matches Estimate

By Mark Lee - Nov 25, 2011 1:00 AM GMT+0700

Alibaba.com Ltd. (1688), a unit of China’s biggest e-commerce company, said third-quarter profit rose 12 percent, matching estimates, after raising prices.

Net income increased to 410 million yuan ($64 million) from 366.1 million yuan a year earlier, Alibaba.com said in a statement yesterday. This matched the 410.1 million yuan average of eight analysts’ estimates compiled by Bloomberg. Revenue rose 11 percent to 1.6 billion yuan.

Chinese exporters are paying Alibaba.com 50 percent more this year to set up new online storefronts to market their products, after the Hangzhou, China-based company raised prices to sustain revenue growth. Chief Executive Officer Jonathan Lu is boosting efforts to protect buyers, after the company said in February that some were defrauded by bogus vendors.

“Average spending per customer is increasing,” Qiu Lin, who rates Alibaba shares “buy” at Guosen Securities in Hong Kong, said before the earnings. “The company is selling more value-added services, and the price increase at the start of the year also helped boost revenue.”

Alibaba.com, a unit of Alibaba Group Holding Ltd., rose 2 percent to HK$8.88 in Hong Kong trading yesterday, before the announcement. The stock has declined 36 percent this year, underperforming Chinese Internet rivals including Tencent Holdings Ltd. (700) and Baidu Inc.

In January, Alibaba started selling its “Gold Supplier” memberships for Chinese exporters at 29,800 yuan, and stopped selling a package that was priced at 19,800 yuan.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

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

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Outsourcing Firms Infosys, HCL Profit From Rupee’s Slide: Chart of the Day

By Ketaki Gokhale - Nov 25, 2011 1:31 AM GMT+0700

Infosys Ltd. and HCL Technologies Ltd. (HCLT) are poised to profit most among India’s biggest outsourcing companies from a weaker rupee, which dropped to a record low this week.

The CHART OF THE DAY shows foreign-exchange hedging as a percentage of revenue for India’s largest information-technology service providers: Tata Consultancy Services Ltd. (TCS), Bangalore- based Infosys, Wipro Ltd. (WPRO) and HCL, based on a report by Barclays Capital. HCL and Infosys had the least currency cover as of June 30, while Wipro had the highest level of protection, the data said. The rupee has fallen about 14 percent this year against the dollar, the worst performance among Asian currencies.

A weaker rupee helps Indian software exporters by boosting the value of repatriated earnings, as the largest proportion of revenues comes in dollars from U.S.-based customers. Infosys last month raised its rupee-revenue forecast for the year ending in March, even as it warned that customers’ IT budgets may shrink. The companies design software programs, provide product- engineering, back-office support and business outsourcing. They also manage call centers. International Business Machines Corp. and Accenture Plc are among their global competitors.

Infosys and HCL have “a large amount of unhedged exposure, meaning they’ll benefit the most,” said Jigar Shah, head of research in Mumbai at Kim Eng Securities India Pvt. “We’ve been positive on the IT sector, in spite of the economic slowdown in the U.S. and Europe. Today, there is a threat to all the companies’ earnings, but these companies could outperform because they’re exporters.”

HCL hedged 40 percent of its revenue in the quarter ended June, compared with Infosys’ 45 percent, Tata’s 70 percent and Wipro’s 114 percent, Bhuvnesh Singh, an analyst at Barclays Capital in Mumbai, said in the report last month. Infosys derived (INFO) 65 percent of its revenue from North American customers in the year ended March 31, compared with Tata’s 54 percent, according to the companies’ annual reports.

Across India’s IT industry, the depreciation of the rupee could boost the companies’ earnings by an average of 9 percent from the previous quarter, Shah said.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

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

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Olympus Board Members in Cover-Up Resign

By Mariko Yasu, Naoko Fujimura and Chris Cooper - Nov 25, 2011 7:37 AM GMT+0700

Olympus Corp. (7733) officials including the former chairman formally resigned from the company’s board, a day before the Japanese camera maker’s directors were due to meet the president they fired. The shares rallied.

Tsuyoshi Kikukawa, former Executive Vice President Hisashi Mori and auditor Hideo Yamada all quit, and other managers are ready to do so once a restructuring plan is in place, Olympus said in two statements to the Tokyo Stock Exchange yesterday. The three executives colluded to hide losses from investors using inflated takeover costs, the company said Nov. 8.

Michael C. Woodford will to attend today’s meeting of the board, which had unanimously voted to dismiss him on Oct. 14 after he questioned the acquisitions. Investors including Southeastern Asset Management Inc. have called for his reinstatement and for all officials involved in the cover-up to go amid criminal probes and a threat the company’s shares may be delisted.

“There are some voices demanding the management be replaced right now,” Shuichi Takayama, the newly installed president, said in one of the statements. “If we change management and can’t take appropriate measures swiftly, then we won’t be able to overcome this imminent crisis.”

Board Members

The departure of the executives gives the company an opportunity to add board members untainted by the scandal or the unanimous decision to fire Woodford on Oct. 14. His subsequent exposure of $687 million in fees paid by Olympus to a now defunct Cayman Islands-based fund rattled investors, wiping out as much as 80 percent of the company’s market capitalization and prompting Prime Minister Yoshihiko Noda to say the payments could damage the country’s international reputation.

The company plans to seek approval for a revival plan and management revamp at its next shareholder meeting, according to Takayama. The next scheduled meeting isn’t due until after the end of the fiscal year on March 31. Southeastern has called for a meeting before then.

Shares of the 92-year-old camera and endoscope maker plunged more than 80 percent in the first four weeks after Woodford was fired on concerns about the scale of the losses, the threat of delisting and continuing criminal investigations. Since Nov. 11, Tokyo-based Olympus has more than doubled as investors bet the problems would be contained. The stock surged 19 percent to 1,210 yen as of 9:26 a.m. in Tokyo trading today.

Corporate Governance

Woodford, who has said he wants to come back and run the company, called for a shake-up in the corporate governance system.

“We should have remuneration committees and appointment committees,” he said at a symposium in Tokyo yesterday. “We should have a majority of non-executive directors.”

The failure of Olympus’s board to stop management from hiding decades of losses may spur new governance rules. Lawmakers are debating increasing oversight by independent directors and auditors.

An average of 19 percent of the board members of Nikkei 225 Stock Average companies are independent or outside directors, compared with 54 percent of the U.K.’s FTSE 350 index and 83 percent of the Standard & Poor’s 500 Index, data compiled by Bloomberg show.

Calpers

“Good corporate governance helps improve company performance and shareowner value,” said Wayne Davis, a spokesman for the California Public Employees’ Retirement System, the largest U.S. public pension fund. Calpers recommends the majority of boards be composed of independent directors and that companies disclose the definition of independence.

Calpers held 1.1 million shares of Olympus at the end of October, he said.

Olympus had three outside directors and “they clearly were not able to function effectively,” said Bruce E. Aronson, a former partner at Hughes Hubbard & Reed LLP in New York. “The lesson may be that investors need to broaden their focus a bit, not solely on the number of independent directors and how independent they are, but on what they need to function effectively.”

Woodford’s return to Japan is the first since his dismissal, when he left the country the same day, saying he felt unsafe following reports that the payments made by Olympus may be linked to organized crime groups. He was escorted by armed police to meetings with investigators yesterday.

Woodford said he’s confident prosecutors will fully investigate Olympus. “I’m very happy with how things went,” he told reporters after visiting police in Tokyo.

Blowing Whistle

Woodford went public with queries he raised with Kikukawa and Mori over $687 million in advisory fees in the $2.1 billion acquisition of U.K. medical company Gyrus Group Plc, as well as writedowns of stakes in three other takeovers.

Olympus said the money may have been rerouted to the company via offshore funds to help cancel out losses on securities investments dating back to the 1990s.

An independent committee set up by Olympus to investigate its accounting said this week that it found no evidence of criminal involvement. Woodford said it wasn’t possible to reach that conclusion without a forensic inspection of accounts.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Chris Cooper in Tokyo at Ccooper1@bloomberg.net

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net

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Asian Stocks Fall for Third Day After Merkel Rules Out Common Euro Bonds

By Yoshiaki Nohara - Nov 25, 2011 7:21 AM GMT+0700

Asian stocks (MXAP) fell for a third day after German Chancellor Angela Merkel ruled out common euro-area bonds and a bigger role for the European Central Bank in fighting the region’s debt crisis, damping the earnings outlook for Asian exporters.

Hyundai Motor Co. (005380), South Korea’s biggest carmaker by market value, lost 1.2 percent. Commonwealth Bank of Australia (CBA), Australia’s No.1 lender by market value, decline 1.3 percent. Woodside Petroleum Ltd. (WPL) fell 5.6 percent after Australia’s second-biggest oil producer narrowed its annual output guidance.

The MSCI Asia Pacific Index dropped 0.3 percent to 109.86 as of 9:20 a.m. in Tokyo with seven of 10 industry groups sliding. The measure has lost 3.8 percent this week, headed for a fourth weekly loss.

“We are likely to see investors continue to exercise caution in the market,” said Stan Shamu, a strategist at IG Markets in Melbourne. “There’s a feeling Germany is no longer immune to this whole situation and they may act further, which is obviously why everyone is calling for common euro bonds.”

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

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Europe Crisis Reflects Deeper Ideological Divide: Eric Fine

By Eric Fine Nov 25, 2011 7:00 AM GMT+0700

The crisis gripping Europe reflects a much larger problem: The world’s policy makers have fundamentally opposing views of how to manage their currencies and economies. Unfortunately, there’s no happy solution.

Let’s examine the ideologies. In the U.S., the dominant crisis narrative is that authorities faced a once-in-a-hundred- years storm in the financial panic of 2008. The only proper response, then, was for the Federal Reserve to provide unlimited funds until confidence returned and longer-term solutions were possible. Many Americans apply this lens to Europe, and conclude that the European Central Bank must similarly print money to solve its crisis now.

Germans, together with many emerging-market policy makers, see a very different narrative. To them, the crisis is the result of governments repeatedly building up debts in response to economic slowdowns -- the same explanation U.S. authorities offered for emerging-market crises in the late 1990s. They might further note that the U.S. hasn’t used the time bought with the Fed’s largess to address underlying problems, such as the sorry state of public finances.

These poles reflect deeply held beliefs, not intellectual or moral failures, as those on opposite sides of the divide appear to think. There’s no objective truth. Nobody really knows how much debt the U.S. and the euro area, which issue the world’s two leading reserve currencies, can bear. It’s also unclear how much inflation the citizens of advanced nations will tolerate before they lose faith in their currencies. As the U.S. and Europe test new limits, we may soon find out.

Monetary Policy

Consider monetary policy. Many in the U.S. believe the Fed can expand its balance sheet indefinitely, if necessary. They rightly point out that investors pile into the haven of dollars and U.S. Treasury bonds in times of crisis, and that this revealed preference suggests the dollar’s reserve-currency status is unassailable. Given the experience of the Great Depression of the 1930s and the stagflation of the 1970s, they reasonably conclude that bank runs should be treated with limitless liquidity, and that inflation can ultimately be resolved.

Germans draw their beliefs from a darker history. Between the two world wars, central-bank financing of government deficits fueled the hyperinflation that helped bring down the Weimar Republic and set the stage for the rise of Nazism. Many emerging markets have also learned painful lessons about what can happen when central banks become perceived as primarily lenders to government and enablers of fiscal incontinence. Their response to the American line is that if the fiscal and monetary authorities don’t establish credibility, suffering a bout of austerity may be far less bad than social breakdown. Not surprisingly, the charter of Germany’s Bundesbank forbids lending to government.

Can these differences be reconciled? One seeming compromise -- which will probably be proposed if the world faces another period of systemic risk -- is to invoke a new global reserve currency, namely the International Monetary Fund’s so-called Special Drawing Rights. If the IMF had the ability to issue unlimited SDRs, it could boost the reserves of central banks at will.

Such a move, though, would probably face opposition from the German side of the ideological divide, which would view it as yet another attempt to finance profligacy with funny money.

This suggests a second option will arise: to create some global standard to which the value of individual currencies can be tethered. Central banks would guarantee their currencies’ value in gold, or against a basket of commodities. People with backgrounds in emerging markets would recognize such a commodity standard as essentially identical to a currency board, in which a central bank guarantees the exchange rate of its currency against that of a reserve currency. Currency boards tend to come about when people lose confidence in the fiscal and monetary authorities, almost always as a result of permanent monetization of government debt. Sound familiar?

Cautionary Tale

For policy makers who see the SDR as an answer, the recent European experience offers a cautionary tale. The European Financial Stability Facility represents an attempt to create a new balance sheet to bail out governments. Doing so in a crisis hasn’t worked out well, as the troubles of financially weak states have infected the stronger ones. This is why China, like Germany, is reluctant to become a backstop for Europe. Once that happens, every new “crisis” will drag them in deeper, increasing the likelihood of contagion.

In the short term, the probable outcome is a continued policy muddle. Some central banks will follow the Fed’s example and keep expanding their balance sheets, while others will try to hold the line, like the ECB. To prevent the effects of such opposing policies from leaking across borders, countries might start to employ capital controls.

If the sides ever do agree on a single new architecture, it will probably happen in one of two bad ways. Financially strong countries, such as China and Germany, may become so infected by the weaker countries that the attractiveness of printing money overwhelms ideological constraints. Alternatively, the financially weak nations might give in to demands for austerity and tough choices.

In the final analysis, either option will be painful.

(Eric Fine is a managing director at Van Eck Global. He manages accounts that have positions in the sovereign and corporate debt of various countries, including a net short position in European sovereign debt. The opinions expressed are his own.)

To contact the writer of this story: Eric Fine at EFine@vaneck.com

To contact the editor responsible for this story: Mark Whitehouse at mwhitehouse1@bloomberg.net

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